CHINA NORTH EAST PETROLEUM HOLDINGS LTD - FORM 8-K/A - EX-99.1 - UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO.

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8-K/A - AMENDMENT NO. 1 - CHINA NORTH EAST PETROLEUM HOLDINGS LTD	j6281118ka1.htm

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma balance sheet as of March 31, 2011 was prepared as if the acquisition was effective as of such date. The unaudited pro forma statement of operations for the three months period ended March 31, 2011 was prepared as if the acquisition was effective on December 31, 2010. The unaudited pro forma statement of operations for the year ended December 31, 2010 was prepared as if the acquisition was effective on December 31, 2009.

The unaudited pro forma financial statements should be read in conjunction with the unaudited consolidated financial statements included herein for China North East Petroleum Holdings Limited and subsidiaries (“NEP”, the “Company,” “we,” “us” or “our”) and the unaudited financial statements of Sunite Right Banner Shengyuan Oil and Gas Technology Development Co. Limited (“Shengyuan”). The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the future financial position or future results of operations of the combined enterprise after the acquisition of Shengyuan by NEP, or of the financial position or results of operations of NEP after acquisition of Shengyuan that would have actually occurred had the acquisition been effected as of the dates described above.

Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2011

	NEP Historical Mar 31, 2011		Shengyuan Historical Mar 31, 2011		Pro Forma Adjustments			Notes	Pro Forma Balance Sheet

CURRENT ASSETS
Cash and cash equivalents	$	75,154,685	$	775	$	(10,255,058	)	(A)	$	64,900,402
Accounts receivable		21,983,502		-						21,983,502
Prepaid expenses and other current assets		1,434,878		-						1,434,878
VAT recoverable		142,292								142,292
Total Current Assets		98,715,357		775						88,461,074

PROPERTY AND EQUIPMENT
Proved oil properties, net		40,873,145		3,380,137		39,643,728		(B)		83,897,010
Unproved oil properties, net		-		8,110,833						8,110,833
Fixed assets, net		14,345,467		23,121						14,368,588
Oil properties under construction		235,317		-						235,317

Total Property and Equipment		55,453,929		11,514,091						106,611,748

LAND USE RIGHTS, NET		601,371		-						601,371
GOODWILL		1,645,589		-						1,645,589
DEFERRED TAX ASSETS		5,855,909		-						5,855,909

TOTAL ASSETS	$	162,272,155	$	11,514,866					$	203,175,691

Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2011 (Continued)

	NEP Historical Mar 31, 2011		Shengyuan Historical Mar 31, 2011		Pro Forma Adjustments			Notes	Pro Forma Balance Sheet

CURRENT LIABILITIES
Accounts payable	$	4,513,255	$	311,707					$	4,824,962
Other payables and accrued expenses		1,100,009		105,163						1,205,172
Income tax and other taxes payable		6,630,706		-						6,630,706
Due to a related party		15,267		-						15,267
Due to an unrelated party		1,500,000		-						1,500,000
Due to a stockholder		2,739,111		10,514,564	$	(10,514,564	)	(B)		2,739,111

Total Current Liabilities		16,498,348		10,931,434						16,915,218

LONG-TERM LIABILITIES
Warrants		9,582,572		-						9,582,572
Deferred tax liabilities		-		104,164		9,910,932		(B)		10,015,096

Total Long-term Liabilities		9,582,572		104,164						19,597,668

TOTAL LIABILITIES		26,080,920		11,035,598						36,512,886

EQUITY
Common stock		29,605		-		5,800		(A)		35,405
Additional paid-in capital		50,296,030		439,142		24,354,200		(A)		74,650,230
						(439,142	)	(B)
Retained earnings
Unappropriated		61,340,976		21,551		4,079,650		(B)		65,420,626
						(21,551	)	(B)
Appropriated		2,837,647		-						2,837,647
Accumulated other comprehensive income		8,903,779		18,575		(18,575	)	(B)		8,903,779
Non-controlling interest		12,783,198		-		2,031,920		(B)		14,815,118

Total Stockholders’ Equity		136,191,235		479,268						166,662,805

TOTAL LIABILITIES AND EQUITY	$	162,272,155	$	11,514,866					$	203,175,691

Unaudited Pro Forma Condensed Statement of Operations for the Three Months Period Ended March 31, 2011

