Keyuan Petrochemicals, Inc. - FORM 10-Q

Attached files

file	filename
EX-10.5 - TRANSLATION COPY OF INWARD BILL AGREEMENT BETWEEN NINGBO KEYUAN PLASTIC CO., LTD AND BANK OF CHINA INC, BEILUN BRANCH DATED JUNE 21, 2012 - Keyuan Petrochemicals, Inc.	f10q0612ex10v_keyuanpetro.htm
EX-10.10 - TRANSLATION COPY OF DAIFUDA BUSINESS CONTRACT (SHORT TERM LOAN) BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND BANK OF CHINA, BEILUN BRANCH DATED MAY 2, 2012. - Keyuan Petrochemicals, Inc.	f10q0612ex10x_keyuanpetro.htm
EX-10.1 - TRANSLATION COPY OF TRANSPORTATION AGREEMENT BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND ZIBO YANCHENG LOGISTICS CO., LTD DATED FEBRUARY 2, 2012. - Keyuan Petrochemicals, Inc.	f10q0612ex10i_keyuanpetro.htm
EX-10.2 - TRANSLATION COPY OF LOAN GUARANTY AGREEMENT BETWEEN CHINA MERCHANTS BANK INC NINGBO BEILUN BRANCH AND NINGBO LITONG PETROCHEMICAL DATED APRIL 16, 2012. - Keyuan Petrochemicals, Inc.	f10q0612ex10ii_keyuanpetro.htm
EX-10.11 - TRANSLATION COPY OF TRUST RECEIPT LOAN AGREEMENT BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND CHINA CONSTRUCTION BANK NINGBO BEILUN BRANCH DATED JUNE 28, 2012. - Keyuan Petrochemicals, Inc.	f10q0612ex10xi_keyuanpetro.htm
EX-10.6 - TRANSLATION COPY OF DAIFUDA BUSINESS CONTRACT (SHORT TERM LOAN) BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND BANK OF CHINA, BEILUN BRANCH DATED APRIL 26, 2012. - Keyuan Petrochemicals, Inc.	f10q0612ex10vi_keyuanpetro.htm
EX-10.9 - TRANSLATION COPY OF CURRENT FUND LOAN AGREEMENT BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD., NINGBO XIMEN BRANCH DATED JUNE 14, 2012 - Keyuan Petrochemicals, Inc.	f10q0612ex10ix_keyuanpetro.htm
EX-10.4 - TRANSLATION COPY OF LOAN GUARANTY AGREEMENT BETWEEN BANK OF CHINA INC BEILUN SUB-BRANCH AND NINGBO KEWEI FUELS CO., LTD DATED MAY 4, 2012. - Keyuan Petrochemicals, Inc.	f10q0612ex10iv_keyuanpetro.htm
EX-10.7 - TRANSLATION COPY OF CURRENT FUND LOAN AGREEMENT BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD., NINGBO XIMEN BRANCH DATED APRIL 9, 2012 - Keyuan Petrochemicals, Inc.	f10q0612ex10vii_keyuanpetro.htm
EX-10.3 - TRANSLATION COPY OF LOAN GUARANTY AGREEMENT BETWEEN BANK OF CHINA INC BEILUN SUB-BRANCH AND NINGBO KEYAUN PLASTICS CO., LTD DATED MAY 14, 2012 - Keyuan Petrochemicals, Inc.	f10q0612ex10iii_keyuanpetro.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER REQUIRED BY RULE 13A-14/15D-14(A) UNDER THE EXCHANGE ACT - Keyuan Petrochemicals, Inc.	f10q0612ex31i_keyuanpetro.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Keyuan Petrochemicals, Inc.	f10q0612ex32i_keyuanpetro.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Keyuan Petrochemicals, Inc.	f10q0612ex32ii_keyuanpetro.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14/15D-14(A) UNDER THE EXCHANGE ACT - Keyuan Petrochemicals, Inc.	f10q0612ex31ii_keyuanpetro.htm
EX-10.8 - TRANSLATION COPY OF CURRENT FUND LOAN AGREEMENT BETWEEN NINGBO KEYUAN PLASTICS CO., LTD AND SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD., NINGBO XIMEN BRANCH DATED APRIL 23, 2012 - Keyuan Petrochemicals, Inc.	f10q0612ex10viii_keyuanpetro.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number

Keyuan Petrochemicals, Inc.

(Exact name of registrant as specified in its charter)

Nevada		45-0538522
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Qingshi Industrial Park

Ningbo Economic & Technological Development Zone

Ningbo, Zhejiang Province

P.R. China 315803

(86) 574-8623-2955

(Issuer's telephone number)

(Former address)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer	o		Accelerated Filer	o
Non-accelerated filer	o		Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes o No x

As of August 15, 2012, the Registrant has 57,646,160 shares of common stock outstanding and 5,333,340 shares of Series B Preferred Stock outstanding.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	1

Condensed Consolidated Balance Sheets	1

Condensed Consolidated Statements of Operations and Comprehensive Income (loss)	2

Condensed Consolidated Statements of Cash Flows	3

Notes to Condensed Consolidated Financial Statements	4 – 19

Item 2. Management’s Discussion and Analysis or Plan of Operation	20

Item 3. Quantitative and Qualitative Disclosures About Market Risk	29

Item 4. Controls and Procedures	29

PART II – OTHER INFORMATION	31

Item 1. Legal Proceedings	31

Item 1A. Risk Factors	31

Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds	31

Item 3. Defaults Upon Senior Securities	31

Item 4. (Removed and Reserved)	31

Item 5. Other Information	31

Item 6. Exhibits	32

INTRODUCTORY NOTE

Except as otherwise indicated by the context, references in this interim report on Form 10-Q (this “Form 10-Q”) to the “Company,” “Keyuan” “we”, “us” or “our” are references to the combined business of Keyuan Petrochemicals, Inc. and its consolidated subsidiaries. References to “Keyuan International” are references to our wholly-owned subsidiary, Keyuan International Group Limited”; references to “Keyuan HK” are references to our wholly-owned subsidiary, Keyuan Group Limited; references to “Ningbo Keyuan” are references to our wholly-owned subsidiary, Ningbo Keyuan Plastics Co.,Ltd.; references to “Ningbo Keyuan Petrochemicals” are to our wholly-owned subsidiary, Ningbo Keyuan Petrochemicals Co., Ltd; references to “Keyuan Synthetic Rubbers” are references to our wholly-owned subsidiary, Ningbo Keyuan Synthetic Rubbers Co., Ltd.; References to “China” or “PRC” are references to the People’s Republic of China. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” and dollar are to the U.S. dollar, the legal currency of the United States.

Special Note Regarding Forward-Looking Statements

This report contains forward-looking statements and information that are based on the beliefs of our management as well as assumptions made by and information currently available to us. Such statements should not be unduly relied upon. When used in this report, forward-looking statements include, but are not limited to, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as well as statements regarding new and existing products, technologies and opportunities, statements regarding market and industry segment growth and demand and acceptance of new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business in China, any statements of belief or intention, and any statements or assumptions underlying any of the foregoing. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this report as anticipated, estimated or expected, including, but not limited to: competition in the industry in which we operate and the impact of such competition on pricing, revenues and margins, volatility in the securities market due to the general economic downturn; Securities and Exchange Commission (the “SEC”) regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward- looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

PART I – FINANCIAL INFORMATION

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES

CONDENSED CONSOLIDATED BALANCE SHEETS

			June 30,		December 31,
	Note		2012		2011
			(Unaudited)
ASSETS
Current assets:
Cash		3	$	9,879,169	$	7,325,017
Pledged bank deposits				239,816,494		156,318,066
Bills receivable				3,309,663		1,574,000
Accounts receivable		4		4,014,076		2,226,288
Inventories		5		73,048,249		38,945,968
Prepayments to suppliers		6		44,507,626		15,781,294
Consumption tax refund receivable		7		107,023,606		55,809,560
Amounts due from related parties		22		39,625		39,350
Other current assets		8		60,646,615		45,978,428
Deferred income tax assets		17		37,609		37,348

Total current assets				542,322,732		324,035,319

Property, plant and equipment, net		9		209,768,917		190,867,621
Intangible assets, net		10		931,848		978,503
Land use rights		11		10,920,476		11,068,762
VAT recoverable				2,541,215		2,893,635

Total assets			$	766,485,188	$	529,843,840

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term bank borrowings		12	$	393,534,612	$	225,969,421
Bills payable				111,267,000		63,550,250
Current portion of long-term bank borrowings		13		15,850,000		15,740,000
Accounts payable				79,936,476		97,588,137
Advances from customers		4		41,202,535		7,821,623
Accrued expenses and other payables		14		30,254,525		30,287,946
Income taxes payable		17		1,224,165		186,326
Dividends payable				2,381,759		2,381,759
Amounts due to related parties		22		768,313		621,077

Total liabilities, all current				676,419,385		444,146,539

Series B convertible preferred stock:
Par value: $0.001; Authorized: 8,000,000 shares
6% cumulative dividend for one year from insurance, with liquidation preference
over common stock
Issued and outstanding: 5,333,340 shares,
liquidation preference of $20,000,000				16,451,552		16,451,552

Commitments and contingencies		18		-		-

Stockholders’ equity:
Common stock:
Par value:$0.001; Authorized: 100,000,000 shares;
Issued and outstanding: 57,646,160 shares as at June 30, 2012 and
December 31, 2011				57,646		57,646
Additional paid-in capital				49,951,346		49,198,278
Statutory reserve				3,744,304		3,744,304
Accumulated other comprehensive income				7,253,902		6,545,811
Retained earnings				12,607,053		9,699,710

Total stockholders’ equity				73,614,251		69,245,749

Total liabilities and stockholders' equity			$	766,485,188	$	529,843,840

See accompanying notes to the condensed consolidated financial statements.

-1-

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Sales
External parties	$	184,425,717		$	115,281,945		$	367,750,405		$	239,436,744
Related parties		-			35,607,658			-			58,217,477

Total Sales		184,425,717			150,889,603			367,750,405			297,654,221

Cost of sales
External parties		178,005,456			111,055,933			351,857,165			224,870,131
Related parties		-			37,977,326			-			58,276,685

Total Cost of sales		178,005,456			149,033,259			351,857,165			283,146,816

Gross profit		6,420,261			1,856,344			15,893,240			14,507,405
Operating expenses
Selling expenses		388,217			215,548			641,123			754,680
General and administrative expenses		2,656,620			4,529,744			5,266,815			7,764,824

Total operating expenses		3,044,837			4,745,292			5,907,938			8,519,504

Income (loss) from operations		3,375,424			(2,888,948	)		9,985,302			5,987,901

Other income (expense):
Interest income		1,882,812			781,941			2,822,046			1,688,885
Interest expense		(2,930,281	)		(2,638,734	)		(7,308,982	)		(5,835,364	)
Foreign exchange (loss) gain, net		(542,352	)		3,200,356			(364,518	)		2,052,713
Liquidated damages expense		-			(1,300,730	)		-			(1,300,730	)
Other income (expense), net		147,022			1,689,404			(217,039	)		3,716,178

Total other expense (income)		(1,442,799	)		1,732,237			(5,068,493	)		321,682

Income (loss) before income taxes		1,932,625			(1,156,711	)		4,916,809			6,309,583

Income tax expense		870,277			665,828			2,009,469			2,917,979
Net income (loss) attributable to Keyuan
Petrochemicals Inc. stockholders		1,062,348			(1,822,539	)		2,907,340			3,391,604


Dividends to Series B convertible
preferred stockholders		-			306,247			-			602,507
Net income (loss) attributable to Keyuan
Petrochemicals Inc. common stockholders	$	1,062,348		$	(2,128,786	)	$	2,907,340		$	2,789,097
Net income (loss) attributable to Keyuan
Petrochemicals Inc. stockholders	$	1,062,348		$	(1,822,539	)	$	2,907,340		$	3,391,604

Other comprehensive income
Foreign currency translation adjustment		130,680			617,550			708,091			1,174,874

Comprehensive Income (loss)	$	1,193,028		$	(1,204,989	)	$	3,615,431		$	4,566,478

Earnings (loss) per share: Attributable to common stock:
- Basic	$	0.02		$	(0.04	)	$	0.05		$	0.05
- Diluted	$	0.02		$	(0.04	)	$	0.05		$	0.05

Weighted average number of shares of common stock used in calculation
Basic		57,646,160			57,579,239			57,646,160			57,578,896
Diluted		62,979,500			57,579,239			62,979,500			63,836,892

See accompanying notes to the condensed consolidated financial statements.

