China Integrated Energy, Inc. - FORM 10-K/A

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EX-32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - China Integrated Energy, Inc.	v226337_ex32-1.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - China Integrated Energy, Inc.	v226337_ex31-2.htm
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - China Integrated Energy, Inc.	v226337_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

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

For the Fiscal Year Ended: December 31, 2010

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

For the Transition Period from __________ to __________

Commission File No. 000-25413

China Integrated Energy, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware		65-0854589
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Dongxin Century Square, 7th Floor Hi-Tech Development District Xi’an, Shaanxi Province, People’s Republic of China		710043
Address of Principal Executive		(Zip Code)

Registrant’s telephone number, including area code: +86-29-8268-3920

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.0001 per share		NASDAQ Capital Market
(Title of Class)		(Name of exchange on which registered)

Securities registered pursuant to section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

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 (§ 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 ¨ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer (Do not check if a smaller reporting company) ¨	Smaller reporting company x

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

The aggregate market value of 11,891,746 shares held by non-affiliates of the issuer, based on the last sale price $8.30 of the common stock, as reported on the Nasdaq Capital Market on June 30, 2010, was $98,701,492.

As of March 12, 2011, there were 39,503,379 shares of the issuer’s common stock, par value $0.0001 per share, outstanding.

Documents incorporated by reference : None

TABLE OF CONTENTS

		Page

PART II		1

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2

Item 8.	Financial Statements and Supplementary Data.	11

Item 9A.	Controls and Procedures.	11

PART IV		14

Item 15.	Exhibits, Financial Statement Schedules.	14

Explanatory Note

On May 2, 2011, we filed a Current Report on Form 8-K announcing that KPMG, our auditor for the fiscal year ended December 31, 2010, determined that its previously issued audit report dated March 16, 2011 related to our consolidated balance sheet as of December 31, 2010, and the related consolidated statement of income and comprehensive income, stockholder’s equity, and cash flows for the year then ended, and effectiveness of internal control over financial reporting as of December 31, 2010, should no longer be relied upon. As a result of this determination, we have filed this Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010, removing the KPMG audit report and reflecting that our 2010 financial statements are unaudited.

In addition, our Annual Report on Form 10-K also included the audit report of our prior auditor, Sherb & Co., LLP (“Sherb”), dated March 30, 2010, with respect to our audited financial statements for the years ended December 31, 2009 and 2008. Sherb has informed us that, as of the date hereof, nothing has come to Sherb’s attention that has led Sherb to believe that its previously issued audit reports should no longer be relied upon. However, as of the date hereof, in order for Sherb to re-issue its prior audit report for inclusion in the this Amendment No. 1 to the Annual Report on Form 10-K, Sherb must perform certain procedures that include obtaining certain representations from the successor auditor. Since at this time, we are still in the process of identifying a new auditor, Sherb is unable to complete its procedures and therefore cannot re-issue its prior audit report for inclusion in this Amendment No. 1 to the Annual Report on Form 10-K. As a result of this determination, although Sherb has not withdrawn its previously issued audit report and has not determined that its prior audit report can no longer be relied upon, we have filed this Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 to also remove the Sherb audit report and reflect that our 2009 financial statements are unaudited.

This Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2010 amends the following Items: (i) Item 7 (Management’s Discussion of Analysis of Financial Condition and Results of Operations); (ii) Item 9A (Controls and Procedures); (iii) Item 15 (Exhibits and Financial Statement Schedules); and (iv) Consolidated Financial Statements.

Except as specifically referenced herein, this Amendment No. 1 to the Annual Report on Form 10-K does not reflect any event occurring subsequent to March 16, 2011, the filing date of the original report, and no other changes have been made to the report.

THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED, WHICH THE MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PERTAIN, ARE UNAUDITED.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This annual report on Form 10-K and other reports filed by the Company from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the risks contained in the section of this report entitled “Risk Factors”) relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.

Our unaudited financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our operations and our present business environment. MD&A is provided as a supplement to—and should be read in conjunction with—our unaudited consolidated financial statements and the accompanying notes thereto contained in “Item 8. Financial Statements of this report. This overview summarizes the MD&A, which includes the following sections:

Our Business— a general overview of our three business segments and the material opportunities and challenges of our business.

Critical Accounting Policies and Estimates— a discussion of accounting policies that require critical judgments and estimates.

Results of Operations —an analysis of our Company’s consolidated results of operations for the two years presented in our consolidated financial statements. Except to the extent that differences among our operating segments are material to an understanding of our business as a whole, we present the discussion in the MD&A on a consolidated basis.

Liquidity, Capital Resources and Financial Position— an analysis of cash flows; an overview of financial position.

The following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions such as statements of our plans, objectives, expectations, and intentions. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

Our Business

Company Overview

We are a leading non-state-owned integrated energy company in China engaged in three business segments, wholesale distribution of finished oil and heavy oil products, production and sale of biodiesel, and operation of retail gas stations.

We operate four oil depots located in Xi’an, Shaanxi Province, access to a 2.65 kilometer special transportation rail track, one 100,000 ton biodiesel production plant located in Tongchuan, Shaanxi Province and one 50,000 ton biodiesel production plant located in Chongqing, China. Our major market is China. Currently, our products are sold in 16 provinces and municipalities of China covering Shaanxi Province, Henan Province, Hebei Province, Shandong Province, Shanxi Province, Hunan Province, Hubei Province, Sichuan Province, Guizhou Province, Yunnan Province, Fujian Province, Xinjiang Province, Beijing, Guangxi Province, Gansu Province and Ningxia Hui Autonomous Region.

Fluctuations in Fuel Prices During 2010

The retail prices of gasoline and diesel, or finished oil sold in the PRC, are subject to the government guiding ceiling price. In order to link domestic oil prices more closely to changes in the global crude oil prices in a controlled manner, the Administrative Measures on Oil Prices promulgated by the National Development and Reform Commission (“NDRC”) in the PRC on May 7, 2009 stipulates that the NDRC will adjust domestic finished oil prices when the international market price for crude oil changes more than 4.0% over 22 consecutive working days. The NDRC adjusts domestic finished oil prices by modifying the retail price cap for gasoline and diesel in all provinces and such adjustment has upstream pricing effect over wholesale of finished oil and also tends to limit the market price of biodiesel. Details of the price adjustments during 2010 are as follows:

On April 14, 2010, the NDRC increased the price cap for gasoline and diesel from $1,075 to $1,124 and from $964 to $1,012, respectively, from the previous price adjustment on November 9, 2009. On June 1, 2010, the retail price cap was decreased by $34 per ton or 3.1% and $32 per ton or 3.3%, respectively, followed by an increase to reach the price level effective April 14, 2010 and a further increase of $46 per ton or 4.2% and $44 per ton or 4.5%, respectively on December 22, 2010.

The above increase and decrease in retail price cap reflect the fluctuation of global crude oil prices. As a result, the average sales price of our gasoline and diesel increased from $715 per ton in 2009 to $852 per ton in 2010, representing a 19.2% increase.

Tax Exemptions

NDRC, the Ministry of Finance and other governmental departments are formulating relevant policies such as subsidies, refunds of Value Added Taxes (“VAT”) and relief on consumption tax, corporate income tax and consumption tax to encourage bio-diesel consumption. As a result, Xi’an Baorun Industrial is exempt from corporate income tax through the end of calendar year 2010 and we are exempt from consumption tax.

Growth and Expansion Plans

Management plans to focus on growing its biodiesel production, its distribution business, and expanding the footprint of its retail gas stations. With respect to the distribution and retail business, we benefit from our advantageous location, well-established supplier relationships, as well as an extensive distribution network that has valuable railway access to reach remote parts of China that other distribution companies located in Shaanxi Province cannot currently reach.

We also plan to expand our current biodiesel production capacity. We are currently constructing a new 50,000 ton biodiesel production facility adjacent to our existing 100,000 ton biodiesel production plant located in Tongchuan, Shaanxi Province and we expect such construction to be completed in the first quarter of 2011. We are also in the process of negotiating to acquire a chemical production plant located in Hainan Province for the purpose of constructing a new 300,000 ton biodiesel production facility. We expect to complete such acquisition by the end of the first quarter of 2011 and the construction of the Phase I 200,000 ton biodiesel production facility is expected to be completed within fourteen months after the closing of the acquisition. We have historically been able to secure a sufficient supply of raw materials and we will continue to work towards securing more long-term sources of raw materials and to seek new technology in the bio-energy field to improve production efficiency. We will continue pursuing strategic acquisitions that will quickly provide financial benefits to us.

In connection with the increase in production capacity, we have identified enough customer demands and sources, primarily power plants and diesel distributors in those jurisdictions where biodiesel is required to be used to blend diesel as a result of the government’s energy saving and emission reduction initiatives in China.

For wholesale and retail of other oil products, we anticipate to benefit from the increase in demand of oil products associated with the general economic growth in China. We plan to expand our wholesale distribution network and strengthen our outreach in certain key distribution areas. We are currently under negotiation to acquire a finished oil distributor in Chongqing and expect to enter into a definitive acquisition agreement by the end of the first quarter in 2011. In view of the increase in cost to acquire and to lease gas stations, we anticipate to slow down the acquisition and lease of additional gas stations.

Management believes the increase in sales volume from these initiatives will not only offset the impact from fluctuation in fuel pricing, but also favorably impact overall profits and cash flow.

For 2009 and 2010, our five largest customers represented 39.1% and 38.1% of our total sales, respectively. Our largest customer in 2009 and 2010, Sinopec, accounted for 26.6% and 25.4% of our total sales, respectively.

Public Equity Financing

On December 28, 2010, the Company entered into a securities purchase agreement with certain investors in a registered direct offering of an aggregate of 2,185,716 shares of the Company’s common stock with a par value of $0.0001 per share and 2,185,716 warrants. The total gross proceeds received were $15,300,012. Underwriting commissions, legal fees and offering expenses were $1,035,694 and were recorded as a reduction of additional paid-in-capital.

Basis of Presentations

Our financial statements are prepared in accordance with GAAP.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make judgments, assumptions, and estimates that affect the amounts represented in the consolidated financial statements. Note 2 to the Company’s consolidated financial statements describe the major accounting policies and methods used in the preparation of the consolidated financial statements.

The following are considered to be the Company’s critical accounting policies and estimates:

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Group maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and the customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Group reviews its allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Individual credit evaluations are performed on all customers requiring credit. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Based on historical collections, there was no allowance for doubtful accounts as of December 31, 2010 and 2009, as the Group did not experience any uncollectible accounts receivable and bad debt write-off over the past years.

Inventories

We value our finished goods inventory at the lower of cost or market value. Cost includes cost of direct labor and raw materials, as well as allocation of variable and fixed production overhead. Variable production overheads are allocated to each unit of production based on the actual use of the production facilities. Fixed production overheads are allocated to the cost of conversion based on the normal capacity of the production facilities. We define normal production capacity as being a reasonable level of production volume supported by sufficient customer demand without any abnormal equipment downtime due to shortages of materials and labor, taking into consideration the loss of production capacity resulting from planned maintenances. We would write down the cost of excessive inventory. The factors considered in evaluating whether excessive inventory exists are:

•

our forecast of future demand, including existing customers’ order and forecasted orders; and

•

the expiration date for the specific products.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows:

Building	20 years
Production equipment	10 years
Office Equipment	5 years
Vehicles	5 years

Costs incurred during the construction and installation of the assets are initially capitalized as construction in progress and transferred into property, plant and equipment when the assets are ready for their intended use, at which time depreciation commences. No depreciation charge is provided in respect of construction in progress. There have been no changes to the estimated useful lives and residual values during each of the two years ended December 31, 2009 and 2010.

Revenue Recognition

For sales of finished oil, heavy oil products, and bio-diesel, revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Group exist and collectability is reasonably assured. For gas station retail sales, revenue is recognized and cash is collected upon completion of fuel sales to customers.

The Group’s revenue is net of value added tax (“VAT”) collected on behalf of tax authorities in respect of the sale of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability on the balance sheet until it is paid to the tax authorities.

The Group does not provide sales returns, price protection or any other concessions to its customers.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of income and comprehensive income in the period that includes the enactment date. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses in the consolidated statements of income and comprehensive income.

Xi’an Baorun Industrial has obtained corporate income tax exemption for the period from January 1, 2005 to December 31, 2010. We believe that the above tax holiday is in effect for all periods presented. Currently, the PRC is in a period of growth and is openly promoting business development in clean energy and advanced and new technology areas. Tax holiday is one of the many methods used to promote such business development. Had the above tax holiday for corporate income tax not been in effect, we estimate that the pro forma financial impact would be as follows:

	Years ended December 31,
	2010			2009
	(pro forma)			(pro forma)
	(unaudited)			(unaudited)
Net income before income taxes	$	54,045,802		$	37,870,963
Tax provision		(16,281,954	)		(10,774,363	)
Net income		37,763,848			27,096,600
Earnings per share - basic		1.12			0.96
Earnings per share - diluted	$	0.89		$	0.75

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 distribution from its PRC subsidiary and the consolidated variable interest entity are subject to the U.S. federal income tax at 34%, less any applicable foreign tax credits. Due to the Group’s policy of reinvested permanently its earnings in its PRC business, the Group has not provided for deferred income tax liabilities for U.S. federal income tax purposes on its PRC subsidiary and consolidated variable interest entity’s undistributed earnings of $141,468,000 and $83,175,000 as of December 31, 2010 and 2009, respectively.