	NEP Historical Mar 31, 2011			Shengyuan Historical Mar 31, 2011			Pro Forma Adjustments			Notes	Pro Forma Statement of Operations

REVENUE
Sales of crude oil	$	14,861,037		$	-						$	14,861,037
Drilling revenue		6,889,498			-							6,889,498
Total Revenue		21,750,535			-							21,750,535

COST OF REVENUE
Crude oil extraction costs		2,224,789			-							2,224,789
Drilling costs		2,737,171			-							2,737,171
Depreciation, depletion and amortization of oil properties		1,482,594			-							1,482,594
Depreciation of drilling equipment		492,665			-							492,665
Amortization of land use rights		8,189			-							8,189
Government oil surcharge		3,059,899			-							3,059,899

Total Cost of Revenue		10,005,307			-							10,005,307

GROSS PROFIT		11,745,228			-							11,745,228

OPERATING EXPENSES
Selling, general and administrative expenses		746,311			13,286							759,597
Professional fees		547,500			-							547,500
Consulting fee		-			-							-
Depreciation of fixed assets		79,021			1,175							80,196

Total Operating Expenses		1,372,832			14,461							1,387,293

INCOME FROM OPERATION		10,372,396			(14,461	)						10,357,935

OTHER INCOME (EXPENSE)
Other income		14,399			-							14,399
Other expense		(3,216	)		-							(3,216	)
Interest expense		-			-							-
Interest income		53,704			-							53,704
Change in fair value of warrants		4,373,943			-							4,373,943
Total Other Income, net		4,438,830			-							4,438,830

NET INCOME BEFORE INCOME TAXES		14,811,226			(14,461	)						14,796,765
Income tax expenses		(2,662,772	)		-							(2,662,772	)

NET INCOME		12,148,454			(14,461	)						12,133,993
Less: net income attributable to non-controlling interest		(867,411	)		-		$	723		(C)		(866,688	)
NET INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS		11,281,043			(14,461	)						11,267,305

OTHER COMPREHENSIVE INCOME

Total other comprehensive income		1,285,264			4,560							1,289,824
Less: foreign currency translation gain attributable to non-controlling interest		-			-			(228	)	(C)		(228	)
Foreign currency translation gain attributable to NEP common stockholders		1,285,264			4,560							1,289,596

COMPREHENSIVE INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS	$	12,566,307		$	(9,901	)					$	12,556,901

Net income per share
- Basic											$	0.32
- Diluted											$	0.30

Weighted average number of shares outstanding during the period
- Basic												35,404,860
- Diluted												37,157,383

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2010

	NEP Historical Dec 31, 2010			Shengyuan Historical Dec 31, 2010			Pro Forma Adjustments			Notes	Pro Forma Statement of Operations

REVENUE
Sales of crude oil	$	54,672,157		$	485,474						$	55,157,631
Drilling revenue		44,875,757			-							44,875,757
Total Revenue		99,547,914			485,474							100,033,388

COST OF REVENUE
Crude oil extraction costs		4,113,237			5,459							4,118,696
Drilling costs		17,555,255			-							17,555,255
Depreciation, depletion and amortization of oil properties		6,570,965			61,015		$	189,195		(D)		6,821,175
Depreciation of drilling equipment		1,925,895			-							1,925,895
Amortization of land use rights		31,754			-							31,754
Government oil surcharge		8,594,481			60,392							8,654,873

Total Cost of Revenue		38,791,587			126,866							39,107,648

GROSS PROFIT		60,756,327			358,608							60,925,740

OPERATING EXPENSES
Selling, general and administrative expenses		2,989,913			57,601							3,047,514
Professional fees		2,155,119			-							2,155,119
Consulting fee		2,258,207			-							2,258,207
Depreciation of fixed assets		399,691			8,563							408,254

Total Operating Expenses		7,802,930			66,164							7,869,094

INCOME FROM OPERATION		52,953,397			292,444							53,056,646

OTHER INCOME (EXPENSE)
Other income		68,151			-							68,151
Other expense		(43,996	)		-							(43,996	)
Interest expense		(33,396	)		-							(33,396	)
Interest income		122,336			-							122,336
Change in fair value of warrants		26,555,889			-							26,555,889
Penalty imposed by an investor on late filing of registration statement		(1,163,333	)		-							(1,163,333	)
Total Other Income, net		25,505,651			-							25,505,651