-2-

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2012			2011
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	2,907,340		$	3,391,604
Adjustments to reconcile net income to net cash
(Used in) provided by operating activities:
Loss on disposal of property and equipment		-			3,504
Depreciation		5,452,134			4,671,566
Amortization		53,548			51,675
Land use rights amortization		225,868			217,999
Share-based compensation expense		819,496			1,285,185
Changes in operating assets and liabilities:
Bills receivable		(1,726,404	)		5,665,046
Account receivable		2,244,109			-
Inventories		(33,864,254	)		(14,517,420	)
Prepayments to suppliers		(25,882,018	)		11,118,823
Consumption tax refund receivable		(50,875,322	)		5,455,515
Other current assets		(16,565,560	)		(23,036,081	)
Accounts payable		(18,462,125	)		44,000,832
Advances from customers		29,341,763			4,320,196
Income taxes payable		879,675			(9,427,659	)
Accrued expenses and other payables		(1,483,151	)		1,500,872

Net cash(used in) provided by operating activities		(106,934,901	)		34,701,657

Cash flows from investing activities:
Proceeds from property disposal of property and equipment		-			10,512
Purchase of property, plant and equipment,		(21,295,703	)		(11,574,245	)

Net cash used in investing activities		(21,295,703	)		(11,563,733	)

Cash flows from financing activities:
Pledged bank deposits used for bank borrowings		(82,489,175	)		(52,211,458	)
Proceeds from short-term bank borrowings		457,866,240			74,477,809
Repayment of short-term bank borrowings		(291,149,318	)		(45,167,450	)
Proceeds from bills payable		111,379,320			51,215,295
Repayment of bills payable		(64,058,975	)		(60,784,670	)
Repayments of long-term bank borrowings		-			(13,014,350	)
Short-term financing from related parties		-			13,144,234
Short-term financing to related parties		-			(13,144,234	)
Repayment to Ningbo Litong		-			(95,094	)
Proceeds from warrant exercise		-			7,332
Dividends paid		-			(1,396,964	)

Net cash provided by (used in) financing activities		131,548,092			(46,969,550	)

Effect of foreign currency exchange rate changes on cash		(763,336	)		278,395

Net increase (decrease) in cash		2,554,152			(23,553,231	)

Cash at beginning of the period		7,325,017			29,336,241

Cash at end of the period	$	9,879,169		$	5,783,010

Supplemental disclosure of cash flow information:
Income taxes paid	$	1,028,792		$	12,345,638
Interest paid, net of capitalized interest	$	588,578		$	5,835,363
Non-cash financing activities:
Payable for purchase of property, plant and equipment	$	4,433,893		$	24,433,051

See accompanying notes to the condensed consolidated financial statements.

-3-

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

1 ORGANIZATION AND DESCRIPTION OF BUSINESS

(a) Organization

Keyuan Petrochemicals, Inc. (the “Company”) was incorporated in the State of Texas on May 4, 2004 in the former name of “Silver Pearl Enterprises, Inc”. The Company, through its wholly-owned subsidiary, Keyuan International Group Limited (“Keyuan International”) and its indirect subsidiaries, Keyuan Group Limited (“Keyuan HK”), Ningbo Keyuan Plastics Co., Ltd. (“Ningbo Keyuan”), Ningbo Keyuan Petrochemicals Co., Ltd. (Ningbo Keyuan Petrochemicals), Ningbo Keyuan Synthetic Rubbers Co., Ltd. (“Ningbo Keyuan Synthetic Rubbers”), and Guangxi Keyuan New Materials Co., Ltd. (“Guanxi Keyuan”), are collectively referred herein below as “the Group” and are engaged in the manufacture and sale of petrochemical products in the People’s Republic of China (“PRC”).

(b) Other Events

In 2011, the Company’s former auditor, KPMG, LLP (“KPMG”), brought certain issues to the Company’s Audit Committee’s attention through a March 28, 2011 memorandum and an April 18, 2011 letter (collectively, the “KPMG Memoranda”). KPMG requested that the Company’s Audit Committee conduct an independent investigation (the “Independent Investigation”) into those issues. On March 31, 2011, the Audit Committee elected to commence such Independent Investigation and engaged the services of independent counsel, Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), which in turn engaged the services of Deloitte Financial Advisory Services LLP (“Deloitte”), as independent forensic accountants, and King & Wood, as Audit Committee counsel in the PRC. Pillsbury, Deloitte and King & Wood are collectively referred to herein as the “Investigation Team”. On September 28, 2011, the Independent Investigation was completed. The Independent Investigation identified possible violations of PRC laws and U.S. Securities laws, including the maintenance of an off-balance sheet cash account that was used primarily to pay service providers and other Company-related expenses. Total activity in the off-balance sheet cash account amounted to approximately $800,000 through December 31, 2010, with a net income statement effect of approximately $12,000, and $400,000 for the period from January 1, 2011 to March 31, 2011, with a net income statement effect of approximately $192,000, at which time the Company ceased its use. The Independent Investigation identified certain other issues that could result in potential violations of PRC or U.S. laws. The Company continues to work with its legal counsel to evaluate the matters identified in the investigation and to determine the extent to which the Company may be exposed to fines and penalties. The Company has preliminarily concluded that the extent to which it may be exposed to fines and penalties in the PRC is limited, and to date, has not received any PRC governmental or regulatory communication or inquiry related to these matters. However, management is currently unable to determine the final outcome of these matters and their possible effects on the consolidated financial statements.

On October 7, 2011, trading of the Company’s common stock was delisted by NASDAQ, and is currently quoted on the Over-the-Counter Bulletin Board (symbol: KEYP).

The Company’s management believes that the Company’s cash, working capital, and access to cash through its bank loans provide adequate capital resources to fund its operations and working capital needs for at least the next twelve months.

2 BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include the financial statements of the Company and its subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The financial statements have been prepared in accordance with U.S. GAAP applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These interim financial statements should be read in conjunction with the audited financial statements for the years ended December 31, 2011 and 2010, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computation as the audited financial statements for the years ended December 31, 2011 and 2010. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

-4-

3 CASH

Cash consists of cash on hand and cash at banks. As of June 30, 2012 and December 31, 2011, cash of $9,029,095 and $7,101,505, respectively, was held in major financial institutions located in the PRC; and cash of $736,386 and $124,355, respectively was held in the Hong Kong Special Administrative Region. Management performs periodic evaluations of the relative credit standings of these major financial institutions, and believes that these major financial institutions have high credit ratings.

4 ACCOUNTS RECEIVABLE

The Group generally requires a prepayment of 100% of the sales contract price from its customers shortly before products are delivered. Such prepayment is recorded as “advances from customers” in the Group’s consolidated balance sheet, until the products are delivered and the customer takes ownership and assumes the risk of loss. With the approval of the Company’s general manager, the Company occasionally extends credit to its long-term customers with a good credit rating. As of June 30, 2012 and December 31, 2011, the balance of accounts receivable was $4,014,076 and $2,226,288 respectively. The $4,014,076 of accounts receivable as of June 30, 2012 was received in July 2012.

5 INVENTORIES

Inventories consist of the following:

	June 30,		December 31,
	2012		2011
	（Unaudited）
Raw materials	$	48,865,084	$	26,226,388
Finished goods		20,219,210		10,891,825
Work-in-process		3,963,955		1,827,755

Total	$	73,048,249	$	38,945,968

6 PREPAYMENTS TO SUPPLIERS

As of June 30, 2012 and December 31, 2011, prepayments to suppliers are made in connection with the purchase of raw materials and the construction of the Group’s facilities. Prepayments to suppliers are reclassified to inventories or construction-in-progress, when the Group applies the prepayments to related purchases of materials after the related invoices are received.

7 CONSUMPTION TAX REFUND RECEIVABLE

The PRC government has enacted a regulation that provides that domestically purchased heavy oil to be used for producing ethylene and aromatics products is to be exempted from a consumption tax. In addition, the consumption tax paid for imported heavy oil is to be refunded if it is used for producing ethylene and aromatics products. Given all the Group’s purchased heavy oils are, or are to be used for the production of ethylene and aromatics products, the Group recognizes a consumption tax refund receivable when the consumption tax has been paid and the relevant heavy oils have been used for production. As of June 30, 2012 and December 31, 2011, the Group recorded an estimated consumption tax refund receivable amounting to $107,023,606 and $55,809,560, respectively.

On August 15, 2012, the Group received a consumption tax refund of $95,124,967 and consumption tax claims of $11,898,639 are in process and are expected to be approved and refunded by the end of September 2012.

-5-

8 OTHER CURRRENT ASSETS

Other current assets consist of the following:

	June 30,		December 31,
	2012		2011
	（Unaudited）
VAT recoverable	$	23,360,510	$	9,991,877
Receivable from Ningbo Litong (Note 22)		-		2,740,970
Customs deposits for imported inventories		27,398,747		29,102,193
Others		9,887,358		4,143,388

	$	60,646,615	$	45,978,428

The estimate of deductible input VAT on the purchase of property, plant and equipment is determined using vendor contracts, engineering and other estimates, as well as historical experience, and is included in VAT recoverable. Approximately $2.5 million and $2.9 million is included in non-current assets as of June 30, 2012 and December 31, 2011, respectively.

Customs deposits for imported inventories represent amounts paid to the local customs office in connection with the importing of raw materials inventories. Upon approval by the customs authorities, these amounts become refundable by the local tax authority and are reclassified as consumption tax refund receivable (Note 7).

9 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	June 30,			December 31,
	2012			2011
	（Unaudited）

Buildings	$	3,915,407		$	3,888,234
Machinery and equipment		177,358,013			175,736,470
Vehicles		786,083			663,985
Office equipment and furniture		139,728			134,929
Construction-in-progress		50,141,011			27,449,846

		232,340,242			207,873,464
Less: Accumulated depreciation		(22,571,325	)		(17,005,843	)

	$	209,768,917		$	190,867,621

Depreciation expense on property, plant and equipment is allocated to the following items:

	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
	（Unaudited）		（Unaudited）		（Unaudited）		（Unaudited）

Cost of sales	$	2,580,156	$	2,246,111	$	5,347,643	$	4,589,859
Selling, general and administrative expenses		55,355		40,473		104,491		81,707

	$	2,635,511	$	2,286,584	$	5,452,134	$	4,671,566

For the six months ended June 30, 2012 and the year ended December 31,2011, interest capitalized amounted to $587,984 and $1,246,179 respectively.