Variable Interest Entity

We do not own any equity interest in Xi’an Baorun Industrial. In order to meet domestic ownership requirements under PRC law, which restricts foreign companies from operating in the finished oil and biodiesel industry, our wholly-owned subsidiaries entered into a series of contractual agreements with Xi’an Baorun Industrial, which allow us, among other things, to secure significant rights to control Xi’an Baorun Industrial’s business operations, policies and management, to approve all matters requiring stockholder approvals, and give us the right to receive service fee on a monthly basis from Xi’an Baorun Industrial equal to 100% of the monthly net income of Xi’an Baorun Industrial. In addition, to ensure that Xi’an Baorun Industrial and its stockholders perform their obligations under these contractual arrangements, the stockholders have pledged to Redsky Industrial all of their equity interests in Xi’an Baorun Industrial. If and when the current restrictions under PRC law on foreign ownership of Chinese companies engaging in the finished oil and biodiesel industry in China are lifted, Baorun China Group may exercise its option to purchase the equity interests in Xi’an Baorun Industrial directly.

In accordance with Accounting Standards Update (“ASU”) 2009-17 issued by Financial Accounting Standards Board (“FASB”), Baorun China Group is considered to be the primary beneficiary of Xi’an Baorun Industrial and the financial statements of Xi’an Baorun Industrial have been consolidated in our consolidated financial statements. Upon the execution of the above contractual agreements and arrangements, Baorun China Group is able to (i) direct the activities of Xi’an Baorun Industrial that most significantly impact their economic performance; and (ii) absorb losses and receive benefits from Xi’an Baorun Industrial that could potentially be significant to them.

Total assets and total liabilities of Xi’an Baorun as of December 31, 2010 in the amount of $248,704,282 and $34,023,604, and sales and net income of Xi’an Baorun for the year ended December 31, 2010 in the amount of $438,682,654 and $58,182,434, have been included in the accompanying consolidated financial statements as of and for the year ended December 31, 2010.

Stock-based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect the number of share options that are forfeited prior to vesting.

Stock option activity during the period indicated is as follows:

			Weighted		Weighted average
			average		remaining
	Number		exercise prices		contractual term		Aggregate
	of options		per share		in years		intrinsic value

Balance at December 31, 2008		40,000	$	4.00		9.88
Granted		20,000		7.09
Balance at December 31, 2009		60,000	$	5.03		7.91
Granted		2,912,000		7.09
Exercised		35,000		7.04
Forfeited		25,000		7.04
Balance at December 31, 2010		2,912,000	$	7.05		5.18	$	925,680
Exercisable at December 31, 2010		468,550	$	6.82		5.51	$	247,375

Summary of assumptions for the valuation of stock options granted based on the Black-Scholes Option Pricing Model during the years ended December 31, 2010 and 2009 is as follows:

	Options granted in 2010			Options granted in 2009

Expected dividend yield	Nil			Nil
Expected volatility		76.96~87.99	%		87.99	%
Risk-free interest rate		0.08~3.36	%		0.06	%
Expected term	6~10 years			6 years
Fair value of underlying common stock (per share)		6.75~8.89			7.04

The Black-Scholes Option Pricing model incorporates expected various and highly subjective assumption. The Company estimates the expected volatility of its common stock using a weighted-average historical volatility of the Company’s common stock. The risk free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. There is no expected dividend yield, as the Company has not paid dividend and does not anticipate to pay dividend over the term of the grants.

Results of Operations

Comparison of Results of Operations for the Years Ended December 31, 2010 and 2009

	Years ended December 31,
	2010		2009
	(unaudited)		(unaudited)
Sales
Wholesale distribution of finished oil and heavy oil	$	273,082,322	$	195,864,501
Production and sale of biodiesel		74,916,830		55,794,525
Operation of retail gas stations		90,683,502		37,913,027
Total	$	438,682,654	$	289,572,053

Cost of sales
Wholesale distribution of finished oil and heavy oil	$	244,638,195	$	175,325,275
Production and sale of biodiesel		52,040,039		39,964,368
Operation of retail gas stations		78,820,697		32,811,696
Total	$	375,498,931	$	248,101,339

Gross profit
Wholesale distribution of finished oil and heavy oil	$	28,444,127	$	20,539,226
Production and sale of biodiesel		22,876,791		15,830,157
Operation of retail gas stations		11,862,805		5,101,331
Total	$	63,183,723	$	41,470,714

Total assets
Wholesale distribution of finished oil and heavy oil	$	146,617,588	$	111,795,742
Production and sale of biodiesel		58,380,686		16,407,300
Operation of retail gas stations		59,473,460		35,370,619
Total	$	264,471,734	$	163,573,661

Capital expenditures
Wholesale distribution of finished oil and heavy oil	$	161,196	$	370,564
Production and sale of biodiesel		33,162,675		-
Operation of retail gas stations		15,579,183		-
Total	$	48,903,054	$	370,564

Depreciation and amortization
Wholesale distribution of finished oil and heavy oil	$	230,910	$	161,511
Production and sale of biodiesel		991,015		984,027
Operation of retail gas stations		416,144		-
Total	$	1,638,069	$	1,145,538

The following table sets forth the results of our operations for the periods indicated as a percentage of net sales:

	Years ended December 31,
	2010						2009
	(unaudited)						(unaudited)
	$			% of Sales			$		% of Sales
Sales		438,682,654			100.0	%		289,572,053		100.0	%
Cost of sales		375,498,931			85.6	%		248,101,339		85.7	%
Gross profit		63,183,723			14.4	%		41,470,714		14.3	%
Selling, general and administrative expenses		8,938,859			2.0	%		3,976,121		1.4	%
Income from operations		54,244,864			12.4	%		37,494,593		12.9	%
Other (expenses) / Income		(199,062	)		(0.0	) %		376,370		0.1	%
Earnings before income tax		54,045,802			12.3	%		37,870,963		13.1	%

Sales. Net sales for the year ended December 31, 2010 were approximately $438.7 million compared to $289.6 million for the year ended December 31, 2009, an increase of $149.1 million, or 51.5%. The increase was mainly attributable to the growth in wholesale distribution and retail gas station segments. We have continued to expand new sales channels and territories. We are conducting business in sixteen provinces and special districts compared to fourteen provinces for the year ended December 31, 2009. We have also increased in-depth penetration to the existing sales territories and our existing customers. The number of customers in our wholesale distribution segment has grown from 1,180 in 2009 to 1,213 in 2010. For the year ended December 31, 2010, sales from wholesale distribution of finished oil and heavy oil products was $273.1 million compared to $195.9 million for the year ended December 31, 2009, an increase of $77.2 million or 39.4%. The sales volume of wholesale distribution of finished oil and heavy oil products increased by 57,000 tons, or 20.3% from the year ended December 31, 2009.The weighted average price increased by 15.8% from the year ended December 31, 2009. For the year ended December 31, 2010, sales from our retail gas station segment was $90.7 million, compared to $37.9 million for the year ended December 31, 2009, an increase of $52.8 million or 139.2% as a result of the increase in the number of fully operational gas stations from 7 in 2009 to 13 in 2010 and an increase in sales volume per gas station. $38.3 million came from locations not in operation a year ago. Same-location growth was $14.5 million. For the year ended December 31, 2010, sales from production and sales of biodiesel were $74.9 million compared to $55.8 million for the year ended December 31, 2009, an increase of $19.1 million or 34.3% primarily resulted from the increase of sales business with our existing biodiesel customers. The sales volume of biodiesel increased by 9,800 tons or 12.5% from the year ended December 31, 2009. The weighted average price increased by 19.4% from the year ended December 31, 2009.

Cost of sales. Cost of sales for the year ended December 31, 2010 was approximately $375.5 million compared to $248.1 million for the year ended December 31, 2009, an increase of $127.4 million, or 51.4%. The increase in cost of sales was attributable to and in line with an increase in production and sales activities during the year of 2010. Cost of sales as a percentage of sales was approximately 85.6% for the year of 2010, compared to 85.7% for the year ended December 31, 2009. For wholesale distribution of finished oil and heavy oil products, cost of goods sold as a percentage of sales for the years ended December 31, 2010 and 2009 were 89.6% and 89.5%, respectively. For production and sale of biodiesel, cost of sales as a percentage of sales for the years ended December 31, 2010 and 2009 were 69.5% and 71.6%, respectively. Such decrease was attributable to the scale of economics in production and a higher average selling price in 2010. For our retail gas station operation, cost of sales as a percentage of sales for the years ended December 31, 2010 and 2009 were 86.9% and 86.5%, respectively. Such increase was attributable to the increase of depreciation and lease expenses of our retail gas stations in 2010, as the cost to acquire or to lease the gas stations increased in 2010.

Gross profit. Gross profit was approximately $63.2 million for the year ended December 31, 2010 as compared to approximately $41.5 million for the year ended December 31, 2009, representing gross margins of approximately 14.4% and 14.3%, respectively. For the year ended December 31, 2010, the gross profit margin of wholesale distribution of finished oil and heavy oil products was 10.4%, production and sale of biodiesel was 30.5%, and operation of retail stations was 13.1%, as compared to 10.5%, 28.4%, and 13.5%, respectively, for the year ended December 31, 2009. The increase in gross margin of biodiesel was attributed to favorable frequent pricing adjustments by the NDRC reflecting global oil pricing and scale of economics in biodiesel production. The decrease in the gross margin of operation of retail station was attributed to the sales promotion in the first quarter of 2010 for the newly acquired or leased gas stations. The margin for wholesale distribution of finished oil and heavy oil products was quite stable as the pricing adjustments by the NDRC affect both our selling price and our purchase price.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2010 were approximately $8.9 million compared to $4.0 million for the year ended December 31, 2009, an increase of $4.9 million or 124.8%. This increase mainly consisted of the following: 1) a $3.6 million increase in non-cash charges of stock-based compensation from $0.7 million for the year ended December 31, 2009 to $4.3 million for the year ended December 31, 2010, resulted from additional stock options granted to sales and administrative staff for incentive purposes; and 2) a $0.4 million increase in other labor cost of sales and administrative staff, resulting from our business growth and the expansion of distribution channels and territories. Total operating expenses as a percentage of sales was 2.0% and 1.4% for the years ended December 31, 2010 and 2009, respectively. We expect to have an increase in other general and administrative expenses in future reporting periods, as our business expands.

Income from operations. Income from operations for the year ended December 31, 2010 was $54.5 million compared to $37.6 million for the year ended December 31, 2009. Income from operations as a percentage of sales for the years ended December 31, 2010 and 2009 were 12.4% and 12.9%, respectively. The decrease as a percentage of sales was primarily attributable to the increase of stock-based compensation.

Other (expenses) / income. Other income mainly consisted of governmental subsidies received in respect of our biodiesel production. For the year ended December 31, 2010, we received a $0.03 million government subsidy, compared to the receipt of a $0.5 million government subsidy for the year ended December 31, 2009. Other expenses mainly consisted of interest expenses and bank service charges.

Earnings before income tax. The net income for the year ended December 31, 2010 was $54.0 million compared to $37.9 million for the year ended December 31, 2009, an increase of $16.1 million or 42.7%. Our net margin decreased from 13.1% for the year ended December 31, 2009 to 12.3% for the year ended December 31, 2010 primarily due to the increase of stock-based compensation which resulted from our initiatives to increase employee morale in order to further grow our business.

Liquidity, Capital Resources and Financial Position

We have historically met the majority of our working capital and other capital requirements principally from cash generated from operations and net proceeds from our offerings.

Our working capital at December 31, 2010 increased by $15.9 million to $137.0 million from $121.2 million at December 31, 2009. The increase in working capital by 13.1% from the year ended December 31, 2009 primarily resulted from increased receipts of sales proceeds during the fourth quarter in a result of the increase in sales.

As of December 31, 2010 and December 31, 2009, we had cash and cash equivalents of approximately $90.3 million and $62.4 million, respectively. We also completed a registered direct offering in January 2011, which generated $23.0 million in net proceeds.

The ratio of current assets to current liabilities was 5.6-to-1 at December 31, 2010, compared to 12.8-to-1 at December 31, 2009. The decrease in the current ratio as of December 31, 2010 was primarily related to an increase in receipts in advances from customers.

At December 31, 2010, our cash and cash equivalents included $14.3 million net proceeds from the registered direct offering completed in December 2010. The available cash will be used for: 1) a potential acquisition of a finished oil distributor in Chongqing for distribution network expansion purposes; 2) a potential acquisition of a chemical production plant in Hainan Province for additional biodiesel production facility construction purposes; 3) lease of additional gas stations; and 4) working capital to support the growth of the Company. As we are normally required to make up-front payments for purchases of inventories, we anticipate an increase in payments to suppliers as we expand our business.

