U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30~~March 31, ~~2014~~2016

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

For the transition period from _______________ to _______________

Commission File Number: 333-124837

Keyuan Petrochemicals, Inc.

(Exact name of registrant as specified in its charter)

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

Qingshi Industrial Park

Ningbo Economic & Technological Development Zone

Ningbo, Zhejiang Province

P.R. China 315803

(Address of principal executive office)

(86) 574-8623-2955

(Issuer's telephone number)

(Former name, former address and former fiscal year, if changed since last report)

~~Check~~Indicate by check mark whether the ~~issuer~~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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☐ No o☒

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

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

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

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

As of ~~December~~November 3, ~~2014~~2016, the Registrant has 5763,~~335~~132,~~736~~726 shares of common stock outstanding ~~and 5,333,340 shares of Series B Preferred Stock outstanding~~.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	41
	Condensed Consolidated Balance Sheets	41
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	2
	Condensed Consolidated Statements of Cash Flows	63
	Notes to Condensed Consolidated Financial Statements	74 -1714
Item 2.	Management’s Discussion and Analysis orof ~~Plan~~Financial Condition and Results of ~~Operation~~Operations.	1815
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	3425
Item 4.	Controls and Procedures.	3525
PART II – OTHER INFORMATION		3626
Item 1.	Legal Proceedings.	3626
Item 1A.	Risk Factors.	3626
Item 2.	Unregistered Sales of Equity Securities And Use Of Proceeds.	3727
Item 3.	Defaults Upon Senior Securities.	3727
Item 4.	Mine Safety Disclosures.	3727
Item 5.	Other Information.	3727
Item 6.	Exhibits.	3827

INTRODUCTORY NOTE

Except as otherwise indicated by the context, references in this ~~Quarterly~~ ~~Report~~quarterly report on Form 10-Q (this “Form 10-Q”) to ~~the~~ “~~Company,” “~~Keyuan” , “we,” , “us” or “our” are references to the combined business of Keyuan Petrochemicals, Inc. and its consolidated subsidiaries. References to the “Company” are references to Keyuan Petrochemicals, Inc., a Nevada corporation; references to “Sinotech Group” are references to our wholly-owned subsidiary, Sinotech Group Limited, a British Virgin Islands company, previously known as Keyuan International Group Limited”; references to “Keyuan HK” are references to our wholly-owned Hong Kong subsidiary, Keyuan Group Limited; references to “Ningbo Keyuan” are references to our wholly-owned subsidiary, Ningbo Keyuan Plastics Co., Ltd., a Chinese company; references to “Ningbo Keyuan Petrochemicals” are references to our wholly-owned subsidiary, Ningbo Keyuan Petrochemicals Co., Ltd., a Chinese company; references to “Keyuan Synthetic Rubbers” are references to to our wholly-owned subsidiary, Ningbo Keyuan Synthetic Rubbers Co., Ltd., a Chinese company; references to “Guangxi Keyuan” are references to our ~~wholly~~partially-owned subsidiary, Guangxi Keyuan New Materials Co., Ltd. (we own 67.1% as if Hengyun Energy has already made full payment under the Investment Cooperation Agreement as described herein below), a Chinese company; and references to “Zhongkexuneng” are references to our wholly-owned subsidiary, Zhejiang Zhongkexuneng Trading Co., Ltd, a Chinese company. A structure chart is found in Item 2. References to “China” or “PRC” ~~are~~ are references to the People’s Republic of China. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” and dollar are to the U.S. dollar, the legal currency of the United States of America.

Special Note Regarding Forward-Looking Statements

This report contains forward-looking statements and information that are based on the beliefs of our management as well as assumptions made by and information currently available to us. Such statements should not be unduly relied upon. ~~When used in this report, forward~~Forward-looking statements include, ~~but~~statements ~~are~~about ~~not limited~~our toexpectations, ~~the words “anticipate~~beliefs,” ~~“believe~~plans,” ~~“estimate~~objectives,” ~~“expect~~intentions,” ~~“intend,” “plan”~~assumptions and ~~similar~~other ~~expressions,~~statements that asare ~~well~~not ashistorical ~~statements~~facts ~~regarding~~or ~~new~~that ~~and~~are ~~existing~~not ~~products,~~present ~~technologies~~facts ~~and~~or ~~opportunities, statements~~conditions. ~~regarding~~Forward-looking ~~market~~statements and ~~industry~~information ~~segment~~can ~~growth~~generally be ~~and~~identified ~~demand~~by ~~and~~the ~~acceptance~~use of ~~new~~forward-looking ~~and~~terminology ~~existing~~or ~~products~~words, ~~any~~such ~~projections of~~as ~~sales~~“anticipate,” ~~earnings~~“approximately,” “believe,” ~~revenue~~“continue,” ~~margins~~“estimate,” ~~or other financial items~~“expect,” ~~any statements of the plans~~“forecast,” ~~strategies and objectives of management~~“intend,” ~~for~~“may,” ~~future~~“ongoing,” ~~operations~~“pending,” ~~any~~“perceive,” ~~statements regarding future economic conditions or performance~~“plan,” ~~uncertainties related to conducting~~“potential,” ~~business~~“predict,” in“project,” ~~China~~“seek,” ~~any~~“should,” ~~statements~~“views” ~~of belief~~ or ~~intention,~~similar ~~and~~words ~~any~~or phrases ~~statements~~ or ~~assumptions~~variations ~~underlying~~thereon, ~~any~~or of the ~~foregoing. These statements~~negatives ~~reflect~~of ~~our~~those ~~current~~words ~~view~~or ~~concerning future events and are subject to risks~~phrases, ~~uncertainties~~or ~~and~~statements ~~assumptions. There are important factors~~ that ~~could~~events, ~~cause~~conditions ~~actual~~or results ~~to vary materially from those described in this report as anticipated~~“can, ~~estimated~~” ~~or expected~~“will,” ~~including~~“may,” ~~but not limited to: competition in the industry in which we operate and the impact of such competition on pricing~~“must,” ~~revenues and margins~~“would,” ~~volatility in the securities market due to the general economic downturn; Securities and Exchange Commission (the~~ “~~SEC~~could”) ~~regulations~~or ~~which affect trading in the securities of~~ “~~penny stocks,~~should” ~~and other~~occur ~~risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly,~~ or tobe ~~update~~achieved ~~the~~and ~~reasons~~similar ~~actual~~expressions ~~results~~in ~~could~~connection ~~differ~~with ~~materially from those anticipated in~~ any ~~forward- looking statements~~discussion, ~~even~~ ifexpectation ~~new~~or ~~information~~projection ~~becomes~~of ~~available in the~~ future~~. Depending~~ onoperating ~~the~~or ~~market for our stock and other conditional~~financial ~~tests~~performance, ~~a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above~~costs, ~~Section 27A of the Securities Act of 1933~~regulations, asevents ~~amended~~or ~~(the~~trends. ~~“Securities~~The ~~Act”)~~absence ~~and Section 21E~~ of ~~the~~these ~~Securities Exchange~~words ~~Act of 1934, as amended (the “Exchange Act”) expressly state that the safe harbor for forward-looking statements~~ does not ~~apply~~necessarily tomean ~~companies~~ that ~~issue~~a ~~penny~~statement ~~stock. Because~~is ~~we may from time to time be considered to be an issuer of~~not ~~penny stock, the safe harbor for~~ forward-looking ~~statements may not apply to us at certain times~~.

~~PART~~Forward-looking statements Iand –information ~~FINANCIAL~~are ~~INFORMATION~~based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this report as anticipated, estimated or expected, including, but not limited to, those factors and conditions described under “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal years ended December 31, 2015 and 2014 (the “Form 10-K”) as well as general conditions in the economy, petrochemicals industry and capital markets, Securities and Exchange Commission (the “SEC”) regulations that affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

PART I – FINANCIAL INFORMATION.

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	Note		~~September 30, 2014~~		March 31, 2016		~~December 31, 2013~~		December 31, 2015
			~~(Unaudited)~~		(Unaudited)
ASSETS
Current assets:
Cash			$	~~2,129~~	$	11,013	$	~~12,309~~	$	4,764
Pledged bank deposits				~~449,555~~		258,335		~~336,363~~		282,968
Bills receivable				81				25
Notes receivable						694				735
Accounts receivable				366				7,517
Accounts receivable, net						19,375				23,398
Inventories	3	3		~~78,282~~		28,888		~~69,914~~		55,730
Prepayments to suppliers				27,391				33,842
Prepayments to suppliers, net						121,455				80,077
Consumption tax recoverable	4	4		~~9,521~~		54,122		~~46,072~~		44,377
Amounts due from related parties	14	15		44		44		43		92
Other current assets	5			78,303				65,189
Amounts due from non-controlling interests						12,088				19,376
Deferred income tax assets	8			3,960				2,641
Other current assets		5				20,119				19,049
Total current assets				~~649,632~~		526,133		~~573,915~~		530,566
Property, plant and equipment, net				~~326,923~~		281,794		~~285,506~~		273,146
Intangible assets, net				~~869~~		976		~~986~~		1,021
Land use rights				~~10,236~~		23,690		~~10,663~~		23,757
Long-term prepayment				10,049				3,012
Value added tax recoverable						1,228				1,205
Total assets			$	~~997,709~~	$	833,821	$	~~874,082~~	$	829,695
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND DEFICIT
Current Liabilities:
Short-term bank borrowings	6	6	$	~~601,091~~	$	318,447	$	~~424,436~~	$	360,720
Bills payable				235,929				261,524
Notes payable		7				368,754				334,139
Accounts payable				~~28,244~~		53,777		~~59,043~~		52,820
Amounts due to related parties	14	15		21		5,265		-		5,330
Advances from customers				16,492				10,820
Amounts due to non-controlling interest						34				-
Accrued expenses and other payables				32,764				23,767
Advances from customers						19,569				15,563
Income tax payable	8			562				1,849
Accrued expenses and other payables		8				48,731				42,654
Dividends payable				2,382				2,382
Income tax payable						1,930				1,596
Total liabilities, all current				917,485				783,821
Dividends payable						2,382				2,382
Series B convertible preferred stock:
Total current liabilities						818,889				815,204
Par value: $0.001; Authorized: 8,000,000 shares issued and outstanding: 5,333,340 shares, liquidation preference $20,250				16,868				16,868
Long-term debt						15,477				15,400
Commitments and contingencies	7			-				-
Total liabilities						834,366				830,604
Stockholders’ equity:
Stockholders’ deficit:
Common stock:
Par value: $0.001; Authorized: 100,000,000 shares Issued 57,646,160; outstanding: 57,335,736 and 57,520,012 shares, as at September 30, 2014 and December 31, 2013, respectively				58				58
Par value: $0.001; Authorized: 100,000,000 shares Issued 57,646,160; outstanding: 57,221,050 as at March 31, 2016 and December 31, 2015						58				58
Additional paid-in capital				~~51,555~~		70,917		~~51,555~~		70,917
Statutory reserve				~~5,749~~		6,114		~~5,749~~		6,109
Accumulated other comprehensive income				~~9,793~~		6,853		~~10,245~~		7,098
Retained earnings				(3,489	)			5,929
Consideration receivable						(9,417	)			(9,417	)
Treasury stock, at cost, 310,424 and 126,148 shares at September 30, 2014 and December 31, 2013, respectively				(310	)			(143	)
Accumulated deficit						(101,063	)			(101,594	)
Total stockholders’ equity				63,356				73,393
Treasury stock, at cost, 425,110 shares at March 31, 2016 and December 31, 2015						(449	)			(449	)
Total liabilities and stockholders’ equity			$	997,709			$	874,082
Total stockholders’ deficit						(26,987	)			(27,278	)
Non-controlling interests						26,442				26,369
Total deficit						(545	)			(909	)
Total liabilities and deficit					$	833,821			$	829,695

See accompanying notes to the condensed consolidated financial statements.

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

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

(Amounts in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2014			2013			2014			2013
	2016			2015
Sales	$	~~135~~86,~~678~~339		$	~~150~~58,~~286~~282		$	~~522,108~~		$	~~453,775~~
Cost of sales		~~132~~74,~~000~~084			~~140~~78,~~030~~843			~~501,596~~			~~432,389~~
Gross profit		3,678			10,256			20,512			21,386
Gross profit (loss)		12,255			(20,561	)
Selling expenses		~~405~~889			~~466~~234			~~1,031~~			~~869~~
General and administration expenses		34,~~121~~030			34,~~397~~642			~~9,868~~			~~8,988~~
Total operating expenses		34,~~526~~919			34,~~863~~876			~~10,899~~			~~9,857~~
Income from operations		152			6,393			9,613			11,529
Income (loss) from operations		7,336			(25,437	)
Other income (expense):
Interest income		31,~~344~~975			23,~~461~~325			~~9,225~~			~~6,363~~
Interest expense		(76,~~791~~400	)		(48,~~481~~348	)		~~(19,378~~	)		~~(14,601~~	)
Foreign exchange (loss) gain, net		(396	)		1,044			(4,534	)		7,249
Foreign exchange loss, net		(1,334	)		(9,408	)
Other expense, net		(~~1,554~~152	)		(18,~~342~~057	)		~~(4,420~~	)		~~(2,437~~	)
Total other expense		(6,397	)		(2,318	)		(19,107	)		(3,426	)
Total other expense, net		(5,911	)		(22,488	)
(Loss) income before income taxes		(6,245	)		4,075			(9,494	)		8,103
Income (loss) before income taxes		1,425			(47,925	)
Income tax (benefit) expense		(586	)		1,284			(76	)		2,891
Income tax expense (benefit)		996			(68	)
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders		(5,659	)		2,791			(9,418	)		5,212
Net income (loss)		429			(47,857	)
Dividends to Series B convertible preferred stockholders		-			548			-			548
Net loss attributable to non-controlling interests		(107	)		-
Net (loss) income attributable to Keyuan Petrochemicals Inc. common stockholders	$	(5,659	)	$	2,243		$	(9,418	)	$	4,664
Net income (loss) attributable to Keyuan Petrochemicals Inc. common stockholders	$	536		$	(47,857	)
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders	$	(5,659	)	$	2,791		$	(9,418	)	$	5,212
Net income (loss)	$	429		$	(47,857	)
Other comprehensive income:
Other comprehensive income (loss):
Foreign currency translation adjustment		8(245	)		~~538~~(479	)		~~(451~~	)		~~2,170~~
Comprehensive (loss) income	$	(5,651	)	$	3,329		$	(9,869	)	$	7,382
Comprehensive income (loss)	$	184		$	(48,336	)
(Loss) earnings per share:
Comprehensive loss attributable to non-controlling interest		(107	)		-
Attributable to common stock:
Comprehensive income (loss) attributable to Keyuan Petrochemicals Inc. common stockholders		291			(48,336	)
-Basic	$	(0.10	)	$	0.05		$	(0.16	)	$	0.09
Earning (loss) per share:
-Diluted	$	(0.10	)	$	0.04		$	(0.16	)	$	0.08
Attributable to common stock:
Weighted average number of shares of common stock used in calculation:
-Basic	$	0.009		$	(0.84	)
-Basic		57,367,715			57,646,160			57,381,027			57,646,160
-Diluted	$	0.009		$	(0.84	)
-Diluted		57,367,715			62,979,500			57,381,027			62,579,500
Weighted average number of shares of common stock used in calculation:
-Basic		57,221,050			57,221,050
-Diluted		57,221,050			57,221,050

See accompanying notes to the condensed consolidated financial statements.

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands, except share data)

	Nine months ended September 30,
	Three months ended March 31,
	2014			2013
	2016			2015
Cash flows from operating activities:
Net (loss) income	$	(9,418	)	$	5,212
Net income (loss)	$	429		$	(47,857	)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		103,~~265~~779			83,~~865~~788
Amortization		~~111~~81			8537
Land use rights amortization		349			344
Bad debt expense		12			2,473
Deferred income tax (benefit) expense		(1,339	)		726
Land use rights amortization		184			194
Share-based compensation expense		-			871
Deferred income tax benefit		-			(153	)
Changes in operating assets and liabilities:
Bills receivable		(57	)		(5,191	)
Notes receivable		44			(146	)
Accounts receivable		74,~~144~~090			1(23,~~735~~958	)
Inventories		(826,~~895~~845	)		~~(14~~30,~~496~~847	)
Prepayments to suppliers		(~~857~~42,375	)		(276,~~494~~060	)
Consumption tax refund receivable		36(9,~~261~~425	)		213,~~397~~826
Other current assets		~~(13~~1,~~301~~975	)		(180,~~892~~963	)
Accounts payable		~~(30~~2,~~060~~183	)		~~(48~~18,~~482~~382	)
Accounts payable – related parties		(332	)		(1,537	)
Amounts due from (to) related parties		13,084			(26,189	)
Advances from (to) customers		5,722			8,424
Advances from customers		3,945			9,766
Income taxes payable		~~(1,275~~322	)		(~~1,356~~53	)
Accrued expenses and other payables		31,~~511~~135			(483,~~202~~651	)
Net cash used in operating activities		(2,171	)		(56,991	)
Pledged deposit for operating activities		(389	)		(22,922	)
Net cash provided by (used in) operating activities		5,919			(60,713	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(4810,~~337~~983	)		(~~44,765~~938	)
Net cash used in investing activities		(4810,~~337~~983	)		(~~44,765~~938	)
Cash flow from financing activities:
Pledged bank deposits used for bank borrowings		~~(115~~25,~~814~~022	)		~~(144~~21,~~593~~813	)
Proceeds from short-term bank borrowings		1142,~~044,794~~086			~~860~~292,~~430~~931
Repayment of short-term bank borrowings		(~~864~~185,~~785~~718	)		(~~780~~282,~~146~~464	)
Proceeds from bank notes		~~502~~141,~~882~~536			~~340~~108,~~186~~674
Repayments of bank notes		(~~526~~108,~~592~~932	)		(~~173~~94,~~839~~400	)
Repurchase of treasury stock		(168	)		-
Net cash provided by financing activities		13,994			46,554
Net cash provided by financing activities		40,317			102,038
Effect of foreign currency exchange rate changes on cash		(2,681	)		15,366
Effect of foreign currency exchange rate changes on cash		11			(46	)
Net increase in cash		6,249			269
Net decrease in cash		(10,180	)		236
Cash at beginning of period		4,764			870
Cash at beginning of period		12,309			23,378
Cash at end of period	$	11,013		$	1,139
Cash at end of period	$	2,129		$	23,614
Supplemental disclosure of cash flow information:
Income tax paid	$	~~2,596~~681		$	~~3,521~~53
Interest paid, net of capitalized interest	$	157,~~166~~859		$	157,~~497~~092
Non cash investing and financing activities:
Payable for purchase of property, plant and equipment (net of VAT)	$	5,302		$	8,938
Amount not yet paid for purchase of property, plant and equipment (net of VAT)	$	147		$	(691	)

See accompanying notes to the condensed consolidated financial statements.

1. ORGANIZATION AND NATURE OF BUSINESS, RECENT EVENTS, AND GOING CONCERN AND MANAGEMENT’S PLANS

(a) Organization and Nature of business

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

(b) Financial ~~Other~~condition, ~~Events~~liquidity and capital resources

OnDespite ~~July~~of ~~2, 2013,~~ the ~~United~~Company’s ~~District~~continuous ~~Court~~efforts ~~for~~in ~~the~~realignment ~~District~~ of ~~Columbia~~product ~~issued~~profiles aand ~~final~~the ~~judgment~~fact ~~approving~~that athe ~~settlement~~petrochemical ~~reached~~industry ~~between~~in ~~the~~China ~~Company~~has ~~and~~been ~~the~~stabilized ~~Securities~~since 2015, ~~and~~the ~~Exchange~~Company ~~Commission~~reported ~~(“SEC”).~~a ~~The~~net ~~settlement~~income ~~was~~of ~~reached~~approximately on$0.4 ~~February~~million ~~28,~~and ~~2013 in~~ a ~~case~~net ~~filed~~loss byof ~~the~~approximately ~~SEC~~$60.5 inmillion for the three months ~~United~~ended ~~States~~March ~~District~~31, ~~Court~~2016 and for the ~~District~~year ofended ~~Columbia~~December ~~against~~31, ~~the Company~~2015, ~~alleging~~respectively. itIn ~~violated~~addition, ~~Sections~~cash ~~17(a)(2)~~flows ~~and~~provided ~~17(a)(3) of~~by ~~the~~operations ~~Securities~~were approximately ~~Act~~$5.9 ofmillion ~~1933,~~for ~~Sections~~the ~~13(a),~~three ~~13(b)(2)(A)~~months ~~and~~ended ~~13(b)(2)(B)~~March of31, ~~the~~2016 ~~Securities~~and ~~Exchange~~cash ~~Act~~flows ofused ~~1934,~~in ~~and~~operations ~~Rules~~were ~~12b-20 and~~approximately ~~13a-13 thereunder~~$112.5 million ~~Under~~for the ~~terms~~year ofended ~~the~~December ~~settlement~~31, ~~the Company~~2015, ~~without~~respectively. ~~admitting~~At orMarch ~~denying~~31, ~~the~~2016 ~~allegation~~and ofDecember ~~the~~31, ~~complaint~~2015, ~~paid~~ athe ~~civil~~Company ~~penalty~~had ofa ~~$1million~~working capital ~~and~~deficit ~~was~~of ~~permanently~~approximately ~~enjoined~~$292.8 ~~from~~million ~~violating~~and ~~certain~~$284.6 ~~securities~~million, ~~law~~respectively.