-6-

10 INTANGIBLE ASSETS

Intangible assets consist of the following:

	Amortization		June 30,			December 31,
	Period		2012			2011
	Years		（Unaudited）

Licensing agreements		10-20	$	1,505,750		$	1,495,300
Less: Accumulated amortization				(573,902	)		(516,797	)

			$	931,848		$	978,503

For the six months ended June 30, 2012 and 2011, amortization expense for intangible assets amounted to $53,548 and $51,675, respectively. For the three months ended June 30, 2012 and 2011, amortization expense for intangible assets amounted to $26,774 and $25,995, respectively. Estimated amortization expense for each of the next five years is estimated to be approximately $100,000.

11 LAND USE RIGHTS

	June 30,			December 31,
	2012			2011
	（Unaudited）

Land use rights	$	12,267,235		$	12,182,100
Less: Accumulated amortization		(1,346,759	)		(1,113,338	)

	$	10,920,476		$	11,068,762

For the six months ended June 30, 2012 and 2011, amortization expense related to land use rights was $225,868 and $217,999, respectively. For the three months ended June 30, 2012 and 2011, amortization expense related to land use rights was $112,934 and $109,677, respectively.

12 SHORT-TERM BANK BORROWINGS

	June 30,		December 31,
	2012		2011
	（Unaudited）

Bank borrowings-secured/guaranteed	$	393,534,612	$	225,969,421

Short−term bank borrowings outstanding as of June 30, 2012 carry a weighted average interest rate of 5.91% (2011: 5.32%) for bank loans in RMB; a weighted average interest rate of 4.48% (2011: 3.42%) for bank loans in USD, and have maturity terms ranging from one to twelve months and interest rates ranging from 1.57% to 7.93% (2011: 2.97% to 4.3%).

At June 30, 2012, approximately $48,835,000 included in short-term bank borrowings is payable to Shanghai Pudong Development Bank, which is secured by a one-year fixed term deposit with a carrying amount of $50,403,000. In addition, $62,393,870 payable to Bank of China is secured by Ningbo Keyuan's one year fixed term deposit and pledged deposits with a carrying amount of $63,835,423 as of June 30, 2012; $11,000,000 payable to China CITIC Bank is secured by Ningbo Keyuan’s one-year fixed term deposit with a carrying amount of $11,246,860 as of June 30, 2012; and $22,591,104 payable to China Construction Bank is secured by pledged deposits with a carrying amount of $22,825,797 as of June 30, 2012. Among the rest of the Group's short-term borrowings, $248,714,638 is guaranteed by related party and third-party entities and individuals, including $15,850,000 which is guaranteed by the Group’s Chief Executive Officer and $11,000,000 that is secured by the Group’s land, buildings and equipment with a carrying amount of $90,798,902 as of June 30, 2012.

-7-

13 LONG-TERM BANK BORROWINGS

	June 30,			December 31,
	2012			2011
	（Unaudited）

Loan from China Construction Bank	$	15,850,000		$	15,740,000
Less: current portion		(15,850,000	)		(15,740,000	)

	$	-		$	-

As of June 30, 2012 and December 31, 2011, the Group's long-term bank loans are secured/ guaranteed by related-party entities and Mr. Tao (Note 22), bearing interest from 7.29% to 7.74% (2011:5.76% to 6.98%) and are due on various dates through October 2012.There were no additional long-term bank borrowings in the six months ended June 30, 2012.

14 ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of June 30, 2012 and December 31, 2011 consist of:

	June 30,		December 31,
	2012		2011
	（Unaudited）

Payables for the purchase of property, plant and equipment	$	24,419,569	$	24,590,217
Accrued payroll and welfare		341,775		1,061,508
Liquidated damages		2,493,326		2,493,326
Other accruals and payables		2,999,855		2,142,895

	$	30,254,525	$	30,287,946

15 STOCKHOLDERS’ EQUITY AND RELATED FINANCING AGREEMENTS

Dividends

Fixed dividends are accrued and cumulative one year from the date of the initial issuance of the Series B convertible preferred stock, are payable on a quarterly basis, and are determined as 6% of $3.75 for each share of the Series B convertible preferred stock.

On January 17, 2011, the Company’s Board of Directors approved the distribution of annual cash dividend of $0.36 per share for 2010 to be paid quarterly to its common stock stockholders at the assigned dates of record. In January 2011, certain stockholders of the Company announced the waiver of their rights to receive such cash dividends. In addition, Dragon State International Limited, the primary Series B convertible stockholder agreed to waive their rights to receive cash dividend for 2010 should they choose to convert their preferred stock before the record date. The estimated dividends to be distributed and the dividends waived are approximately $3.5 million and $17.2 million, respectively. In October 2011, the Company’s Board of Directors suspended the payment of quarterly cash dividends on the Company’s common stock while it pursues strategic alternatives including, but not limited to, taking the Company private, a merger or other transaction.

-8-

During the year ended December 31, 2011, 66,670 shares of the Series B convertible preferred stock were converted into 66,670 shares of the Company’s common stock. In addition,1,150 Series A warrants and 500 Series B warrants were exercised, and the Company issued 1,150 shares and 500 shares of the Company’s common stock, receiving proceeds of $4,863 and $2,468, respectively. There were no dividends to be paid and accrued for the three and six months ended June 30, 2012.

Registration rights agreement

In connection with the Series A Private Placement, the Company entered into a registration rights agreement with the Series A Investors, in which the Company agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) to register for resale of the issued common stock, the common stock issuable upon conversion of the Series A convertible preferred stock, and the common stock underlying the Series A and Series B Warrants and the Placement agent warrants, within 30 calendar days of April 22, 2010 and to have this registration statement declared effective within 150 calendar days of April 22, 2010 or within 180 calendar days of April 22, 2010 in the event of a full review of the registration statement by the SEC. If the Company doesn’t comply with the foregoing obligations under the registration rights agreement, the Company will be required to pay liquidated damages in cash to each investor, at the rate of 1% of the applicable subscription amount for each 30 day period in which the Company is not in compliance; provided, that such liquidated damages will be capped at 10% of the subscription amount of each investor and will not apply to any registrable securities that may be sold pursuant to Rule 144 under the Securities Act if all of the conditions in Rule 144(i)(2) are satisfied at the time of the proposed sale, or are subject to an SEC comment with respect to Rule 415 promulgated under the Securities Act.

In connection with the Series B private placement, the Company entered into a registration rights agreement with the Series B Investors, in which the Company agreed to file a registration statement with the SEC to register for resale of the common stock issuable upon the conversion of the Series B convertible preferred stock, common stock underlying the Series C and Series D Warrants, and common stock underlying the placement agent warrants, within 30 calendar days following the later of (i) the closing date of the offering or (ii) the effective date of the prior registration statement for resale of the Issued Common Stock and common stock issuable upon the conversion of the Series A Preferred Stock, Series A and Series B Warrants, and placement agent warrants issued in the Series A Private Placement (the “Prior Registration Statement”), and to have the registration statement declared effective within 150 calendar days ( or 180 calendar days of the Closing Date in the event of a full review of the registration statement by the SEC) following the later to occur of (i) the closing date of the Series B Private Placement or (ii) the effective date of the Prior Registration Statement. If the Group does not comply with the foregoing obligations under the registration rights agreement, the Group will be required to pay cash liquidated damages to each Series B Investor, at the rate of 1% of the applicable subscription amount for each 30 day period in which the Group are not in compliance; provided, that such liquidated damages will be capped at 10% of the subscription amount of each investor and will not apply to any registrable securities that may be sold pursuant to Rule 144 under the Securities Act if all of the conditions in Rule 144(i)(2) are satisfied at the time of the proposed sale, or are subject to an SEC comment with respect to Rule 415 promulgated under the Securities Act.

Liquidated damages are also payable in the event that the Registration Statement is not maintained continuously effective for approximately 180 days, or if trading of the Company’s common stock is suspended or if the Company’s common stock is delisted from the principal exchange on which it is traded (NASDAQ) for more than three days.

On April 1, 2011, trading of the Company’s common stock was suspended and on October 7,2011, was delisted by NASDAQ. Management determined that the registration statements were no longer effective commencing on April 7, 2011 and registerable securities in connection with the Series A and B private placements were not able to be sold pursuant to Rule 144 under the Securities Act until November 1, 2011. Accordingly, in the year ended December 31, 2011, an estimated contingent liability for $2,493,326 was accrued with a corresponding charge to earnings. There were no liquidated damages during the three and six months ended June 30, 2012.

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16 SHARE-BASED PAYMENTS

Effective June 30, 2010, the Board of Directors approved the Company’s 2010 Equity Incentive Plan ( the “Plan”). The maximum numbers of shares of common stock of the Company issuable pursuant to the Plan is 6,000,000 shares. The Plan shall be administered by the Board; provided however, that the Board may delegate such administration to a plan Committee.

On June 30, 2010, the Company granted a total of 3,000,000 stock options to certain senior management employees with a contractual term of 5 years. The exercise price of these stock options is $4.20 per share and the grant-date fair value of these stock options amounted to $3,347,298. A total of 2,810,000 stocks options vest over three years as follow: 30% shall vest and become exercisable one year after a grant date, 40% shall vest and become exercisable two years after the grant date, and 30% shall vest and become exercisable three years after the grant date. For the remaining 190,000 stock options: 40% shall vest and become exercisable one year after the grant date and 60% shall vest and become exercisable two years after grant date.

On July 1, 2010, the Company granted a total of 80,000 stock options to two independent directors with contractual terms of 5 years. The exercise price of these stock options is $4.20 per share and the grant-date fair value of these stock options amounted to $91,349. A total of 40,000 of the options shall vest and become exercisable one year after the grant date and the remaining 40,000 of the stock options shall vest and become exercisable two years after the grant date, provided that the independent directors are re-elected for successive one year terms one year after the stock options issuance date.

On August 4, 2010, the Company granted 700,000 stock options to employees, with a contractual term of 5 years. The exercise price of these stock options was $4.50 per share and the grant-date fair value of these stock options amounted to $1,338,761. These stock options vest over three years as follows: 30% shall vest and become exercisable one year after the grant date, 40% shall vest and become exercisable two years after grant date and 30% shall vest and become exercisable three years after the grant date.

On December 29, 2010, 600,000 stock options granted to certain employees on August 4, 2010, were cancelled. As compensation for such cancellation, the Company committed to pay these employees incremental cash payments during the period through August 2013. The fair value of the committed cash payment on December 29, 2010 was approximately $400,000 and no incremental compensation costs resulted from the cancellation of these stock options. Included in accrued expenses and other payables is approximately $257,226 representing the liability related to the committed cash payment as of June 30, 2012.

No options were granted during the three and six months ended June 30, 2012.

For the three months ended June 30, 2012 and 2011, share-based compensation expense related to employee stock options charged to general and administrative expenses in the consolidated statements of operations were $406,098 and $155,188, respectively. For the six months ended June 30, 2012 and 2011, share-based compensation expenses related to employee stock options charged to general and administrative expenses in the consolidated statements of operations were $819,496 and $1,285,185, respectively.

As of June 30, 2012, there were unrecognized compensation costs related to employee stock options of approximately $1,146,910. These costs are expected to be recognized on a straight-line basis, over the remaining weighted average service period of 0.94 years.

17 INCOME TAXES

The Company and its subsidiaries file separate income tax returns.