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2010 and 2009.

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)
Net cash provided by (used in):
Operating Activities	$	58,180,819		$	4,360,998
Investing Activities		(48,903,054	)		1,145,386
Financing Activities		16,463,432			33,748,099
Effect of foreign exchange rate changes on cash and cash equivalents		2,100,578			41,932
Cash and cash equivalents at beginning of year		62,415,443			23,119,028
Cash and cash equivalents at end of year		90,257,218			62,415,443

For the year ended December 31, 2010, net cash provided by operating activities increased by $53.8 million to $58.2 million from $4.4 million for the year ended December 31, 2009. The increase in cash provided by operating activities was primarily attributable to the increase of profitably of the Company by $16.0 million with growth of income from operations and the increase of receipts in advance from customers by $13.5 million.

For the year ended December 31, 2010, net cash used in investing activities increased by $50.0 million to $48.9 million from $1.1 million cash provided at December 31, 2009 and was primarily attributable to the increase in acquisitions and construction in 2010. In 2010, the Group paid $15.9 million, $3.0 million and $8.2 million, net of cash acquired, to acquire 100% equity interests in Chongqing Tianrun, Jinzheng and Shenmu, respectively, approximately $4.4 million to purchase Xinyuan gas station and approximately $17.3 million to purchase the equipment for construction of a new 50,000 ton biodiesel production facility adjacent to the existing plant in Tongchuan, Shaanxi Province.

For the year ended December 31, 2010, net cash provided by financing activities decreased by $17.2 million to $16.5 million from $33.7 million at December 31, 2009 and was primarily attributable to a $15.9 million decrease in net proceeds from the issuance of common stock and warrants and a $1.1 million increase in commercial bank loan financing.

As a result of the offering and cash provided by operating activities, we believe we have sufficient working capital to sustain our current business for the next 12 months due to expected increased sales volume and net income from operating. We anticipate spending $8.2 million to purchase a 51% equity interest of a finished oil distributor in Chongqing. We also anticipate spending $9 million to acquire a chemical production plant in Hainan Province for the construction of a new 300,000 ton biodiesel production facility.

Our future capital requirements will depend on a number of factors, including:

Development of new sales territories, sales offices, and sales force for our wholesale distribution of finished oil and heavy oil products and required working capital to sustain our existing market share and support the growth in this business segment. This development can be achieved by organic growth or through acquisition;

Expanding of market share for our retail gas stations both in terms of quantity and geographic location and required working capital to support the growth;

Our ability to maintain our existing oil suppliers and establish collaborative relationships with new suppliers;

Increasing our biodiesel production capacity through strategic acquisitions or construction of new facilities; and

Development and commercialization of new technology to improve biodiesel production efficiency.

We anticipate incurring some research and development expenses during the next 12 months.

Off-Balance Sheet Arrangements

Except for the operating lease commitments disclosed in Note 13 to the financial statements, we do not have any off-balance sheet commitments or arrangements, including financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Contractual Obligations and Commitments

Although the Company is an accelerated filer as of December 31, 2010, this disclosure has been omitted because the Company is subject to the smaller reporting company disclosure requirements for this Annual Report on Form 10-K.

Recently Issued Accounting Standards and Pronouncements

Refer to Note 2 to the consolidated financial statements for a discussion of recently issued accounting standards and pronouncements.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of December 31, 2010, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that during the period covered by this report, the Company’s disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In addition, management re-evaluated the effectiveness of the Company’s internal control over financial reporting as a result of the withdrawal of the KPMG audit report and concluded that its internal control over financial reporting remained effective as of December 31, 2010.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), under the Securities Exchange Act of 1934, as amended, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and/or board of directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2010. In addition, management re-evaluated the effectiveness of the Company’s internal control over financial reporting as a result of the withdrawal of the KPMG audit report and concluded that its internal control over financial reporting remained effective as of December 31, 2010.

We acquired Chongqing Tianrun Energy Development Co., Ltd. in October 2010 and management excluded from its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010, Chongqing Tianrun’s internal control over financial reporting associated with total assets of $18,140,017 and total revenues of $3,727,810 included in our consolidated financial statements as of and for the year ended December 31, 2010.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fourth fiscal quarter of the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

(a) The following are filed with this Annual Report:

(1) (i) Consolidated Balance Sheets

(ii) Consolidated Statements of Income and Comprehensive Income

(iii) Consolidated Statement of Stockholders’ Equity

(iv) Consolidated Statements of Cash Flows

(2) Not applicable.

(3) Exhibits required by Item 601 of Regulation S-K are as follows:

Exhibits

Exhibit Number		Description

2.1		Share Exchange Agreement dated as of October 23, 2007 (1)
2.2		Agreement and Plan of Merger, dated November 15, 2007 (2)
3.1		Certificate of Correction filed on July 24, 2007 (3)
3.1		Certificate of Amendment filed on June 11, 2007 (4)
3.1		Articles of Incorporation (5)
3.1		Certificate of Amendment to Articles of Incorporation (6)
3.1		Certificate of Ownership and Merger, dated November 15, 2007 (2)
3.1		Certificate of Incorporation of China Integrated Energy, Inc. (7)
3.2		By-laws (5)
4.1		Form of Warrant (1)
4.2		Amended and Restated Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock (1)
4.3		Amended and Restated Certificate of Designation of the Relative Rights and Preferences of Series B Convertible Preferred Stock (10)
4.4		Form of Debenture (9)
4.5		Series A-1 Warrant Amendment, dated January 22, 2010(15)
4.6		Series A-2 Warrant Amendment, dated January 22, 2010 (15)
4.7		Form of Common Stock Purchase Warrant dated December 31, 2010 (18)
4.8		Form of Common Stock Purchase Warrant dated January 6, 2011 (19)
10.3		Exclusive Option Agreement by and between Gao Huiling and Baorun Industrial, dated as of October 19, 2007 (7)
10.4		Exclusive Option Agreement by and between Liu Yunlong and Baorun Industrial, dated as of October 19, 2007 (7)
10.5		Equity Pledge Agreement by and among Redsky China, Baorun Industrial and Gao Xincheng, dated as of October 19, 2007 (7)
10.6		Equity Pledge Agreement by and among Redsky China, Baorun Industrial and Gao Huiling, dated as of October 19, 2007 (7)
10.7		Equity Pledge Agreement by and among Redsky China, Baorun Industrial and Liu Yunlong, dated as of October 19, 2007 (7)
10.8		Power of Attorney of Gao Xincheng (8)
10.9		Power of Attorney of Gao Huiling (8)
10.10		Power of Attorney of Liu Yunlong (8)
10.11		Nominee Letter between Redsky China and Gao Xincheng (8)
10.12		Nominee Letter between Redsky China and Gao Huiling (8)
10.13		Nominee Letter between Redsky China and Liu Yunlong (8)
10.14*		Employment Agreement between Baorun Industrial and Gao Xincheng, dated as of October 25, 2010 (16)
10.15*		Employment Agreement between Baorun Industrial and Li Gaihong, dated as of October 25, 2010 (16)
10.16		Amendment to Exclusive Business Cooperation Agreement, dated March 24, 2008 (8)
10.17		Securities Purchase Agreement, dated as of October 14, 2008 (9)
10.18		Registration Rights Agreement, dated as of October 14, 2008 (9)
10.19		Share Escrow Agreement, dated as of October 14, 2008 (9)
10.20		Management Escrow Agreement, dated as of October 14, 2008 (9)
10.21		Form of Warrant Exercise Agreement (9)
10.22		Gas Station Lease Agreement, dated as of May 20, 2008 (10)
10.23*		Employment Agreement with Albert C. Pu, dated as of January 22, 2009 (11)
10.24		Gas Station Leasing Business Contract, dated as of May 28, 2009 (12)
10.25		Gas Station Lease Agreement, dated as of February 1, 2007 (13)
10.26		Gas Station Lease Agreement, dated as of July 27, 2009 (13)
10.27		Land Lease Agreement, dated as of April 20, 2006 (13)
10.28		Oil Storage Service Agreement, effective as of January 1, 2009 (13)

Exhibit Number		Description

10.29		Oil Storage Service Agreement, dated as of August 26, 2008 (13)
10.30		Finished Oil Sales Contract by and between Yanchang Petroleum Oil (Group) Co., Ltd. and Xi’an Baorun Industrial, effective as of December 23, 2008 (13)
10.31		Finished Oil Sales Contract by and between China Petroleum & Chemical Corporation Chuanyu Trading Co., Ltd. and Xi’an Baorun Industrial, dated as of January 25, 2009 (13)
10.32		Registration Rights Agreement, dated September 10, 2009, by and between the Company and Longgen Zhang and Yuan Gong (14)
10.33		Lease Contract, dated April 30, 2008, amending the terms of the Land Lease Agreement, dated April 20, 2006 (14)
10.34		2003 Equity Incentive Program (6)
10.35		Finished Oil Products Sales Contract by and between Yanchang Petroleum (Group) Corp. Ltd. and Xi’an Baorun Industrial Development Co. (17)
10.36		Finished Oil Products Sales Contract by and between Yanchang Petroleum (Group) Corp. Ltd. and Xi’an Baorun Industrial Development Co. (17)
10.37		Gas Station Lease Agreement with Andong Gas Station, dated December 17, 2009 (17)
10.38		Gas Station Lease Agreement with Xi’an Jindou Gas Station, dated December 15, 2009 (17)
10.39		Finished Oil Sales Contract by and between Chongqing Oil Subsidiary Company of China Petroleum & Chemical Corporation, dated as of January 6, 2010 (17)
10.40		Equity Transfer Agreement for Hanyang Jinzheng Petroleum Sales Co., Ltd, dated December 13, 2009 (17)
10.41		Securities Purchase Agreement dated as of December 28, 2010 (18)
10.42		Securities Purchase Agreement dated as of January 3, 2011 (19)
14		Code of Business Conduct and Ethics (8)
21		List of Subsidiaries (7)
31.1+		Certification of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+		Certification of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32+		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

+ Filed herewith.

* Management Contract or Compensatory Arrangement

(1)		Incorporated by reference to the Company’s Form 8-K filed on October 29, 2007.
(2)		Incorporated by reference to the Company’s Form 8-K filed on November 23, 2007.
(3)		Incorporated by reference to the Company’s Form 10-QSB filed on November 13, 2007.
(4)		Incorporated by reference to the Company’s Form 10-QSB filed on August 3, 2007.
(5)		Incorporated by reference to the Company’s Registration Statement on Form 10-SB.
(6)		Incorporated by reference to the Company’s Definitive Information Statement filed on September 19, 2003.
(7)		Incorporated by reference to the Company’s Registration Statement on Form S-1 initially filed on December 7, 2007.
(8)		Incorporated by reference to the Company’s Form 10-K filed on March 31, 2008.
(9)		Incorporated by reference to the Company’s Form 8-K filed on October 20, 2008.
(10)		Incorporated by reference to the Company’s Form 10-K filed on March 25, 2009.
(11)		Incorporated by reference to the Company’s Form 10-Q filed on May 13, 2009.
(12)		Incorporated by reference to the Company’s Form 10-Q filed on August 11, 2009.
(13)		Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on September 10, 2009.

(14)		Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed on October 5, 2009.
(15)		Incorporated by reference to the Company’s Form 8-K filed on January 28, 2010.
(16)		Incorporated by reference to the Company’s Form 8-K filed on December 23, 2010.
(17)		Incorporated by reference to the Company’s Form 10-K filed on March 31, 2010.
(18)		Incorporated by reference to the Company’s Form 8-K filed on December 29, 2010.
(19)		Incorporated by reference to the Company’s Form 8-K filed on January 4, 2011.

(b) Exhibits required by Item 601 of Regulation S-K are listed above and filed herewith.

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

CHINA INTEGRATED ENERGY, INC.