~~(c)~~Consequently, there ~~Going~~is ~~concern~~substantial ~~and~~doubt ~~management~~about the company’s ~~plans~~ ability to continue as a going concern.

The ~~consolidated~~ ~~financial~~Company ~~statements~~continues ~~have~~to ~~been~~finance ~~prepared~~and ~~assuming~~support ~~that~~its ~~the~~operations ~~Company~~primarily ~~will~~through ~~continue~~short-term asbank ~~a going concern~~borrowings. ~~The~~Short-term ~~Company~~bank ~~reported a~~borrowings ~~net loss~~ and ~~cash~~notes ~~flows~~payable ~~used~~amounted into ~~operations of~~ approximately $~~9.4~~687 ~~million~~ and $~~2.2~~695 million, ~~respectively,~~at ~~for~~March ~~the nine months ended September 30~~31, ~~2014~~ ~~and net~~2016 ~~income~~ and ~~cash~~December ~~flows~~31, ~~used~~2015, inrespectively. ~~operations~~In ofaddition, the ~~approximately~~Group ~~$4.1~~continues ~~million~~to ~~and~~benefit ~~$53.1 million,~~from ~~respectively,~~favorable ~~for~~PRC ~~the~~tax ~~year~~policies ~~ended~~related ~~December~~to ~~31,~~consumption ~~2013~~tax. AtAs ~~September~~of ~~30,~~March ~~2014 and December~~ 31, ~~2013~~2016, the ~~Company~~Group had a ~~working~~consumption ~~capital~~tax ~~deficit~~refund receivables of approximately $~~268~~54.1 million ~~and~~which ~~$210~~have ~~million,~~been ~~respectively.~~fully ~~These~~refunded ~~factors~~to ~~raise substantial doubt about~~ the ~~Company’s~~Group ~~ability to continue~~ as ~~a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability or classification~~ of ~~assets, or~~ the ~~amounts~~date ~~and classification~~ of ~~liabilities~~this ~~that~~Form ~~may result should the Company be unable to continue as a going concern~~10-Q.

The Company ~~continues~~is exploring tosources ~~finance~~of ~~its~~additional ~~operations~~financing, ~~primarily through~~including short-term ~~bank~~financing ~~borrowings.~~from ~~Short-term~~its ~~bank~~vendors ~~borrowings~~ and ~~bills~~other ~~payable~~parties ~~amounted to approximately $837 million at September~~and ~~30,~~equity ~~2014~~financing. ~~Management~~In ~~expects~~addition, ~~that~~the ~~short-term~~Company ~~bank~~is ~~financing~~closely ~~will~~monitoring ~~continue~~its tocash bebalances, ~~available~~cash ~~through~~needs atand ~~least~~expense ~~September 30, 2015~~levels.

The ability of the Company ~~continues~~ to ~~benefit~~continue ~~from~~as ~~favorable~~a ~~PRC~~going ~~tax~~concern ~~policies~~is ~~related~~dependent upon management’s ability to ~~consumption~~implement ~~tax~~its ~~(Note~~expansion plan 4)- ofparticularly ~~which~~the ~~approximately~~Guangxi ~~$9.5~~project ~~million was~~- ~~refundable~~to atincrease ~~September~~production 30capacity, ~~2014.~~obtain ~~Approximately~~additional ~~$4.5~~capital ~~million~~and ~~was~~generate ~~refunded~~net inincome and ~~October~~positive ~~and~~cash ~~November~~flows ~~2014,~~from ~~and management~~operations. ~~expects~~There ~~that~~can ~~approximately~~be $5no ~~million~~assurance that these plans will be ~~deductible~~sufficient ~~against~~or ~~future~~that ~~consumption~~additional financing ~~tax~~will ~~obligations.~~be Inavailable ~~addition, management~~in ~~expects~~amounts ~~VAT~~or ofterms ~~$30~~acceptable ~~million~~ to bethe ~~refunded~~Company, inif ~~late~~at ~~2014~~all.

The ability of the Company to continue as a going concern is dependent upon management’s ability to implement its strategic plan, obtain additional capital and generate net income and positive cash flows from operations. There can be no assurance that these plans will be sufficient or that additional financing will be available in amounts or terms acceptable to the Company, if at all.4

2	BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include the consolidated financial statements of the Company and its subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The consolidated financial statements have been prepared in accordance with U.S. GAAP applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements for the years ended December 31, ~~2013~~ 2015 and ~~2012~~2014, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computation as the audited ~~financial~~consolidated financial statements for the years ended December 31, ~~2013~~2015 and ~~2012~~2014. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

3	INVENTORIES

Inventories consist of the following:

	September 30,		December 31,
	March 31,		December 31,
	2014		2013
	2016		2015
	($’000)		($’000)
	(Unaudited)
Raw materials	$	457,~~648~~665	$	3734,~~747~~116
Finished goods		3017,~~748~~215		3018,~~823~~003
Work-in-process		14,~~886~~008		13,~~344~~611
Total	$	7828,~~282~~888	$	6955,~~914~~730

4	CONSUMPTION TAX REFUND RECEIVABLE

The PRC government enacted ~~regulations~~ a regulation pursuant to which domestically purchased heavy oil to be used for producing ethylene and aromatics products was exempted from consumption tax. In addition, the consumption tax paid for imported heavy oil is to be refunded if it is used for producing ethylene and aromatics products. ~~Given~~Because all the Group’s purchased heavy oils are, or are to be, used for producing ethylene and aromatics products, the Group recognizes a consumption tax recoverable when a consumption tax for heavy oils has been paid and the relevant heavy oils have been used for ~~production~~producing of ethylene and aromatics products. At ~~September 30~~March 31, ~~2014~~ 2016 and December 31, ~~2013~~2015, the Group recorded an estimated consumption tax ~~recoverable~~refund receivables amounting to approximately $954.51 million and $4644.14 million, respectively. The balances as of March 31, 2016 have been fully refunded to the Group as of the date of this Form 10-Q.

~~In October and November 2014, a refund of approximately $4.~~5 ~~million was received. In addition, management expects that approximately $5 million will be deductible against future consumption tax obligations.~~

5	OTHER CURRENT ASSETS

Other current assets consist of the following:

	September 30,		December 31,
	March 31,		December 31,
	2014		2013
	2016		2015
	($’000)		($’000)
	(Unaudited)
VAT recoverable	$	6511,~~574~~740	$	5610,~~667~~397
Customs deposits for imported inventories		6,395		3,680
Deposit paid to suppliers		2,773		3,907
Other		6,334		4,842
Others		5,606		4,745
	$	7820,~~303~~119	$	6519,~~189~~049

Management estimates the deductible input value added tax (“VAT”) using vendor contracts, engineering and other estimates, as well as historical experience. ~~Approximately $2.4 million was included in non-current assets as of September 30, 2014 and December 31, 2013, respectively. Management expects that VAT of $30 million will be refunded in late 2014.~~

Customs deposits for imported inventories represent amounts paid to the local customs office in connection with the import of raw materials inventories. Upon approval by the customs authorities, these amounts become refundable by the local tax authority and are reclassified as consumption tax refund receivable (Note 4).

6 SHORT-TERM BANK BORROWINGS AND LONG TERM DEBT

As of ~~September~~March 3031, ~~2014~~2016 and December 31, 2015 short−-term bank borrowings outstanding carried a weighted average interest rate of 64.187% and ~~(2013: 6~~5.253%), respectively, for bank loans in RMB; ~~and~~ a weighted average interest rate of 3 2.625% ~~(2013:~~and 2.524%), respectively, for bank loans in USD, ~~and had~~ maturity terms ranging from two to twelve months, and interest rates ranging from 12.967% to 6.720% ~~(2013:~~and 1.09% to 76.29%), respectively.

Short-term bank borrowings consist of the following:

	September 30,				December 31,
	March 31,				December 31,
	2014				2013
	2016				2015
	SHORT-TERM BANK BORROWINGS		PLEDGED BANK DEPOSITS		SHORT-TERM BANK BORROWINGS		PLEDGED BANK DEPOSITS
	($’000)		($’000)		($’000)		($’000)
	(Unaudited)				~~(Unaudited)~~
China Construction Bank	$	~~156~~181,~~848~~133	$	~~101~~111,~~865~~410	$	~~102~~181,~~995~~799	$	43104,~~000~~500
Shanghai Pudong Development Bank		465,~~180~~959		~~28,845~~-		325,~~529~~929		~~9,000~~-
Agricultural Bank of China		4211,~~890~~453		~~24,098~~-		3223,~~770~~100		~~20,000~~-
Pingan Bank		~~35,061~~-		~~35,694~~-		212,~~635~~800		232,~~000~~867
Bank of Ningbo		29,974		18,029		30,052		1,000
Bank of Communication		10,989		-		10,934		-
Bank of Communication		31,149		13,658		24,416		3,000
Bank of China		98,135		-		122,168		19,450
Bank of China		178,704		106,367		137,309		78,000
China Merchant Bank		7,739		-		7,700		283
China Merchant Bank		38,955		18,411		33,249		23,000
Ningbo Commerce Bank		3,039		3,293		3,000		3,090
Ningbo Commerce Bank		16,151		16,689		4,990		5,000
China Minsheng Bank		1		-		3,290		-
Bank of Hangzhou		4,758		23		-		-
Total	$	318,447	$	114,702	$	360,720	$	130,190
China Minsheng Bank		13,422		11,223		-		-
Export-Import Bank of China		6,999		-		-		-
China Guangfa Bank		-		-		4,491		5,000
Bank deposits pledged for bills payable		-		74,653		-		126,363
Total	$	601,091	$	449,555	$	424,436	$	336,363

~~Among~~The only long term debt of the ~~Group's~~Company ~~short-term~~is ~~borrowings~~a asloan ofto ~~September~~Ningbo ~~30,~~Keyuan ~~2014~~from Zhouji (Group) Co., Ltd (“Zhouji Group”) made on April 9, 2015 in the initial amount of RMB 100 million (approximately $~~254~~15.4 million). ~~was~~The ~~guaranteed~~debt bymatures ~~related~~on ~~party~~the second anniversary of being made and ~~third~~carries an interest of 7.0%, which is approximately 40% higher than average interest rate of long-~~party~~term ~~entities~~bank loans made at that time of similar tenor. The long-term loan is secured by 15% of Mr. Chunfeng Tao’s ownership of Ningbo Keyuan. Upon the maturity of the loan, Zhouji Group has an option to elect a payment of the principal and ~~individuals~~the accrued interest or the transfer of 15% of Mr. Tao’s ownership of Ningbo Keyuan.

7 ~~SERIES~~NOTES ~~B CONVERTIBLE PREFERRED STOCK AND WARRANTS EXTENSION~~PAYABLE

OnNotes ~~September~~payable 9,represent ~~2014,~~bills ~~the~~issued by ~~Company~~an ~~and~~accepting ~~Dragon State~~bank ~~International~~in ~~Limited~~favor ~~(“Dragon~~of ~~State”)~~the ~~agreed~~Group’s tosuppliers. ~~amend~~The ~~certain~~Group’s ~~terms~~suppliers inreceive ~~the~~payments ~~Certificate~~from such accepting bank directly upon maturity of ~~Designations~~the bills, ~~Preferences~~ and ~~Rights~~the Group is obliged to repay the face value of the ~~Series~~bills Bto ~~Convertible~~such ~~Preferred~~accepting ~~Stock,~~bank. Bills ~~Series~~that Care ~~Warrant~~not ~~and~~remitted ~~Series~~directly Dby ~~Warrant~~the (Group to its suppliers may be sold by the ~~“Amendments”),~~Group ~~which were~~to ~~issued~~other ~~pursuant~~accepting banks for cash prior to ~~the~~their ~~Securities~~maturity. ~~Purchase~~Discounts ~~Agreement~~paid ~~dated~~are ~~September~~recorded 28as a component of interest expense. Notes payable with financing nature amounted $325 million and $312 million as of March 31, ~~2010~~2016 and December 31, 2015, respectively.

Pursuant to the Amendments, i) the date of Maturity (a.k.a. the date of Mandatory Conversion) of the Series B Convertible Preferred Stock was extended from September 28, 2014 to October 31, 2014; ii) the term of the Series C Warrant was extended from September 28, 2014 to October 31, 2014; and iii) the term of the Series D Warrant was extended from September 28, 2014 to October 31, 2014.6

~~The~~8 ~~Company considered~~ACCRUED ~~the~~EXPENSES ~~fair~~AND ~~value~~OTHER of the Series B Convertible Preferred Stock, the Series C Warrants and the Series D Warrants immediately before and after the Amendments and determined that the Amendments constitute modification of the Series B Convertible Preferred Stock, the Series C Warrants and the Series D Warrants, resulting in the transfer of value from the Company’s common shareholders to the Series B Preferred shareholders. The estimated fair value of the value transferred was not significant.PAYABLES

~~The~~Accrued ~~fair~~expenses ~~value~~and ~~was~~other ~~estimated~~payables ~~using~~consist ~~the~~of ~~Black Scholes option-pricing model utilizing~~ the following ~~assumptions~~: ~~stock price of $1.00 per share; no dividends; a risk free rate of 0.1%, which equals the one -year yield on Treasury bonds at constant (or fixed); and volatility of 140.38%.~~

8 COMMITMENTS AND CONTINGENCIES

	March 31,		December 31,
	2016		2015
	($’000)		($’000)
	(Unaudited)
Purchase of property, plant and equipment	$	12,766	$	12,555
Accrued payroll and welfare		725		677
Liquidated damages		2,493		2,493
Deposit from customers		2,499		2,499
Loan from unrelated parties		1,548		1,540
Other tax payable		2,702		2,765
Accrued interest expense		7,771		7,476
Accrued expenses according to ongoing lawsuit		15,079		10,200
Other accruals and payables		3,148		2,449
	$	48,731	$	42,654

9	COMMITMENTS AND CONTINGENCIES

(a) Operating commitments

The Group had outstanding Letters of Credit as of ~~September~~March 3031, ~~2014~~ 2016 of approximately $~~114~~37 million.

(b) Capital commitments

As of ~~September~~March 3031, ~~2014~~2016, the Group had contractual capital commitments of approximately $812.8 million for purchases of equipment. The capital commitments relate primarily to manufacturing equipment enhancements.

~~The~~On October ~~Company~~28, ~~with~~2014, ~~its~~Dragon ~~PRC~~State ~~legal~~Limited ~~counsel~~(“Dragon State”), ~~evaluated~~an investor in a private placement that the ~~matters~~Company ~~identified~~closed in aSeptember 2010, ~~Independent~~filed ~~Investigation~~a tocomplaint ~~determine~~against, ~~the~~among ~~extent~~others, toKeyuan ~~which~~Petrochemicals, ~~the~~Inc. ~~Company~~and ~~may~~Mr. beChunfeng ~~exposed~~Tao, toseeking ~~fines~~rescission of ~~and~~the ~~penalties~~securities inpurchase ~~China. The~~agreement ~~Independent~~in ~~Investigation~~the ~~was~~private ~~conducted~~placement byand the ~~Audit~~return ~~Committee~~of $20 million, and ~~identified~~in the alternative, ~~among~~seeking ~~other~~monetary damages ~~matters,~~to ~~possible~~be ~~violations~~determined ~~of PRC~~at ora ~~U.S.~~trial ~~laws.~~but ~~The~~not ~~Company~~less ~~has~~than ~~concluded~~$20 ~~that~~million (the ~~extent~~“Complaint”). Pursuant to ~~which~~the itSeptember ~~may~~2010 private beplacement, ~~exposed~~Dragon toState ~~fines~~had ~~and~~purchased ~~penalties~~from in the ~~PRC~~Company isfor ~~limited~~an aggregate price of $20 million, 5,333,340 shares of Series ~~and~~B topreferred ~~date~~stock, ~~has~~800,001 ~~not~~series ~~received~~C ~~any~~warrants ~~PRC~~to ~~governmental~~purchase or800,001 ~~regulatory~~common ~~communication~~shares, orat ~~inquiry~~a ~~related~~price toof ~~these matters~~$4.50 ~~However,~~per ~~management~~share (subject to adjustments), isand ~~currently~~800,001 ~~unable~~series toD ~~determine~~warrants ~~the~~to ~~final~~purchase ~~outcome~~800,001 ofcommon ~~these~~shares ~~matters~~at ~~and~~a ~~their~~price ~~possible~~of ~~effects~~$5.25 onper ~~the~~share ~~consolidated~~(subject ~~financial~~to ~~statements~~adjustments).

10On July 11, 2016, the Company entered into a share purchase and settlement agreement (the “Settlement Agreement”) among Dragon State, Delight Reward Limited (“Delight Reward”), Keyuan HK, Ningbo Keyuan Petrochemicals, Ningbo Keyuan, and Keyuan Synthetic Rubbers (the Company, Keyuan HK, Ningbo Keyuan Petrochemicals, Ningbo Keyuan and Keyuan Synthetic Rubbers are collectively referred as the “Keyuan Group”), Mr. Chunfeng Tao, and Prax Capital Equity Management Co., Ltd., an affiliated party to Dragon State. Pursuant to the Settlement Agreement, Dragon State agreed to transfer the securities purchased in the September 2010 Private Placement to Delight Reward for a consideration of RMB 12,000,000 or approximately $1,800,000. In addition, Delight Reward and Keyuan Group agreed to pay, and Dragon State agreed to accept, a settlement of RMB 6,000,000 or approximately $900,000 to waive all claims and liabilities that Dragon State or its affiliated companies or individuals had brought or would bring against Delight Reward, Keyuan Group, Mr. Tao and their affiliates including the Complaint. These amounts were paid on July 15, 2016. On July 19, 2016, the United States District Court Southern District of New York entered an order granting final approval of the settlement. The Complaint was dismissed.

9On August ~~INCOME~~4, ~~TAXES~~2016, Delight Reward entered into a side agreement with the Company (the “Side Agreement”). Under the Side Agreement, Delight Reward agreed not to claim that the warrants transferred pursuant to the Settlement Agreement were exercisable, and agreed pay to the Company for each convertible share underlying the Series B preferred stock transferred pursuant to the Settlement Agreement, the highest sale price of the Company’s Common Stock per share as reported on the OTC Pink during a period commencing on the date of the Settlement Agreement and ending on August 4, 2016, which was $0.005 per share of Common Stock. The aggregate purchase price for the shares of Common Stock underlying the series B preferred stock was therefore $27,465.01. On August 8, 2016, these funds were paid in cash on hand by Delight Reward. On August 10, 2016, the shares of Series B preferred stock were converted into 5,493,001 shares of Common Stock pursuant to the terms of the certificate of designations of series B preferred stock and the Side Agreement.

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Company’s expected effective tax rate for 2014 is approximately 10%. The lower effective rate for the nine months ended September 30, 2014 is primarily due to losses in non-PRC jurisdictions, the benefit of which is not expected to be realized. The Company paid income taxes of approximately $0.7 ~~million and $2.6 million, respectively during the three months and nine months ended September 30, 2014.~~

10 ~~EARNING~~INCOME ~~(LOSS) PER SHARE~~TAXES

The provision ~~following~~for ~~table~~income ~~sets~~taxes ~~forth~~is recorded at the ~~computation~~end of ~~basic~~each ~~net~~interim period based on the Group’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Group’s effective tax rate for the three months ~~per~~ended ~~share:~~March 31, 2016 is approximately 70%. The increased effective rate for the three months ended March 31, 2016 compared to year 2015 is primarily due to losses in non-PRC jurisdictions, the benefit of which is not expected to be realized. The Group paid income taxes of approximately $0.7 million and $0.05 million, respectively during the three months ended March 31, 2016 and 2015.