-10-

The United States of America

The Company is incorporated in the State of Nevada in the U.S., and is subject to the U.S. federal corporate income tax at progressive rates ranging from 15% to 35%. The state of Nevada does not impose any state corporate income tax.

British Virgin Islands

Keyuan International is incorporated in the British Virgin Islands (“BVI”). Under the current laws of British Virgin Islands, Keyuan International is not subject to tax on income or capital gains. In addition, upon payments of dividends by Keyuan International, no BVI withholding tax is imposed.

Hong Kong

Keyuan HK is incorporated in Hong Kong. Keyuan HK did not earn any income that was derived in Hong Kong for the six months ended June 30, 2012 and 2011 and therefore was not subject to Hong Kong Profits Tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

PRC

Ningbo Keyuan , Ningbo Keyuan Petrochemicals, Ningbo Keyuan Synthetic Rubbers and Guangxi Keyuan are incorporated in the PRC and the applicable PRC statutory income tax rate is 25%.

Components of income (loss) before income tax expense (benefit) consist of the following jurisdictions:

	Three months ended June 30,
	2012			2011
	（Unaudited）			（Unaudited）

PRC	$	3,447,170		$	3,309,794
U.S.		(627,907	)		(3,765,742	)
Hong Kong and BVI		(886,638	)		(700,763	)

Income (loss) before income taxes	$	1,932,625		$	(1,156,711	)

	Six months ended June 30,
	2012			2011
	（Unaudited）			（Unaudited）

PRC	$	8,003,206		$	11,939,586
U.S.		(1,426,030	)		(4,704,077	)
Hong Kong and BVI		(1,660,367	)		(925,926	)

Income before income taxes	$	4,916,809		$	6,309,583

The Group’s income tax expense in the consolidated statements of operations consists of the following:

PRC:	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
	（Unaudited）		（Unaudited）		（Unaudited）		(Unaudited）
Current income tax expense	$	870,277	$	665,828	$	2,009,469	$	2,917,979

Total income tax expense	$	870,277	$	665,828	$	2,009,469	$	2,917,979

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17 INCOME TAXES (CONTINUED)

Reconciliation between income tax expense (benefit) and the amounts computed by applying the PRC statutory income tax rate of 25% to income (loss) before income taxes is as follows:

	Three months ended June 30,
	2012				2011
	（Unaudited）				（Unaudited）

Income (loss) before income taxes	$	1,932,625			$	(1,156,711	)

Computed income tax expense (benefit)		483,156	25.0	%		(289.178	)	25.0	%
NOLs from overseas subsidiaries not recognized		378,636	19.6	%		1,433,636		(123,9	%)
Others		8,485	0.4	%		(478,630	)	41.4	%
Actual income tax expense	$	870,277	45.0	%	$	665,828		(57.6	%)

	Six months ended June 30,
	2011				2011
	（Unaudited）				（Unaudited）

Income before income taxes	$	4,916,809			$	6,309,583

Computed expected income tax expense		1,229,202	25.0	%		1,577,396		25.0	%
NOLs from overseas subsidiaries not recognized		771,599	15.7	%		1,799,204		28.5	%
Others		8,668	0.2	%		(458,621	)	(7.3	%)
Actual income tax expense	$	2,009,469	40.9	%	$	2,917,979		46.2	%

The PRC income tax rate has been used because the majority of the Group’s consolidated income (loss) before income taxes arises in the PRC.

According to the prevailing PRC income tax law and its relevant regulations, non-PRC-resident enterprises are levied withholding tax at 10%, unless reduced by tax treaties or similar arrangements, on dividends from their PRC-resident investees for earnings accumulated beginning on January 1, 2008, and undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. Further, the Company’s distributions from its PRC subsidiaries are subject to U.S. federal income tax at 35%, less any applicable qualified foreign tax credits. Due to the Company’s policy of permanently reinvesting substantially all of its earnings in its PRC business, the Company has not provided for deferred income tax liabilities for U.S. federal income tax purposes on its PRC subsidiaries’ undistributed earnings of $37.8 million and $31 million as of June 30, 2012 and December 31, 2011, respectively.

The Group files income tax returns in the United States and the PRC. The Company is subject to U.S. federal income tax examination by tax authorities for tax years beginning in 2008. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100,000 ($15,000). In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. The PRC tax returns for the Company’s PRC subsidiaries are open to examination by the PRC state and local tax authorities for the tax years beginning in 2008.

18 CONTINGENCY

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

In connection with the shipping of finished products, inaccurate product information has been provided to the PRC Port authority. In addition, through June 30, 2011, Ningbo Keyuan failed to withhold income tax of approximately $50,000 from payments to certain external service providers and employees. In consultation with PRC legal counsel, management has evaluated the contingencies associated with the provision of inaccurate information and expects that the penalty, if any, will not be significant and will not have a material impact on the consolidated financial statements.

In addition, the Group had outstanding Letters of Credit as of June 30, 2012 of $177,135,878.

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19 EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic net income (loss) per share:

	For the three months ended					For the six months ended
	June 30		June 30			June 30		June 30
	2012		2011			2012		2011
	（Unaudited）		（Unaudited）			（Unaudited）		（Unaudited）

Net income (loss) attribute to Keyuan
Petrochemicals, Inc. stockholders	$	1,062,348	$	(1,822,539	)	$	2,907,340	$	3,391,604

Less: Dividend attributable to preferred
stockholders		-		306,247			-		602,507

Net income (loss) attributable to Keyuan Petrochemical Inc. common shareholders	$	1,062,348	$	(2,128,786	)	$	2,907,340	$	2,789,097

Weighted average common shares
(Denominator for basic income per share)		57,646,160		57,579,239			57,646,160		57,578,896

Effect of diluted securities:
- Series A convertible preferred stock		-		-			-		-
- Series B convertible preferred stock		5,333,340		-			5,333,340		5,400,010
- Series M convertible preferred stock		-		-			-		-
- Warrants		-		-			-		390,647
- Options		-		-			-		467,429

Weighted average common shares
(denominator for diluted income per share)		62,979,500		57,579,239			62,979,500		63,836,982

Basic net income (loss) per share	$	0.02	$	(0.04	)	$	0.05	$	0.05
Diluted net income (loss) per share	$	0.02	$	(0.04	)	$	0.05	$	0.05

20 FAIR VALUE MEASUREMENTS

The Company did not have any assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2012.

The fair values of cash, pledged bank deposits, bills receivable, accounts receivable, consumption tax refund receivable, short-term bank borrowings, bills payable, current portion of long-term borrowings, and accounts payable approximate their respective carrying amounts due to their short-term nature. Amounts due from/to related parties are not practicable to estimate due to the related party nature of the underlying transactions. The Group’s long-term debt, secured by various assets, bears interest at rates commensurate with market rates, and therefore management believes carrying values approximate fair values.

21 SIGNIFICANT CONCENTRATIONS AND RISKS

As of June 30, 2012 and December 31, 2011, the Group held cash and pledged bank deposits in financial institutions of approximately $249,695,663 and $163,591,879, respectively. They were primarily held in major financial institutions located in mainland China and the Hong Kong Special Administrative Region. Management believes that these financial institutions have high credit ratings.

-13-

Sales to major customers, which individually exceeded 4% of the Group’s total net revenues, are as follows:

Three months ended June 30, 2012						Three months ended June 30, 2011
	（Unaudited）						（Unaudited）
Largest	Amount of		% Total			Largest	Amount of		% Total
Customers	Sales		Sales			Customers	Sales		Sales

Customer A	$	40,695,112		21	%	Customer A	$	35,607,254		24	%
Customer B		12,876,871		7	%	Customer D		14,540,619		10	%
Customer C		12,615,883		7	%	Customer I		14,278,678		10	%
Customer D		11,234,274		6	%	Customer J		13,517,410		9	%
Customer E		9,820,712		5	%	Customer L		6,314,579		4	%

Total	$	87,242,852		47	%	Total	$	84,258,540		57	%

Six months ended June 30, 2012						Six months ended June 30, 2011
	（Unaudited）						（Unaudited）
Largest	Amount of		% Total			Largest	Amount of		% Total
Customers	Sales		Sales			Customers	Sales		Sales

Customer A	$	52,843,930		14	%	Customer A	$	58,150,912		20	%
Customer H		24,777,298		7	%	Customer J		42,284,552		14	%
Customer D		21,659,715		6	%	Customer D		28,430,114		10	%
Customer G		17,177,359		4	%	Customer I		14,278,678		5	%
Customer F		15,014,302		4	%	Customer K		13,176,798		4	%

Total	$	131,472,604		36	%	Total	$	156,321,054		53	%

The Group currently buys a majority of its heavy oil, an important component of its products, from three suppliers. Although there are a limited number of suppliers of the particular heavy oil, management believes that other suppliers could provide similar heavy oil on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely. Purchases (net of VAT) from the largest three suppliers for three months ended June 30, 2012 and 2011 were $155,361,871 and $153,035,430, respectively. These purchases represented 83% of all of the Company’s purchases for each of the three months ended June 30, 2012 and 2011. Purchases (net of VAT) from the largest three suppliers for the six months ended June 30, 2012 and 2011 were $275,123,617 and $231,995,919, respectively. These purchases represented 80% and 77%, respectively, of all of the Group’s purchases for the six months ended June 30, 2012 and 2011.

The Group’s operations are carried out in the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

22 RELATED PARTY TRANSACTIONS AND RELATIONSHIPS AND TRANSACTIONS WITH CERTAIN OTHER PARTIES

(1) Related Party Transactions

The Company considers all transactions with the following parties to be related party transactions.

Name of parties		Relationship
Mr. Chunfeng Tao		Majority stockholder
Mr. Jicun Wang		Principal stockholder
Mr. Peijun Chen		Principal stockholder
Ms. Sumei Chen		Member of the Company’s Board of Supervisors and spouse of Mr. Wang
Ms. Yushui Huang		Vice President of Administration, Ningbo Keyuan
Mr. Weifeng Xue		Vice President of Accounting, Ningbo Keyuan through August 2011

-14-

Mr. Hengfeng Shou		Vice President of Sales, Ningbo Keyuan Petrochemical
Ningbo Kewei Investment Co., Ltd.		A company controlled by Mr. Tao through September 2011
(Ningbo Kewei)
Ningbo Pacific Ocean Shipping Co., Ltd		100% ownership by Mr. Wang
(Ningbo Pacific)
Ningbo Hengfa Metal Product Co., Ltd		100% ownership by Mr. Chen
(Ningbo Hengfa, former name "Ningbo Tenglong")
Shandong Tengda Stainless Steel Co., Ltd		100% ownership by Mr. Chen
(Shandong Tengda)
Ningbo Xinhe Logistic Co., Ltd
(Ningbo Xinhe)		10% ownership by Ms. Huang
Ningbo Kunde Petrochemical Co, Ltd. (Ningbo Kunde)		Mr. Tao’s mother was a 65% nominee shareholder for Mr. Hu, a third party through September 2011, and included in transactions with certain other parties beginning October 1, 2011.
Ningbo Jiangdong Jihe Construction Materials		Controlled by Mr. Xue’s Brother-in-law
Store (Jiangdong Jihe)
Ningbo Wanze Chemical Co., Ltd		Mr. Tao’s sister-in-law is the legal representative
(Ningbo Wanze)
Ningbo Zhenhai Jinchi Petroleum Chemical		Controlled by Mr. Shou
Co., Ltd (Zhenhai Jinchi)

Related party transactions and amounts outstanding with the related parties as of and for the three and six months ended June 30, 2012 and 2011 are summarized as follows:

	Three Months ended June 30,
	2012		2011
	（Unaudited）		（Unaudited）

Sales of products (a)	$	-	$	35,607,658
Purchase of raw material (b)	$	-	$	42,920
Purchase of transportation services (c)	$	1,104,716	$	316,506
Credit line of guarantee provision for bank borrowings (d)	$	-	$	-
Loan guarantee fees (d)	$	113,084	$	419,665
Short-term financing from related parties (e)	$	-	$	5,406,139
Short-term financing to related parties (e)	$	-	$	5,535,234

	Six Months ended June 30,
	2012		2011
	（Unaudited）		（Unaudited）

Sales of products (a)	$	-	$	58,217,477
Purchase of raw material (b)	$	-	$	7,066,055
Purchase of transportation services (c)	$	1,665,831	$	927,879
Credit line of guarantee provision for bank borrowings (d)	$	-	$	-
Loan guarantee fees (d)	$	203,984	$	756,919
Short-term financing from related parties (e)	$	-	$	13,144,234
Short-term financing to related parties (e)	$	-	$	13,144,234

	June 30,		December 31,
	2012		2011
	（Unaudited）
Amounts due from related parties (f)	$	39,625	$	39,350
Amounts due to related parties (g)	$	768,313	$	621,077

(a) During the three months ended June 30, 2011, the Group sold finished products of $35,607,658 to Ningbo Kunde. During the six months ended June 30, 2011, the Group sold finished products of $58,150,912 to Ningbo Kunde. During the six months ended June 30, 2012 and 2011, the Group sold finished products of nil and $66,565 to Zhenhai Jinchi, respectively. Amounts received in the advance from Kunde were $3,077,199 as of June 30, 2011, and are included in the advances from customers on the consolidated balance sheet.

-15-

(b) The Group purchased raw materials of $42,920 from Ningbo Kunde during the three months ended June 30, 2011. The Group purchased raw materials of $7,066,055 from Ningbo Kunde during the six months ended June 30, 2011.

(c) The Group purchased transportation services of $1,104,716 and $316,506 from Ningbo Xinhe during the three months ended June 30, 2012 and 2011, respectively. The Group purchased transportation services of $1,665,831 and $927,879 from Ningbo Xinhe during the six months ended June 30, 2012 and 2011, respectively, and amounts owed to Ningbo Xinhe as of June 30, 2012 in respect of these purchase transactions were $768,313.

(d) Guarantees for Bank Loans

There were no guarantees for Bank Loans provided during the three and six months ended June 30, 2012 and 2011.

Bank Loans guaranteed as of June 30, 2012 and December 31, 2011 as follows:

	Bank loan guaranteed as of
	June 30		December 31
	2012		2011
	（Unaudited）
Mr. Tao	$	15,850,000	$	34,628,000
Jincun Wang and Chen		1,902,000		1,983,523
Ningbo Kewei		-		-
Ningbo Pacific		18,318,901		27,918,200
Ningbo Hengfa		14,899,000		14,795,600
Shandong Tengda		951,000		944,400
Total	$	51,920,901	$	80,269,723

Beginning in 2011 loan guarantee fees of 0.3% the loan principal guaranteed are to be paid annually. During the three months ended June 30, 2012, loan guarantee fees were $32,255 and $80,829 for Ningbo Hengfa and Ningbo Pacific, respectively. In the three months ended June 30, 2011, loan guarantee fees were $73,644 and $178,367 for Ningbo Hengfa and Ningbo Pacific, respectively. During the six months ended June 30, 2012, loan guarantee fees were $65,022 and $138,961 for Ningbo Hengfa and Ningbo Pacific , respectively. In the six months ended June 30, 2011, loan guarantee fees were $150,116 and $301,247 for Ningbo Hengfa and Ningbo Pacific, respectively.

-16-

(e) Short-term financing transactions with related parties

	Three Months Ended June 30
	（Unaudited）
	2012						2011
	From(i)		To(i)		Balance(ii)		From(i)		To(i)			Balance(ii)

Ningbo Kewei	$	-	$	-	$	-	$	5,358,850	$	(5,358,850	)	$	-
Ningbo Kunde		-		-		-		32,550		(32,550	)		-
Jiangdong Jihe		-		-		-		14,739		143,834			-

	$	-	$	-	$	-	$	5,406,139	$	(5,247,566	)	$	-

	Six Months Ended June 30
	（Unaudited）
	2012						2011
	From(i)		To(i)		Balance(ii)		From(i)		To(i)			Balance(ii)

Ningbo Kewei	$	-	$	-	$	-	$	5,358,850	$	(5,358,850	)	$	-
Ningbo Kunde		-		-		-		5,358,850		(5,358,850	)		-
Jiangdong Jihe		-		-		-		2,426,534		(2,426,534	)

	$	-	$	-	$	-	$	13,144,234	$	13,144,234	)	$	-

(i) Transactions during the year are translated at average exchange rates.

(ii) Balances at year end are translated at the balance sheet exchange rate.

(f) Amount due from related parties consist of the following:

	June 30,		December 31,
	2012		2011
	（Unaudited）
Related Party
Mr. Tao	$	39,625	$	39,350

Amounts due from Mr. Tao represent advances made for business expenses which are unsecured, interest free and due on demand.

(g) Amount due to related parties consists of the following:

	June 30,		December 31,
	2012		2011
	（Unaudited）
Related Party
Ninbo Xinhe	$	768,313	$	621,077

Amount due to related parties represent balances due for raw materials purchase and freight.

(2) Relationships and transactions with certain other parties

The group has the following relationships and transactions with certain other parties:

Name of parties		Relationship
Ningbo Litong Petrochemical Co., Ltd		Former 12.75% nominee shareholder of Ningbo Keyuan
(Ningbo Litong)
Ningbo Jiangdong Haikai Construction		Controlled by cousin of Mr. Weifeng Xue, Vice
Materials Store (Jiangdong Haikai)		President of Accounting through August 2011

-17-

Ningbo Jiangdong Deze Chemical Co., Ltd (Jiangdong Deze)		Controlled by cousin of Mr. Weifeng Xue, Vice President of Accounting through August 2011
Ningbo Anqi Petrochemical Co., Ltd		Controlled by cousin of Mr. Weifeng Xue, Vice
(Ningbo Anqi)		President of Accounting through August 2011

Ningbo Kewei Investment Co., Ltd (Ningbo Kewei)		A related party through September 2011 when control transferred, and included in transactions with certain other parties beginning October 2011.
Ningbo Kunde Petrochemical Co., Ltd (Ningbo Kunde)		A related party through September 2011 when control transferred, and included in transactions with certain other parties beginning October 1, 2011.

Transactions and amounts outstanding with these parties for the three and six months ended June 30, 2012 and 2011, are summarized as follows:

	Three Months Ended June 30, （Unaudited）
	2012		2011

Sales of products (h)	$	47,734,203	$	-
Purchase of raw material (i)	$	21,912,149	$	9,536,282
Credit line of guarantee for bank borrowings (j)	$	141,062,000	$	-
Loan guarantee fees(j)	$	382,116	$	302,674
Short-term financing from theses parties (k)	$	-	$	12,862,621
Short-term financing to these parties (k)	$	-	$	(7,142,275	)
Amounts due from these parties	$	15,773,715	$	-
Amounts due to these parties	$	2,690,514	$	17,851

	Six Months Ended June 30, （Unaudited）
	2012		2011

Sales of products (h)	$	70,021,289	$	772,762
Purchase of raw material (i)	$	22,358,020	$	9,536,282
Credit line of guarantee for bank borrowings (j)	$	161,687,800	$	-
Loan guarantee fees(j)	$	742,303	$	505,626
Short-term financing from theses parties (k)	$	-	$	47,612,617
Short-term financing to these parties (k)	$	-	$	(45,374,149	)
Amounts due from these parties	$	15,773,715	$	-
Amounts due to these parties	$	2,690,514	$	17,851

(h) During the three months ended June 30, 2012 and 2011, the Group sold finished products of $7,049,811 and nil to Ningbo Litong. During the three months ended June 30, 2012, the Group sold finished products of $40,684,392 to Ningbo Kunde. During the six months ended June 30, 2012 and 2011, the Group sold finished products of $17,177,359 and $772,762 to Ningbo Litong. During the six months ended June 30, 2012, the Group sold finished products of $52,843,930 to Ningbo Kunde. Amounts received in advance from Litong were $11,887,500 and $17,851, respectively as of June 30, 2012 and 2011. Amounts received in the advances from Kunde were $596,530 as of June 30, 2012. They are included in Advances from Customers on the consolidated balance sheet.

(i) During the three months ended June 30, 2012 and 2011, the Group purchased raw materials of $8,778,079 and $9,536,282, respectively from Ningbo Litong. During the three months ended June 30, 2012, the Group purchased raw material of $13,134,070 from Ningbo Kunde. During the six months ended June 30, 2012 and 2011, the Group purchased raw materials of $9,223,950 and $9,536,282, respectively from Ningbo Litong. During the six months ended June 30, 2012, the Group purchased raw materials of $13,134,070 from Ningbo Kunde.

-18-

(j) Guarantees for Bank Loans

	Guarantee provided during				Guarantee provided during
	the three months ended June 30				the six months ended June 30
	2012		2011		2012		2011
	（Unaudited）		（Unaudited）		（Unaudited）		（Unaudited）
Ningbo Litong	$	30,000,000	$	-	$	50,625,800	$	-
Ningbo Kewei		111,062,000		-		111,062,000		-

	$	141,062,000	$	-	$	161,687,800	$	-

	Bank loans guaranteed As of
	June 30		December 31
	2012		2011
	（Unaudited）
Ningbo Litong	$	55,586,521	$	61,632,077
Ningbo Keiwei	$	43,524,897	$	29,700,067

Beginning in 2011 loan guarantee fees of 0.3% the loan principal guaranteed after January 1, 2011 are to be paid quarterly. In the three months ended June 30, 2012, loan guarantee fees were $179,698 and $202,419 for Ningbo Litong and Ningbo Kewei, respectively. In the three months ended June 30, 2011, loan guarantee fees were $302,674 and $167,654 for Ningbo Litong and Ningbo Kewei, respectively. In the six months ended June 30,2012, loan guarantee fees were $374,263 and $368,040 for Ningbo Litong and Ningbo Kewei, respectively. In the six months ended June 30, 2011, loan guarantee fees were $505,626 and $305,556 for Ningbo Litong and Ningbo Kewei, respectively.

(k) Short-term financing transactions

Historically the Group and its theses parties have provided each other with short-term financing, typically, in the form of cash, bills receivable and bills payable.

	Three Months Ended June 30（Unaudited）
	2012						2011
	From(i)		To(i)		Balance(ii)		From(i)		To(i)			Balance(ii)

Ningbo Litong	$	-	$	-	$	-	$	12,862,621	$	(7,142,275	)	$	-
Jiangdong Deze		-		-		-		-		-			-
Ningbo Anqi		-		-		-		-		-			-

	$	-	$	-	$	-	$	12,862,621	$	(7,142,275	)	$	-

	Six Months Ended June 30（Unaudited）
	2012						2011
	From(i)		To(i)		Balance(ii)		From(i)		To(i)			Balance(ii)

Ningbo Litong	$	-	$	-	$	-	$	38,142,763	$	(35,904,295	)	$	-
Jiangdong Deze		-		-		-		2,602,870		(2,602,870	)		-
Ningbo Anqi		-		-		-		6,866,984		(6,866,984	)		-

	$	-	$	-	$	-	$	47,612,617	$	(45,374,149	)	$	-

(i) Transactions during the year are translated at average exchange rates.