AND SUBSIDIARIES

TABLE OF CONTENTS

CONSOLIDATED BALANCE SHEETS.	F-2

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME.	F-3

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY.	F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS.	F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.	F-6

F-1

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

CHINA INTEGRATED ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2010		December 31, 2009
	(unaudited)		(unaudited)
ASSETS

Current assets
Cash and cash equivalents	$	90,257,218	$	62,415,443
Accounts receivable		6,329,446		3,099,587
Inventories		23,266,835		20,954,851
Prepayments to suppliers		39,648,018		34,544,100
Lease prepayments		3,787,878		2,835,097
Prepaid expenses and other current assets		3,280,433		7,541,991
Total current assets		166,569,828		131,391,069

Property, plant and equipment, net		34,590,509		7,561,907
Intangible asset, net		18,440,860		-
Land use right		12,609,242		-
Lease prepayments		28,523,075		24,620,685
Goodwill		3,738,220		-
Total assets	$	264,471,734	$	163,573,661

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Short-term bank loans	$	6,515,152	$	4,395,025
Accounts payable		1,188,574		-
Income tax payable		320,183		-
Receipts in advance from customers		16,661,950		1,903,124
Accrued expenses and other payables		4,925,306		3,943,919
Total current liabilities		29,611,165		10,242,068
Deferred tax liabilities		4,422,813		-
Total liabilities		34,033,978		10,242,068
Commitments and contingencies

Stockholders’ equity
Series A Convertible preferred stock, $.001 par value (aggregate involuntary liquidation preference: $9,890,000 as of December 31, 2010 and $10,000,000 as of December 31, 2009). Authorized 3,000,000 shares; issued and outstanding 989,000 shares as of December 31, 2010 and 1,000,000 shares as of December 31, 2009		989		1,000
Series B Convertible preferred stock, $.001 par value (aggregate involuntary liquidation preference: $5,860,886 as of December 31, 2010 and $7,722,498 as of December 31, 2009). Authorized 7,000,000 shares; issued and outstanding 1,605,753 shares as of December 31, 2010 and 2,115,753 shares as of December 31, 2009		1,605		2,115
Common stock, $.0001 par value. Authorized 79,000,000 shares; issued and outstanding 36,049,807 shares as of December 31, 2010 and 33,269,091 shares as of December 31, 2009		3,605		3,326
Additional paid-in capital		94,658,021		75,858,994
Statutory reserves		4,920,114		4,920,114
Retained earnings		120,891,625		67,072,624
Accumulated other comprehensive income		9,961,797		5,473,420
Total stockholders’ equity		230,437,756		153,331,593
Total liabilities and stockholders’ equity	$	264,471,734	$	163,573,661

See accompanying notes to unaudited consolidated financial statements.

F-2

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

CHINA INTEGRATED ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)

Sales	$	438,682,654		$	289,572,053

Cost of sales		375,498,931			248,101,339

Gross profit		63,183,723			41,470,714

Selling, general and administrative expenses		8,938,859			3,976,121


Income from operations		54,244,864			37,494,593

Other (expenses) income
Interest expense, net		(200,809	)		(121,522	)
Subsidy income		155,856			541,059
Other expense, net		(154,109	)		(43,167	)

Total other (expenses) income, net		(199,062	)		376,370

Earnings before income tax expense		54,045,802			37,870,963

Income tax expense		226,801			-

Net income		53,819,001			37,870,963

Other comprehensive item:
Foreign currency translation adjustment, net of nil income tax		4,488,377			136,417

Total comprehensive income	$	58,307,378		$	38,007,380

Earnings per share:
Basic	$	1.60		$	1.34
Diluted	$	1.28		$	1.04

Weighted average shares:
Basic		33,702,792			28,230,461
Diluted		42,199,794			36,254,975

See accompanying notes to unaudited consolidated financial statements.

F-3

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

CHINA INTEGRATED ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Convertible preferred stock						Common stock										Accumulated other		Total
	Shares			Amount			Shares		Amount		Additional paid-in capital		Statutory reserves		Retained earnings		comprehensive income		Stockholders’ equity
				$					$		$		$		$		$		$

Balance as of January 1, 2009		3,465,753			3,465			27,169,091		2,716		44,434,250		4,920,114		29,201,661		5,337,003		83,899,209

Net income		-			-			-		-		-		-		37,870,963		-		37,870,963

Foreign currency translation adjustment, net of nil income tax					-			-		-		-		-		-		136,417		136,417
Series B Convertible preferred stock converted		(350,000	)		(350	)		350,000		35		315		-		-		-		-
Common stock issued for cash (net of issuance cost of $2,378,366)		-			-			5,750,000		575		30,683,559		-		-		-		30,684,134
Stock-based compensation		-			-			-		-		740,870		-		-		-		740,870

Balance as of December 31, 2009		3,115,753			3,115			33,269,091		3,326		75,858,994		4,920,114		67,072,624		5,473,420		153,331,593

Net income		-			-			-		-		-		-		53,819,001		-		53,819,001

Foreign currency translation adjustment, net of nil income tax		-			-			-		-		-		-		-		4,488,377		4,488,377
Series A Convertible preferred stock converted		(11,000	)		(11	)		50,000		5		6		-		-		-		-
Series B Convertible preferred stock converted		(510,000	)		(510	)		510,000		51		459		-		-		-		-
Common stock issued in connection with options exercised		-			-			35,000		4		246,396		-		-		-		246,400
Common stock issued for cash (net of issuance cost of $1,035,694)		-			-			2,185,716		219		12,781,675		-		-		-		12,781,894
Warrants issued		-			-			-		-		1,482,424		-		-		-		1,482,424
Stock-based compensation		-			-			-		-		4,288,067		-		-		-		4,288,067

Balance as of December 31, 2010		2,594,753			2,594			36,049,807		3,605		94,658,021		4,920,114		120,891,625		9,961,797		230,437,756

See accompanying notes to unaudited consolidated financial statements.

F-4

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

CHINA INTEGRATED ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended December 31,
		2010			2009
		(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	53,819,001		$	37,870,963
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of property, plant and equipment			241,031			155,866
Depreciation and amortization			1,638,069			1,145,538
Deferred tax benefit			(6,056)			-
Stock-based compensation			4,288,067			740,870
Change in operating assets and liabilities, net of acquisitions in 2010:
Accounts receivable			(2,508,895	)		5,071,574
Inventories			1,716,004			1,341,491
Prepayments to suppliers			(3,652,584	)		(16,564,092	)
Lease prepayments			(7,191,595	)		(19,449,270	)
Prepaid expenses and other current assets			(1,171,155	)		(3,242,271	)
Receipts in advance from customers			13,544,572			(2,681,291	)
Accrued expenses and other payables			(2,535,640	)		(28,380	)

Net cash provided by operating activities			58,180,819			4,360,998

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			(17,835,522	)		(370,564	)
Proceeds from disposal of property, plant and equipment			-			1,515,950
Payment for land use right			(1,118,791	)		-
Purchase of intangible assets			(2,854,075	)		-
Payment for the acquisitions of subsidiaries, net of cash acquired of $619,970			(27,094,666	)		-

Net cash (used in)/provided by investing activities			(48,903,054	)		1,145,386

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans			6,458,978			4,394,252
Repayment of bank loans			(4,506,264	)		(2,249,638	)
Restricted cash released			-			919,351
Proceeds from issuance of common stock and warrants, net of issuance cost			14,264,318			30,684,134
Proceeds from exercise of options			246,400			-

Net cash provided by financing activities			16,463,432			33,748,099

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			2,100,578			41,932

NET INCREASE IN CASH AND CASH EQUIVALENTS			27,841,775			39,296,415

Cash and cash equivalents at beginning of year			62,415,443			23,119,028

Cash and cash equivalents at end of year		$	90,257,218		$	62,415,443

Supplemental cash flow information:

Cash paid for income tax	-	-
Cash paid for interest expense	270,258	121,522

Noncash investing and financing activities:
Payable for acquisition of a subsidiary	924,242	-
Payable for purchase of property, plant and equipment	955,561	-
Conversion of convertible preferred stock	521	350

See accompanying notes to unaudited consolidated financial statements.

F-5

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

CHINA INTEGRATED ENERGY INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

A. Organization

China Integrated Energy, Inc. (the “Company”, formerly known as “AMS Marketing Inc.”, “International Imaging Systems, Inc.” or “China Bio Energy Holding Group Ltd.”) was incorporated in the State of Delaware in July 1998. On October 23, 2007, the Company entered into a share exchange agreement (the “Exchange Agreement”) with Baorun China Group Limited (“Baorun China”) and all the shareholders of Baorun China (the “Baorun China Shareholders”). Pursuant to the terms of the Exchange Agreement, the Baorun China Shareholders transferred to the Company all of their shares in exchange for 23,954,545 shares of the Company’s common stock (the “Share Exchange”). As a result of the Share Exchange, Baorun China became a wholly-owned subsidiary of the Company and the Baorun China Shareholders received approximately 94.11% of the Company’s issued and outstanding common shares. Immediately prior to the date of the Share Exchange, the Company was a publicly listed shell entity with no operations and Baorun China, through its wholly-owned subsidiary, Redsky Industrial (Xi’an) Co., Ltd. (“Redsky Industrial”) and a consolidated variable interest entity, Xi’an Baorun Industrial Development Co., Ltd. (“Xi’an Baorun”), was engaged in the wholesale and distribution of finished oil and heavy oil products, the production and sales of biodiesel, and operation of retail gas stations. The Share Exchange was accounted for as a reverse recapitalization, equivalent to the issuance of stock by Baorun China for the net monetary assets of the Company accompanied by a recapitalization.

The Company does not own an equity interest in Xi’an Baorun, but through its wholly-owned subsidiaries, has entered into a series of contractual agreements with Xi’an Baorun, which provides the Company with a controlling financial interest. The key terms of these contractual agreements and arrangements are as follows:

Exclusive Business Cooperation Agreement: Redsky Industrial has the exclusive right to provide complete technical support, business support and related consulting services, which include, among others, technical services, business consultations, equipment or property leasing, marketing consultancy and product research. Xi’an Baorun has agreed to pay the service fee on a monthly basis to Redsky Industrial equal to 100% of the monthly net income of Xi’an Baorun.

Exclusive Option Agreement: The stockholders of Xi’an Baorun irrevocably granted to Redsky Industrial, which subsequently in turn granted the right to Baorun China, an exclusive option to purchase a portion or all of their respective equity interests in Xi’an Baorun for a purchase price either to be designated by Baorun China or to be determined based on the evaluation of the equity interests required by the PRC law. Baorun China has the sole discretion to decide when to exercise the option, whether in part or in full.

Equity Pledge Agreements: The stockholders of Xi’an Baorun pledged their equity interests in Xi’an Baorun to guarantee Xi’an Baorun’s performance of its obligations under the Exclusive Business Cooperation Agreement. If Xi’an Baorun fails to perform its payment obligations under the Exclusive Business Cooperation Agreement, or if Xi’an Baorun or any of its stockholders breaches his/her respective contractual obligations under the agreement, or upon the occurrence of an event of default, Redsky Industrial is entitled to certain rights, including the right to dispose of the pledged equity interests. The stockholders of Xi’an Baorun agreed not to dispose of the pledged equity interests or take any actions that would prejudice Baorun China’s interest.

Irrevocable Powers of Attorney: Stockholders of Xi’an Baorun granted to Redsky Industrial, which in turn granted to Baorun China, the power to exercise all voting rights of such stockholder in stockholders’ meetings, including, but not limited to, the power to determine the sale, pledge or transfer of, or otherwise disposal of all or part of such stockholder’s equity interest in, and appointing and electing the directors, the legal representative (chairperson), chief executive officer and other senior management of Xi’an Baorun.

F-6

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

In the opinion of management, based on consultation with the Company’s PRC legal counsel, the above contractual arrangements are legally binding and enforceable and do not violate current PRC laws and regulations.

In accordance with Accounting Standards Update (“ASU”) 2009-17 issued by Financial Accounting Standards Board (“FASB”), Baorun China is considered to be the primary beneficiary of Xi’an Baorun and the financial statements of Xi’an Baorun have been consolidated in the Company’s consolidated financial statements. Upon the execution of the above contractual agreements and arrangements, Baorun China is able to (i) direct the activities of Xi’an Baorun that most significantly impact its economic performance; and (ii) absorb losses and receive benefits from Xi’an Baorun that could potentially be significant.

During the year ended December 31, 2010, Xi’an Baorun acquired Chongqing Tianrun Energy Development Co., Ltd. (“Chongqing Tianrun”), Xianyang Jinzheng Oil Sales Co., Ltd. (“Xianyang Jinzheng”) and Shenmu Erlintu Hongtu Oil Co., Ltd. (“Shenmu”) for a total cash consideration of approximately $16.5 million, $10.0 million and $9.2 million, respectively. After these acquisitions, Chongqing Tianrun, Xianyang Jinzheng and Shenmu became wholly-owned subsidiaries of Xi’an Baorun (See Note 16).

B. Nature of Business and Significant Risks

The Company, through its subsidiaries and consolidated variable interest entity (collectively, referred to as the “Group”), is an integrated energy company that is engaged in the wholesale distribution of finished oil and heavy oil products, the production and sales of biodiesel, and operation of retail gas stations in the PRC.

Wholesale and distribution of refined petroleum products including petroleum and diesel represents a significant portion of and is an important part of the Group’s operations. The Group depends on the supply from certain oil refineries in the PRC. Five major suppliers accounted for 52.6% ($192,169,907), including one major supplier who accounted for 20.3% ($74,136,825), of the Group’s inventory purchase for the year ended December 31, 2010. Five major suppliers accounted for 65.5% ($161,998,230), including one major supplier who accounted for 30.8% ($75,979,496), of the Group’s inventory purchase for the year ended December 31, 2009. The Group’s failure to obtain sufficient supply of refined petroleum products could cause significant disruption in its operations.