	Three months ended September 30					Nine months ended September 30
	2014			2013		2014			2013
	($’000)			($’000)		($’000)			($’000)
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Basic earnings per share:
Net (loss) income attributable to Keyuan
Petrochemicals, Inc. stockholders	$	(5,659	)	$	2,243	$	(9,418	)	$	4,664
Fixed dividends to Series B convertible
Preferred stockholders		-			548		-			548
Net (loss) income contributable to Keyuan
Petrochemicals Inc. common stockholders	$	(5,659	)	$	2,791	$	(9,418	)	$	5,212
Weighted average common share
(Denominator for basic income per share)		57,367,715			57,646,160		57,381,027			57,646,160
Effect of diluted securities:
-Series B convertible preferred stock		-			5,333,340					5,333,340
-Warrants		-			-		-			-
-Options		-			-		-			-
		57,367,715			62,979,500		57,381,027			62,979,500
Basic net income (loss) per share:	$	(0.10	)	$	0.05	$	(0.16	)	$	0.09
Diluted net income (loss) per share:	$	(0.10	)	$	0.04	$	(0.16	)	$	0.08

11	EARNING (LOSS) PER SHARE

The following table ~~represents~~sets forth the ~~warrants and options excluded~~computation ~~from~~of ~~the~~basic ~~calculation~~and of diluted net earnings (loss) per share:

	September 30, 2014			September 30, 2013
	Three months ended March 31
Warrants		4,394,468			4,396,118
	2016			2015
Options		3,490,000			3,490,000
	($’000)			($’000)
	(Unaudited)			(Unaudited)
Basic earning (loss) per share:
Net income (loss)	$	429		$	(47,857	)
Net loss attributable to non-controlling interests		(107	)		-
Net income (loss) attributable to Keyuan
Petrochemicals Inc. common stockholders	$	536		$	(47,857	)
Weighted average common share
(Denominator for basic and diluted earning (loss) per share)		57,221,050			57,221,050
Basic net earning (loss) per share:	$	0.009		$	(0.84	)
Diluted net earning (loss) per share:	$	0.009		$	(0.84	)

11Diluted ~~STOCK~~earnings ~~REPURCHASE~~(loss) ~~PROGRAM~~per share is calculated by dividing net income (loss) attributable to the Company’s stockholders as adjusted for the effect of dilutive common stock equivalents, if any, by the weighted average number of common stock and dilutive common stock equivalents outstanding during the year. Common stock equivalents consist of the common stock issuable upon the exercise of outstanding stock options and stock purchase warrants (using the treasury stock method). Potential dilutive securities are not included in the calculation of dilutive earnings (loss) per share if the effect is anti-dilutive. No warrants and options were included in diluted earnings (loss) per share for the three month ended March 31, 2016 and 2015, respectively, as their effect was anti-dilutive.

12	STOCK REPURCHASE PROGRAM

On September 22, 2014, the Board of Directors authorized the termination of a repurchase program that was commenced on December 31, 2012 to repurchase of up to $2 million of its common stock at a price of up to $1.50 per share. The Company purchased 425,110 shares of common stock through the stock repurchase program.

11Shares of common stock repurchased by the Company are recorded at cost as treasury stock and result in a reduction of equity in the consolidated balance sheets. Treasury shares may be reissued as part of the Company’s stock-based compensation programs. There were no reissuances during the three months ended March 31, 2016 and 2015.

1213 FAIR VALUE MEASUREMENTS

The Company did not have any assets or ~~and~~ liabilities that ~~are~~were measured at fair value on a recurring basis as of ~~September~~March 3031, ~~2014~~2016 and ~~2013~~December 31, 2015, respectively.

The fair values of cash, ~~bills~~pledged bank deposits, notes receivable, accounts receivable, ~~bills~~short-term ~~payable~~bank borrowings, notes payable, and accounts payable approximate their respective carrying amounts due to their short-term nature. The fair value of pledged bank deposits and short-term bank borrowings approximate their carrying amount because of their varying interest rates and/or their short maturities. ~~Amounts due to related parties are not practicable to estimate due to the related party nature of the underlying transactions.~~

1314 SIGNIFICANT CONCENTRATIONS AND RISKS

AtAs of ~~September~~March 3031, ~~2014~~2016 and December 31, ~~2013~~2015, the Group held cash and pledged bank deposits in financial institutions of approximately $~~451~~269 million and $~~349~~288 million, respectively. ~~They~~These were primarily held in major financial institutions located in mainland China and the Hong Kong Special Administrative Region, which management believes have high credit ~~ratings~~quality.

During ~~the nine months ended September 30,~~ ~~2014 and~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2013~~2016, no sales to individual ~~customers~~customer exceeded 10% of the Group’s total net revenue. ~~During~~As of ~~the~~March ~~three months ended September 30~~31, ~~2014~~2016, ~~sales~~two ~~to major~~ customers, ~~which~~accounted ~~individually~~for ~~exceeded 10~~51% of ~~the~~and ~~Group’s~~33% ~~total~~of ~~net~~accounts ~~revenue, were as follows:~~receivables.

Three months ended September 30, 2014
Largest Customers	Amount of Sales		% Total Sales
	($’000)
	(Unaudited)		(Unaudited)
Customer A	$	26,760		20	%
Customer B	$	14,503		11	%

The Group currently buys a majority of its heavy oil and styrene, important components of its products, from three suppliers. Management believes that other suppliers could be found to provide similar products on comparable terms if it were to become necessary. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely.

~~The~~During the ~~Group~~three ~~currently~~months ~~buys~~ended aMarch ~~majority~~31, of2016 ~~its~~and ~~heavy oil~~2015, anthree ~~important component~~and oftwo ~~its~~suppliers ~~products,~~to ~~from~~the ~~one~~Group ~~supplier.~~each ~~Although~~accounted ~~there~~for ~~are~~more athan ~~limited~~10% ~~number~~ of ~~suppliers~~total group ofpurchase. ~~the~~These ~~particular~~three ~~heavy~~suppliers ~~oil~~accounted ~~used in~~for ~~production~~approximately 17%, ~~management~~10% ~~believes~~and ~~that~~10% ~~other~~of ~~suppliers~~the ~~could~~total ~~provide~~purchase ~~similar~~for ~~heavy~~three ~~oil~~months onended March ~~comparable~~31, ~~terms~~2016. ADuring ~~change~~the inthree ~~suppliers, however,~~months ~~could~~ended ~~cause~~March a31, ~~delay~~2015, inthe ~~manufacturing~~two ~~and~~individual asuppliers ~~possible~~from ~~loss~~whom ofthe ~~sales,~~Group ~~which~~purchased ~~would~~more than ~~affect~~10% ~~operating~~of ~~results~~its ~~adversely.~~total ~~The Company’s~~purchases, ~~largest supplier~~ accounted for approximately ~~$73 million and $79.8 million~~58%, ~~or 49~~23% ~~and 61%~~ of the total ~~purchases~~purchase. ~~for~~As ~~the~~at ~~three~~March ~~months ended September 30~~31, ~~2014 and 2013~~2016, ~~respectively.~~one ~~The~~customer ~~Company’s largest supplier~~ accounted for ~~approximately $315 million and $265.7 million, or 62~~92% ~~and 61%~~ of total ~~purchases~~accounts ~~for the nine months ended September 30, 2014 and 2013, respectively~~payable.

The Group ~~Company~~ commenced trading of heavy oil in April 2013, ~~whereby~~ with the ~~Company~~Group ~~functions~~acting as an agent on behalf of a Hong~~-Kong~~ Kong-based customer. For the three months ended ~~September~~March 3031, ~~2014~~2016 and ~~2013~~2015, the trading of heavy oil consists of purchases of approximately ~~$102.6~~nil ~~million~~ and $~~142.~~3 .0 million, respectively, and sales of approximately ~~$101.8~~ ~~million~~nil and $~~141~~3.~~7 million, respectively, resulting in a loss of $~~0.8 million ~~and $0.6 million~~, respectively, that has been included in cost of sales in the condensed consolidated statements of comprehensive income. For the nine months ended September 30, 2014, the trading of heavy oil consists of purchases of approximately $272.6 million, and sales of approximately $270.7 million, resulting in ano ~~loss~~profit ofor $1loss.~~9 million, that has been included in cost of sales in the condensed consolidated statement of comprehensive income.~~

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

129

1415 RELATED PARTY TRANSACTIONS AND RELATIONSHIPS AND TRANSACTIONS WITH CERTAIN OTHER PARTIES

(A) Related Party Transactions

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

Name of parties		Relationship
Mr. Chunfeng Tao		Majority stockholder
Mr. Chunfeng Tao (“Mr. Tao”)		Majority stockholder
Mr. Jicun Wang		Principal stockholder
Mr. Jicun Wang (“Mr. Wang”)		Principal stockholder
Mr. Peijun Chen		Principal stockholder
Mr. Peijun Chen (“Mr. Chen”)		Principal stockholder
Ms. Sumei Chen		Member of the Company’s Board of Supervisors and spouse of Mr. Wang
Ms. Yushui Huang		Vice President of Administration, Ningbo Keyuan
Ms. Yushui Huang (“Ms. Huang”)		Vice President of Administration, Ningbo Keyuan
Ningbo Pacific Ocean Shipping Co., Ltd (Ningbo Pacific)		100% ownership by Mr. Wang
Mr. Dingan Zhang		Chief Financial Officer of Ningbo Keyuan from October 2015 to April 2016
Ningbo Xinhe Logistic Co., Ltd (Ningbo Xinhe)		10% ownership by Ms. Huang
Ningbo Pacific Ocean Shipping Co., Ltd (“Ningbo Pacific”)		100% ownership by Mr. Wang
Ningbo Hengfa Metal Product Co., Ltd (“Ningbo Hengfa”, former name “Ningbo Tenglong”)		100% ownership by Mr. Chen
Ningbo Xinhe Logistic Co., Ltd (“Ningbo Xinhe”)		10% ownership by Ms. Huang

Related party transactions and amounts outstanding with the related parties as of March 31, 2016 and ~~for~~December ~~the~~31, ~~three~~2015, and ~~nine~~for the three months ended ~~September~~March 3031, ~~2014~~2016 and ~~2013~~2015, are summarized as follows:

	Three months ended September 30				Nine months ended September 30
	Three months ended March 31
	2014		2013		2014		2013
	2016		2015
	($’000)		($’000)		~~($’000)~~		~~($’000)~~
	(Unaudited)		(Unaudited)		~~(Unaudited)~~		~~(Unaudited)~~
Purchase of transportation services (a)	$	~~423~~879	$	-158	$	~~2,327~~	$	~~1,045~~
Loan guarantee fee (b)	$	-	$	43	$	-	$	85

	September, 2014		December 31, 2013
	As of March 31, 2016		As of December 31, 2015
	($’000)		($’000)
	(Unaudited)
Amounts due to related parties (c)	$	21	$	369
Amounts due from related parties (c)	$	44	$	92
Advance payments to these parties (d)	$	44	$	55
Amounts due to related parties (c)	$	5,113	$	4,592
Accounts payables to related parties	$	152	$	739

(a) The Group purchased transportation services of approximately $0.48 million and ~~nil from Ningbo Xinhe during the three months ended September 30, 2014 and 2013, respectively. The Group purchased transportation services of~~ $20.32 million ~~and $1.0 million~~ from Ningbo Xinhe during the ~~nine~~ three months ended ~~September~~ 30March 31, ~~2014~~2016 and ~~2013~~2015, respectively.

(b) Guarantees for Bank Loans

~~Beginning~~Guarantee provided inby ~~2011,~~Mr. ~~loan~~Tao ~~guarantee~~amounted ~~fees of 0~~$139.3% ofmillion ~~the loan principal guaranteed are to be paid quarterly. During the three months ended September 30, 2014~~ and ~~2013, loan guarantee fees were approximately nil and~~ $0138.046 million ~~for~~as ~~Ningbo~~of ~~Pacific,~~March ~~respectively. During the nine months ended September 30~~31, ~~2014~~2016 and ~~2013,~~December ~~loan guarantee fees were nil and $0.09 million for Ningbo Pacific~~31, ~~respectively~~2015.

~~(c)~~Bank loans ~~Amounts~~guarantee ~~due~~provided toby ~~related~~Mr. ~~parties~~Tao ~~consist~~ amounted $91.8 million and $95.9 million as of ~~the~~March ~~following~~31, 2016 and December 31, 2015.

	September 30, 2014		December 31, 2013
	($’000)		($’000)
	(Unaudited)
Ningbo Xinhe (Transportation expenses)	$	21	$	369

(dc) Amount ~~Advance~~due ~~payments~~from to these parties consist of the following.

	September 30, 2014		December 31, 2013
	As of March 31, 2016		As of December 31, 2015
	($’000)		($’000)
	(Unaudited)		~~(Unaudited)~~
Ningbo Xinhe	$	-	$	12
Mr. Tao	$	44	$	46
Mr. Tao		44		43
Others		-		46
Total	$	44	$	55

Amount due to these parties consist of the following.

	As of March 31, 2016		As of December 31, 2015
	($’000)		($’000)
	(Unaudited)
Mr. Tao	$	4,592	$	4,592
Ningbo Xinhe		521		-
Total	$	5,113	$	4,592

(B) Relationships and transactions with certain other parties

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

Name of parties		Relationship
Ningbo Litong Petrochemical Co., Ltd (Ningbo Litong)		Former 12.75% nominee shareholder of Ningbo Keyuan
Ningbo Litong Petrochemical Co., Ltd (“Ningbo Litong”)		Former 12.75% nominee shareholder of Ningbo Keyuan
Ningbo Anqi Petrochemical Co., Ltd (Ningbo Anqi)		A related party through September 2011 when control transferred
Huaning International Trading Co., Ltd (“Huaning”)		The director of Huaning is the shareholder and director of Ningbo Xinghe, one of the Group’s related parties
Ningbo Lide Investment Co., Ltd. (Ningbo Lide)		A related party through September 2011 when control transferred
Mercuria Energy Trading Pte Ltd. (“Mercuria”)		Major supplier
Ningbo Kunde Petrochemical Co, Ltd.(Ningbo Kunde)		A related party through September 2011 when control transferred
Ningbo Anqi Petrochemical Co., Ltd		A related party until September 2011 when control transferred
Ningbo Lide Investment Co., Ltd. (“Ningbo Lide”, f/k/a Ningbo Kewei)		A related party until September 2011 when control transferred
Ningbo Kunde Petrochemical Co, Ltd.		A related party until September 2011 when control transferred

Transactions and amounts outstanding with these parties for the three months ended March 31, 2016 and ~~nine~~2015 ~~months~~and ~~ended~~as ~~September~~of 30March 31, ~~2014~~2016 and ~~2013~~December 31, 2015 are summarized as follows:

	Three months ended September 30				Nine months ended September 30
	Three months ended March 31
	2014		2013		2014		2013
	2016		2015
	($’000)		($’000)		~~($’000)~~		~~($’000)~~
	(Unaudited)		(Unaudited)		~~(Unaudited)~~		~~(Unaudited)~~
Sales of products (e)	$	7,706	$	8,892	$	20,107	$	59,324
Sales of products (d)	$	-	$	1,936
Purchase of raw materials (f)	$	27,476	$	10,118	$	63,437	$	44,968
Purchase of raw materials (e)	$	56,551	$	29,157
Guarantee for bank borrowings (g)	$	32,544	$	65,526	$	140,650	$	159,511
Loan guarantee fees (g)	$	643	$	643	$	1,965	$	1,728

	As at March 31, 2016		As at December 31, 2015
	($’000)		($’000)
	(Unaudited)
Guarantee for bank borrowings (f)	$	311,681	$	310,276
Amounts due from these parties (g)	$	2,773	$	3,907
Advance payments to these parties (h)	$	30,460	$	4,552
Advance payments from these parties (i)	$	1,193	$	4
Accounts receivables (j)	$	763	$	-
Accounts payables (k)	$	41,771	$	41,269
Notes payable (l)	$	155,871	$	140,715
Notes receivable (m)	$	-	$	514

(d) The Group sold finished products of approximately nil and $1.5 million to Ningbo Litong during the three months ended March 31, 2016 and March 31, 2015, respectively. The Group sold finished products of approximately nil and $0.4 million to Ningbo Lide during the three months ended March 31, 2016 and March 31, 2015, respectively.

(e) The Group purchased raw materials of approximately $21.8 million and $9.7 million from Ningbo Litong during the three months ended March 31, 2016 and March 31, 2015, respectively. The Group purchased raw materials of approximately $29.2 million and $0.02 million from Ningbo Lide during the three months ended March 31, 2016 and March 31, 2015, respectively. The Group purchased raw materials of approximately $5.5 million and $16.6 million from Mercuria during the three months ended March 31, 2016 and March 31, 2015, respectively. The Group purchased raw materials of approximately nil and $2.8 million from Huaning during the three months ended March 31, 2016 and March 31, 2015, respectively.

(f) Guarantees for Bank Loans

	Guarantee provided as of
	March 31, 2016		December 31, 2015
	($’000)		($’000)
	(Unaudited)
Ningbo Litong	$	102,742	$	102,379
Ningbo Lide		208,940		207,897
Total	$	311,682	$	310,276

	Bank loans Guaranteed as of
	March 31, 2016		December 31, 2015
	($’000)		($’000)
	(Unaudited)

Ningbo Litong	$	18,727	$	18,634
Ningbo Lide		97,737		101,783
Total	$	116,464	$	120,417

Between in January 2011 and January 1, 2014, these Company paid loan guarantee fees of approximately 0.3% per quarter of the loan principal guaranteed for these guarantees. In January 1, 2014, Ningbo Litong, Ningbo Lide and Mr. Chunfeng Tao agreed to stop charging loan guarantee fees to the Group.

No guarantee fees were paid for the three months ended March 31, 2016 and 2015.

(g) At March 31, 2016 and December 31, 2015, the amounts due from these parties consist of amounts due from Huaning of $1.2 million and $3.9 million, respectively, and amounts due from Mercuria of $1.6 million and nil, respectively.

(h) At March 31, 2016 and December 31, 2015, advances payments to these parties consist of payments to Ningbo Litong of $18.8 million and nil, respectively, and Ningbo Lide of $11.7 million and $4.6 million, respectively.

(i) At March 31, 2016 and December 31, 2015, advances received from Huaning of $4,000 and $4,000, respectively, and amounts received from Ningbo Lide of $1.2 million and nil, respectively.

(j) At March 31, 2016 and December 31, 2015, account receivables from these parties consist of account receivables from Ningbo Litong of $0.1 million and nil, respectively, and account receivables from Ningbo Lide of $0.6 million and nil, respectively.

(k) At March 31, 2016 and December 31, 2015 accounts payables to these parties consist of payables to Ningbo Litong of nil and $1.4 million, respectively, and payables to Mecuria of $41.8 million and $39.9 million, respectively.

(l) At March 31, 2016 and December 31, 2015, notes payables to these parties consist of notes payables to Ningbo Litong of $76.8 million and $68.6 million, respectively, and payables to Ningbo Lide of $79.1 million and $72.2 million, respectively.

(m) At December 31, 2015 and 2014 notes receivable from these parties consist of notes receivable from Ningbo Litong of nil and $0.5 million, respectively, and notes receivable from Ningbo Lide of nil and $0.02 million, respectively.

(C) Relationships and transactions with the entity that has non-controlling interests in Company’s subsidiaries:

The Group has the following relationships and transactions with the entity who has non-controlling interests in the Company or its subsidiaries:

Name of party		Relationship
Ningbo Hengyun Energy Technology Co., Ltd (Ningbo Hengyun)		Non-controlling shareholder of Guangxi Keyuan since 2015

The transactions and amounts outstanding with this party as of March 31, 2016 and December 31, 2015, and for the three months ended March 31, 2016 and 2015 are summarized as follows:

	Three Months ended March 31,
	2016		2015
	($’000)		($’000)
	(unaudited)		(unaudited)
Sales of products	$	273	$	557
Purchase of raw materials	$	42,920	$	22,789

	As at March 31, 2016		As at December 31, 2015
	($’000)		($’000)
	(unaudited)
Advance received from non-controlling interest shareholder	$	34	$	-
Advance payments to non-controlling interest shareholder	$	11,766	$	2,222
Accounts receivables	$	323	$	17,153
Notes receivables	$	87,876	$	90,601

16	Consolidated Segment Data

Segment information is based on how management reviews the business, makes investing and resource allocation decisions and assesses operating performance. The segment data presented reflects management’s segment structure. The Company reports financial and operating information in the following two segments:

(a) Petrochemicals Segment: Manufacturing and sales of mixed light aromatics, mixed heavy aromatics, fine propylene, propane, butane, liquefied petroleum gas (LPG), methyltert butyl ether, styrene, etc.