(ii) Balances at year end are translated at the balance sheet exchange rate.

-19-

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and result of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of the other reports we file with the Securities and Exchange Commission. Actual results may differ materially from those contained in any forward-looking statements.

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Keyuan for the six months ended June 30, 2012 and 2011 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Overview

Operating through our wholly-owned subsidiaries, Ningbo Keyuan and Ningbo Keyuan Petrochemicals, our operations include (i) a production facility with an annual petrochemical production capacity of 720,000 metric tons (MT) of a variety of petrochemical products, (ii) facilities for the storage and loading of raw materials and finished goods and (iii) a manufacturing technology that can support our manufacturing process with relatively low raw material costs and high utilization and yields, all of which are led by a management team consisting of petrochemical experts with proven track records from some of China’s largest state-owned enterprises in the petrochemical industry.

In order to facilitate the Company’s future growth, Ningbo Keyuan Petrochemicals, Ltd. was incorporated in Ningbo, China with a registered capital of $3 million as a wholly-owned subsidiary of Keyuan Group Limitd (the Hong Kong entity) on August 27, 2010. Ningbo Keyuan Petrochemicals is responsible for the sales and marketing, raw materials sourcing and market analysis for the Company. Dr. Jingtao Ma was appointed as the General Manager of the new entity. Dr. Ma was the head of the former sales and marketing division at Keyuan. This new entity will also serve as the “market thermometer” that can better monitor market conditions and obtain first hand market data through buying and selling activities. Management believes that the consolidation of the sales and marketing and raw material procurement function under one business unit will help efficiently manage the future expansion of the Company. In addition, on December 2, 2011, Mr. Jingtao Ma was appointed as the new General Manager of Ningbo Keyuan, replacing Mr. Chunfeng Tao so that Mr. Tao can focus on the overall development and strategy of the Company.

In order to optimize the Company’s expansion project, sGuangxi Keyuan New Materials Co., Ltd was incorporated on April 4, 2012 in Guangxi province, China as the base for developing the Guangxi Project. Ningbo Keyuan Synthetic Rubbers Co., Limited was incorporated on June 15, 2012 as a foreign owned enterprise to engage in the sales and marketing of various petrochemical products, specifically synthetic rubbers.

-20-

Our organization chart is as follows:

In April 2011, we expanded our annual production capacity from 550,000 MT to 720,000 MT in April 2011. We also completed the construction of a Styrene-Butadience-Styrene (the “SBS”) production facility with an annual production capacity of 70,000 MT in September 2011. One SBS production line began commercial production in December 2011 and the second line began commercial production in August, 2012. In addition, we plan to complete an additional storage capacity, a raw material pre-treatment facility and an asphalt production facility by the end of 2012. However, management is currently evaluating the effectiveness and feasibility of the entire manufacturing capacity expansion strategy considering the long-term development and the industry environment and the timetable may be adjusted based on the evaluation results.

In January 2012, we signed a cooperation agreement with Fangchenggang City to build a new petrochemicals production facility in Guangxi Keyuan New Materials Industrial Park, in Guangxi Province. The total investment amount to construct this new production facility is RMB 12.8 billion (approximately USD $2.02 billion). We commenced pre-construction activities including but not limited to applying for the governmental approvals and licenses in February 2012 and expect to complete the pre-construction preparations by the end of 2012, and intend to finish the initial stage of construction and begin operations by the end of 2013. However, the timeline is subject to revision pending the status of project financing. This new production facility, as a part of our expansion plan will improve our competitive position by extending and expanding our supply chain and manufacturing base. Once the facility is fully operational, it is expected to have annual production capacity of 400,000 metric tons of Acrylonitrile Butadiene Styrene (the “ABS”). We plan to fund the construction and operation of the new production facility through outside financing. If such financing is not available at terms acceptable to us, construction of this facility will be delayed until appropriate financing is available. According to the cooperation agreement, the government of Fangchenggang City will be responsible to provide land use right for the facility.

-21-

In the first six months of 2012, the extreme fluctuation in international oil prices has caused substantial negative impact on the petrochemical industry, including us. To address this issue, we engaged with research institutes in Shanghai and Zhejiang province to study the possibility and feasibility of diversifying our products, developing high value-added products and improving our production efficiency so that we can have a more stable long-term development plan, to optimize product structures, and to reduce the adverse effects of oil price fluctuations and the general economic environment.

Our Facility and Equipment

Facility

As of June 30, 2012, we have invested a total of approximately $227 million in the construction and improvement of our production facility. Our current production facility encompasses roughly 1.3 million square feet, including 594,000 square feet for production and 19,500 square feet for laboratories and offices. We also acquired an additional 1.2 million square feet of land in August 2010 for our future expansion.

We have a total of 100,000 MT of storage capacity, consisting of 50,000 MT of storage capacity for raw materials and 50,000 MT for finished products. As part of our expansion plan, we intend to add 180,000 MT of new storage capacity in 2012, after which our total storage capacity will be 280,000 MT.

We have an on-site ocean shipping dock with 5,000 MT of shipping capacity and a 10-truck loading facility. Approximately 90% of our feedstock and finished products use this shipping dock. We also have adjacent access to another shipping dock with an additional 50,000 MT of shipping capacity.

Equipment

Our major processing equipment includes the following:

● Heavy oil catalytic pyrolysis processing equipment- risers/generators/precipitators, fuel gas boilers, fractionating tower, absorbing re-absorbing and desorbing towers, heat exchangers, pumps, a stabilizing tower;

● Gas fractionation processing equipment- de-propanizing tower, refining propylene tower, de-ethanizination tower, heat exchangers, pumps;

● Ethylbenzene processing equipment- alkylation reactor, anti-alkylation reactor, dehydrogenation reactor, propylene absorbing tower, de-ethylene tower, ethylbenzene recovering tower, heating furnace for benzene, heating furnace for gas, steam overheating furnace, tail gas compressor, washing tower; and

● Liquefied petroleum gas (LPG) and sulfur recovery process- LPG desulfurization extraction tower, dry gas desulfurization tower, regenerating tower, LPG de-mecaptan extraction tower.

-22-

Our Products

We manufacture and supply a variety of petrochemical products, including BTX aromatics, propylene, styrene, LPG, MTBE and other petrochemicals.

● BTX Aromatics: consisting of benzene, toluene, xylene and other chemical components for further processing into plastics, gasoline and solvents materials widely used in paint, ink, construction coating and pesticide.

● Propylene: a chemical intermediate as one of the building blocks for an array of chemical and plastic products that are commonly used to produce polypropylene, acrylonitrile, oxo alcohols, propylene oxide, cumene, isopropyl alcohol, acrylic acid and other chemicals for paints, household detergents, automotive brake fluids, indoor/outdoor carpeting, textile, insulating materials, auto parts and electrical appliances.

● Styrene: a precursor to polystyrene and several copolymers widely used for packaging materials, construction materials, electronic parts, home appliances, household goods, home furnishings, toys, sporting goods and others.

● LPG: a mixture of hydrocarbon gases used as fuel in heating appliances and vehicles. A replacement for chlorofluorocarbons as an aerosol propellant and a refrigerant which reduces damage to the ozone layer.

● MTBE & Other Chemicals: MTBE, oil slurry, sulphur and others are used for a variety of applications including fuel components, refrigeration systems, fertilizers, insecticides and fungicides, etc.

Expansion Plan

Our annual designed manufacturing capacity was 550,000 metric tons of a variety of petrochemical products at the end of 2010. In order to meet the increasing market demands, we upgraded the catalytic pyrolysis processing equipment used in our production facilities to expand the capacity from 550,000 MT to 720,000 MT. This capacity expansion project started in March 2010 and was completed in April 2011. We also substantially completed building an SBS production facility which is capable of producing up to70,000 MT in September 2011 and started commercial production in December 2011 for one production line. The second line entered into commercial production in early August 2012,

We are planning to expand our facility to include additional storage capacity, a raw material pre-treatment facility, an asphalt production and ABS production facility.

SBS Facility

In September 2011, we substantially completed building a new facility designed for producing SBS, one of the Styreneic Block Copolymers. SBS is a product with higher product margin with major application for footwear, adhesive, polymer modification and modified asphalt industries. The SBS facility was built on part of the 1.2 million square feet of land for which we obtained the use right in August 2010. The construction started in September 2010 and was substantially completed in September 2011. We started trial production in October and November 2011. One SBS production line began commercial production in December 2011 and has produced about 13,100 tons as of June 30, 2012. The second line entered into commercial production in early August 2012. The designed capacity of the SBS facility allows for production of up to 70,000 metric tons per year. We expect to generate net profit margins of 10% from our production of SBS once the facility reaches normal production levels. The SBS facility is anticipated to achieve an 80% utilization rate in 2012.

Other Expansion Projects

In addition to the SBS production facility, we plan to increase our current 100,000 MT storage capacity to 280,000 MT. Management believes that the increased storage capacity will allow the Company to take better advantage of sales price variations of raw materials and our products, as well supporting the storage needs resulting from our various expansion projects and our corresponding increased overall production capacity. We also plan to build a pretreatment facility and an asphalt facility on the land that was acquired in August 2010. The pretreatment facility will allow us to handle lower grade raw materials thereby allowing us to further decrease overall raw material costs. In addition, this facility will improve efficiency in current production process and provide the necessary feedstock for our planned asphalt production. The new asphalt facility will be capable of producing as much as 300,000 MT annually once it is completed. Once completed and fully operational, we estimate that the new asphalt facility will generate approximately $298 million in sales and approximately $30 million of additional profits a year. Currently, the management is evaluating the effectiveness and feasibility of above mentioned three expansion projects based upon the long-term development and the industry environment. We also entered into a cooperation agreement with Fanchenggang City to build an ABS production facility with an estimated annual production of 400,000 MT ABS upon completion.

The actual and estimated schedule of our expansion plan is as follows:

	Completed SBS facility in September 2011(achieved)
	Completed trial production and began SBS production and sales in the fourth quarter of 2011 (achieved)
	Complete storage capacity expansion, pretreatment facility and asphalt by December 31, 2012
	Complete first phase construction of an ABS facility by the end of 2013

On August 18, 2010, we acquired four parcels of land adjacent to the Company's current facilities totaling approximately 1.2 million square feet. The total cost of the land was approximately $5.8 million. Aside from the cost of the land acquisition, the estimated cost of the storage expansion and construction of the pretreatment and asphalt facilities is approximately $70 million , including $20 million for facility construction, $40 million for new equipment, and $10 million for working capital. We are currently estimating the cost of the ABS production facility.

We plan to fund this proposed expansion through debt financing, cash from operations, proceeds from prior financings, warrant exercises, and potential equity financing. However, we may not be able to obtain additional financing at acceptable terms, or at all, and, as a result, our ability to increase our production capacity and to expand our business could be adversely affected.

Currently, management is evaluating the effectiveness and feasibility of the whole manufacturing capacity expansion strategy based upon the long-term development and the industry environment. Therefore, the Company may make adjustments to one or more of the projects according to the evaluation results.

Manufacturing and Sales

Our total production of finished products was 182,364 MT for the three months ended June 30, 2012 and we generated $184 million in revenue based on the sale of 169,107 MT of petrochemical products, including 350 MT of products produced by third parties. For the first six months of 2012, our total production was 342,978 MT and revenue generated from sales was $368 million, which represented an increase of 54% from the same period of 2011.