NET INCOME BEFORE INCOME TAXES		78,459,048			292,444							78,562,297
Income tax expenses		(15,768,417	)		(100,787	)						(15,869,204	)

NET INCOME		62,690,631			191,657							62,693,093
Less: net income attributable to non-controlling interest		(4,321,160	)		-			(9,583	)	(C)		(4,330,743	)
NET INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS		58,369,471			191,657							58,362,350

OTHER COMPREHENSIVE INCOME

Total other comprehensive income		4,366,982			13,765							4,380,747
Less: foreign currency translation loss attributable to non-controlling interest		70,081			-			(688	)	(C)		69,393
Foreign currency translation gain attributable to NEP common stockholders		4,437,063			13,765							4,450,140

COMPREHENSIVE INCOME ATTRIBUTABLE TO NEP COMMON STOCKHOLDERS	$	62,806,534		$	205,422						$	62,812,490

Net income per share
- Basic											$	1.66
- Diluted											$	1.57

Weighted average number of shares outstanding during the year
- Basic												35,171,002
- Diluted												37,099,044

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On April 21, 2011, we completed the Acquisition. The accompanying pro forma information presents the pro forma combined balance sheet and results of operations of the combined company based upon the historical financial statements of NEP and Shengyuan, after giving effect to the Acquisition adjustments described in these notes, and is intended to reflect the impact of the Acquisition on NEP. In addition, the Shengyuan historical financial statements have been translated from RMB to U.S. dollars for purposes of the pro forma information.

The Acquisition has been accounted for in the pro forma information by allocating the total purchase price of the Acquisition to the assets acquired and liabilities assumed based upon their estimated fair values. The allocation of the purchase price to assets acquired and liabilities assumed in the unaudited pro forma condensed combined balance sheet has been based upon management’s preliminary valuation estimates. Such allocations will be finalized based on additional valuation and other studies. Accordingly, the purchase price allocation adjustments and related impacts on the pro forma information are preliminary and are subject to revisions, which may be material when based upon the date of acquisition.

Pro Forma Adjustments

As a result of the Acquisition, dated April 21, 2011, Shengyuan became NEP’s subsidiary and the shareholders of Shengyuan received considerations comprising 1) RMB70,000,000 (approximately $10,255,058) and 2) an aggregate of 5,800,000 shares of NEP’s common stock (the “Acquisition Shares”). In addition, the completion of the acquisition is subject to the waiver of all rights to repayment of the amounts due to a shareholder in the amount of $10,514,564.

(A)

As of the closing date of the Acquisition: (a) NEP issued 5,800,000 Acquisition Shares of common stock to Shengyuan’s former shareholder at a price of $4.20 ($24,360,000); and (b) the cash consideration of RMB70,000,000 ($10,255,058) was settled.

As of March 31, 2011, the preliminary estimated total purchase price of acquisition, exclusive of consolidated cash of Shengyuan, is as follows:-

Cash consideration	$	10,255,058
Issuance of 5,800,000 common stock of NEP		24,360,000
Preliminary estimated total purchase price	$	34,615,058

(B)	The net assets to be acquired from Shengyuan using the amounts as of March 31, 2011, the pro forma adjustments to reflect the fair value of Shengyuan’s net reported assets and other purchase accounting adjustments are estimated as follows:

Shengyuan’s net assets as of March 31, 2011	$	479,268
Adjustment to record waiver of amount due to a former shareholder		10,514,564
Adjustment to fair value of oil properties		39,643,728
Adjustment to deferred tax liabilities to reflect fair value adjustments		(9,910,932	)
Adjustment to fair value of noncontrolling interest		(2,031,920	)
Net assets acquired		38,694,708
Preliminary allocation to bargain purchase on acquisition of Shengyuan		(4,079,650	)
Total purchase price	$	34,615,058

As of the closing date of the acquisition, a former shareholder of Shengyuan waived all his rights to repayment of the amount due to him of $10,514,564.

(C)	To record net income attributable to noncontrolling interest of Shengyuan.

(D)	To record the additional depreciation, depletion and amortization of oil properties due to fair value adjustments of Shengyuan’s oil properties.

CHINA NORTH EAST PETROLEUM HOLDINGS LTD - FORM 8-K/A - EX-99.1 - UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THERETO. - June 29, 2011

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CHINA NORTH EAST PETROLEUM HOLDINGS LTD Reports