(b) Rubber Segment: Manufacturing and sales of various rubber products.

Segment information is as follows:

	Three Months Ended March 31
	2016							2015
	Petrochemical		Rubber			Total		Petrochemical			Rubber		Total
	($'000)		($'000)			($'000)		($'000)			($'000)		($'000)
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Sales	$	64,959	$	21,380		$	86,339	$	44,307		$	13,975	$	58,282
Income (loss) from operations	$	10,434	$	(3,098	)	$	7,336	$	(27,950	)	$	2,513	$	(25,437	)

	As of March 31, 2016						As of December 31, 2015
	Petrochemical		Rubber		Total		Petrochemical		Rubber		Total
	($'000)		($'000)		($'000)		($'000)		($'000)		($'000)
	(Unaudited)		(Unaudited)		(Unaudited)
Total assets	$	724,623	$	109,198	$	833,821	$	724,008	$	105,687	$	829,695

17	SUBSEQUENT EVENTS

On July 11, 2016, the Company and certain affiliates of the Company entered into the Settlement Agreement with Dragon State and others described in Note 9(c) above, pursuant to which Dragon State agreed to transfer the securities of the Company it owned to Delight Reward and waive all claims and liabilities that Dragon State or its affiliated companies or individuals had brought or would bring against the Company, Delight Reward and certain affiliates of the Company for an aggregate consideration of RMB 18 million or approximately $2.7 million.

On August 4, 2016, the Company entered into the Side Agreement with Delight Reward described in Note 9(c) above in connection with the execution of the Settlement Agreement and the payment subsequently made thereunder by the Company to Dragon State.

For more details of the Settlement Agreement and the Side Agreement, please refer to Note 9(c) above.

	September 30, 2013		December 31, 2013
	($’000)		($’000)
	(Unaudited)
Advances received from these parties (h)	$	2,155	$	-
Advance payments to these parties (i)	$	4,517	$	11,043
Accounts receivable from these parties (j)	$	-	$	218

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

~~(e)~~The following ~~Group~~discussion ~~sold finished~~and ~~products~~analysis of ~~approximately~~our ~~$3.8~~financial ~~million~~condition and ~~$5.0~~result ~~million~~of tooperations ~~Ningbo~~should ~~Litong~~be ~~during~~read ~~the~~in ~~three~~conjunction ~~months~~with ~~ended~~our ~~September 30,~~unaudited ~~2014~~consolidated ~~and~~financial ~~2013,~~statements ~~respectively. The Group sold finished products of approximately $3.9 million~~ and ~~$0.2~~the ~~million~~notes to ~~Ningbo~~those ~~Lide during~~financial ~~the~~statements ~~three~~appearing ~~months~~elsewhere ~~ended~~in ~~September~~this ~~30,~~Form ~~2014 and 2013, respectively~~10-Q. ~~The~~This ~~Group~~discussion contains ~~sold~~forward-looking ~~finished~~statements ~~products of nil~~ and ~~approximately~~ ~~$3.8~~involves ~~million~~numerous torisks ~~Ningbo~~and ~~Kunde during the three months ended September 30~~uncertainties, ~~2014 and 2013~~including, ~~respectively.~~but ~~The~~not ~~Group sold~~limited ~~finished products of approximately $16 million and $17.1 million~~ to ~~Ningbo Litong~~, ~~during~~those ~~the nine months ended~~described ~~September~~in ~~30,~~the ~~2014~~"Risk ~~and~~Factors" ~~2013,~~section ~~respectively. The Group sold finished products~~ of ~~approximately~~the ~~$4.1~~Form ~~million~~10-K ~~and~~for ~~$0.2 million to Ningbo Lide during~~ the ~~nine~~fiscal ~~months~~years ended ~~September~~December 3031, ~~2014~~2015 and ~~2013~~2014, ~~respectively.~~and ~~The~~the ~~Group~~other reports ~~sold~~we ~~finished~~file ~~products~~with ofthe ~~nil~~ Securities and ~~approximately~~Exchange ~~$42~~Commission. ~~million~~Our toactual ~~Ningbo~~results ~~Kunde~~may ~~during~~differ ~~the~~materially ~~nine~~from ~~months~~those ~~ended~~contained ~~September~~in any ~~30,~~forward-looking ~~2014 and 2013, respectively~~statements.

~~(f) During the three~~General months ended September 30, 2014, the Group purchased raw materials of approximately $27.1 million and $0.4 million from Ningbo Litong and Ningbo Lide, respectively. During the three months ended September 30, 2013, the Group purchased raw materials of approximately $0.01 million and $10 million from Ningbo Kunde and Ningbo Lide, respectively. During the nine months ended September 30, 2014, the Group purchased raw materials of approximately $54.2 million and $9.2 million from Ningbo Litong and Ningbo Lide, respectively. During the nine months ended September 30, 2013, the Group purchased raw materials of approximately $2.7 million and $42.3 million from Ningbo Kunde and Ningbo Lide, respectively.Overview

~~(g)~~Nature of ~~Guarantees for Bank Loans~~Business

	Guarantee provided during the three months ended September 30,				Guarantee provided during the nine months ended September 30,
	2014		2013		2014		2013
	($’000)		($’000)		($’000)		($’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Ningbo Litong	$	-	$	54,768	$	75,562	$	116,696
Ningbo Lide		32,544		10,758		65,088		42,815
Total	$	32,544	$	65,526	$	140,650	$	159,511

We are engaged in the manufacture and sale of petrochemical products and rubber in the PRC through our PRC operating subsidiaries, Ningbo Keyuan, Ningbo Keyuan Petrochemicals, Keyuan Synthetic Rubbers, Guangxi Keyuan and Zhongkexuneng. Our operations include:

		Bank loans Guaranteed as of
	(1)	A production facility with an annual petrochemical production capacity of 720,000 metric tons (“MT”) of a variety of petrochemical products;
		September 30, 2014		December 31, 2013
	(2)	A Styrene-Butadiene-Styrene (“SBS”) production facility with a designed annual production capacity of 70,000 MT;
		($’000)		($’000)
	(3)	A Styrene-Ethylene-Butylene-Styrene (“SEBS”) production facility with a designed annual production capacity of 10,000 MT;
		(Unaudited)
	(4)	Facilities for the storage and loading of raw materials and finished petrochemical and rubber goods; and
Ningbo Litong		$	142,220	$	109,618
	(5)	Manufacturing technologies that can support our manufacturing process with relatively low raw material costs and high utilization and yields.
Ningbo Lide			170,182		75,405
Total		$	312,402	$	185.023

In January 2012, we signed a cooperation agreement with Fangchenggang City to build a new petrochemicals production facility in Guangxi Keyuan New Materials Industrial Park, Guangxi Province (the “Guangxi Project”). The estimated cost for the Guangxi Project is approximately $300 million. According to the cooperation agreement, the local government of Fangchenggang City agreed to grant to us land use rights for the facility.

On August 9, 2013, the Guangxi Project was approved by the local government of Fangchengang City. We were granted a land use right for 40 years for approximately 4,668,437 square feet of land, effective in 2014. In August 2013, we commenced engineering and facility construction. The preliminary investigation for foundation piling was completed in late October 2013. We completed the land leveling and finished the installation of water pipes, electricity wires and basic pipelines at the end of 2014. We completed the technical design of the facility and the equipment at the end of 2015. We are currently arranging the tendering on the construction of the facility and major equipment. We expect to finish construction of the facility and installation of main equipment and pipelines by the end of 2017 and commence production by the end of 2018.

We believe that the Guangxi Project once it goes into operation, will improve our competitive positions by extending and expanding our supply chain and manufacturing base. The facility is expected to have an annual production capacity of 50,000 MT of Acrylonitrile Butadiene Styrene (“ABS”). We plan to fund the construction and operation of the Guangxi Project through outside financing. If such financing is not available on terms acceptable to us, the project will be delayed until appropriate financing is available. As a result, the timelines for the Guangxi Project described above are subject to adjustment pending the status of outside financing.

Beginning in January 2011, loan guarantee fees of 0.3% of the loan principal guaranteed are to be paid quarterly. In the three months ended September 30, 2014, loan guarantee fees were $0.26 million and $0.38 million to Ningbo Litong and Ningbo Lide, respectively. In the nine months ended September 30, 2014, loan guarantee fees were $0.76 million and $1.2 million for Ningbo Litong and Ningbo Lide, respectively.Organization

Keyuan Petrochemicals, Inc. (h)formerly Atknown ~~September~~as ~~30,~~“Silver ~~2014~~Pearl Enterprises, ~~advances~~Inc.”) ~~received~~was ~~from~~incorporated ~~these~~in ~~parties consist~~the State of ~~amounts~~Texas ~~due~~on May ~~payable~~4, to2004 ~~Ningbo Litong~~ and ~~Ningbo~~ ~~Lide~~redomiciled ofto ~~$2.13~~Nevada ~~million~~on ~~and~~February ~~$0.02 million~~28, ~~respectively~~2007.

On April 22, 2010, we entered into a share exchange agreement (ithe “Exchange Agreement”) Atwith ~~September~~Sinotech 30Group, Delight ~~2014~~Reward Limited (“Delight Reward”), ~~advance~~a ~~payments~~British Virgin Islands company and sole stockholder of Sinotech toGroup, ~~these~~and ~~parties~~Denise ~~consist~~D. Smith, our former principal stockholder. Pursuant to the terms of ~~payments~~the Exchange Agreement, Delight Reward transferred to ~~Ningbo~~ ~~Lide~~us all of $4its shares of Sinotech Group in exchange for 47,658 shares of our Series M convertible preferred stock (the “Share Exchange”).5 ~~million~~On an “as converted” basis, the Series M convertible preferred stock represented approximately 95% of our outstanding common stock immediately after the Share Exchange. The Series M convertible preferred stock voted with the common stock on an “as converted basis” and was converted into 47,658,000 shares of our common stock on December 28, 2010.

15As a ~~Consolidated~~result ~~Segment~~of ~~Data~~the Share Exchange, Sinotech Group became a wholly-owned subsidiary of us and Delight Reward became our controlling stockholder. The Share Exchange was accounted for as a reverse acquisition and recapitalization whereby Sinotech Group was deemed to be the accounting acquirer (and the legal acquiree).

~~Segment~~On May ~~information~~12, is2010, ~~consistent~~we ~~with~~formed ~~how~~a ~~management~~corporation ~~reviews~~under the laws of the State of Nevada called Keyuan Petrochemicals, Inc. as our wholly-owned ~~business~~subsidiary (the “Merger Subsidiary”). Effective as of May 17, ~~makes~~2010, ~~investing~~the ~~and~~Merger ~~resource~~Subsidiary ~~allocation~~was ~~decisions~~merged with and into ~~assesses~~us. ~~operating~~As ~~performance~~a result of the merger, our name was changed to “Keyuan Petrochemicals, Inc.” ~~The~~Prior ~~segment~~to ~~data~~the ~~presented~~merger, ~~reflects~~the ~~this~~Merger ~~segment~~Subsidiary ~~structure.~~had ~~The~~no ~~Company~~liabilities ~~reports~~and ~~financial~~nominal assets and, ~~operating~~as ~~information~~a result of the merger, the separate existence of the merger subsidiary ceased. We are the surviving corporation in the ~~following~~merger ~~two~~except ~~segments:~~for the name change, and there was no change in our directors, officers, capital structure or business.

(On August 8, 2010, we established a) wholly owned subsidiary in China, Ningbo Keyuan Petrochemicals, ~~Segment:~~through ~~Manufacturing~~our ~~and~~subsidiary Keyuan HK. Ningbo Keyuan Petrochemicals was initially set up to engage in the sales ofand ~~mixed~~marketing ~~light~~for products produced by Ningbo Keyuan ~~aromatics~~and, ~~mixed~~later, ~~heavy~~by ~~aromatics,~~Keyuan ~~fine~~Synthetic ~~propylene,~~Rubbers. ~~propane~~However, ~~butane~~in fact, ~~liquefied~~Ningbo ~~petroleum~~Keyuan ~~gas~~and ~~(LPG),~~Keyuan ~~methyl~~Synthetic ~~tert-butyl~~Rubbers ~~ether,~~have ~~styrene,~~been selling their ~~etc~~products directly and Ningbo Keyuan Petrochemicals has mostly assisted each subsidiary in training and recruiting sale persons as well as organizing marketing events.

~~(b)~~On April ~~Rubber~~4, ~~Segment:~~2012, ~~Manufacturing~~a ~~and~~wholly-owned, ~~sales~~indirect subsidiary, Guangxi Keyuan, was formed for the purpose of ~~various~~developing ~~rubber~~the ~~products~~Guangxi Project.

~~Segment~~On June ~~information~~15, ~~for~~2012, ~~the~~Keyuan ~~three~~Synthetic ~~and~~Rubbers ~~nine months~~was ~~ended~~established ~~September~~as ~~30,~~a ~~2014~~wholly-owned PRC subsidiary of Ningbo Keyuan to engage in the production and ~~2013~~sales isof asSBS ~~follows:~~and SEBS.

	Three Months Ended September 30
	2014							2013
	Petrochemical		Rubber			Total		Petrochemical		Rubber		Total
	($'000)		($'000)			($'000)		($'000)		($'000)		($'000)
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenue	$	127,525	$	8,153		$	135,678	$	128,542	$	21,744	$	150,286
Income (loss) from operations	$	1,889	$	(1,737	)	$	152	$	5,467	$	926	$	6,393
Total assets	$	901,187	$	96,522		$	997,709	$	777,449	$	108,582	$	886,031

On May 13, 2014, Zhongkexuneng was incorporated by Sinotech Group owning 75% of Zhongkexuneng and Ningbo Keyuan owning the remaining 25% of Zhongkexuneng. Zhongkexuneng is located in Zhejiang province, China. Zhongkexuneng was formed for the purpose of trading petrochemical products.

	Nine Months Ended September 30
	2014							2013
	Petrochemical		Rubber			Total		Petrochemical		Rubber		Total
	($'000)		($'000)			($'000)		($'000)		($'000)		($'000)
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenue	$	503,584	$	18,524		$	522,108	$	388,301	$	65,474	$	453,775
Income (loss) from operations	$	13,869	$	(4,256	)	$	9,613	$	3,011	$	8,518	$	11,529
Total assets	$	901,187	$	96,522		$	997,709	$	777,449	$	108,582	$	886,031

On September 16, 2015, Ningbo Keyuan and Sinotech Group entered into an investment cooperation agreement with Ningbo Hengyun Energy Technology Co., Ltd (“Hengyun Energy”) (the “Investment Cooperation Agreement”), pursuant to which Sinotech Group agreed to transfer 32.88% of its equity interest in Guangxi Keyuan to Hengyun Energy subject to a payment of consideration of RMB 198,284,300 by Hengyun Energy (approximately $30.5 million) to be made by December 31, 2016. As the date of this report, Hengyun Energy has paid RMB 138,284,300 (approximately $21.7 million).

16The current ~~SUBSEQUENT~~shareholding ~~EVENTS~~structure of the Company is illustrated in the following diagram. The diagram is presented as if Hengyun Energy has already made full payment under the Investment Cooperation Agreement:

On October 30, 2014, in connection with a motion for a temporary restraining order and preliminary injunction filed by Dragon State International Limited (the “Dragon State”) against the Company and Mr. Chunfeng Tao, a Consent Order was issued by the District Court for the Southern District of New York whereby the Company and Mr. Chunfeng Tao agree that, notwithstanding anything contained in the certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock to the contrary, the 5,333,334 shares of Series B Preferred Stock held by Dragon State have not been, and shall not be, automatically converted into shares of Company’s common stock, or any other security prior to the resolution of the above mentioned action; and the expiration of Series C and Series D warrants shall be tolled pending the resolution of the above mentioned action as well.

In connection with an industrial accident that occurred on September 20, 2014 and which resulted in one death and two injuries, Ningbo Keyuan paid a settlement of RMB1.3million (approximately $0.2 million) to the decedent’s family who has agreed not to seek any additional monetary damages. Ningbo Keyuan has also paid, as of December 3, 2014, approximately RMB 896,000 (approximately $0.15 million) for the medial expenses for the two injured employees and expects that additional amounts may be payable. The Company is currently unable to estimate any additional amounts payable. During the nine months ended September 30, 2014, the Company also paid RMB1.2million (approximately $0.2 million) in connection with an accident that occurred in May 2014. No additional monetary damages are expected to be paid in connection with the May 2014 accident that resulted in one fatality. The Company has taken all necessary measures to prevent such accidents and does not believe it will materially impact its operation or its ability to obtain financings, including bank loans, going forward.

~~Item~~Our Facility 2.and ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Equipment

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

~~The~~During the ~~following~~three ~~discussion~~months ~~and~~ended ~~analysis~~March of31, ~~financial~~2016, ~~condition and~~we ~~results~~have ofinvested ~~operations~~a ~~relates~~total toof ~~the~~approximately ~~operations~~$6.7 ~~and~~million ~~financial condition reported~~ in the ~~financial~~construction ~~statements~~and improvement of ~~Keyuan for the~~our ~~three~~production ~~and~~facility. ~~nine~~Our ~~months~~current ~~ended~~production ~~September~~facility ~~30,~~encompasses ~~2014~~approximately ~~and~~7.2 ~~2013~~million ~~and~~square ~~should~~feet, bewhich ~~read~~includes 2.5 inmillion ~~conjunction~~square ~~with~~feet ~~such~~facility ~~financial statements and related notes included~~ in ~~this~~Zhejiang ~~report~~ Province and ~~the~~4.7 ~~Company’s~~million ~~Annual~~square ~~Report~~feet onfacility ~~Form~~in ~~10-K~~Guangxi ~~for the year ended December 31, 2013~~Province.

~~Overview~~Facilities for Petrochemical Products

Operating through our wholly-owned subsidiaries, Ningbo Keyuan, Ningbo Keyuan Petrochemicals, Keyuan Synthetic Rubbers and Guangxi Keyuan, our operations include (i) a production facility with an annual petrochemical production capacity of 720,000 metric tons (MT) of a variety of petrochemical products, (ii) a Styrene-Butadience-Styrene (the “SBS”) production facility with a designed annual production capacity of 70,000 MT, (iii) facilities for the storage and loading of raw materials and finished goods and (iv) manufacturing technologies that can support our manufacturing process with relatively low raw material costs and high utilization and yields, all of which are led by a management team consisting of petrochemical experts with proven track records from some of China’s largest state-owned enterprises in the petrochemical industry.

Product	Amount of Production Lines		Location of Facility	2015 Designed Annual Manufacturing Capacity (MT)		2015 Actual Annual Production (MT)		Utilization Rate
BTX Aromatics		1	Ningbo, Zhejiang		300,000		235,347		78	%
Propylene		1	Ningbo, Zhejiang		50,000		21,713		43	%
Styrene		1	Ningbo, Zhejiang		80,000		65,695		82	%
LPG		1	Ningbo, Zhejiang		100,000		61,366		61	%
MTBE and other chemicals		1	Ningbo, Zhejiang		190,000		118,293		62	%
Total		5	N/A		720,000		502,414		N/A

~~In January 2012,~~Facilities ~~we signed a cooperation agreement with Fangchenggang City to build a new petrochemicals production facility~~ for ~~the Guangxi~~Rubber Project. According to the cooperation agreement, the government of Fangchenggang City is responsible for providing the land use rights for the facility. This new production facility, as a part of our expansion plan, will improve our competitive position by extending and expanding our supply chain and manufacturing base. Once the facility is fully operational, it is expected to have an annual production capacity of 400,000 metric tons of ABS. In August 2013, we commenced engineering and facility construction. We have completed the land leveling at the end of August 2014, and we are currently in the process of site fencing and enclosure, which process is expected to be completed by the end of 2014. However, our schedule is subject to further adjustment pending the status of financing. The total investment amount to construct this new production facility is approximately USD $300 million. We plan to fund the construction and operation of the new production facility through outside financing. If such financing is not available on terms acceptable to us, construction of this facility will be delayed until appropriate financing is available.Products

Product	Amount of Production Lines		Location of Facility	2015 Designed Annual Manufacturing Capacity (MT)		2015 Actual Annual Production (MT)		Utilization Rate
SBS		2	Ningbo, Zhejiang		70,000		29,828		43	%
SEBS		1	Ningbo, Zhejiang		10,000		2,355		24	%
Total		3	N/A		80,000		32,183		N/A

~~Our~~We have ~~organization~~a ~~chart~~total of 134,000 MT of storage capacity, consisting of 84,000 MT of storage capacity for raw materials and 50,000 MT for finished products. As a part of our expansion plan, we intend to add additional 16,000 MT of new storage capacity which is asnow ~~follows:~~under construction and expected to be completed in the fourth quarter of 2016.