-23-

Results of Operations

The following table sets forth information from our statements of comprehensive income for the three and six months ended June 30, 2012 and 2011.

Comparison of the three and six months ended June 30, 2012and 2011

	For the three months						Year to Year Comparison						For the six months						Year to Year Comparison
	Ended June 30,						Increase			Percentage			Ended June 30,						Increase			Percentage
	2012			2011			/(Decrease)			change			2012			2011			/(Decrease)			change

Sales
Third parties	$	184,425,717		$	115,281,945		$	69,143,772			60	%	$	367,750,405		$	239,436,744		$	128,313,661			54	%
Related Parties		-			35,607,658			(35,607,658	)		(100	%)		-			58,217,477			(58,217,477	)		(100	%)
Total sales	$	184,425,717		$	150,889,603		$	33,536,116			22	%	$	367,750,405		$	297,654,221		$	70,096,184			24	%

Cost of sales
Third parties		178,005,456			111,055,933			66,949,523			60	%		351,857,165			224,870,131			126,987,034			56	%
Related Parties		-			37,977,326			(37,977,326	)		(100	%)		-			58,276,685			(58,276,685	)		(100	%)
Total cost of sales		178,005,456			149,033,259			28,972,197			19	%		351,857,165			283,146,816			68,710,349			24	%

Gross profit		6,420,261			1,856,344			4,563,917			246	%		15,893,240			14,507,405			1,385,835			10	%

Operating expenses
Selling expenses		388,217			215,548			172,669			80	%		641,123			754,680			(113,557	)		(15	%)
General and administrative expenses		2,656,620			4,529,744			(1,873,124	)		(41	%)		5,266,815			7,764,824			(2,498,009	)		(32	%)
Total operating expenses		3,044,837			4,745,292			(1,700,655	)		(36	%)		5,907,938			8,519,504			(2,611,566	)		(31	%)

Income (Loss) from operations		3,375,424			(2,888,948	)		6,264,372			217	%		9,985,302			5,987,901			3,997,401			67	%

Other income (expenses):
Interest expense, net		(1,047,469	)		(1,856,793	)		809,324			(44	%)		(4,486,936	)		(4,146,479	)		(340,457	)		8	%
Foreign exchange gain (loss), net		(542,352	)		3,200,356			(3,742,708	)		(117	%)		(364,518	)		2,052,713			(2,417,231	)		(118	%)
Liquidated damage expenses		-			(1,300,730	)		1,300,730			(100	%)		-			(1,300,730	)		1,300,730			(100	%)
Non-operating income (expenses)		147,022			1,689,404			(1,542,383	)		(91	%)		(217,039	)		3,716,178			(3,933,217	)		(106	%)
Total other (expenses) Income		(1,442,799	)		1,732,237			(3,175,036	)		(183	%)		(5,068,493	)		321,682			(5,390,175	)		(1676	%)

Income (Loss) for income taxes		1,932,625			(1,156,711	)		3,089,336			267	%		4,916,809			6,309,583			(1,392,774	)		(22	%)
Income tax expense		870,277			665,828			204,449			31	%		2,009,469			2,917,979			(908,510	)		(31	%)
(Loss) Net Income		1,062,348			(1,822,539	)		2,884,887			158	%		2,907,340			3,391,604			(484,264	)		(14	%)
Other comprehensive income
Foreign currency translation adjustment		130,680			617,550			(486,870	)		(79	%)		708,091			1,174,874			(466,783	)		(40	%)
Comprehensive income (loss)	$	1,193,028		$	(1,204,989	)	$	2,398,017			199	%	$	3,615,431		$	4,566,478		$	(951,047	)		(21	%)

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Sales: Our sales for the three months ended June 30, 2012 were approximately $184.4 million compared to sales of $150.9 million for the three months ended June 30, 2011, an increase of $33.5 million, or 22%. The substantial increase in our sales was due to the higher capacity utilization coupled with the higher average sales price of our products. In the three months ended June 30, 2012, we sold 169,107 metric tons of petrochemical products at an average price of $1,091 per metric ton, as compared to sales of 155,954 metric tons of petrochemical products at an average price of $968 per metric ton in the three months ended June 30, 2011. This represents an increase of approximately 12.7 % in the average sales price and an increase of approximately 8.4% in overall products sold.

Our overall sales for the three months ended June 30, 2012 did not include any sales to related parties as compared to approximately $35.6 million of sales to related parties in the same period in 2011. Pricing for sales to related parties was determined on the same basis as sales to non-related parties. For additional informational on related party sales, please refer to Footnote 22 of the financial statements.

Sales for the six months ended June 30, 2012 were approximately $367.8 million compared to sales of $297.7 million for the six months ended June 30, 2011, an increase of $70 million, or 24%. The substantial increase in our sales was due to the higher capacity utilization coupled with the higher average sales price of our products. In the six months ended June 30, 2012 we sold 326,961 metric tons of petrochemical products at an average price of $1,125 per metric ton, as compared to sales of 284,595 metric tons of petrochemical products at an average price of $1,046 per metric ton in the six months ended June 30, 2011. This represents an increase of approximately 7.5 % in the average sales price and an increase of approximately 14.9% in overall petrochemical products sold.

Our overall sales for the first six months of 2012 did not include any sales to related parties as compared to approximately $58.2 million in same period in 2011. Pricing for sales to related parties was determined on the same basis as that to non-related parties. For additional informational on related party sales, please refer to Footnote 22 of the financial statements.

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Cost of Sales: Overall cost of sales was approximately $178.0 million for the three months ended June 30, 2012, or 96.5% of sales, as compared to cost of sales of approximately $149.0 million, or 98.8% of sales for the three months ended June 30, 2011. Our cost of sales are primarily composed of the costs of direct raw materials (mainly heavy oil, benzene and carbinol), labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead. In the three months ended June 30, 2012 our average cost of finished product was $1,053 per metric ton, as compared to an average cost of $956 per metric ton in the three months ended June 30, 2011, an increase of 10.1%. The increase was mainly caused by the increase in raw material prices.

Our overall cost of sales was approximately $351.9 million for the six months ended June 30, 2012, or 95.7% of sales, as compared to cost of sales of approximately $283.1 million, or 95.1% of sales for the six months ended June 30, 2011. In the six months ended June 30, 2012 our average cost of finished product was $1,076 per metric ton, as compared to an average cost of $ 995 per metric ton in the six months ended June 30, 2011, an increase of 8.1%. The increase was mainly caused by the increase in raw material prices.

Gross Profit: Gross profit for the three months ended June 30, 2012 was approximately $6.4 million as compared to $1.9 million for the comparable period in 2011. Our gross margin increased from 1.23% for the three months ended June 30, 2011 to 3.48% for the three months ended June 30, 2012. The main reason for the increase in the gross profit is the improvement of production efficiency and the suspension of production for approximately [insert time frame], which, when amortized over the period, resulted in increased per unit fixed costs and negatively impacted the gross profit by approximately 0.9% for the three months ended June 30, 2011. This is due to the fact that even though during these periods when production was suspended, our total fixed costs remain unchanged and, as a result, the per unit fixed cost is higher and gross margins are lowered.

Gross profit for the six months ended June 30, 2012 was approximately $15.9 million as compared to $14.5 million for the comparable period in 2011. Our gross margin has decreased from 4.9% for the six months ended June 30, 2011 to 4.3% for the six months ended June 30, 2012. The main reason for the decrease in the gross margin is due to delays in passing cost increases onto our customers.

Operating Expenses: Operating expenses, including selling expenses, and general and administrative expenses, were approximately $3.0 million, or 1.7% of sales for the three months ended June 30, 2012, as compared to $4.7 million, or 3.1% of sales, for the three months ended June 30, 2011, a decrease of approximately $1.7 million. The decrease of the expenses was due to the decrease in general and administrative expenses, due to a substantial decrease in various legal, consulting and internal expenses related to the independent investigation that took place in 2011. General and administrative expenses for the three months ended June 30, 2012 were $2.7 million, as compared to general and administrative expenses of $4.5 million for the three months ended June 30, 2011.

Operating expenses, including selling expenses and general and administrative expenses, were approximately $5.9 million, or 1.6 % of sales for the six months ended June 30, 2012, as compared to $8.5 million, or 2.9% of sales for the comparable period in 2011, a decrease of approximately $2.6 million. The decrease in the expenses was due to the decreases in share-based compensation and various legal, consulting and internal expenses related to the independent investigation. Selling expenses for the six months ended June 30, 2012 were $0.64 million, as compared to selling expenses of $0.75 million for the six months ended June 30, 2011. General and administrative expenses for the six months ended June 30, 2012 were $5.3 million, as compared to general and administrative expenses of $7.8 million for the six months ended June 30, 2011.

Interest Expense (net): For the three months ended June 30, 2012, interest expense (net) was approximately $1.0 million, as compared to interest expense (net) of approximately $1.9 million, for the comparable period in 2011. The decrease in interest expenses was mainly due to interest capitalization related to the SBS project. For the six months ended June 30, 2012, interest expense was approximately $4.5 million, as compared to interest expense (net) of approximately $4.1 million for the six months ended June 30, 2011.

Net Income/loss: Net income was approximately $1.1 million for the three months ended June 30, 2012, as compared to a net loss of approximately $1.8 million in the same period in 2011, an increase of $2.9 million, or 158%. The increase was mainly due to a higher yield rate and decreased legal, consulting and investigation expenses.

Net income for the six months ended June 30, 2012 was approximately $2.9 million, as compared to a net income of approximately $3.4 million in the same period in 2011, a decrease of $0.5 million, or 14%.

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Foreign Currency Translation Adjustment: Our reporting currency is the U.S. dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to $0.1 million for the three months ended June 30, 2012. The balance sheet amounts, at June 30, 2012 and 2011, with the exception of equity, were translated at RMB 6.30915 and RMB 6.46412 to 1.00 U.S. dollar respectively. The equity accounts were translated at their historical rates. The average translation rates applied to income statement accounts for the three months ended June 30, 2012 and 2011 were RMB 6.30279 and RMB 6.53125, respectively, to 1.00 U.S. dollar.

Liquidity and Capital Resources

The following table sets forth a summary of our cash flows for the periods indicated:

	For the Six Months Ended June 30,
	2012 (Unaudited)			2011 (Unaudited)
Net cash (used in) provided by operating activities		(106,934,901	)		34,701,657
Net cash used in investing activities		(21,295,703	)		(11,563,733	)
Net cash provided by (used in) financing activities		131,548,092			(46,969,550	)

Net cash used in operating activities was approximately $106.9 mllion for the six months ended June 30, 2012, as compared to net cash provided by operations activities of approximately $34.7 million for the same period in 2011. The decrease was primarily caused by the increase in inventory, prepayments to suppliers and consumption tax refund receivable.

Net cash used in investing activities was approximately $21.3 milion and $11.6 million for the six months ended June 30, 2012 and 2011, respectively. Net cash used in investing activities was primarily focused on payments for the infrastructure construction and the expansion of our facility. As we move forward with our expansion, it is expected that net cash used in investing activities will be consistent throughout 2012.

Net cash provided by financing activities amounted to approximately $131.5 million for the six months ended June 30, 2012. Net cash used in financing activities amounted to approximately $47.0 million for the same period in 2011. For the six months ended June 30, 2012, the net cash provided by financing activities was through an increase in bank borrowings and bills payable.