Five major customers accounted for 38.1% ($166,960,387), including one major customer who accounted for 25.4% ($111,290,240), of the Group’s total sales for the year ended December 31, 2010. Five major customers accounted for 39.1% ($113,222,673), including one major customer who accounted for 26.6% ($77,026,166), of the Group’s total sales for the year ended December 31, 2009. The major customers are distributors in the PRC petroleum industry. A loss of one or more of these customers would have a material impact on the Group's results of operations and financial condition.

The results of operations and financial condition of the Group are affected by the selling prices of refined petroleum products. The retail prices of gasoline and diesel oil sold in the PRC are subject to the government guiding ceiling price. The Administrative Measures on Oil Prices promulgated by the National Development and Reform Commission (“NDRC”) in the PRC on May 7, 2009 stipulates that the NDRC will adjust domestic refined petroleum products prices when the international market price for crude oil changes more than 4% over 22 consecutive working days. The NDRC adjusts domestic refined petroleum products prices by modifying the retail price cap for gasoline and diesel in all provinces.

Although the current price-setting mechanism for refined petroleum products in China allows the PRC government to adjust prices in the PRC market when the international crude oil price fluctuates, the PRC government still retains full discretion as to whether or when to adjust the refined petroleum products price. The PRC government can also be expected to exercise price control over refined petroleum products once international crude oil price experiences sustained growth or become significantly volatile. As a result, the results of operations and financial condition of the Group may be materially and adversely affected by the fluctuation of market prices of crude oil and refined petroleum products as well as the discretionary actions of the PRC government.

F-7

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

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 environment in the PRC as well as by the general state of the PRC’s economy. In addition, the Group’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, regulations on foreign exchange control regarding foreign exchange transactions and rates and methods of taxation, among other things.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements of the Group have been prepared in accordance with generally accepted accounting principles in the United States of America and include the financial statements of the Company and its subsidiaries and consolidated variable interest entity. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements are presented in U.S. dollar.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment; the allowance for doubtful accounts; the fair value determination of stock-based compensation and financial and equity instruments; the realizability of inventories; the recoverability of goodwill, intangible asset, land use right and property, plant and equipment; the allocation of the purchase price of the Group’s acquisition; and accruals for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

CASH AND CASH EQUIVALENTS

The Group considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institution in the PRC and Hong Kong with acceptable credit rating.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Group maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and the customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Group reviews its allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Individual credit evaluations are performed on all customers requiring credit. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. As of December 31, 2010 and 2009, no allowance for doubtful accounts has been provided, since the Group believes its accounts receivable to be fully collectible. Historically the Group has experienced no bad debt write-offs.

F-8

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

PREPAYMENTS TO SUPPLIERS

In order to secure a stable supply of refined petroleum products, the Group makes prepayments to certain suppliers. Advance payments for the future delivery of raw materials and finished goods are recorded as “prepayments to suppliers” in the consolidated balance sheets and amounted to $39,648,018 and $34,544,100 as of December 31, 2010 and 2009, respectively. The balance of the “prepayments to suppliers” is reduced and reclassified to “inventories” when inventory is received and passes quality inspection. The Group makes the prepayments without collateral for such payments. As a result, the Group’s claims for such prepayments would rank only as an unsecured claim, which expose the Group to the credit risks of the suppliers.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average method. Cost of work in progress and finished goods comprise direct materials, direct production costs and an allocation of production overheads based on normal operating capacity.

PROPERTY, PLANT AND EQUIPMENT

		Years
Buildings		20
Production equipment		10
Office equipment		5
Vehicles		5

INTANGIBLE ASSETS

Intangible assets acquired represent gas stations operating permits that are amortized on a straight-line basis over their respective estimated useful lives which range from 17 to 49 years. The estimated useful live is the period over which the intangible asset is expected to contribute directly or indirectly to the future cash flows of the Group and which is based on the life of the related land use right where the gas station is located. The Group has no intangible assets with indefinite useful lives.

LAND USE RIGHT

Land use right represents the exclusive right to occupy and use the land in the PRC for a specified contractual term. Land use right is carried at cost, less accumulated amortization. Amortization is calculated using the straight-line method over the life of the right of 17 to 70 years.

F-9

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

REVENUE RECOGNITION

For sales of finished oil, heavy oil products, and bio-diesel, revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Group exist and collectability is reasonably assured. For gas station retail sales, revenue is recognized at the point of sale, which is when the fuel is delivered to the customers and cash is collected.

The Group’s revenue is net of value added tax (“VAT”) collected on behalf of tax authorities in respect of the sale of merchandise. VAT collected from customers, net of VAT paid for purchases, is recorded as a liability in the balance sheet until it is paid to the tax authorities.

The Group does not provide sales return, price protection or any other concessions to its customers.

RECEIPTS IN ADVANCE FROM CUSTOMERS

Receipts in advance from customers represent amounts received by the Group from customers for products that have not yet been shipped to the customers. To mitigate the credit risk, the Group requires an advance payment from certain customers prior to delivery of products. Amounts received prior to satisfying the Group’s revenue recognition criteria are recorded as receipts in advance from customers. The Group recognizes the prepayments from the customers as revenue at the time the delivery of goods is made and all revenue recognition criteria are met.

OPERATING LEASE

The Group leases office premises, oil depots and gas stations under non-cancellable operating leases. Payments made under operating leases are charged to the consolidated statements of income and comprehensive income on a straight-line basis over the lease term.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, long-lived assets, such as property, plant and equipment, lease prepayments for gas stations and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized for the years ended December 31, 2010 and 2009.

F-10

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

GOODWILL

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized, but is instead tested for impairment. Goodwill is reviewed for impairment at least annually in accordance with the provisions of FASB ASC Topic 350, Intangibles - Goodwill and Other. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

The Group performs its annual impairment review of goodwill at December 31, and when a triggering event occurs between annual impairment tests. No impairment loss was recorded for the years ended December 31, 2010.

INCOME TAXES

The Group recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Group records interest related to unrecognized tax benefits in interest expense and penalties in selling, general and administrative expenses in the consolidated statements of income and comprehensive income.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The Company’s functional currency is the U.S. dollar. The financial position, results of operations and cash flows of the Company’s subsidiaries and consolidated variable interest entity in the PRC are measured using the Renminbi (“RMB”) as the functional currency. Assets and liabilities of the subsidiaries and consolidated variable interest entity are translated at the prevailing exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange during the period. Translation adjustments are included in the accumulated other comprehensive income account in the consolidated statements of stockholders’ equity. The statements of cash flows are translated at the weighted average rate of exchange during the period.

F-11

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

FAIR VALUE MEASUREMENTS

The Group applies the provisions of FASB ASC Subtopic 820-10, Fair Value Measurements (FASB Statement No.157, Fair Value Measurements), for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC Subtopic 820-10 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

FASB ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

FASB ASC Subtopic 820-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC Subtopic 820-10 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

·	Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group has the ability to access at the measurement date.

·	Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

·	Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Group did not have any assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010 and 2009.

STOCK-BASED COMPENSATION

The Group accounts for stock-based compensation under FASB ASC Subtopic 718-10, Compensation—Stock Compensation: Overall. Under FASB Subtopic 718-10, the Group measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect the number of share options that are forfeited prior to vesting.

The Group accounts for equity instruments issued to non-employees of the Group in accordance with the provisions of ASC subtopic 505-50, Equity: Equity-based Payments to Non-Employees. All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counterparty’s performance is completed.

F-12

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to the Group by the weighted average number of common shares outstanding during the period. The convertible preferred stocks are not participating securities. Diluted earnings per share reflects the potential dilution that would occur upon the exercise of outstanding warrants and options and the conversion of convertible preferred stock. Common share equivalents are excluded from the computation of the diluted earnings per share when their effect would be anti-dilutive.

SEGMENT REPORTING

The Group uses the management approach in determining operating segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker for making operating decisions, allocating resources and assessing performance as the source of determining the Group’s reportable operating segments. The Group has determined that it has three reportable operating segments as defined by FASB ASC Subtopic 280-10, Segment Reporting: Overall, which are the wholesale distribution of finished oil and heavy oil, production and sale of biodiesel, and the operation of retail gas stations.

Substantially all of the Group’s operations and customers are located in the PRC and therefore, no geographical information is presented.

CONTINGENCIES

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. 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.

RECLASSIFICATION

Certain reclassifications have been made to the prior year’s financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported financial position or results.

RECENTLY ISSUED ACCOUNTING STANDARDS

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (EITF Issue No. 08-1, “Revenue Arrangements with Multiple Deliverables”). ASU 2009-13 amends FASB ASC Subtopic 605-25 to eliminate the requirement that all undelivered elements have vendor specific objective evidence of selling price (“VSOE”) or third party evidence of selling price (“TPE”) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Application of the “residual method” of allocating an overall arrangement fee between delivered and undelivered elements will no longer be permitted upon adoption of ASU 2009-13. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Management is currently evaluating the potential impact, if any, of adopting ASU 2009-13 on the Group’s financial position and results of operations.

F-13

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

3. INVENTORIES

Inventories at December 31, 2010 and 2009 consist of the following:

	December 31, 2010		December 31, 2009
	(unaudited)		(unaudited)

Raw materials	$	6,765,565	$	4,903,601
Finished goods, including petroleum and diesel		16,501,270		16,051,250
	$	23,266,835	$	20,954,851

As of December 31, 2010 and 2009, certain finished goods of $3,544,776 and $3,048,424, respectively, were pledged as security for a short-term bank loan (See Note 7).

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2010 and 2009 consist of the following:

	December 31, 2010		December 31, 2009
	(unaudited)		(unaudited)

Buildings	$	4,308,304	$	336,051
Biodiesel and gas station equipment		15,606,864		8,360,404
Office equipment		165,563		179,503
Motor vehicles		1,068,050		1,142,029
		21,148,781		10,017,987
Less: Accumulated depreciation		4,797,722		2,456,080
		16,351,059		7,561,907
Construction in progress		18,239,450		-
Total	$	34,590,509	$	7,561,907

Total depreciation expense for the years ended December 31, 2010 and 2009 was $1,239,803 and $1,145,538, respectively.

As of December 31, 2010 and 2009, the Group pledged its biodiesel processing equipment with an original carrying amount of approximately $7,458,000 as security for a short-term bank loan (See Note 7).

As of December 31, 2010, the Group pledged its building with an original carrying amount of approximately $2,896,000 as security for a short-term bank loan (See Note 7).

Construction in progress primarily represents costs paid for the construction of a biodiesel production facility with an annual design capacity of 50,000 ton, which was completed in January 2011. This construction is an expansion of the Group’s current biodiesel production facility to achieve an annual design capacity of 150,000 ton.

5. INTANGIBLE ASSET

Intangible asset at December 31, 2010 represented three gas station operating permits purchased in 2010 as follows:

	December 31, 2010		December 31, 2009
	(unaudited)		(unaudited)

Gas station operating permits		18,713,422		-
Less: Accumulated amortization		272,562		-
	$	18,440,860	$	-

F-14

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

As required by the PRC laws and regulations, the Group is required to have an operating permit to operate gas stations. Gas station operating permits of $9,882,627 were purchased individually in assets acquisitions and $8,830,795 was acquired in connection with the acquisition of Shenmu (see Note 16). The gas station operating permits are amortized over a weighted average period of approximately 35 years. Amortization expense for the years ended December 31, 2010 and 2009 was $272,562 and nil, respectively. Estimated amortization expense of intangible asset for the next five years is $528,149 in each year from 2011 to 2015.

6. LEASE PREPAYMENTS

Lease prepayments mainly represented prepaid lease for retail gas stations, and analyzed as follows:

	December 31, 2010		December 31, 2009
	(unaudited)		(unaudited)

Prepaid lease for retail gas stations	$	31,733,462	$	27,019,942
Other lease prepayments		577,491		435,840
		32,310,953		27,455,782
Less: current portion amount to be expensed in one year		3,787,878		2,835,097
Non-current portion	$	28,523,075	$	24,620,685

The Company leases retail gas stations under long-term lease agreements of 5 to 30 years. The leases involve both land use right and gas station building and equipment. Under the terms of the lease agreements, the Group is required to make advance lease payment for the entire lease term. The leases payments are mainly attributed to the land use right elements which are accounted for as operating leases according to ASC 840, Leases. The remaining lease payments attributable to the gas station building and equipment element are insignificant. Expected operating lease expense for the next five years is $3,787,878 in 2011, $3,787,878 in 2012, $2,536,312 in 2013, $1,721,596 in 2014 and $1,695,790 in 2015.

7. SHORT-TERM BANK LOANS

As of December 31, 2010, the Group has a short-term bank loan of $6,060,606 that bears a fixed annual interest rate of 6.116% and is due on October 27, 2011. This loan is guaranteed by certain third parties (the “Guarantee Companies”). Guarantee fees were charged at 1.882% of total loan amount.

As of December 31, 2010, the Group has a short-term bank loan of $454,546 that bears a fixed annual interest rate of 5.840% and is due on September 24, 2011. This loan is secured by the land use right and buildings of the Company with an original carrying amount of approximately $9,626,000 and $2,896,000, respectively, as of December 31, 2010.