~~Our~~We own ~~Facility~~an on-site ocean shipping dock with 50,000 MT of shipping capacity and ~~Equipment~~a 10-truck loading capacity next to our production facility in Ningbo, China. Approximately 90% of our feedstock and finished products use this shipping dock. We are currently upgrading the classification of our own dock so that we can unload foreign cargo vessels under the 50,000 MT cargo capacity to our dock directly. We expect that the upgrade will be completed by the end of 2017 and we will be able to unload certain cargoes directly rather paying a third party to do so.

~~Facility~~Our Guangxi Project is located in Fangchengang city, an important port for Guangxi province, and other than Beihai, the only major Chinese port on the Tonkin Gulf. The storage and logistics costs are generally lower in Fanchengang city compared to other ports in China.

As of September 30, 2014, we have invested a total of approximately $110.9 million in the construction and improvement of our production facility. Our current production facility encompasses approximately 1.3 million square feet, including 594,000 square feet for production and 19,500 square feet for laboratories and offices. We also acquired the land use right of an additional 1.2 million square feet of land in August 2010 for our expansion.Equipment

~~We increased our~~Our ~~total~~major ~~storage~~processing ~~capacity~~equipment ~~from~~includes ~~100,000~~the MT to 134,000 MT in October 2014, which currently consists of 84,000 MT of storage capacity for raw materials and 50,000 MT for finished products. As a part of our expansion plan, we intend to add another 16,000 MT of new storage capacity in late 2015 to increase our total storage capacity to 150,000 MT,following:

We● ~~have~~Heavy anoil ~~on-site~~catalytic ~~ocean shipping~~pyrolysis ~~dock~~processing ~~with~~equipment: 5risers/generators/precipitators,~~000~~ MTfuel ofgas ~~shipping~~boilers, ~~capacity~~fractionating ~~and~~tower, aabsorbing, 10re-~~truck~~absorbing, ~~loading facility. Approximately 90% of our feedstock~~ and ~~finished~~ ~~products~~desorbing ~~use this shipping dock. We also have adjacent access to another shipping dock with an additional shipping capacity of 50~~towers,~~000~~ ~~MT.~~heat ~~During the first three months of 2014~~exchangers, ~~we commenced an application to the local government in Ningbo to upgrade the classification of our own dock so that we can unload foreign cargo vessels under the capacity of 50~~pumps,~~000~~ ~~MT to our dock directly. We expect that the upgrade will be completed~~ and ~~approved~~a bystabilizing ~~the end of 2016 and will enable us to save additional logistics costs and storage fees.~~tower;

1918

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

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

● ~~Heavy~~Liquefied ~~oil~~petroleum ~~catalytic~~gas ~~pyrolysis~~(LPG) ~~processing~~and ~~equipment-~~sulfur ~~risers/generators/precipitators,~~recovery ~~fuel~~processing ~~gas~~equipment: ~~boilers,~~LPG ~~fractionating~~desulfurization extraction tower, ~~absorbing,~~dry ~~re-absorbing,~~gas ~~and~~desulfurization ~~desorbing towers~~tower, ~~heat~~regenerating ~~exchangers~~tower, ~~pumps,~~and aLPG ~~stabilizing~~de-mecaptan extraction tower;.

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

●We manufacture ~~Ethylbenzene~~and ~~processing~~supply ~~equipment-~~a ~~alkylation~~variety ~~reactor,~~of ~~anti-alkylation~~petrochemical ~~reactor,~~and ~~dehydrogenation~~rubber ~~reactor~~products, ~~propylene~~including ~~absorbing~~petrochemical ~~tower,~~products desuch as Benzene Toluene-~~ethylene~~Xylene Aromatics ~~tower~~(“BTX Aromatics”), ~~ethylbenzene~~propylene, ~~recovering tower~~styrene, ~~heating~~liquid ~~furnace~~petroleum ~~for~~gas ~~benzene~~(“LPG”), ~~heating~~Methyl ~~furnace~~Tertiary Butyl ~~for~~Ether ~~gas,~~(“MTBE”) ~~steam~~and ~~overheating~~rubber ~~furnace,~~products ~~tail~~such ~~gas~~as ~~compressor~~SBS and SEBS, ~~washing~~each ~~tower;~~of which is described below, and other products.

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

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

We● ~~manufacture~~Propylene: ~~and supply~~ a ~~variety~~chemical intermediate as one of ~~petrochemical~~the building blocks for an array of chemical and plastic products, ~~including~~that ~~BenzeneToluene-Xylene~~are ~~Aromatics~~commonly ~~(BTX~~used ~~Aromatics),~~to ~~propylene~~produce polypropylene, ~~styrene~~acrylonitrile, ~~liquid~~oxo ~~petroleum gas (LPG)~~alcohols, ~~Methyl~~propylene ~~Tertiary~~oxide, ~~Butyl~~cumene, ~~Ether~~isopropyl ~~(MTBE)~~alcohol, ~~SBS~~acrylic acid and other ~~petrochemicals~~chemicals for paints, ~~each~~household ofdetergents, ~~which~~automotive isbrake ~~described~~fluids, ~~below:~~indoor/outdoor carpeting, textile, insulating materials, auto parts and electrical appliances.

● ~~BTX Aromatics~~Styrene: ~~consisting~~a ofprecursor ~~benzene,~~to ~~toluene,~~polystyrene ~~xylene~~ and ~~other~~several ~~chemical~~copolymers ~~components~~widely used for ~~further~~packaging ~~processing~~materials, ~~into~~construction ~~plastics~~materials, ~~gasoline~~electronic ~~and~~parts, ~~solvents~~home ~~materials~~appliances, ~~widely~~household ~~used~~goods, inhome ~~paint~~furnishings, ~~ink~~toys, ~~construction~~sporting ~~coating~~goods and ~~pesticide~~others.

● ~~Propylene~~LPG: a ~~chemical~~mixture ~~intermediate as one~~ of ~~the~~hydrocarbon ~~building~~gases ~~blocks~~used ~~for~~as anfuel ~~array~~in ofheating ~~chemical~~appliances and ~~plastic~~vehicles. ~~products~~It ~~that~~is ~~are~~also ~~commonly~~a ~~used~~replacement tofor ~~produce~~chlorofluorocarbons ~~polypropylene,~~as ~~acrylonitrile,~~an ~~oxo~~aerosol ~~alcohols,~~propellant ~~propylene oxide, cumene, isopropyl alcohol, acrylic acid~~ and ~~other~~a ~~chemicals for paints~~refrigerant, ~~household~~which ~~detergents,~~we ~~automotive~~believe ~~brake~~reduces ~~fluids,~~damage ~~indoor/outdoor~~to ~~carpeting,~~the ~~textile,~~ozone ~~insulating materials, auto parts and electrical appliances~~layer.

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

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

● ~~LPG~~SBS: aconsisting ~~mixture~~ of ~~hydrocarbon~~styrene ~~gases used as fuel in heating appliances~~ and ~~vehicles.~~butadiene, Awidely ~~replacement~~used for ~~chlorofluorocarbons~~waterproofing asbuilding anmaterial, ~~aerosol~~asphalt ~~propellant~~modification, ~~and~~furniture, ashoe ~~refrigerant~~sole ~~which~~material, ~~reduces~~tubes, ~~damage~~tape, toauto ~~the~~parts ~~ozone~~and ~~layer~~electrical appliances.

● ~~MTBE & Other Chemicals~~SEBS: ~~MTBE~~Styrene-Ethylene-Butylene-Styrene, ~~oil slurry, sulphur and others are used for~~ a ~~variety~~product ofsimilar ~~applications~~to ~~including~~SBS ~~fuel~~but ~~components,~~we ~~refrigeration~~believe ~~systems,~~with ~~fertilizers,~~a ~~insecticides~~more ~~and~~durable ~~fungicides,~~product ~~etc~~feature.

~~● SBS: consisting of Styrene and butadiene~~In addition, ~~widely~~we ~~used~~will ~~for~~start ~~waterproofing~~producing ~~building~~ABS ~~material,~~once ~~asphalt~~we ~~modification,~~complete ~~furniture,~~the ~~shoe~~construction ~~sole~~of ~~material,~~the ~~tubes,~~facility ~~tape,~~in ~~auto~~Guangxi ~~parts~~ and ~~electrical~~the ~~applicances~~trail production.

In order to improve our operational results and financial situation, we recently adjusted our product portfolio to include Styrene-Ethylene-Butylene-Styrene (“SEBS”) which we believe will yield a higher gross margin than some of our current products. SEBS is a product similar to SBS but with more durable product features, and can be produced by our current SBS facility. In order to achieve a stable production value, we started trial production of approximately 200-300 MT per month in March 2013. The lab analysis shows the trial production of SEBS has achieved a stable condition since April 2014. However, the SEBS price has decreased significantly due to stagnant market conditions since the end of 2013. In response, we decided to produce only pursuant to customers’ orders, which resulted in a production of approximately 300 MT from January to June 2014, approximately 150 MT per month from the end of June 2014. We expect to increase the production volume when the market recovers.19

Production Capacity and Expansion

Our annual designed manufacturing capacity is 720,000 MT ofin athe ~~variety~~aggregate of ~~petrochemical~~these products. Our designed capacity for SBS production facility is ~~capable of producing up~~ to 70,000 MT ofannually ~~SBS~~and infor ~~full~~SEBS ~~load~~production ~~condition~~facility ~~without~~is ~~interruption~~to ~~(100%~~10,000 ofMT ~~utilization rate in ideal conditions)~~annually. Additionally, we have a ~~total~~ total of 134,000 MT of storage capacity, consisting of 84,000 MT of storage capacity for raw materials and 50,000 MT for finished products. We also own a dock in Ningbo, China which can directly unload foreign cargo vessels under the 50,000 MT cargo capacity to our dock.

~~Our SBS facility achieved a 41%~~All ~~utilization~~of ~~rate~~our ~~in 2012~~facilities, ~~the~~except ~~first~~for ~~full~~the ~~year~~SBS ~~of production,~~ and ~~generated~~SEBS ~~approximately~~facility, ~~$71~~have ~~million~~been inoperating ~~sales~~since ~~and $5~~2009.~~9 million~~ inTherefore, ~~profits~~those inolder ~~2012.~~facilities Wegenerally provide ~~achieved,~~us ~~in accordance~~ with ~~our annual plan of 63,000 MT of SBS,~~ a ~~63%~~stable ~~utilization~~output. ~~rate~~While ~~in 2013;~~we ~~and~~are ~~generated~~continuously ~~approximately~~working ~~$78~~on ~~million~~existing inequipment ~~sales~~upgrades ~~and $5.6 million in profits. Although we planned~~ to ~~produce~~increase 63production,~~000~~ MTwe realize ofthat ~~SBS~~optimizing ~~in 2014, production in~~ the ~~nine~~utilization ~~months~~rates ~~ended~~for ~~September~~our ~~30,~~current ~~2014~~facilities ~~was~~is ~~13,027~~currently MTnot ~~and~~sufficient ~~resulted~~to inmeet ~~revenue~~increasing ofcustomer ~~approximately $18~~demands.5 More ~~million. The significant decrease in production of SBS during the nine months ended September 30~~specifically, ~~2014~~increasing asmarket ~~compared~~demand ~~to planned~~for ~~production~~tire ~~was~~and ~~because~~auto ~~the~~parts ~~SBS market~~ has ~~been~~resulted ~~stagnant~~in ~~since~~increasing ~~the~~market ~~end~~demand offor ~~2013. Accordingly,~~styrene weand ~~decided to~~ABS; ~~reduce~~and ~~SBS~~higher ~~production~~requirements related to ~~approximately~~environmental ~~20%~~protection ofimposed ~~capacity~~by ~~until~~ the ~~market~~PRC ~~recovers.~~government Inhave ~~addition,~~led ~~our~~to ~~SBS~~greater ~~cost~~demand ~~per unit~~ for ~~the~~transformer ~~nine~~oil ~~months~~and ~~ended~~catalytic ~~September~~cracking ~~30, 2014 increased from $1,839 to $2,067 as compared to the same period in 2013~~oil. ~~Thus, we incurred a loss of $4.3 million in the nine months ended September 30, 2014.~~

21Based on these market trends, we completed the construction of an oil catalytic cracking processing facility by the end of 2014. It is used as an extension of our catalytic pyrolysis processing equipment. This facility can reduce production costs and the market risk in the purchase of raw materials, and improve the stability and efficiency of project production of heavy oil to 200,000 MT of heavy oil per year.

~~The~~We are ~~following~~currently ~~chart~~focused ~~depicts~~on ~~our~~the ~~main~~following ~~product’s~~improvements ~~production capacity~~to ~~for~~our ~~the~~infrastructure ~~nine~~to ~~months~~expand ~~ended~~our ~~September~~manufacturing ~~30, 2014~~capacity:

~~Other than~~● Constructing an ABS production facility in Guangxi Province. We completed the ~~utilization~~technical ~~rate~~design ~~for~~of ~~SBS~~the facility ~~discussed~~and ~~above~~the equipment at the end of 2015. We are currently arranging the tendering on the construction of the facility and major equipment. We expect to finish construction of the facility and installation of main equipment and pipelines by the end of 2017 and commence production by the end of 2018 with an annual production capacity of 50,000 MT of ABS; ● Upgrading our facility for styrene to increase annual design capacity of ethylene-styrene from 80,000 MT to 200,000 MT, of which 120,000 MT can be used for producing synthetic materials and 80,000 MT can be sold to downstream petrochemical companies; ● Constructing a transformer oil facility using hydrogen from the ~~utilization~~ethylene-styrene ~~rates~~facility so that we can complete a double hydrogenation process on original products (such as BTX Aromatic) for ~~our~~refining ~~other~~transformer ~~facilities~~oil and producing high value transformer oil with a design capability of 100,000 MT per year. Construction of the main facility column was completed at the end of October 2013. We are ascurrently ~~follows:~~performing the assembly and installation and expect to start production by the end of March 2017; and ● Adding additional 16,000 MT of new storage capacity which is under construction. We expect to complete the construction at the end of 2016 and start operation in early 2017.

●The total estimated cost of our expansion plan is approximately $372.5 million, including $300 million for Guangxi Project, $30 million for the transformer oil facility, $40 million for the increased annual design capacity of ethylene-styrene, and $2.5 million for additional storage capacity. Upon completion of our expansion described above, our total production: 90capacity %;is ●expected to ~~propylene:~~reach ~~98%;~~1,270,000 ●MT ~~LPG:~~per ~~93%;~~year ●comprised ~~BTX~~of ~~Aromatic:~~our ~~94%;~~current petrochemical production of 720,000 MT, SBS of 70,000 MT, SEBS of 10,000 MT, additional styrene of 120,000 MT, catalytic cracking oil of 200,000 MT, ABS of 50,000 MT, and ●transformer ~~MTBE~~oil &of ~~others:~~100,000 ~~92%~~MT.

~~Most of our facilities have been operating~~Our ~~since 2009, so the~~ current ~~utilization~~estimate ~~rates~~of for each product (except for the newly developed SBS) has been optimized to achieve stable output, less raw material cost and less equipment maintenance. We also made slight adjustments to the utilization rate for the BTX Aromatic facility to reduce the output to achieve more stable production conditions. We have been working on existing equipment upgrades to achieve increased stabilized production. However, in order to develop our ~~business~~expansion toschedule ~~meet increasing customer demands, optimizing the utilization rates for our current facilities~~ is ~~not~~as ~~adequate to achieve our goals~~follows. ~~More specifically~~However, ~~the~~we ~~increasing market~~are ~~demand~~continuing in tire and auto parts has resulted in increasing market demand for styrene, ABS and SSBR; and higher requirements related to environmental protection imposed by the PRC government has led to higher demand for transformer oil and catalytic cracking oil. Based on these market trends, rather than focusing on optimizing our ~~current~~evaluation ~~utilization~~of ~~rates~~timelines for our ~~different facilities,~~expansion weprojects ~~have~~based ~~been focusing~~ on ~~the following improvements to~~ our ~~infrastructure~~financial tosituation ~~expand~~and ~~our~~market ~~manufacturing capacity:~~conditions.

a) an ABS production facility in Guangxi Province, which will have an annual production capacity of 400,000 MT of ABS. The Company began pre-construction activities in February 2012. We completed the land leveling at the end of August 2014, and we are currently in the process of site fencing and enclosure, which process is expected to be completed by the end of 2014.

Expansion Project		Expected Completion Date
Ethylene-Styrene Facility		End of Q1, 2017
Transformer Oil Facility		End of Q1, 2017
ABS Production Facility		End of Q4, 2017⁽¹⁾
New storage capacity of 16,000 MT		End of Q4, 2016

22(1) The construction of the ABS facility and installation of main equipment and pipelines is expected to be completed by the end of 2017 and production is expected to be started by the end of 2018.

b) an oil catalytic cracking processing facility as an extension of our catalytic pyrolysis processing equipment, as well as the feed way of the main raw materials to produce synthetic rubber. This facility can reduce production costs and the market risk in the purchase of raw materials, and improve the stability and efficiency of project production to 200,000 MT of heavy oil per year. The facility was completed in October 2014, and it is currently in trial production. We expect to start production after stable quality conditions of products are achieved.20

~~c) an increased annual design capacity of our ethylene-styrene facility from 80,000 MT to 200,000 MT, of which 120,000 MT can be used for producing synthetic materials~~ Manufacturing and 80,000 MT can be sold to downstream petrochemical companies. This facility can be considered the bridge between original products and high-value added products and will complete the integration of internal resources;Sales

d)Our total aproduction ~~transformer~~of ~~oil~~finished ~~facility~~products ~~using~~was ~~hydrogen~~162,699 ~~from~~MT for the ~~ethylene-styrene~~three ~~facility~~months toended ~~complete~~March a31, ~~double hydrogenation process on original products (BTX Aromatic) for refining transformer oil~~2016, and ~~producing~~we ~~high~~generated ~~value~~$86.3 ~~transformer~~million in ~~oil,~~revenue ~~with~~based aon ~~design~~the ~~capability~~sale of ~~100~~246,~~000~~387 MT ~~per~~of ~~year;~~petrochemical ~~We have completed facility construction~~ and ~~have~~rubber ~~submitted~~products. aOur ~~report~~total toproduction ~~the~~of ~~local~~finished ~~environmental~~products ~~department for their inspection and approval. An initial onsite inspection~~ was 53,559 ~~performed~~MT byfor the ~~local~~three ~~environmental~~months ~~department~~ended inMarch ~~September~~31, ~~2014~~2015 ~~which~~and ~~inspection~~we ~~requires~~generated ~~that a hydrogenation facility be installed (with an estimated cost of approximately~~ $~~48,000) to improve environmental protection~~58.3 Amillion ~~follow~~in uprevenue ~~review~~based ison ~~expected after~~ the ~~installation~~sale of ~~the~~89,268 ~~hydrogenation~~MT ~~facility~~of petrochemical ~~prior to the local environmental department’s approval. We are currently evaluating this requirement~~ and ~~preparing~~rubber ~~the design for the facility;~~products.

e)The increase anin ~~SSBR~~total ~~(Solution~~production ~~Polymerized~~of ~~Styrene~~finished ~~Butadiene~~products ~~Rubber)~~and ~~production~~revenues ~~facility~~during ~~with~~the afirst ~~design~~quarter ~~capability~~ of ~~150,000~~2016 MTwas ~~per~~mainly ~~year,~~due ~~that~~to ~~will~~a ~~use~~74-day ~~its own~~ production suspension ~~process~~during ~~technology~~the infirst ~~synthetic~~quarter ~~rubber,~~of ~~combining~~2015 ~~styrene~~while ~~and~~there ~~butadiene,~~was tono ~~produce~~production ~~SSBR.~~suspension ~~This~~during ~~product~~the ~~can~~first bequarter ~~used as raw materials for tires, instead~~ of ~~imported hexakis (methoxymethy) melamine (“HMMM”)~~2016.