We have entered into loan agreements with our primary lenders, Bank of China, China Construction Bank, Agricultural Bank of China, etc. under which we have term loans. As of June 30, 2012, we had an aggregate principal amount of approximately $409.4 million in bank loans outstanding under the loan agreements, with maturity dates from July 2012 to June 2013 and interest rates from 1.57% to 7.93% per annum. The loan agreements contain customary affirmative and negative covenants and were guaranteed by third parties and individual persons or secured by a lien on our property and equipment. According to the loan agreements, we are obliged to use the loans for the purpose specified in the agreements and may be subject to penalties or liquidated damages if we are in violation of these agreements. If we fail to repay in a timely manner, or fail to obtain the written consent of the lenders regarding extension applications, we may be subject to default interest or the loans may be canceled.

Historically, all debts have been paid off by the Company in a timely manner. All unpaid loan balances are revolving loans whose terms (at due date of payment) are extended by the lender. As of June 30, 2012, we were in compliance with the terms of our loan agreements. Management expects all unpaid loan balances will be extended at their due date. Depending on capital needs, the Company evaluates whether to apply for additional long-term bank loans. The Company currently has sufficient lines of credit with the banks for both short-term and long-term borrowings.

One August 15, 2012, the company received a consumption tax refund of $95,124,967 due from new consumption tax policies of PRC issued on October, 2011. The Company anticipated that consumption tax claims procedures will be more efficient in the future.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Our management maintains disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were ineffective in ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and were ineffective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b) Changes in internal control over financial reporting

In connection with the preparation of our Form 10-K for the period ended December 31, 2010, our former auditors, KPMG, raised certain issues, which were primarily related to issues regarding certain cash transactions and recorded sales. As a result, our Audit Committee elected to commence an independent investigation and engaged the services of independent counsel, Pillsbury Winthrop Shaw Pittman LLP, which in turn engaged the services of Deloitte Financial Advisory Services LLP, as independent forensic accountants, and King & Wood, as Audit Committee counsel in China. As a result of the investigation, the Audit Committee identified a number of issues that may have a material impact on our internal controls and procedures over financial reporting.

Since the commencement of investigation, the Company has been focused on improving its internal controls and procedures. Because of the material weaknesses described in Item 9A. “Controls and Procedures” in our annual report on Form 10-K for the year ended December 31, 2011, that the Company is still in the process of remediating its internal control, management concluded that, as of June 30, 2012, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of annual report on Form 10-K for the year ended December 31, 2011 for the description of these weaknesses.

As of June 30, 2012, the Company has taken and has begun to take the following measures to remediate the material weaknesses:

1)	A review of the responsibilities of senior management and a restructuring of our organization chart in order to provide for proper segregation of duties, including but not limited to:

a)	Restructuring of our previous accounting department into Planning Finance Department and Funds Department, and streamlining the department’s roles to ensure clear responsibilities, work efficiency and adequate oversight of the CFO; and

b)	Termination of Mr. Xue in August 2011, our former Vice President of Accounting/ PRC CFO and hiring of Mr. Fan Zhang as Vice President of Accounting/PRC CFO.

2)	Continued and careful evaluation of control processes and systems by the Audit Committee, the Board of Directors and Management, including but not limited to:

a)	Engagement of a compliance officer to monitor the Company’s corporate governance and compliance, reporting directly to the Audit Committee;

Evaluation of the duties and responsibilities of the CEO and his role in day-to-day operations of the Company and the control environment; and the appointment of Mr. Jiangtao Ma as General Manger of Ningbo Keyuan in December 2011 to replace Mr. Tao, so that Mr. Tao can focus on the Company’s overall development and strategy;

c)	Implementation of a comprehensive budget management procedure based upon the evaluation of the management and proposals from an outside consultant to assist with SOX 404 compliance; and

d)	The addition of one or one or more additional independent, bilingual Chinese-speaking directors to facilitate the Board oversight and assist and augment the efforts of the current independent directors.

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3)	Implementation of additional controls and procedures to ensure the preparation and review of complete and transparent US GAAP financial statements in a timely and efficient manner, including but not limited to:

a)	Additional training in U.S. GAAP for our accounting staff to ensure the accuracy of the Financial statement; and

b)	Hiring of additional qualified accounting personnel, including an experienced controller;

4)	Cessation of the use of an off-balance sheet cash account and the adoption of policies and procedures to prevent the future use of off balance sheet accounts as well as development of new policies and procedures to strengthen effective management and day-to-day operation of funds;

5)	Implementation of new procedures for the identification and approval of and appropriate disclosure of related party transactions;

6)	Development and implementation of Customer Access System and Database Management System to review business licenses and other related documents, as well as conducting site visits to current and potential customers to ensure their good standing and improve the Company’s recording of transactions;

7)	Implementation of new policies and procedures to ensure that all transactions are supported by sufficient documentation;

8)	Development and implementation of policies and procedures that provide continuous risk assessment of legal and regulatory considerations related to business activities;

9)	Development of policies to ensure that all identified contingencies are evaluated completely and in a timely manner;

10)	Development and implementation of policies and procedures to ensure that revenues are properly recorded and all invoices are appropriately reviewed by accounting personnel;

11)	Implementation of policies and procedures to ensure inventory purchases are properly recorded;

12)	Implementation of policies and procedures to ensure that all liabilities are recorded on the proper period;

13)	Development and implementation of policies and procedures to ensure that financial information is appropriately shared during inter-departmental meetings;

14)	Development and implementation of procedures to set up an effective incentive system and commitment system to retain personnel and prevent talent losses; and

15)	Planned adoption of a Corporate Best Practices Manual;

In addition, as a result of the resignation of Mr. Gerry Goldberg as the Chairman of the Audit Committee on June 29, 2012, we are currently seeking to hire another independent director as the Chairman of the Audit Committee who is bilingual with financial expertise and meets requirements for independence as set forth in Nasdaq Rule 4200(a) (14).

We believe that the remediation measures we are taking, if effectively implemented and maintained, will remediate the material weaknesses.

Except as described above, there have been no changes in our internal controls over financial reporting that occurred during the fiscal period to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

On November 15, 2011, The Rosen Law Firm, P.A. filed a class action suit, alleging the Company had violated federal securities laws by issuing materially false and misleading statements and omitting material facts with regard to disclosure of related party transactions and the effectiveness of internal controls in past public filings. The Company filed a motion to dismiss on July 27, 2012, which is presently scheduled to be heard by the Court in October 2012. Discovery has not yet commenced, and will be stayed pending resolution of the motion to dismiss. The Company believes there is no basis to the suit filed by the Rosen Law Firm and intends to contest the case vigorously.

On January 9, 2012, Ningbo Keyuan filed a law suit in Ningbo Beilun District People’s Court against Zhenjiang Kaiyuan Installation Group (now known as Zhenjiang Industry Equipment Installation Group Co., Ltd) in breach of a project construction contract and alleged damages of RMB 98,000. Zhenjiang Industry Equipment filed a counter claim requiring us to pay RMB 9,825,615 of project cost and RMB 1,350,000 of interest. The two parties have settled the case and Ningbo Keyuan agreed to pay RMB 7,220,000 (approximately $1,144,738) to Zhenjiang Industry Equipment.

Other than as set forth herein, we are currently not a party to any material legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us.

Item 1A. Risk Factors

Not applicable to smaller reporting companies.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not Applicable.

(b) Not Applicable.

(c ) Not Applicable

ITEM 3. Defaults upon Senior Securities

(a) Not Applicable.

(b) Not Applicable.

ITEM 4. (Removed and Reserved)

ITEM 5. OTHER INFORMATION

(a) Not applicable.

(b) Not applicable.

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ITEM 6. EXHIBITS

(a) The following exhibits are filed as part of this report.

2.1	Share Exchange Agreement dated April 22, 2010 (incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K filed on April 28, 2010)
2.2	Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K filed on May 19, 2010)
3.1	Amended Articles of Incorporation of Keyuan Petrochemicals, Inc. (f/k/a Silver Pearls, Inc.), filed with the Secretary of State of Nevada (incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-1 filed on December 29, 2010).
3.2	Articles of Merger (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on May 19, 2010)
3.3	Amended Bylaws of Keyuan Petrochemicals, Inc. dated June 29, 2010 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on July 7, 2010)
4.1	Certificate of Designation of Rights and Preferences of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on April 28, 2010)
4.2	Certificate of Designation of Rights and Preferences of Series M Preferred Stock (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on April 28, 2010)
4.3	Certificate of Designation of Rights and Preference of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on September 30, 2010)
10.1	Translation copy of Transportation Agreement between Ningbo Keyuan Plastics Co., Ltd and Zibo Yancheng Logistics Co., Ltd dated February 2, 2012.
10.2	Translation copy of Loan Guaranty Agreement between China Merchants bank Inc Ningbo Beilun Branch and Ningbo Litong Petrochemical dated April 16, 2012.
10.3	Translation copy of Loan Guaranty Agreement between Bank of China Inc Beilun Sub-branch and Ningbo Keyaun Plastics Co., Ltd dated May 14, 2012
10..4	Translation copy of Loan Guaranty Agreement between Bank of China Inc Beilun Sub-Branch and Ningbo Kewei Fuels Co., Ltd dated May 4, 2012.
10.5	Translation copy of Inward Bill Agreement between Ningbo Keyuan Plastic Co., Ltd and Bank of China Inc, Beilun Branch dated June 21, 2012
10.6	Translation copy of Daifuda Business Contract (Short Term Loan) between Ningbo Keyuan Plastics Co., Ltd and Bank of China, Beilun Branch dated April 26, 2012.
10.7	Translation copy of Current Fund Loan Agreement between Ningbo Keyuan Plastics Co., Ltd and Shanghai Pudong Development Bank Co., Ltd., Ningbo Ximen Branch dated April 9, 2012
10.8	Translation copy of Current Fund Loan Agreement between Ningbo Keyuan Plastics Co., Ltd and Shanghai Pudong Development Bank Co., Ltd., Ningbo Ximen Branch dated April 23, 2012
10.9	Translation copy of Current Fund Loan Agreement between Ningbo Keyuan Plastics Co., Ltd and Shanghai Pudong Development Bank Co., Ltd., Ningbo Ximen Branch dated June 14, 2012
10.10	Translation copy of Daifuda Business Contract (Short Term Loan) between Ningbo Keyuan Plastics Co., Ltd and Bank of China, Beilun Branch dated May 2, 2012.
10.11	Translation copy of Trust Receipt Loan Agreement between Ningbo Keyuan Plastics Co., Ltd and China Construction Bank Ningbo Beilun Branch dated June 28, 2012.
31.1	Certification of Chief Executive Officer required by Rule 13a-14/15d-14(a) under the Exchange Act
31.2	Certification of Chief Financial Officer required by Rule 13a-14/15d-14(a) under the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	XBRL Instance Document
101.SCH*	RL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

Pursuant to Rule 405(a)(2) of Regulation S-T, the registrant is relying upon the applicable 30-day grace period for the initial filing of its first Interactive Data File required to contain detail-tagged footnotes or schedules. The registrant intends to file the required detail-tagged footnotes or schedules by the filing of an amendment to this Quarterly Report on Form 10-Q within the 30-day period.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 20, 2012	Keyuan Petrochemicals, Inc.

	By: /s/ Chunfeng Tao
	Chunfeng Tao
	Chief Executive Officer & President

	By: /s/ Fan Zhang
	Fan Zhang Acting Chief Financial Officer/Vice President of Accounting

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Attached files

Keyuan Petrochemicals, Inc. Reports

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