As of December 31, 2009, the Group had a short-term bank loan of $4,395,025 that bore a fixed annual interest rate of 5.841%. The loan was repaid on October 25, 2010. This loan was guaranteed by the Guarantee Companies. Guarantee fees were charged at 2.375% of total loan amount.

In respect of the guarantees for the short-term bank loan as of December 31, 2010 and 2009, the Group collateralized its biodiesel processing equipment with an original carrying amount of approximately $7,458,000 and certain finished goods of $3,544,776 and $3,048,424 as of December 31, 2010 and 2009, respectively, as counter-guarantee to the Guarantee Companies.

8. INCOME TAXES

The Company, its subsidiaries and consolidated variable interest entity file separate income tax returns, mainly in the U.S. and PRC.

F-15

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

The United States of America

The Company is incorporated in the State of Delaware in the U.S., and is subject to U.S. federal corporate income tax at gradual rates of up to 35%.

Hong Kong

Baorun China is incorporated in Hong Kong and Hong Kong’s profits tax rate is 16.5% for 2010 and 2009. Baorun China did not earn any income that was derived from or arising in Hong Kong for the years ended December 31, 2010 and 2009 and therefore did not have any profits subject to Hong Kong profits tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

PRC

The PRC’s statutory income tax rate is 25%. The Company’s PRC subsidiary and consolidated variable entity are subject to PRC income tax at 25%, unless otherwise specified. According to the approval from the tax authority in the district level of Xi’an in Shaanxi Province, Xi’an Baorun was exempt from income tax for the period from January 1, 2005 to December 31, 2010.

The components of earnings (losses) before income taxes are as follows:

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)

PRC, excluding Hong Kong	$	58,388,754		$	38,772,404
U.S.		(4,288,271	)		(873,566	)
Hong Kong		(54,681	)		(27,875	)
Total	$	54,045,802		$	37,870,963

PRC income tax expense for each of the years ended December 31, 2010 and 2009 are as follows:

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)

Current tax expense	$	232,857		$	-
Deferred tax benefit		(6,056	)		-
	$	226,801		$	-

Reconciliation between income tax expense and the amounts computed by applying the PRC statutory tax rate of 25% to earnings before income tax expense is as follows:

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)

Computed expected tax expense (a)	$	13,511,451		$	9,467,740
Non-deductible expenses
Stock-based compensation		1,458,012			185,218
Other non-deductible expenses		1,679,645			1,077,302
Tax rate differentials		(381,296	)		(9,574	)
Tax holiday (b)		(16,055,153	)		(10,774,363	)
Non-PRC entity not subject to income tax		9,022			4,600
Change in valuation allowance		5,120			49,077
Income tax expense	$	226,801		$	-

(a)	The PRC tax rate has been used because the majority of the Group’s consolidated pre-tax earnings arise in the PRC.

(b)	Basic earnings per share effect of tax holiday for the years ended December 31, 2010 and 2009 were $0.48 and $0.38, respectively. Diluted earnings per share effect of tax holiday for the years ended December 31, 2010 and 2009 were $0.38 and $0.30, respectively.

F-16

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2010 and 2009 are presented below:

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)

Deferred tax assets
- Tax loss carryforwards	$	315,939		$	310,819
Total gross deferred tax assets		315,939			310,819

Less: valuation allowance		(315,939	)		(310,819	)
Net deferred tax assets	$	-		$	-


Deferred tax liabilities
- Property, plant and equipment	$	(268,598	)		-
- Intangible asset		(3,231,331	)		-
- Land use right		(922,884	)		-
Net deferred tax liabilities	$	(4,422,813	)	$	-

Classification on consolidated balance sheets

Deferred tax liabilities – Non-current	$	(4,422,813	)	$	-

The increase in valuation allowance during the years ended December 31, 2010 and 2009 were $5,120 and $49,077, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which the tax loss carryforwards are utilized. The Group considers projected future taxable income and tax planning strategies in making its assessment. As of December 31, 2010, for United States federal income tax purposes, the Group had tax loss carryforwards of approximately $848,196 that would expire through December 31, 2029. As of December 31, 2010, for PRC income tax purposes, the Group had tax loss carryforwards of $110,207 that would expire through December 31, 2015. Management has determined it is more likely than not that the deferred tax asset related to these tax loss carryforwards will not be realized, and therefore, full valuation allowance was provided as of December 31, 2010 and 2009.

As of January 1, 2009 and for each of the years ended December 31, 2009 and 2010, the Company, its subsidiaries and consolidated variable interest entity did not have any unrecognized tax benefits, and therefore no interest or penalties related to unrecognized tax benefits were accrued. The Group does not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months.

The Company is subject to U.S. federal income tax examination by tax authorities for tax years beginning in 2007. 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 RMB 100,000 ($15,000). In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The PRC tax returns for the Company’s PRC subsidiary and consolidated variable interest entity are open to examination by the PRC tax authorities for the tax years beginning in 2005.

F-17

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

9. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables mainly represented payables for VAT, purchases of equipment and other general administrative expenses.

10. STOCKHOLDERS’ EQUITY

(a) COMMON STOCK AND ASSOCIATED WARRANTS

Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to common stockholders. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the convertible preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of the Company. As of December 31, 2010, the Company has 79,000,000 authorized shares at a par value of $.0001 per share.

On November 4, 2009, the Company completed a public equity offering and issued 5,000,000 shares of common stock with a par value of $0.0001 per share, at a price of $5.75 per share. On November 18, 2009, the Company issued an additional 750,000 shares of common stock with a par value of $0.0001 per share, at a price of $5.75 per share, upon the exercise of over-allotment option granted to the underwriters in the public offering. The aggregate gross proceeds were $33,062,500. Underwriting commissions, legal fees and offering expenses were $2,378,366 and were recorded as a reduction of additional paid-in-capital.

On December 28, 2010, the Company entered into a securities purchase agreement with certain investors for the private placement of an aggregate of 2,185,716 shares of the Company’s common stock with a par value of $0.0001 per share and 2,185,716 warrants to purchase 1,092,858 shares of the Company’s common stock. The warrants issued have a six-month exercise period with an exercise price of $7.00 per share. The warrants were exercisable and fully vested upon issuance. The total gross proceeds received were $15,300,012. Underwriting commissions, legal fees and offering expenses were $1,035,694 and were recorded as a reduction of additional paid-in-capital. The common stock and warrants were recorded at their relative fair value of $12,781,894 and $1,482,424, respectively. The fair value of the warrants was estimated on the date of grant using the Black-Scholes Option Pricing Model with the following assumptions: discount rate of 0.21%, expected dividend yield of 0%; expected volatility rate of 74.46%, fair value of the underlying common stock of US$7.41, and an expected term of 0.5 years.

(b) SERIES A CONVERTIBLE PREFERRED STOCK AND ASSOCIATED WARRANTS

Concurrently with the Share Exchange in 2007, the Company entered into a Series A Convertible Preferred Stock purchase agreement (the “Series A Purchase Agreement”) with International Imaging System, Inc. for the sale of securities consisting of 1,000,000 shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) for an aggregate purchase price of $10,000,000 or $10 per Series A Preferred Stock share. In conjunction with the issuance of the Series A Preferred Stock, the Company issued to International Imaging System, Inc. (i) a Series A-1 Warrant to purchase 3,409,091 shares of the Company’s common stock at an exercise price of $3.00 per share, and (ii) a Series A-2 Warrant to purchase 2,272,728 shares of the Company’s common at an exercise price of $4.40 per share.

F-18

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

The significant terms of Series A Preferred Stock are as follows:

Conversion

The holders of Series A Preferred Stock have the right, subject to certain limitation as discussed below, to convert all or any portion of their holdings into a number of shares of common stock equal to the quotient of the liquidation preference amount per share of Series A Preferred Stock, or $10.00, divided by the conversion price, which initially is $2.20 per share, or approximately 4,545,455 shares of common stock if all 1,000,000 shares of Series A Preferred Stock are converted, subject to adjustments for, among other things, cash dividends, subdivision or consolidation of shares, capital distribution, change of control and other events which have a dilutive effect, or when additional shares of common stock are issued or issuable pursuant to additional convertible securities issued at a price less than the applicable conversion price of Series A Preferred Stock. The number of shares converted should not be in excess of 4.99% of the then issued and outstanding shares of common stock outstanding at such time, unless a waiver notice is obtained.

Voting Rights

The holders of the Series A Preferred Stock do not have voting rights except for affirmative vote or consent for the Company to carry out the following:

(i)	authorize, create, issue or increase the authorized or issued amount of any class or series of preferred stock, which class or series, in any such case, ranks pari passu or senior to the Series A Preferred Stock, with respect to the distribution of assets on liquidation, dissolution or winding up;

(ii)

amend, alter or repeal the provisions of the Series A Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock; provided, however, that any creation and issuance of another series of junior stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers;

(iii)

repurchase, redeem or pay dividends on, shares of common stock or any other shares of the Company's junior stock (other than de minimus repurchases from employees of the Company in certain circumstances or repurchases pursuant to a plan approved by the Board of Directors);

(iv)

amend the Certificate of Incorporation or By-Laws of the Company so as to affect materially and adversely any right, preference, privilege or voting power of the Series A Convertible Preferred Stock; provided, however, that any creation and issuance of another series of junior stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers;

(v)	effect any distribution with respect to junior stock other than as permitted hereby;

(vi)	reclassify the Company's outstanding securities;

(vii)

voluntarily file for bankruptcy, liquidate the Company’s assets or make an assignment for the benefit of the Company’s creditors; or

(viii)

materially change the nature of the Company’s business

Liquidation Preference

In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, an amount equal to $10.00 per share of the Series A Preferred Stock before any payment shall be made or any assets distributed to the holders of the common stock or any other junior stock. All payments shall be in cash, property or a combination.

F-19

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

Redemption

Series A Preferred Stock does not contain redemption features that are not solely within the Company's control, other than ordinary liquidation. The holders of Series A Convertible Preferred Stock has the right to require the Company to redeem all or a portion of such holder’s shares of Series A Convertible Preferred Stock at its liquidation preference value in cash upon occurrence of the following:

(i)	the Company deregisters its shares of common stock and as a result such shares of common stock are no longer publicly traded

(ii)	the Company consummates a “going private” transaction and as a result the common stock is no longer registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended.

Participating Rights

Series A Preferred Stock does not participate in any dividends with common stock.

Series A-1 and Series A-2 Warrants

The Series A Preferred Stock, Series A-1 Warrant and Series A-2 Warrant were recorded at their relative fair value of $8,414,369, $1,206,793 and $378,838, respectively, in aggregate or $8.41, $0.35, $0.17, respectively, on a per share basis. The Series A Preferred Stock was initially recorded at $8,414,369, (net of the discount that arose from the allocation of the proceeds to the warrants). The detached warrants were recorded in additional paid-in capital at $1,585,631. An aggregate amount of $1,812,903, or $0.40 per share beneficial conversion feature attributable to the Series A Preferred Stock at the commitment date was recognized as a reduction to the carrying amount of the Series A Preferred Stock with a corresponding increase to additional paid-in-capital, since $1.85, the effective conversion price of the Series A Preferred Stock, was less than $2.25, the fair value of each of the Company’s common stock at the commitment date. As Series A-1 Warrant and Series A-2 Warrant were exercisable at anytime upon issuance, the total discount of $3,398,534 (including the beneficial conversion feature and the allocation of the proceeds to the warrants) was accounted for as a dividend to the preferred stockholder at the commitment date. Series A-1 Warrant and Series A-2 Warrant expire five years after the date of grant. Issuance cost of $225,007 was reflected as a reduction to additional paid-in-capital.

The estimated fair value of the underlying Series A Preferred Stock at the commitment date was determined by management, supplemented by the forecasted profitability and cash flows of the Company’s business. The fair value of the Series A-1 Warrant and Series A-2 Warrant was estimated on the date of grant using the Black-Scholes Option Pricing Model with the following assumptions: discount rate of 1.37%, expected dividend yield of 0%; expected volatility rate of 30%, exercise price of US$1.85, and an expected term of 5 years.

During the year ended December 31, 2010, 11,000 shares of Series A Preferred Stock were converted into 50,000 shares of common stock.

The outstanding numbers of Series A-1 Warrants were 1,704,545 as of December 31, 2010 and 2009. The outstanding numbers of Series A-2 Warrants were 2,272,728 as of December 31, 2010 and 2009.