~~The~~During the ~~total~~first ~~estimated cost~~quarter of ~~processing~~2015, ~~equipment~~operation ~~for~~of ~~product~~Ningbo ~~refinement~~Keyuan and ~~the~~Keyuan ~~SSBR~~Synthetic ~~production~~Rubbers ~~facility~~was issuspended ~~approximately~~for ~~$149.3~~74 ~~million, including~~days ~~$49.8~~in ~~million~~connection ~~for~~with continuing ~~processing~~depressed ~~equipment~~oil ~~and~~price ~~$99.5~~in ~~million~~international ~~for~~markets ~~the SSBR~~occurring ~~production~~in ~~facility.~~June We2014 ~~have~~which ~~completed the~~materially ~~land~~negatively ~~leveling~~impacted ofus ~~ABS~~and ~~production~~our downstream ~~facility~~distributors. ~~(Guangxi~~As ~~Project)~~a atresult, ~~the~~we ~~end~~did ofnot ~~August~~have ~~2014,~~enough ~~and~~capital weto ~~are~~satisfy ~~currently~~the inunsustainable ~~the~~cash ~~process of~~demand ~~site~~to ~~fencing~~maintain ~~and~~operations. We ~~enclosure,~~resumed ~~which~~operations isin ~~expected~~April to2015 bewhen ~~completed~~we byobserved the ~~end~~recovery and stabilization of ~~2014~~oil market. ~~The~~During ~~total~~the ~~investment~~suspension, ~~amount~~we ~~to construct~~conducted ~~the~~routine ~~ABS~~maintenance ~~production~~of our facility, which is ~~approximately~~required ~~USD~~every ~~$300~~two ~~million.~~years ~~Upon~~and ~~full~~requires ~~completion~~a temporary suspension of ~~our~~production. ~~expansion, our~~There ~~total~~was no production ~~capacity~~suspension ~~will~~during ~~reach~~the ~~1,723,000~~three MTmonths ~~per~~ended ~~year~~March ~~including~~31, ~~but~~2016. ~~not~~As ~~limited~~a toresult, our ~~current~~total ~~petrochemical~~ production of ~~720,000~~finished ~~MT,~~products for ~~styrene~~the ofthree ~~200,000~~months MTended March 31, ~~catalytic~~2016 ~~cracking~~was ~~oil~~increased ofby ~~200,000~~109.140MT ~~MT,~~compared ~~ABS~~to ofthe ~~400,000~~comparative ~~MT,~~period ~~SSBR~~in of2015 ~~150,000~~and MTrevenue for ~~and~~the ~~transformer~~three ~~oil~~months offiscal ~~100,000~~year ~~MT.~~2015 ~~The~~was ~~following~~increased ~~chart~~by ~~depicts~~approximately ~~the~~$28.0 ~~breakdown~~million ofcompared ~~our~~to ~~planned~~the ~~production~~comparative ~~capacity~~period ~~of 1,723,000~~in MT2015.

23Going Concern and Management’s Plans

WeDespite ~~are~~of ~~currently~~our ~~evaluating~~continuous efforts in realignment of product profiles and the ~~timeline~~fact that the petrochemical industry in China has been stabilized since 2015, we reported a net income of approximately $0.4 million and a net loss of approximately $60.5 million for ~~our expansion~~the three months ended March 31, 2016 ~~projects~~and for the year ended December 31, 2015, respectively. ~~Our~~In ~~current~~addition, ~~estimate~~cash isflows asprovided ~~follows:~~by operations were approximately $5.9 million for the three months ended March 31, 2016 and cash flows used in operations were approximately $112.5 million for the year ended December 31, 2015, respectively. At March 31, 2016 and December 31, 2015, we had a working capital deficit of approximately $292.8 million and $284.6 million, respectively.

Expansion Project			Expected Completion Date
Oil Catalytic Processing Facility			End of Q4, 2014
Ethylene-Styrene Facility			End of Q2, 2015
Transformer Oil Facility			End of Q2, 2015
SSBR production facility			End of Q4, 2015
ABS Production Facility			End of Q4, 2016
New storage capacity of 16,000 MT			End of Q4, 2015

Consequently, there is substantial doubt about our ability to continue as a going concern.

~~Manufacturing~~We continue to finance and ~~Sales~~support our its operations primarily through short-term bank borrowings. Short-term bank borrowings and notes payable amounted to approximately $687 and $695 million at March 31, 2016 and December 31, 2015, respectively. In addition, as reported in our financial statements for the three months ended March 31, 2016 and 2015, we continue to benefit from favorable PRC tax policies related to consumption tax. As of March 31, 2016, we had consumption tax refund receivables of approximately $54.1 million which have been fully refunded to us as of the date of this Form 10-Q.

~~Our~~We are exploring ~~total~~sources ~~production~~ of ~~finished~~additional ~~products~~financing, ~~was~~including short-term financing from our vendors and other parties and ~~111~~equity financing. In addition,~~204~~ MTwe ~~for~~are ~~the~~closely ~~three~~monitoring ~~months~~its ~~ended~~cash ~~September~~balances, 30cash needs and expense levels. In addition, ~~2014~~we are currently contemplating our options to reduce our costs, ~~and~~including one option to "go dark." If we ~~generated~~decide to ~~$136~~undertake ~~million~~this, inand ~~revenue~~if ~~based~~it onis ~~the~~successful, ~~sale~~we ofexpect ~~124~~that our legal,~~070~~ accounting and certain other expenses that we currently MTincur as a result of ~~petrochemical~~being ~~products~~a public company may be reduced.

Our ability ~~total~~to ~~production~~continue ofas ~~finished~~a ~~products~~going ~~was 459,551~~concern MTis ~~for~~dependent ~~the~~upon ~~nine~~management’s ~~months~~ability ~~ended~~to ~~September~~implement ~~30,~~our ~~2014~~expansion plan particularly Guangxi project - to increase our production capacity, obtain additional capital and wegenerate ~~generated~~net ~~$522~~income ~~million~~and inpositive ~~revenue~~cash ~~based~~flows from onoperations. ~~the~~There ~~sale~~can ofbe ~~480,587~~no assurance that these plans will be sufficient or that additional financing will be available MTin ofamounts ~~petrochemical~~or ~~products~~terms acceptable to us, if at all.

~~Results of Operations~~21

~~The following table sets forth information~~Results ~~from our statements~~ of ~~comprehensive income for the three and nine months ended September 30, 2014 and 2013.~~Operations

24The following table sets forth information from our statements of operations and comprehensive income (loss) for the three months ended March 31, 2016 and 2015.

Comparison of the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2014~~ 2016 and ~~2013~~2015 (in thousands)

	For the three months						Year to Year Comparison						~~For the nine months~~						~~Year to Year Comparison~~
	Ended September 30,						Increase			Percentage			Ended September 30,						Increase			Percentage
	ended March 31,						Increase			Percentage
	2014			2013			/(Decrease)			change			2014			2013			/(Decrease)			change
	2016			2015			/(Decrease)			change
Sales	$	135,678			150,286			(14,608	)		(10	)%		522,108			453,775			68,333,			15	%
	(unaudited)			(unaudited)
Cost of sales		132,000			140,030			(8,030	)		(6	)%		501,595			432,389			69,207			16	%
Sales	$	86,339			58,282			28,057			48.14	%
Gross profit		3,678			10,256			(6,773	)		(64	)%		20,512			21,386			(1,069	)		(4	)%
Cost of sales		74,084			78,843			(4,759	)		(6.04	%)
Operating expenses
Gross profit (loss)		12,255			(20,561	)		32,816			159.60	%
Selling expenses		405			466			(61	)		(13	)%		1,031			869			162			19	%
Operating expenses
General and administrative expenses		3,121			3,397			(276	)		(8	)%		9,868			8,988			880			10	%
Selling expenses		889			234			655			279.91	%
Total operating expenses		3,526			3,863			(337	)		(9	)%		10,899			9,857			1,042			11	%
General and administrative expenses		4,030			4,642			(612	)		(13.18	%)
Income from operations		(152	)		6,393			(6,241	)		(98	)%		9,613			11,529			(1,916	)		(17	)%
Total operating expenses		4,919			4,876			43			0.88	%
Other income (expenses):
Income (loss) from operations		7,336			(25,437	)		32,773			128.84	%
Interest income:		3,344			2,461			883			36	%		9,225			6,363			2,862			45	%
Other income (expenses):
Interest expense		(7,791	)		(4,481	)		(3,310	)		74	%		(19,378	)		(14,601	)		(4,777	)		33	%
Interest income		1,975			3,325			(1,350	)		(40.60	%)
Foreign exchange gain (loss), net		(396	)		1,044			(1,440	)		(138	)%		(4,534	)		7,249			(11,783	)		(163	)%
Interest expense		(6,400	)		(8,348	)		1,948			23.33	%
Non-operating income (expenses)		(1,554	)		(1,342	)		(212	)		(16	)%		(4,420	)		(2,437	)		(1,983	)		81	%
Foreign exchange loss, net		(1,334	)		(9,408	)		8,074			85.82	%
Total other (expenses) Income		(6,397	)		(2,318	)		(4,079	)		176	%		(19,107	)		(3,426	)		(15,681	)		458	%
Other expense, net		(152	)		(8,057	)		7,905			98.11	%
Income (loss) before income taxes		(6,245	)		4,075			(10,320	)		(253	)%		(9,494	)		8,103			(17,597	)		(217	)%
Total other expense, net		(5,911	)		(22,488	)		16,577			73.71	%
Income tax expense		(586	)		1,284			(1,870	)		(146	)%		(76	)		2,891			(2,967	)		(103	)%
Income (loss) before income taxes		1,425			(47,925	)		49,350			102.97	%
Net Income(Loss)		(5,659	)		2,791			(8,450	)		(303	)%		(9,418	)		5,212			(14,630	)		(281	)%
Income tax expense (benefit)		996			(68	)		1,064			1564.71	%
Other comprehensive income
Net income (loss)		429			(47,857	)		48,286			100.90	%
Foreign currency translation adjustment		8			538			(530	)		(99	)%		(451	)		2,170			(2,621	)		(121	)%
Other comprehensive income (loss)
Comprehensive income (loss)	$	(5,651	)	$	3,329		$	(8,980	)		(270	)%	$	(9,869	)	$	7,382		$	(17,251	)		(234	)%
Foreign currency translation adjustment		(245	)		(479	)		234			48.85	%
Comprehensive income (loss)	$	184		$	(48,336	)	$	48,520			100.38	%

25Sales: Our sales for the three months ended March 31, 2016 were approximately $86.3 million, compared to $58.3 million for the three months ended March 31, 2015, an increase of $28.1 million, or 48.14%. The increase was mainly due to the production suspension in the first quarter of 2015 to adjust for the changes in demand in a declining market condition.

Cost of Sales: Our ~~sales~~ ~~for~~overall ~~the~~cost ~~three~~of ~~months~~sales ~~ended~~was ~~September 30, 2014 were~~ approximately $~~136~~74.1 million, ~~compared to $150 million~~ for the three months ended ~~September~~March 3031, ~~2013~~2016, or a86% ~~decrease~~ of ~~$15 million~~sales, oras ~~10%.~~compared ~~The~~to ~~decrease~~approximately ~~was~~$78.8 ~~mainly~~million, ~~due~~or to135% ~~lower sale quantities~~ of ~~SBS~~sales ~~rubber~~for ~~products as~~ the ~~market continues to be stagnant in the~~ three months ended ~~September~~March 3031, ~~2014~~2015. WeOur ~~sold 119,945~~cost ~~tons~~ of ~~petrochemical~~sales ~~and~~is ~~4,124~~primarily ~~tons~~composed of ~~rubber~~the ~~products~~costs atof andirect ~~average~~raw ~~price~~materials of(mainly ~~$1,063~~heavy ~~and $1~~oil,~~974~~ ~~per metric ton~~benzene, ~~respectively,~~ inbutadiene ~~the~~and ~~three months ended September 30~~carbinol), ~~2014~~labor, depreciation ~~compared~~and toamortization ~~120,086 metric tons~~ of ~~petrochemical~~manufacturing ~~products~~equipment and ~~11,519~~ ~~tons of rubber products at an average price of $1~~facilities,~~070~~ and ~~$1,888~~other ~~per metric ton, respectively, in the three months ended September 30, 2013~~overhead. The ~~average~~decrease ~~selling~~in ~~price for petrochemical products during~~ the ~~three~~cost ~~months~~of ~~ended September 30,~~sales ~~2014~~was ~~decreased~~mainly ~~slightly~~because ~~by 0.67% compared to~~ the ~~same~~decrease ~~period~~ in ~~2013. Although the~~ average ~~sales~~ price ~~for~~of ~~SBS~~raw ~~products~~materials ~~for the~~due ~~three months ended September 30, 2014 increased by approximately 4.6 % compared~~ to the ~~same~~continuingly ~~period~~depressed ofoil ~~2013,~~price ~~the~~in ~~quantity~~international ofmarkets ~~SBS~~starting ~~products~~from ~~sold~~late ~~decreased by 64% resulting in a decrease in total sales for the three months ended September 30,~~ 2014.

Sales for the nine months ended September 30, 2014 were approximately $522 million, compared to $454 million for the nine months ended September 30, 2013, an increase of $68 million, or 15%. We incurred a 40-day production interruption for routine facilities inspection and maintenance in the quarter ended June 30, 2013. There was no production interruption in 2014. We sold 470,636 tons of petrochemical and 9,950 tons of rubber products at an average price of $1,070 and $1,862 per metric ton, respectively, in the nine months ended September 30, 2014, compared to 371,662 metric tons of petrochemical products and 30,563 tons of rubber products at an average price of $1,045 and $2,142 per metric ton, respectively, in the nine months ended September 30, 2013. For the nine months ended September 30, 2014, sales in the petrochemical segment accounted for approximately 96% of total revenue. There were no significant changes in the average selling prices for petrochemical products during the nine months ended September 30, 2014.22

~~Cost of Sales: Our~~Energy ~~overall~~required ~~cost~~for ofour ~~sales~~production ~~was~~consists ~~approximately~~of ~~$132~~water, ~~million~~electricity ~~for~~and steam, the ~~three~~costs ~~months~~of ~~ended~~which ~~September~~are ~~30,~~attributed ~~2014,~~to orcost ~~97%~~ of sales, ~~as compared~~rather tothan ~~approximately~~operating ~~$140~~expense. ~~million,~~The orsupply ~~93%~~prices of ~~sales~~these ~~for~~energy ~~the~~sources ~~three~~in ~~months~~China ~~ended~~have ~~September~~historically ~~30,~~been ~~2013.~~very ~~Our~~stable ~~cost~~as ofa ~~sales~~result isof PRC ~~primarily~~government ~~composed~~policy. ofAccordingly, the ~~costs~~potential impact of ~~direct~~changing ~~raw~~energy ~~materials~~costs ~~(mainly~~to ~~heavy~~our ~~oil,~~production ~~benzene,~~is ~~butadiene~~minimal. ~~and~~The ~~carbinol),~~following ~~labor, depreciation~~are ~~and~~the ~~amortization~~costs offor ~~manufacturing~~water, ~~equipment~~electricity and ~~facilities,~~stream ~~and~~for ~~other overhead. The decrease in~~ the ~~cost~~three ofmonths ~~sales~~ended ~~was~~March ~~mainly~~31, ~~due to~~2016 ~~the~~and ~~lower~~2015 ~~sales~~(amounts ~~quantities~~in ~~of SBS products.~~thousands):

Our overall cost of sales was approximately $502 million for the nine months ended September 30, 2014, or 96% of sales, as compared to approximately $432 million, or 95% of sales for the nine months ended September, 30, 2013. In the nine months ended September 30, 2014, our average cost of finished products was $1,019 per metric ton for petrochemical products, as compared to $1,010 per metric ton in the nine months ended September 30, 2013, an increase of 0.89 %. Our average cost of rubber products in 2014 was $2,067 per metric ton, as compared to $1,834 per metric ton in the nine months ended September 30, 2013, an increase of 12%. The increased cost of sales and increased unit costs were due to the lower sales quantity of our SBS products in the quarter ended September 30, 2014, without significant changes in our fixed costs.

	For the Three Months Ended March 31,
	2016 (Unaudited)		2015 (Unaudited)
Water		387		177
Electricity		3,187		2,460
Steam		1,421		1,265

~~Energy~~Gross ~~required~~Profit ~~for~~(loss): ~~production~~Gross profit offor ~~our~~the ~~products consists~~three ofmonths ~~water,~~ended ~~electricity~~March ~~and steam~~31, ~~the~~2016 ~~costs~~was ofapproximately ~~which~~$12.3 ~~are~~million ~~attributed~~compared to ~~cost~~gross loss of ~~sales~~$20.6 ~~rather~~million ~~than~~for ~~operating~~the comparative ~~expense.~~period ~~The supply~~in ~~prices~~2015, ofa ~~these~~total ~~energy~~increase ~~sources~~of inapproximately ~~China~~$32.8 ~~have~~million, ~~historically~~or ~~been~~159.6%. ~~very~~The increase ~~stable~~was asdue ato ~~result~~the stabilization of ~~PRC~~the ~~government~~international ~~policy.~~crude ~~Accordingly, the~~oil ~~potential~~price ~~impact~~in ofearly ~~changing~~2016 ~~energy~~compared ~~costs~~ to ~~our~~early ~~production is minimal~~2015. The ~~following~~decrease ~~are~~in ~~the~~oil ~~costs~~price ~~for~~during ~~water,~~the ~~electricity~~first quarter of ~~and~~2015 ~~stream~~led ~~for~~to ~~the~~much ~~nine~~lower ~~months~~average ~~ended~~sale ~~September~~price 30of our products, ~~2014~~together ~~and~~with ~~2013~~a ~~(amounts~~74- day production suspension, resulting in ~~thousands):~~a gross loss.

	For the Nine Months Ended September 30
	2014 (Unaudited)		2013 (Unaudited)
Water		1,029		1,035
Electricity		7,855		9,855
Steam		2,440		1,506

Operating Expenses: Operating expenses, including selling expenses, and general and administrative expenses, were approximately $4.92 million, or 5.70% of sales for the three months ended March 31, 2016 compared to $4.88 million, or 8.37% of sales for the comparable period in 2015, an increase of $0.04 million or 0.88%, which was not significant. The increase in the operating expenses during the first quarter of 2016 was mainly caused by the increase of our sales.

~~Total~~Interest ~~energy cost was approximately~~Income/Expense: ~~$11,324~~For ~~for~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2016, ~~which~~interest ~~constitutes~~income and interest expense were approximately $2.170 %million ofand ~~sales~~$6.4 ~~Total~~million, ~~energy~~respectively, compared ~~cost~~to ~~was~~interest income and interest expense of approximately $123.3 million and $8.3 million,~~396~~ respectively, for the ~~nine~~comparative period ~~months~~in ~~ended~~2015. The ~~September~~decrease ~~30,~~in ~~2013,~~interest ~~which~~income ~~constitutes~~was ~~approximately~~mainly ~~2.73%~~due ofto ~~sales~~decreased deposits as collateral for bank loans and the decrease in interest expense was mainly due to decreased borrowings during the three months ended March 31, 2016.

~~Gross~~Net ~~Profit~~income (loss): ~~Gross~~Net ~~profit~~income ~~for the three months ended September 30, 2014 for the petrochemical segment~~ was approximately $~~4.5 million and a gross loss of $~~0.84 million for the ~~rubber~~three ~~segment~~months ended March 31, as2016 compared to ~~$9.1~~a ~~million~~net ~~and~~loss of approximately $147.29 million ~~for petrochemicals and~~ ~~rubber,~~in ~~respectively, for~~ the ~~comparable~~comparative period in ~~2013~~2015, aan ~~total~~increase ~~decrease~~ of ~~approximately~~ $648.63 million, or 64100.90%. ~~The~~ This decrease in net loss was mainly due to ~~decreases in~~ the ~~sales~~increase of ~~quantity~~$32.8 ~~of rubber~~million ~~products by~~in ~~7,395~~gross ~~metric~~profit ~~tons~~and ~~for~~a ~~the~~decrease ~~three months~~of ~~ended~~$8.1 ~~September~~million ~~30, 2014~~in asforeign ~~compared~~exchange toloss during the ~~same~~three ~~period~~months inended ~~2013~~March 31, 2016.

26Foreign Currency Translation Adjustment: Our reporting currency is the U.S. dollar. Our local currency, RMB, is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

~~Gross~~Currency ~~profit~~translation ~~for~~adjustments ~~the nine~~resulting ~~months~~from ~~ended~~this ~~September~~process ~~30,~~are ~~2014~~included ~~for~~in ~~the~~accumulated ~~petrochemical~~other ~~segment~~comprehensive ~~was~~loss ~~approximately $22.5 million~~ and aamounted ~~gross~~to ~~loss of~~ $0.2 million for the ~~rubber~~three ~~segment,~~months asended March ~~compared~~31, ~~to $12~~2016.1 ~~million~~The ~~and~~balance ~~$9.3~~sheet ~~million~~amounts ~~for~~at ~~petrochemicals~~March 31, 2016 and ~~rubber~~December 31, ~~respectively~~2015, ~~for~~ with the ~~comparable period~~exception inof ~~2013.~~equity, ~~Our~~were ~~total~~translated at ~~gross~~RMB 6.4612 ~~margin~~and ~~decreased~~RMB ~~from~~6.1422 4to 1.7%00 ~~for~~U.S. ~~the~~dollar ~~nine~~respectively. ~~months~~The ~~ended~~equity ~~September~~accounts ~~30,~~were ~~2013~~translated toat ~~3.9~~their %historical ~~for~~rates. ~~the~~The ~~nine months~~average ~~ended~~translation ~~September~~rates ~~30,~~applied to ~~2014. The~~income ~~main~~statement ~~reason~~accounts for the ~~decrease~~three inmonths ~~the~~ended ~~gross~~March ~~margin~~31, is2016 ~~the~~and ~~decrease~~2015 inwere ~~sales~~RMB ~~volume~~6.5279 ~~discussed~~and ~~above~~RMB 6.1368, respectively, to 1.00 U.S. dollar.

Operating Expenses: Operating expenses, including selling expenses, and general and administrative expenses, were approximately $3.5 million, or 2.59% of sales for the three months ended September 30, 2014, as compared to $3.9 million, or 2.57% of sales for the comparable period in 2013, a decrease of $0.4 million or 9%. The decrease was mainly due to decrease in entertainment expense of $0.2 million and publicity expense of $0.2 million.23

~~Operating expenses, including~~Liquidity ~~selling expenses,~~ and ~~general~~Capital and administrative expenses, were approximately $11 million, or 2.1 % of sales for the nine months ended September 30, 2014, as compared to $10 million, or 2.2 % of sales for the comparable period in 2013, an increase of $1 million or 11 %. The increase was mainly due to increases of $0.3 million in guarantee fees and general increases in consultant fees.Resources

~~Interest Income/Expense (net): For~~The ~~the~~following ~~three~~table ~~months~~sets ~~ended~~forth ~~September~~a ~~30,~~summary ~~2014, interest income and interest expense were approximately $3.3 million and $7.8 million, respectively; as compared to interest income and interest expense~~ of ~~approximately~~our ~~$2.5~~cash ~~million~~flows ~~and $4.5 million, respectively,~~ for the ~~comparable~~periods period in 2013. The increase in interest income was mainly due to increased deposits as collateral for bank loans, and the increase in interest expense was mainly due to increased borrowings in the period.indicated:

For the nine months ended September 30, 2014, interest income and interest expense were approximately $9.2 million and $19.4 million, respectively; as compared to interest income and interest expense of approximately $6.4 million and $14.6 million, respectively, for the comparable period in 2013. The increase in interest income and expense was mainly due to increased deposits and borrowings.

	For the Three Months Ended March 31,
	2016 (Unaudited)			2015 (Unaudited)
Net cash provided by (used in) operating activities		5,919			(60,713	)
Net cash used in investing activities		(10,983	)		(938	)
Net cash provided by financing activities		13,994			46,554

Net ~~Income(Loss): Net~~cash ~~Loss~~provided by operating activities was approximately $5.69 million for the three months ended ~~September~~March 3031, ~~2014,~~2016 as compared to net ~~income~~cash used of approximately $260.87 million for in the ~~same~~comparative period in ~~2013~~2015, aan ~~decrease~~increase of $866.46 million, or ~~303~~109.7%. ~~This~~The ~~decrease~~increase was ~~mainly~~primarily due to ~~the~~net ~~lower~~income ~~gross profit~~ and ~~higher interest expenses, as well as a foreign exchange loss of $0.4 million for the three months ended September 30, 2014~~amounts asdue ato ~~result~~related ofparties ~~the~~and ~~depreciation of~~ the ~~RMB,~~increase ~~compared to an exchange gain of $1 million~~ in ~~the~~other ~~same~~payables ~~period~~and ofaccrual ~~2013~~liabilities.

Net ~~Loss~~ cash used in investing activities was approximately $911.40 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2014,~~2016 as compared to ~~a net income of approximately~~ $50.29 million for in the ~~same~~comparative period in ~~2013,~~2015 arepresenting ~~decrease~~an increase of $1410.60 million, or ~~281~~1070%. ~~This~~The ~~decrease~~increase was primarily due to ~~the decrease~~an ~~in both selling prices and sales quantities for SBS products during the nine months ended September 30, 2014~~increase ~~compared to the same period in 2013, as well as a foreign exchange loss~~ of $46.57 million in ~~the~~investments ~~first~~for ~~nine~~construction ~~months~~ of ~~2014, compared~~infrastructures toand afacilities ~~foreign exchange gain of $7.2 million~~ in ~~the~~accordance ~~same~~with ~~period~~our ofexpansion ~~2013~~plan. The exchange rate for USD to RMB appreciated from 6.31 to 1 on January 1, 2013, to 6.15 to 1 on September 30, 2013, however, the exchange rate for USD to RMB depreciated from 6.11 to 1 on January 1, 2014, to 6.15 to 1 on September 30, 2014.

~~Foreign Currency Translation Adjustment:~~Net ~~Our~~cash ~~reporting~~provided ~~currency~~by isfinancing ~~the~~activities ~~U.S.~~amounted ~~dollar.~~to ~~Our~~approximately ~~local currency, Renminbi (RMB), is our functional currency~~$14.0 ~~Results~~million offor ~~operations and~~the ~~cash~~three ~~flow~~months ~~are~~ended ~~translated~~March ~~at average exchange rates during the period~~31, ~~and~~2016 ~~assets and liabilities are translated at the unified~~compared ~~exchange~~to ~~rate~~approximately as$46.6 ~~quoted~~million byfor the ~~People’s~~same ~~Bank of China at the end of the~~ period. ~~Translation adjustments resulting from this process are included~~ in ~~accumulated~~2015 ~~other~~representing ~~comprehensive~~a ~~income~~decrease ~~in the statement~~ of ~~shareholders’ equity~~$32.6 ~~Transaction~~million ~~gains and~~or ~~losses~~69.9%. ~~that~~The ~~arise~~decrease resulted primarily from ~~exchange~~the ~~rate~~decrease ~~fluctuations on transactions denominated~~ in ashort-term ~~currency~~bank ~~other~~borrowings ~~than the functional currency are included~~ in the ~~results~~first quarter of ~~operations as incurred~~2016.

~~Currency~~There ~~translation~~is ~~adjustments~~substantial ~~resulting from~~doubt ~~this~~about ~~process~~the ~~are~~Group’s ~~included~~ability into ~~accumulated~~continue ~~other~~as ~~comprehensive~~a ~~loss~~going ~~and~~concern. ~~amounted~~The Group continued to ~~$0.4~~finance and ~~million~~support ~~for~~its ~~the~~operations ~~three~~primarily ~~months~~through ~~ended September~~short-term ~~30,~~bank ~~2014~~borrowings. ~~The~~Short-term ~~balance~~bank ~~sheet~~borrowings ~~amounts~~and atnotes ~~September~~payable ~~30,~~amounted to ~~2014~~approximately $687 and ~~2013,~~$695 ~~with~~million ~~the~~at ~~exception~~March ~~of equity~~31, ~~were~~2016 ~~translated~~and ~~at RMB 6.1538~~December ~~and~~31, ~~RMB~~2015, 6respectively.~~2127~~ toIn ~~1.00 U.S.~~addition, ~~dollar~~the ~~respectively.~~Group ~~The~~continued to ~~equity~~benefit ~~accounts~~from ~~were~~favorable ~~translated~~PRC attax ~~their~~policies ~~historical~~related ~~rates~~to consumption tax. ~~The~~As ~~average~~of ~~translation~~March ~~rates~~31, ~~applied to~~2016, ~~income~~we ~~statement~~had ~~accounts~~consumption ~~for~~tax ~~the~~refund receivables ~~three~~of ~~months~~approximately ~~ended~~$54.1 ~~September 30~~million, ~~2014~~which ~~and~~have ~~2013~~been ~~were~~fully ~~RMB~~refunded ~~6.1455 and~~to ~~RMB 6.1414,~~us ~~respectively,~~as toof ~~1.00~~the ~~U.S.~~date ~~dollar~~of this Form 10-Q.

27The Group is exploring sources of additional financing, including short-term financing from its vendors and other parties and equity financing. In addition, the Group closely monitored its cash balances, cash needs and expense levels.

~~Liquidity~~Consumption Tax ~~and Capital Resources~~Refund

The PRC ~~following~~government ~~table~~enacted ~~sets~~a ~~forth~~regulation pursuant to which domestically purchased heavy oil to be used for producing ethylene and aromatics products was exempted from consumption tax. In addition, the consumption tax paid for imported heavy oil is to be refunded if it is used for producing ethylene and aromatics products. Given all the Group’s purchased heavy oils are, or are to be, used for producing ethylene and aromatics products, the Group recognizes a ~~summary~~consumption oftax recoverable when a consumption tax ~~our~~for ~~cash~~heavy ~~flows~~oils has been paid and the relevant heavy oils have been used for production of ethylene and aromatics products. At March 31, 2016 and December 31, 2015, the ~~periods~~Group ~~indicated:~~recorded an estimated consumption tax recoverable amounting to approximately $54.1 million and $44.4 million, respectively. As of the date of this Form 10-Q, all consumption tax refund receivable as of March 31, 2016 was refunded.

	For the Nine Months Ended September 30,
	2014 (Unaudited)			2013 (Unaudited)
Net cash used in operating activities		(2,171	)		(56,991	)
Net cash used in investing activities		(48,337	)		(44,765	)
Net cash provided by financing activities		40,317			102,038

Bank Loans

~~Net~~Before we ~~cash~~enter ~~used~~into ~~in operating~~loan ~~activities~~agreements ~~was~~with ~~approximately~~a $2lender, ~~million~~the ~~for~~lender ~~the~~will ~~nine~~generally ~~months~~approve ~~ended~~a ~~September~~comprehensive ~~30,~~credit ~~2014,~~line aswhich ~~compared~~is tothe ~~approximately~~maximum ~~$57~~amount ~~million~~of ~~for~~the loans we can obtain from the ~~same~~lender ~~period~~within ina ~~2013~~certain time period. The ~~reasons~~comprehensive ~~for~~credit line is usually secured by one or more third party guaranties or liens on our property and equipment, or a security deposit. Once the ~~decrease~~comprehensive credit line is ~~primarily~~approved, ~~due~~we towill ~~increased~~enter ~~collections~~into ofan ~~accounts receivable~~individual ~~and~~loan ~~receipts~~agreement ~~of consumption~~with ~~tax~~the ~~refunds~~lender ineach time we obtain a ~~more~~loan ~~timely~~from ~~manner~~the inlender ~~2014.~~under the Incredit ~~addition~~line. Therefore, we ~~established~~typically ~~stricter control~~have ~~over~~multiple ~~prepayments~~loan toagreements ~~suppliers~~under ~~and~~one ~~streamlined~~comprehensive ~~our~~credit ~~inventories~~line inwith ~~2014~~one lender as long ~~compared~~as tothe ~~2013~~credit limit has not been reached.

~~Net~~We have ~~cash~~entered ~~used~~into inshort-term ~~investing~~loan ~~activities~~agreements ~~was~~with ~~approximately $48~~our ~~million~~primary lenders such as Bank of China, China Construction Bank and Agricultural Bank of China. As of March 31, 2016, we had an aggregate principal amount of approximately $44318 million ~~for~~outstanding under the loan ~~nine~~agreements ~~months~~with ~~ended~~maturity ~~September~~dates ~~30,~~from ~~2014~~April 2016 to March 2017 and ~~2013,~~the ~~respectively~~annual interest rates from 4.4% to 4.8% per annum. The loan ~~net~~agreements ~~cash~~were ~~used~~mainly inguaranteed ~~investing~~by third parties and individual persons or secured by a lien on our property and equipment. ~~activities~~Historically, isall ~~primarily~~debts due tohave ~~our~~been ~~increasing~~paid ~~investments~~back by us in a timely manner. All short-term bank loans are revolving loans, and the lenders ~~construction~~generally agree to extend the loans upon maturity if we request. As the date of this Form 10-Q, we have timely repaid or renewed all short-term bank loans. As such, we expect that outstanding bank loans will be extended if not paid back upon maturity. Depending on our ~~infrastructures~~capital ~~and~~needs, ~~facilities~~we inevaluate ~~accordance~~whether to apply for additional long-term bank loans. We currently have sufficient lines of credit with our primary lenders for both short-term and long-term borrowings for our operations. However, we estimate the total cost of the expansion will be $372.5 million. We plan to fund the expansion through debt financing, cash from operations, and potential equity financing. However, we may not be able to obtain additional financing at acceptable terms, or at all, and, as a result, our ability to increase our production capacity and to expand our business could be adversely affected.

Net cash provided by financing activities amounted to approximately $40 million for the nine months ended September 30, 2014, compared with approximately $102 million for the same period in 2013. For the nine months ended September 30, 2014, net cash provided by financing activities was primarily through bank borrowings. The decrease resulted primarily from increases in cash available from operations during the nine months ended September 30, 2014 as compared to the same period in 2013.24

~~The Company commenced~~Related ~~trading~~Party of heavy oil in April 2013, whereby the Company functions as an agent on behalf of a Hong-Kong based customer. For the three months ended September 30, 2014 and 2013, the trading of heavy oil consists of purchases of approximately $102.6 million and $142.3 million, respectively, and sales of approximately $101.8 million and $141.7 million, respectively, resulting in a loss of $0.8 million and $0.6 million, respectively, which has been included in cost of sales in the condensed consolidated statement of comprehensive income. For the nine months ended September 30, 2014, the trading of heavy oil consists of purchases of approximately $272.6 million, and sales of approximately $270.7 million, resulting in a loss of $1.9 million, which has been included in cost of sales in the condensed consolidated statement of comprehensive income.Transactions

~~Consumption~~During the ~~Tax~~three ~~Refund~~months ended March 31, 2016, we purchased transportation services from Ningbo Xinhe Logistic Co., Ltd (“Ningbo Xinhe”) in a total amount of $879,000. Ningbo Xinhe is a related party to us because Ms. Yushui Huang, our former Vice President of Administration of Ningbo Keyuan, owns 10% interest of Ningbo Xinhe.

~~The PRC government enacted~~During athe ~~regulation~~three ~~pursuant~~months toended ~~which~~March ~~domestically~~31, ~~purchased~~2016, ~~heavy oil to be used for producing ethylene and aromatics products was exempted from consumption tax~~Mr. InChunfeng ~~addition~~Tao, ~~the~~our ~~consumption~~Chairman ~~tax paid for imported heavy oil is to be refunded if it is used for producing ethylene~~ and ~~aromatics~~controlling ~~products. Given all the Group’s purchased heavy oils are~~shareholder, orprovided ~~are~~personal guarantees to ~~be,~~our ~~used~~bank ~~for~~loans ~~producing~~in ~~ethylene and aromatics products, the Group recognizes~~ a ~~consumption~~total ~~tax~~amount ~~recoverable when a consumption tax for heavy oils has been paid and the relevant heavy oils have been used for production~~ of ~~ethylene~~$91.8 ~~and aromatics products~~million. AtIn ~~September 30~~addition, ~~2014~~Mr. ~~and~~Tao ~~December 31,~~provided ~~2013,~~personal ~~the~~guarantees ~~Group~~in ~~recorded~~a antotal ~~estimated~~amount ~~consumption~~of ~~tax recoverable amounting to approximately~~ $9139.5 3 million ~~and $46~~.~~1 million, respectively.~~

During Inthe ~~October~~three ~~and~~months ~~November~~ended March ~~2014~~31, ~~refunds~~ 2016, we purchased raw materials of approximately $421.58 million ~~were~~from ~~received~~Ningbo Litong and $29.2 Inmillion ~~addition,~~from ~~management~~Ningbo ~~expects~~Lide. ~~approximately~~Ningbo Litong $is considered as certain other party to us because it previously held 12.75% ownership of Ningbo Keyuan on behalf of Mr. Chunfeng Tao and was controlled and owned by Mr. Tao until September 2011. Ningbo Lide is considered as certain other party to us because it previously held 28.5% ~~million~~ownership ~~will~~of beNingbo Keyuan on behalf of Mr. Chunfeng Tao and was controlled and owned by Mr. ~~deductible~~Tao ~~against~~until ~~future~~September ~~consumption~~2011. ~~tax~~The ~~obligations~~purchase prices of raw materials from Ningbo Litong and Ningbo Lide were determined on the same basis as the purchase prices from other suppliers.

28ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~Bank~~Not applicable ~~Loans~~to smaller reporting companies.

~~We have entered into loan agreements~~ITEM ~~with our primary lenders, Bank of China, China Construction Bank, Agricultural Bank of China, etc~~4. ~~under~~CONTROLS ~~which~~AND ~~we have term loans~~PROCEDURES. As of December 3, 2014, we had an aggregate principal amount of approximately $536 million in bank loans outstanding under the loan agreements, with maturity dates from November 2014 to December 2015 and interest rates from 1.1% to 7.2% per annum.