F-20

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

On October 14, 2008, the Company entered into a Convertible Debenture purchase agreement (“Debenture Purchase Agreement”) with China Bio Energy Holding Group Co. Ltd. for the issuance and sale of a non-interest bearing convertible debenture in an aggregate amount of $9,000,000, which automatically converts into 2,465,753 shares of Series B Convertible Preferred Stock (the “Series B Preferred Stock”) at $3.65 per share upon the date of the filing with the Secretary of the State of Delaware of an amendment to the Company’s Certificate of Incorporation to increase the authorized shares of preferred stock from 1,000,000 shares to 10,000,000 shares and the filing of a certificate of designation of the Series B Preferred Stock, which was completed by the end of 2008. Each Series B Preferred Stock is convertible into one share of common stock initially, or 2,465,753 shares of common stock if all 2,465,753 shares of Series B Preferred Stock are converted, subject to adjustments for, among other things, cash dividends, subdivision or consolidation of shares, capital distribution, change of control and other events which have a dilutive effect, or when additional shares of common stock are issued or issuable pursuant to additional convertible securities issued at a price less than the applicable conversion price of Series B Preferred Stock. In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, an amount equal to $3.65 per share of the Series A Preferred Stock before any payment shall be made or any assets distributed to the holders of the common stock or any other junior stock. All other significant terms for Series B Preferred Stock are substantially the same as those of the Series A Preferred Stock.

Series B Preferred Stock does not contain redemption features that are not solely within the Company's control, other than ordinary liquidation.

An aggregate amount of $863,013, or $0.35 per share, beneficial conversion feature attributable to the Series B Preferred Stock at the issuance date was recognized as a reduction to the carrying amount of Series B Preferred Stock and a corresponding increase to additional paid-in-capital, since $3.65, the effective conversion price of each of the Series B Preferred Stock, was less than $4.00, the fair value of each of the Company’s common stock at the commitment date. Such discount was accounted for as a dividend to the preferred stockholder at the commitment date.

During the year ended December 31, 2009, 350,000 shares of Series B Preferred Stock were converted into 350,000 shares of common stock. During the year ended December 31, 2010, 510,000 shares of Series B Preferred Stock were converted into 510,000 shares of common stock.

(d) OTHER WARRANTS

On February 13, 2009, as part of the service fee, the Company granted warrants to an investor relations consulting firm for the purchase of 30,000 shares of the Company’s common stock at an exercise price of $6.00 per share. The warrants vest one year from the date of grant and expire 18 months from the date of vesting. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the warrants at grant date was approximately $2.18 per share. The amount of stock-based compensation expense recognized for the warrants was $65,253 for the year ended December 31, 2009.

On February 5, 2010, as part of the service fee, the Company granted warrants to an investor relations consulting firm for the purchase of 30,000 shares of the Company’s common stock at an exercise price of $10.00 per share. The warrants vest one year from the date of grant and expire 18 months from the date of vesting. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the warrants at grant date was approximately $3.65 per share. The amount of stock-based compensation expense recognized for the warrants was $73,391 for the year ended December 31, 2010.

F-21

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

Following is a summary of warrant activities for the two years ended December 31, 2010:

	Number of shares		Average exercise price per share		Weighed average remaining contractual term in years

Outstanding at December 31, 2008		3,977,273	$	3.80		3.81
Granted		30,000		6.00
Outstanding at December 31, 2009		4,007,273	$	3.82		2.80
Granted		1,122,858		7.08
Outstanding at December 31, 2010		5,130,131	$	4.53		1.52
Exercisable at December 31, 2010		5,100,131		4.50		1.52

(e) STATUTORY RESERVES

The Company’s PRC subsidiaries and consolidated variable interest entity are required to transfer 10% of their respective net income, as determined under generally accepted accounting principal in the PRC to a statutory reserve until the reserve balance reaches 50% of their respective registered capital. The statutory reserve is non-distributable, other than during liquidation, and can be used to fund previous years’ losses, if any, and may be converted into share capital by issuing new shares to existing shareholders in proportion to their share holding or by increasing the par value of the shares currently held by them, provided that the remaining balance of the statutory reserve after such issue is not less than 25% of the registered capital.

As of December 31, 2010 and 2009, the Company’s PRC subsidiaries and consolidated variable interest entity did not make appropriations to statutory reserves, as the accumulated balance of such reserves had reached 50% of their respective registered capital. The accumulated balance of such reserves maintained at the Company’s PRC subsidiaries and consolidated variable interest entity as of December 31, 2010 and 2009 was $4,920,114. The same amount was appropriated at the Company level.

11. STOCK-BASED COMPENSATION

The Company’s stock option plans permit the grant of stock options to its employees and nonemployees under 2003 Equity Incentive Program (“Program”), under which 6,000,000 options were authorized by the Board of Directors and the Compensation Committee. The Company believes that such awards better align the interests of the stock option grantees with those of its stockholders. Option awards are generally granted with an exercise price not less than the fair market value of a share on the date of the grant of the options. The option awards granted should be exercised by the grantees no later than the tenth anniversary (the fifth anniversary if the grantees is a ten percent stockholder) of the grant date. The outstanding numbers of options under the Program were 3,028,000 and 5,940,000 as of December 31, 2010 and 2009.

On November 17, 2008, the Company granted non-transferable stock options to purchase 20,000 shares of the Company’s common stock to each of the two independent directors. The exercise price is $4.00 per share. The options vest evenly each quarter in one year and expire ten years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $3.88 per share. The amount of stock-based compensation expense recognized for the options was nil and $155,104, for the years ended December 31, 2010 and 2009, respectively.

F-22

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

On September 10, 2009, as part of the service fee, a stockholder of the Company granted stock options to an investor relations consultant and a financial advisory consultant to purchase 310,320 shares and 206,880 shares, respectively of the Company’s common stock held by the stockholder. The exercise price of both options is $4.50 per share. The options vest upon issuance and expire one year from the date of grant. The Company determined, based on Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $2.86 per share. The amount of stock-based compensation expense recognized for the options was $994,108 and $486,532 for the years ended December 31, 2010 and 2009, respectively.

On December 16, 2009, as part of the service fee, the Company granted stock options to purchase 20,000 shares of the Company’s common stock to a financial advisory consultant. The exercise price is at $7.09 per share. The options vest one year and expire six years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $4.73 per share. The amount of stock-based compensation expense recognized for the options was $90,708 and $3,944 for the years ended December 31, 2010 and 2009, respectively.

On January 1, 2010, the Company granted non-transferable stock options to purchase 2,752,000 shares of the Company’s common stock to employees. The exercise price is $7.04 per share. The options vest evenly each quarter over a five-year period and expire six years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the option at granted date was approximately $5.25 per share. The amount of stock-based compensation expense recognized for the options was $2,810,192 for the year ended December 31, 2010.

On January 4, 2010, the Company granted non-transferable stock options to the purchase 20,000 shares of the Company’s common stock to each of the two independent directors. The exercise price is $7.30 per share. The options vest evenly each quarter in one year and expire ten years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $6.07 per share. The amount of stock-based compensation expense recognized for the options was $242,808 for the year ended December 31, 2010.

On June 23, 2010, the Company granted non-transferable stock options to purchase 60,000 shares of the Company’s common stock to an employee. The exercise price is $8.98 per share. The option vest evenly each quarter over a five-year period and expire six years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $6.50 per share. The amount of stock-based compensation expense recognized for the options was $39,024 for the year ended December 31, 2010.

On September 30, 2010, as part of the service fee, the Company granted non-transferable stock options to purchase 20,000 shares of the Company’s common stock to a financial advisory consultant. The exercise price is $7.04 per share. The option vest one year and expire six years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $4.26 per share. The amount of stock-based compensation expense recognized for the options was $23,037 for the year ended December 31, 2010.

On December 7, 2010, the Company granted non-transferable stock options to purchase 20,000 shares of the Company’s common stock to each of the two independent directors. The exercise price is $7.38 per share. The option vest evenly each quarter in one year and expire ten years from the date of grant. The Company determined, based on the Black-Scholes Option Pricing Model, that the estimated fair value of the options at grant date was approximately $5.98 per share. The amount of stock-based compensation expense recognized for the options was $14,799 for the year ended December 31, 2010.

F-23

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

Summary of assumptions for the valuation of stock options granted based on the Black-Scholes Option Pricing Model during the years ended December 31, 2010 and 2009:

	Options granted in 2010		Options granted in 2009

Expected dividend yield	Nil		Nil
Expected volatility	76.93~87.99%			87.99%
Risk-free interest rate	0.08~3.36%			0.06%
Expected term	5~10 years		5 years
Fair value of underlying common stock (per share)	$	$6.75~8.98	$	7.04

Following is a summary of stock option activities for the two years ended December 31, 2010:

		Weighted		Weighted average
		average		remaining
	Number	exercise prices		contractual term	Aggregate
	of options	per share		in years	intrinsic value

Balance at December 31, 2008	40,000	$	4.00	9.88
Granted	20,000		7.09
Balance at December 31, 2009	60,000	$	5.03	7.91
Granted	2,912,000		7.09
Exercised	35,000		7.04
Forfeited	25,000		7.04
Balance at December 31, 2010	2,912,000	$	7.05	5.18	$	925,680
Exercisable at December 31, 2010	468,550	$	6.82	5.51	$	247,375

The weighted average grant date fair value of options granted during the years ended December 31, 2010 and 2009 was $5.29 and $4.73 per share respectively. The total intrinsic value of options exercised during the years ended December 31, 2010 and 2009 was $90,191 and nil, respectively.

As of December 31, 2010, there was $11,878,657 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted average period of 3.92 years. The total fair value of stock options vested during the years ended December 31, 2010 and 2009 was $2,452,312 and $155,104, respectively.

Total stock-based compensation expenses for the years ended December 31, 2010 and 2009 were $4,288,067 and $740,870, respectively that were recorded in selling, general and administrative expenses in the consolidated statements of income and comprehensive income.

12. FAIR VALUE MEASUREMENTS

The carrying amounts, at face value or cost plus accrued interest, of all financial instruments approximate their fair value because of the short maturity of these instruments.

13. LEASE COMMITMENTS

In 2010, in connection with the construction of a new 50,000-ton biodiesel production plant, the Group entered into a 15-year non-cancelable and renewable lease of land (land use right) for a term of 15 years. The Group also has several non-cancelable operating leases, primarily for oil storage facilities and gas stations (see Note 6).

Minimum lease payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rental expenses of operating leases, including lease of gas stations, for the years ended December 31, 2010 and 2009 amounted to $3,541,407 and $2,076,771, respectively.

F-24

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

Future minimum lease payments under non-cancelable operating leases as of December 31, 2010 are as follows:

Years ending December 31:

2011	$	257,576
2012		257,576
2013		227,273
2014		227,273
2015		227,273
Years thereafter, through 2024		1,143,939

Total minimum lease payments	$	2,340,910

14. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the years indicated:

	Years ended December 31,
	2010		2009
	(unaudited)		(unaudited)
Numerator:
Net income attributable to China Integrated Energy Inc.	$	53,819,001	$	37,870,963

Shares (denominator):

Weighted average ordinary shares outstanding-basic		33,702,792		28,230,461
Plus: Weighted average incremental shares from assumed conversion of convertible preferred stock		6,256,605		6,836,687
Weighted average incremental shares from assumed exercise of warrants and options		2,240,397		1,187,827
Weighted average ordinary shares outstanding used in computing diluted earnings per ordinary share		42,199,794		36,254,975

Earnings per ordinary share-basic		1.60		1.34
Earnings per ordinary share-diluted	$	1.28	$	1.04

As of December 31, 2010, the Group had 2,902,000 warrants and options outstanding that were excluded in the computation of diluted earnings per share as their effect would have been anti-dilutive. The Series A and Series B Convertible Preferred Stock are not participating securities.

15. SEGMENT REPORTING

The Group’s operating segments are business units that have different customer group. Each operating segment is independently managed, requires different technology and marketing strategies and has separate financial information evaluated regularly by the Group’s chief operating decision maker in determining resource allocation and assessing performance. The Group’s chief operating decision maker uses gross profit as a primary indicator of financial operating performance and as a measure of cash generating capability.

The Group has three reportable operating segments: (1) wholesale distribution of finished oil and heavy oil, (2) production and sale of biodiesel, and (3) operation of retail gas stations. The wholesale distribution of finished oil and heavy oil segment sells a variety of oil products including gasoline, diesel, heavy oil and naphtha. This segment purchases the oil products from local refineries and sells to regional distributors. The production and sale of biodiesel segment produces biodiesel using non-edible seed oil, waste cooking oil and vegetable oil residual as raw materials. This segment sells the finished biodiesel products to power plants and marine transportation companies. The operation of retail gas stations segment sells gasoline and diesel to motor vehicle drivers at the Group’s gas stations. There were no transactions between reporting segments during the years ended December 31, 2010 and 2009, respectively.

F-25

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

Segment information is as follows:

	Years ended December 31,
	2010		2009
	(unaudited)		(unaudited)
Sales
Wholesale distribution of finished oil and heavy oil	$	273,082,322	$	195,864,501
Production and sale of biodiesel		74,916,830		55,794,525
Operation of retail gas stations		90,683,502		37,913,027
Total	$	438,682,654	$	289,572,053

Cost of sales
Wholesale distribution of finished oil and heavy oil	$	244,638,195	$	175,325,275
Production and sale of biodiesel		52,040,039		39,964,368
Operation of retail gas stations		78,820,697		32,811,696
Total	$	375,498,931	$	248,101,339

Gross profit
Wholesale distribution of finished oil and heavy oil	$	28,444,127	$	20,539,226
Production and sale of biodiesel		22,876,791		15,830,157
Operation of retail gas stations		11,862,805		5,101,331
Total	$	63,183,723	$	41,470,714

Total assets
Wholesale distribution of finished oil and heavy oil	$	146,617,588	$	111,795,742
Production and sale of biodiesel		58,380,686		16,407,300
Operation of retail gas stations		59,473,460		35,370,619
Total	$	264,471,734	$	163,573,661

Capital expenditures
Wholesale distribution of finished oil and heavy oil	$	161,196	$	370,564
Production and sale of biodiesel		33,162,675		-
Operation of retail gas stations		15,579,183		-
Total	$	48,903,054	$	370,564

Depreciation and amortization
Wholesale distribution of finished oil and heavy oil	$	230,910	$	161,511
Production and sale of biodiesel		991,015		984,027
Operation of retail gas stations		416,144		-
Total	$	1,638,069	$	1,145,538

The following is a reconciliation of the Group’s gross profit to earnings before income tax:

	Years ended December 31,
	2010			2009
	(unaudited)			(unaudited)
Gross profit		63,183,723			41,470,714
Unallocated head office expenses		8,938,859			3,976,121
Income from operations		54,244,864			37,494,593
Other (expenses) income		(199,062	)		376,370
Earnings before income tax		54,045,802			37,870,963

F-26

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

16. ACQUISITION

On October 28, 2010, the Group acquired 100% equity interest in Chongqing Tianrun for cash consideration of approximately $16.5 million (the “Acquisition”). Chongqing Tianrun is principally engaged in the manufacturing and sales of biodiesel products in Chongqing, the PRC. The reason the Group acquired Chongqing Tianrun is to expand its production capacity and to leverage its distribution network.

The operating results of Chongqing Tianrun have been included in the consolidated financial statements since the Acquisition date on October 28, 2010. The transaction costs of the Acquisition were not material, and have been recorded in selling, general and administrative expenses.

The following table summarizes the amounts of fair value of the assets acquired and liabilities assumed at the acquisition date:

	Fair value			Useful life
Cash	$	619,970
Current assets		4,129,766
Property, plant and equipment
- Buildings		3,193,356		20 years
- Biodiesel processing equipment		5,251,727		10 years
- Office equipment		21,440		5 years
- Motor vehicles		48,569		5 years
Total property, plant and equipment		8,515,092
Land use right		5,045,589		50 years
Other long-term assets		18,814

Current liabilities		(4,392,000	)
Deferred tax liabilities		(1,184,933	)

Total identifiable net assets acquired		12,752,298

Goodwill		3,738,220

Consideration	$	16,490,518

The goodwill of $3,738,220 arising from the Acquisition is mainly for the synergies and cost reduction expected to be achieved. All of the goodwill is allocated to the production and sale of biodiesel segment and is not deductible for tax purpose.

Unaudited supplemental pro forma financial information

The following unaudited supplemental pro forma financial information represents the consolidated results of operations of the Group as if the Acquisition had occurred as of the beginning of January 1, 2010 and 2009. The unaudited supplemental pro forma financial information is not necessarily indicative of what the Group’s consolidated results of operations actually would have been had it completed the Acquisition at the beginning of the period. In addition, the unaudited supplemental pro forma financial information does not attempt to project the Group’s future results of operations after the Acquisition.

	Years ended December 31,
	2010		2009
	(unaudited)		(unaudited)
Revenues	$	459,922,759	$	300,837,680
Net income		57,789,271		39,587,527
Earnings per share attributable to China Integrated Energy, Inc.
Basic	$	1.71	$	1.40
Diluted		1.37		1.09

F-27

THE CONSOLIDATED FINANCIAL STATEMENTS PRESENTED HERE AS OF DECEMBER 31, 2009 AND DECEMBER 31, 2010 AND FOR THE YEARS THEN ENDED ARE UNAUDITED.

During the year ended December 31, 2010, Xi’an Baorun also acquired Shenmu for a total cash consideration of approximately $9.15 million. Shenmu is engaged in the operation of a retail gas station located in Shenmu County, Shaanxi Province, the PRC. After this acquisition, Shenmu became a wholly-owned subsidiary of Xi’an Baorun. The acquisition of Shenmu was not significant to the Group.

17. SUBSEQUENT EVENTS

In January 2011, the Company entered into an agreement with certain institutional investors for a registered direct offering of 3,453,572 shares of the Company’s common stock with a par value of $0.0001 per share at a price of $7.00 per share and 2,185,716 warrants for an aggregate gross proceeds of $24.17 million.

On January 3, 2011, the Company announced that it has signed a non-binding letter of intent to acquire a chemical production plant located in Hainan Province, the PRC, for a total cash consideration of approximately $9 million, for the purpose of constructing a new 300,000 ton biodiesel production facility. The acquisition is still under negotiation.

F-28

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	China Integrated Energy, Inc.

	By:	/s/ Gao Xincheng
		Name: Gao Xincheng
		Title: Chief Executive Officer and President

June 30, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Gao Xincheng	Chairman of the Board, Chief Executive	June 30, 2011
Gao Xincheng	Officer and President (principal executive officer

/s/ Chan Kok Wee	Chief Financial Officer (principal	June 30, 2011
Chan Kok Wee	financial and accounting officer)

/s/ Li Gaihong	Executive Vice President, Financial Controller,	June 30, 2011
Li Gaihong	Director

/s/ Steven Markscheid	Director	June 30, 2011
Steven Markscheid

/s/ Liren Wei	Director	June 30, 2011
Liren Wei

/s/ Guo Junrong	Director	June 30, 2011
Guo Junrong

Exhibit Index

Exhibit Number		Description

2.1		Share Exchange Agreement dated as of October 23, 2007 (1)
2.2		Agreement and Plan of Merger, dated November 15, 2007 (2)
3.1		Certificate of Correction filed on July 24, 2007 (3)
3.1		Certificate of Amendment filed on June 11, 2007 (4)
3.1		Articles of Incorporation (5)
3.1		Certificate of Amendment to Articles of Incorporation (6)
3.1		Certificate of Ownership and Merger, dated November 15, 2007 (2)
3.1		Certificate of Incorporation of China Integrated Energy, Inc. (7)
3.2		By-laws (5)
4.1		Form of Warrant (1)
4.2		Amended and Restated Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock (1)
4.3		Amended and Restated Certificate of Designation of the Relative Rights and Preferences of Series B Convertible Preferred Stock (10)
4.4		Form of Debenture (9)
4.5		Series A-1 Warrant Amendment, dated January 22, 2010(15)
4.6		Series A-2 Warrant Amendment, dated January 22, 2010 (15)
4.7		Form of Common Stock Purchase Warrant dated December 31, 2010 (18)
4.8		Form of Common Stock Purchase Warrant dated January 6, 2011 (19)
10.3		Exclusive Option Agreement by and between Gao Huiling and Baorun Industrial, dated as of October 19, 2007 (7)
10.4		Exclusive Option Agreement by and between Liu Yunlong and Baorun Industrial, dated as of October 19, 2007 (7)
10.5		Equity Pledge Agreement by and among Redsky China, Baorun Industrial and Gao Xincheng, dated as of October 19, 2007 (7)
10.6		Equity Pledge Agreement by and among Redsky China, Baorun Industrial and Gao Huiling, dated as of October 19, 2007 (7)
10.7		Equity Pledge Agreement by and among Redsky China, Baorun Industrial and Liu Yunlong, dated as of October 19, 2007 (7)
10.8		Power of Attorney of Gao Xincheng (8)
10.9		Power of Attorney of Gao Huiling (8)
10.10		Power of Attorney of Liu Yunlong (8)
10.11		Nominee Letter between Redsky China and Gao Xincheng (8)
10.12		Nominee Letter between Redsky China and Gao Huiling (8)
10.13		Nominee Letter between Redsky China and Liu Yunlong (8)
10.14*		Employment Agreement between Baorun Industrial and Gao Xincheng, dated as of October 25, 2010 (16)
10.15*		Employment Agreement between Baorun Industrial and Li Gaihong, dated as of October 25, 2010 (16)
10.16		Amendment to Exclusive Business Cooperation Agreement, dated March 24, 2008 (8)
10.17		Securities Purchase Agreement, dated as of October 14, 2008 (9)
10.18		Registration Rights Agreement, dated as of October 14, 2008 (9)
10.19		Share Escrow Agreement, dated as of October 14, 2008 (9)
10.20		Management Escrow Agreement, dated as of October 14, 2008 (9)
10.21		Form of Warrant Exercise Agreement (9)
10.22		Gas Station Lease Agreement, dated as of May 20, 2008 (10)
10.23*		Employment Agreement with Albert C. Pu, dated as of January 22, 2009 (11)
10.24		Gas Station Leasing Business Contract, dated as of May 28, 2009 (12)
10.25		Gas Station Lease Agreement, dated as of February 1, 2007 (13)
10.26		Gas Station Lease Agreement, dated as of July 27, 2009 (13)
10.27		Land Lease Agreement, dated as of April 20, 2006 (13)
10.28		Oil Storage Service Agreement, effective as of January 1, 2009 (13)

Exhibit Number		Description

10.29		Oil Storage Service Agreement, dated as of August 26, 2008 (13)
10.30		Finished Oil Sales Contract by and between Yanchang Petroleum Oil (Group) Co., Ltd. and Xi’an Baorun Industrial, effective as of December 23, 2008 (13)
10.31		Finished Oil Sales Contract by and between China Petroleum & Chemical Corporation Chuanyu Trading Co., Ltd. and Xi’an Baorun Industrial, dated as of January 25, 2009 (13)
10.32		Registration Rights Agreement, dated September 10, 2009, by and between the Company and Longgen Zhang and Yuan Gong (14)
10.33		Lease Contract, dated April 30, 2008, amending the terms of the Land Lease Agreement, dated April 20, 2006 (14)
10.34		2003 Equity Incentive Program (6)
10.35		Finished Oil Products Sales Contract by and between Yanchang Petroleum (Group) Corp. Ltd. and Xi’an Baorun Industrial Development Co. (17)
10.36		Finished Oil Products Sales Contract by and between Yanchang Petroleum (Group) Corp. Ltd. and Xi’an Baorun Industrial Development Co. (17)
10.37		Gas Station Lease Agreement with Andong Gas Station, dated December 17, 2009 (17)
10.38		Gas Station Lease Agreement with Xi’an Jindou Gas Station, dated December 15, 2009 (17)
10.39		Finished Oil Sales Contract by and between Chongqing Oil Subsidiary Company of China Petroleum & Chemical Corporation, dated as of January 6, 2010 (17)
10.40		Equity Transfer Agreement for Hanyang Jinzheng Petroleum Sales Co., Ltd, dated December 13, 2009 (17)
10.41		Securities Purchase Agreement dated as of December 28, 2010 (18)
10.42		Securities Purchase Agreement dated as of January 3, 2011 (19)
14		Code of Business Conduct and Ethics (8)
21		List of Subsidiaries (7)
31.1+		Certification of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+		Certification of the Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32+		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

+ Filed herewith.

* Management Contract or Compensatory Arrangement

(1)		Incorporated by reference to the Company’s Form 8-K filed on October 29, 2007.
(2)		Incorporated by reference to the Company’s Form 8-K filed on November 23, 2007.
(3)		Incorporated by reference to the Company’s Form 10-QSB filed on November 13, 2007.
(4)		Incorporated by reference to the Company’s Form 10-QSB filed on August 3, 2007.
(5)		Incorporated by reference to the Company’s Registration Statement on Form 10-SB.
(6)		Incorporated by reference to the Company’s Definitive Information Statement filed on September 19, 2003.
(7)		Incorporated by reference to the Company’s Registration Statement on Form S-1 initially filed on December 7, 2007.
(8)		Incorporated by reference to the Company’s Form 10-K filed on March 31, 2008.
(9)		Incorporated by reference to the Company’s Form 8-K filed on October 20, 2008.
(10)		Incorporated by reference to the Company’s Form 10-K filed on March 25, 2009.
(11)		Incorporated by reference to the Company’s Form 10-Q filed on May 13, 2009.
(12)		Incorporated by reference to the Company’s Form 10-Q filed on August 11, 2009.
(13)		Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on September 10, 2009.

(14)		Incorporated by reference to the Company’s Registration Statement on Form S-1/A filed on October 5, 2009.
(15)		Incorporated by reference to the Company’s Form 8-K filed on January 28, 2010.
(16)		Incorporated by reference to the Company’s Form 8-K filed on December 23, 2010.
(17)		Incorporated by reference to the Company’s Form 10-K filed on March 31, 2010.
(18)		Incorporated by reference to the Company’s Form 8-K filed on December 29, 2010.
(19)		Incorporated by reference to the Company’s Form 8-K filed on January 4, 2011.

China Integrated Energy, Inc. - FORM 10-K/A - June 30, 2011

Attached files

China Integrated Energy, Inc. Reports