~~Before we enter into loan agreements with~~ (a) ~~lender,~~Disclosure ~~the~~Controls lender will approve a comprehensive credit line which is the maximum amount of the loans we can obtain from the lender within a certain time period. The comprehensive credit line is usually secured by one or more third party guaranties or liens on our property and equipment, or a security deposit. Once the comprehensive credit line is approved, we will enter into an individual loan agreement with the lender each time we obtain a loan from the lender under the credit line. Therefore, we typically have multiple loan agreements under one comprehensive credit line with one lender as long as the credit limit has not been reached. Though different lenders have different forms for loan agreements, loan agreements usually contain similar material terms such as the amount of a loan, the term of a loan, interest rate, etc. In addition, some loan agreements specify the purposes of loans, and lenders are permitted to monitor the use of loans and our business. The loan agreements generally do not require us to maintain specific ratios or working capital requirements. In the event that lenders observe abnormal use of a loan or a substantial loss in our business or other event that could potentially have a substantial negative impact on our ability to repay the loans on time, they can either amend or terminate the loan agreements, or request additional financial covenants to secure the loans. If we fail to repay loans in a timely manner, or fail to obtain written consent from the lenders regarding extension/renewal applications, we may be subject to default interest or the loans may be canceled. Historically, we have no record of default on any of our loans and, as a result, we do not anticipate that our loans will not be renewed when their terms expire. However, we cannot guarantee that one or more of our loans will not be renewed or extended at the end of their terms, which could have a material negative impact upon our liquidity which could impact our ability to purchase raw materials, make upgrades and improvements to our infrastructure or otherwise negatively impact our business and operations.Procedures

AsDisclosure controls ofare ~~September~~procedures ~~30,~~that ~~2014, 42%~~are ofdesigned ~~our~~with ~~bank~~the ~~loans~~objective ~~(approximately~~of ~~USD~~ensuring ~~$254~~that ~~million)~~information ~~were~~required ~~guaranteed~~to bybe ~~our~~disclosed ~~related~~in ~~and~~our ~~certain~~reports filed ~~other~~under ~~parties.~~the ~~Usually~~Exchange Act, asuch ~~guaranty agreement~~as isthis ~~executed~~Form ~~among~~10-Q, ais ~~third~~recorded, ~~party~~processed, asummarized, ~~lender~~ and usreported ~~pursuant~~within tothe atime ~~credit~~periods specified ~~line~~in ~~approved by~~ the ~~lender.~~SEC’s ~~Though~~rules ~~different~~and ~~lenders use different~~ forms. ~~for~~Disclosure ~~loan~~controls ~~guaranty~~are ~~agreements,~~also ~~loan~~designed ~~guaranty~~with ~~agreements~~the ~~usually~~objective ~~contain~~of ~~substantially~~ensuring ~~similar~~that ~~terms.~~such ~~According~~information ~~to a loan guaranty agreement, the guarantor~~ is ~~jointly~~accumulated ~~liable~~and ~~for~~communicated ~~all~~to our ~~debts~~management, toincluding the ~~lender~~Chief ~~under~~Executive ~~the~~Officer ~~corresponding loan agreements~~ and ~~the~~Chief ~~lender~~Financial ~~can~~Officer, ~~bring~~as ~~legal~~appropriate to ~~action~~allow ~~against~~timely ~~the~~decisions ~~guarantor~~regarding ~~for~~required ~~damages in the event there is a default or breach of any loan agreement under the credit line~~disclosure. ~~The~~We ~~guaranty~~performed isan ~~independent~~evaluation, ~~of any loan agreement~~ under the ~~credit~~supervision ~~line~~ and ~~irrevocable.~~with Inthe ~~addition, if~~participation ~~the~~of ~~credit~~our ~~line is extended or renewed~~management, aincluding ~~written~~our ~~consent~~Chief ~~from~~Executive ~~the~~Officer ~~guarantor~~and isChief ~~required.~~Financial ~~Otherwise~~Officer, ~~the~~of ~~guarantor is only liable for loans under loan agreements that were executed during~~ the ~~original~~effectiveness ~~term~~ of the ~~credit~~design ~~line.~~and ~~Beginning in January 2011, certain~~operation ~~individual loan guarantors, some~~ of ~~whom~~our ~~are~~disclosure ~~related~~controls ~~parties,~~and ~~were~~procedures ~~paid~~as ~~a monthly fee~~ of ~~approximately~~the ~~0.3%~~end of the ~~outstanding loan~~period ~~balances~~covered asby ~~compensation~~this ~~for~~Form ~~their guarantees~~10-Q. ~~Through~~Based ~~December~~on ~~31,~~this ~~2010~~evaluation, ~~no compensation was paid in respect of these guarantees.~~our ~~During~~Chief ~~the~~Executive ~~three~~Officer and ~~nine~~our ~~months~~Chief ~~ended~~Financial ~~September~~Officer ~~30,~~has ~~2014~~concluded ~~and 2013~~that, ~~expenses~~as ~~related to loan guarantee fees were approximately $0.7 million and $ 2 million, and $0.69 million and $1.83 million, respectively. As~~ of ~~September~~March 3031, ~~2014~~2016, ~~there~~our ~~was~~disclosure ~~$1.9~~controls ~~million~~and ofprocedures ~~accrued~~were ~~and~~not ~~unpaid~~effective ~~guarantee~~to ~~fees.~~ensure ~~Historically,~~that ~~all~~information ~~debts~~required ~~have~~to ~~been~~be ~~repaid~~disclosed ~~by the Company~~ in areports ~~timely~~filed ~~manner.~~under ~~All~~the ~~short-term~~Exchange ~~bank~~Act ~~loans~~is ~~are~~recorded, ~~revolving~~processed, ~~loans~~summarized ~~whose~~and ~~terms~~reported ~~(at~~properly within the ~~due~~time ~~date~~periods ofspecified ~~payment) are generally extended~~ by the ~~lender.~~SEC, Asand ofdid ~~September~~not ~~30,~~provide ~~2014,~~reasonable weassurance ~~were~~that ininformation ~~compliance~~required ~~with~~to ~~the~~be ~~terms~~disclosed ofby ~~our~~us ~~loan~~in ~~agreements. As~~ such, ~~management~~reports ~~expects~~would ~~most~~be ~~unpaid~~accumulated ~~loan~~and ~~balances~~communicated ~~will be~~to ~~extended~~our atmanagement, ~~their~~including ~~due~~its ~~dates.~~Chief ~~Depending~~Executive onOfficer ~~our~~and ~~capital~~Chief ~~needs~~Financial Officer, ~~the~~as ~~Company~~appropriate, ~~evaluates whether~~ to ~~apply~~allow ~~for~~timely ~~additional~~decisions ~~long-term bank~~regarding ~~loans.~~required ~~The Company currently has sufficient lines of credit with its banks for both short-term and long-term borrowings~~disclosure.

29(b) Changes in Internal Control over Financial Reporting

~~Related~~ In ~~Party~~connection ~~Transactions~~with the preparation of our financial statements for the fiscal year ended December 31, 2015 and 2014, the management determined that our internal control environment is not properly designed due to the existence of certain material weaknesses and that it did not operate effectively to ensure that our financial statements (and related financial statement disclosures) were prepared in accordance with US generally accepted accounting principles. We have established a number of remediation measures, which we believe will remediate the material weaknesses identified, if such measures are effectively implemented and maintained, however, we cannot assure when or if we will be able to successfully implement these remedial measures. For more information regarding our controls and procedures, please refer to Item 9A. Controls and Procedures in the Form 10-K.

~~The~~There were ~~Company~~no ~~considers~~changes ~~all~~in ~~transactions~~our ~~with~~internal ~~the~~control ~~following~~over ~~parties~~financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to bematerially affect, ~~related~~our ~~party~~internal ~~transactions~~control over financial reporting.

Name of parties		Relationship
Mr. Chunfeng Tao		Majority stockholder
Mr. Jicun Wang		Principal stockholder
Mr. Peijun Chen		Principal stockholder
Ms. Sumei Chen		Member of the Company’s Board of Supervisors and spouse of Mr. Wang
Ms. Yushui Huang		Vice President of Administration, Ningbo Keyuan
Ningbo Pacific Ocean Shipping Co., Ltd (Ningbo Pacific)		100% ownership by Mr. Wang
Ningbo Xinhe Logistic Co., Ltd (Ningbo Xinhe)		10% ownership by Ms. Huang

30PART II - OTHER INFORMATION

~~Related party transactions~~ITEM ~~and~~1. LEGAL ~~amounts~~PROCEEDINGS. ~~outstanding with the related parties as of and for the three and nine months ended September 30, 2014 and 2013, are summarized as follows:~~

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
	($’000)		($’000)		($’000)		($’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Purchase of transportation services (a)	$	423	$	-	$	2,327	$	1,045
Loan guarantee fee (b)	$	-	$	43	$	-	$	85

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

	September, 2014		December 31, 2013
	($’000)		($’000)
	(Unaudited)
Amounts due to related parties (c)	$	21	$	369
Advance payments to these parties (d)	$	44	$	55

In 2014, Jiujiang Jianan Petrochemicals Engineering Co., Ltd. (“Jiujiang Jianan”) filed a suit against Ningbo Keyuan in the Beilun District People’s Court. Jiujiang Jianan and Ningbo Keyuan are parties to certain service contract pursuant to which Jiujiang Jianan performed maintenance to Ningbo Keyuan’s production equipment. Jiujiang Jianan claimed it had provided additional services and thus was entitled to additional service fee from Ningbo Keyuan. On July 27, 2016, the Beilun District People’s Court issued a judgment that Ningbo Keyuan should pay construction fee of RMB 9.0 million (approximately $1.4 million) plus an interest of RMB 0.8 million (approximately $0.1 million) to Jiujiang Jianan. Ningbo Keyuan appealed to the Ningbo City Intermediate People’s Court on August 8, 2016. The case is currently under the review by the Ningbo Intermediate People’s Court.

In May 2015, Taihua Plastic (aNingbo) Co., Ltd (“Taihua”) filed a complaint against Ningbo Keyuan and Zhongkexuneng ~~The~~in ~~Group~~the ~~purchased~~Ningbo ~~transportation~~Intermediate ~~services~~People’s Court. Pursuant to a sale agreement between Taihua and Zhongkexuneng, Taihua made a payment of approximately $0RMB 29.7 million (approximately $4.8 million) ~~and~~to ~~nil~~Zhongkexuneng ~~from~~for ~~Ningbo~~styrene. ~~Xinhe~~Taihua ~~during~~claimed damages in the ~~three~~amount ~~months ended~~of ~~September~~RMB 3029.7 million, ~~2014~~along ~~and~~with ~~2013,~~interest ~~respectively~~of RMB 0.8 ~~The~~million ~~Group~~(approximately ~~purchased~~$0.1 ~~transportation~~million) ~~services~~and deductible value added tax of $2RMB 4.37 million ~~and~~(approximately US$1.0.7 million ~~from~~). On June 24, 2016, the Ningbo ~~Xinhe~~Intermediate ~~during~~People’s Court ruled that Zhongkexuneng should return the ~~nine~~payment ~~months~~of ~~ended~~RMB ~~September~~29.7 30million (approximately $4.8 million) to Taihua, ~~2014~~plus the interest; and ~~2013~~Ningbo Keyuan should be jointly liable to such payment as a shareholder of Taihua. Ningbo Keyuan appealed to the Zhejiang Higher People’s Court on July 11, ~~respectively~~2016 claiming of its limited liability as a shareholder of a corporation. The case is currently under the trial.

On March 25, 2016, the Sixth Chemical Engineering Construction Co., Ltd (bthe “Sixth”) brought a suit against Ningbo ~~Guarantees~~Keyuan in the Beilun District People’s Court. The Sixth was a contractor who was supposed to build one of Ningbo Keyuan facilities. Completion of the construction was delayed for ~~Bank~~several ~~Loans~~months by the Sixth resulting in our loss of approximately RMB 30.4 million (approximately $4.7 million). The Sixth claimed that Ningo Keyuan owed a remaining contractual payment of RMB 24.8 million (approximately $3.8 million) plus the penalties of breach of the contract. In July 2016, Ningbo Keyuan filed a counter claim alleging that the Sixth had breached the contract by delaying the completion of the construction and requesting a total compensation of RMB 30.4 million (approximately $4.7 million) from the Sixth. A hearing is to be scheduled by the Beilun District People’s Court.

~~Beginning~~In July 2016, Mr. Zongdong Hu filed a labor dispute in ~~2011, loan~~Beilun ~~guarantee~~District ~~fees~~Ningbo ofCity ~~0.3%~~Labor ofArbitration ~~the~~Department ~~loan~~claiming ~~principal~~a ~~guaranteed~~compensation of ~~are~~RMB to0.5 bemillion ~~paid~~(approximately ~~quarterly~~$0.08 ~~During~~million). ~~the~~Mr. ~~three~~Hu ~~months~~was ~~ended~~a ~~September 30,~~former ~~2014~~vice ~~and~~general ~~2013,~~engineer ~~loan~~at ~~guarantee~~Ningbo ~~fees~~Keyuan. ~~were~~Ningbo ~~approximately~~Keyuan ~~nil~~decided not ~~and~~to $0grant Mr.04 ~~million~~Hu ~~for~~certain ~~Ningbo~~amount ~~Pacific,~~of ~~respectively.~~cash ~~During~~reward based on the ~~nine months~~evaluation ~~ended~~of ~~September~~his ~~30,~~performance ~~2014~~in ~~and~~accordance ~~2013,~~with ~~loan~~his ~~guarantee~~employment agreement. ~~fees~~Mr. ~~were~~Hu ~~nil~~disagrees ~~and~~with $0our decision.09 ~~million~~The ~~for~~arbitration ~~Ningbo~~is ~~Pacific,~~currently ~~respectively~~pending.

~~(c)~~Other ~~Amounts~~than ~~due~~as set forth herein, we are currently not a party to ~~related~~any ~~parties~~material ~~consist~~legal or administrative proceedings and are not aware of any ~~the~~pending ~~following~~or threatened legal or administrative proceedings against us.

	September 30, 2014		December 31, 2013
	($’000)		($’000)
	(Unaudited)
Ningbo Xinhe (Transportation expenses)	$	21	$	369

ITEM 1A. RISK FACTORS.

31Not applicable to smaller reporting companies.

~~(d) Advance payments to these parties consist of the following.~~26

	September 30, 2014		December 31, 2013
	($’000)		($’000)
	(Unaudited)		(Unaudited)
Ningbo Xinhe	$	-	$	12
Mr. Tao		44		43
Total	$	44	$	55

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~Relationships and~~(a) As ~~transactions~~reported in our current report on Form 8-K filed on August 8, 2016, we entered into a side agreement with ~~certain~~Delight ~~other~~Reward ~~parties~~on August 4, 2016, pursuant to which, Delight Reward agreed to pay us for each convertible share of Common Stock underlying 5,333,340 Series B preferred shares $0.005 per share of Common Stock, for an aggregate purchase price of $27,465.01. We intend to use the proceeds as general capital for the Company.

~~The Group~~(b) Not ~~has following relationships and transactions with certain other parties:~~Applicable.

Name of parties		Relationship
Ningbo Litong Petrochemical Co., Ltd (Ningbo Litong)		Former 12.75% nominee shareholder of Ningbo Keyuan
Ningbo Anqi Petrochemical Co., Ltd (Ningbo Anqi)		A related party through September 2011 when control transferred
Ningbo Lide Investment Co., Ltd. (Ningbo Lide)		A related party through September 2011 when control transferred
Ningbo Kunde Petrochemical Co, Ltd. (Ningbo Kunde)		A related party through September 2011 when control transferred

32ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

~~Transactions and amounts~~(a) Not ~~outstanding with these parties for the three and nine months ended September 30, 2014 and 2013 are summarized as follows:~~Applicable.

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
	($’000)		($’000)		($’000)		($’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Sales of products (e)	$	7,706	$	8,892	$	20,107	$	59,324
Purchase of raw materials (f)	$	27,476	$	10,118	$	63,437	$	44,968
Guarantee for bank borrowings (g)	$	32,544	$	65,526	$	140,650	$	159,511
Loan guarantee fees (g)	$	643	$	643	$	1,965	$	1,728

(b) Not Applicable.

	September 30, 2013		December 31, 2013
	($’000)		($’000)
	(Unaudited)
Advances received from these parties (h)	$	2,155	$	-
Advance payments to these parties (i)	$	4,517	$	11,043
Accounts receivable from these parties (j)	$	-	$	218

ITEM 4. MINE SAFETY DISCLOSURES.

~~(e)~~Not ~~The Group sold finished products of approximately $3~~applicable.8 million and $5.0 million to Ningbo Litong during the three months ended September 30, 2014 and 2013, respectively. The Group sold finished products of approximately $3.9 million and $0.2 million to Ningbo Lide during the three months ended September 30, 2014 and 2013, respectively. The Group sold finished products of nil and approximately $3.8 million to Ningbo Kunde during the three months ended September 30, 2014 and 2013, respectively. The Group sold finished products of approximately $16 million and $17.1 million to Ningbo Litong, during the nine months ended September 30, 2014 and 2013, respectively. The Group sold finished products of approximately $4.1 million and $0.2 million to Ningbo Lide during the nine months ended September 30, 2014 and 2013, respectively. The Group sold finished products of nil and approximately $42 million to Ningbo Kunde during the nine months ended September 30, 2014 and 2013, respectively.

~~(f) During the three months ended September 30, 2014, the Group purchased raw materials~~ITEM ~~of approximately $27~~5.1 ~~million~~OTHER ~~and $0~~INFORMATION.4 million from Ningbo Litong and Ningbo Lide, respectively. During the three months ended September 30, 2013, the Group purchased raw materials of approximately $0.01 million and $10 million from Ningbo Kunde and Ningbo Lide, respectively. During the nine months ended September 30, 2014, the Group purchased raw materials of approximately $54.2 million and $9.2 million from Ningbo Litong and Ningbo Lide, respectively. During the nine months ended September 30, 2013, the Group purchased raw materials of approximately $2.7 million and $42.3 million from Ningbo Kunde and Ningbo Lide, respectively.

(ga) Not ~~Guarantees for Bank Loans~~applicable.

	Guarantee provided during the three months ended September 30,				Guarantee provided during the nine months ended September 30,
	2014		2013		2014		2013
	($’000)		($’000)		($’000)		($’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Ningbo Litong	$	-	$	54,768	$	75,562	$	116,696
Ningbo Lide		32,544		10,758		65,088		42,815
Total	$	32,544	$	65,526	$	140,650	$	159,511

(b) Not applicable.

33ITEM 6. EXHIBITS.

	Bank loans Guaranteed as of
	September 30, 2014		December 31, 2013
	($’000)		($’000)
	(Unaudited)
Ningbo Litong	$	142,220	$	109,618
Ningbo Lide		170,182		75,405
Total	$	312,402	$	185.023

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

31.1 *		Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14/15d-14(a) under the Exchange Act
32.1 *		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(h) At September 30, 2014, advances received from these parties consist of amounts due payable to Ningbo Litong and Ningbo Lide of $2.13 million and $0.02 million, respectively.

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

~~(i) At~~* ~~September~~Filed ~~30, 2014, advance payments to these parties consist of payments to Ningbo Lide of $4~~herewith.~~5 million.~~

~~Going concern and management’s plans~~27

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company reported net loss and cash flows used in operations of approximately $8.4 million and $2.2 million, respectively, for the nine months ended September 30, 2014 and net income and cash flows used in operations of approximately $4.1 million and $53.1 million, respectively, for the year ended December 31, 2013. At September 30, 2014 and December 31, 2013, the Company had a working capital deficit of approximately $259 million and $210 million, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability or classification of assets, or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.SIGNATURES

~~The Company continues~~In toaccordance ~~finance~~with ~~its~~the ~~operations~~requirements ~~primarily~~of ~~through~~the ~~short-term~~Exchange ~~bank~~Act, ~~borrowings.~~the ~~Short-term~~registrant ~~bank~~caused ~~borrowings~~this ~~and~~report ~~bills payable amounted~~ to ~~approximately~~ ~~$837~~be ~~million~~signed aton ~~September~~its ~~30,~~behalf ~~2014.~~by ~~Management~~the ~~expects that short-term bank financing will continue to be available~~undersigned, ~~through~~thereunto atduly ~~least September 30, 2015~~authorized.

The Company continues to benefit from favorable PRC tax policies related to consumption tax of which approximately $9.5 million was refundable at September 30, 2014. Approximately $4.5 million was refunded in October and November 2014, and management expects that approximately $5 million will be deductible against future consumption tax obligations. In addition, management expects VAT of $30 million to be refunded in late 2014.

Date: November 7, 2016	Keyuan Petrochemicals, Inc.

	By:	/s/ Feng Chen
		Feng Chen
		Chief Executive Officer, Chief Financial Officer and Vice President of Accounting

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

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

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

(b) Changes in Internal Control over Financial Reporting

In connection with the preparation of our financial statements for the fiscal year ended December 31, 2013, the management determined that our internal control environment is not properly designed due to the existence of certain material weaknesses and that it did not operate effectively to ensure that the Company’s financial statements (and related financial statement disclosures) were prepared in accordance with US generally accepted accounting principles (US GAAP). We have established a number of remediation measures, which we believe will remediate the material weaknesses identified, if such measures are effectively implemented and maintained. As of the end of the period covered by the report, we continue the process of implementing and maintaining the remediation measures, but we cannot assure when or if we will be able to successfully implement these remedial measures. For more information regarding our controls and procedures, please refer to Item 9A. Controls and Procedures in our Annual Report on Form 10-K for fiscal year ended December 31, 2013, filed with the SEC on May 22, 2014.

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

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

On November 15, 2011, the Rosen Law Firm filed a class action suit, alleging we had violated federal securities laws by issuing materially false and misleading statements and omitting material facts with regard to disclosure of related party transactions and effectiveness of internal controls in past public filings. The case is currently at the discovery stage, located in the United States District Court for the Central District of California, and we believe there is no basis to the suit filed by the Rosen Law Firm and intend to contest the case vigorously.

On February 13, 2014, the Brown Law Firm filed a derivative action suit on behalf of the Company, alleging certain and former current officers and directors of the Company had violated their fiduciary duties between at least April 22, 2010 to October 20, 2011. All proceedings and discovery in the derivative action is currently stayed by the United States District Court for the Southern District of New York, and the parties are waiting for the Court to schedule a conference in the matter. . Management intends to contest the case vigorously or alternatively to settle the matter in an appropriate manner.

On April 8, 2014, YiNuo Co.ltd filed a law suit in Ningbo Beilun District People’s Court against Ningbo Keyuan Synthetic Rubbers Co., Ltd in a dispute related to product quality, and allegd a claim for damages of RMB 10 million. The hearing was held on August 18, 2014 and the court accepted our counter claim. A second hearing was held on November 7, 2014, and as of the date of this filing, we are still waiting for the issuance of the verdict.

On May 7, 2014, Eastwell International Co.Ltd filed a law suit in Nanjin Intermediate People’s Court against Ningbo Keyuan Synthetic Rubbers Co., Ltd for a breach of contract and disputing product quality and alleged a claim for damages of RMB 21.05 million. We filed a counter claim and plan to contest the suit vigorously. The first hearing at the Court was held on June 18, 2014 and the second hearing was held on July 4, 2014. In the second hearing, Eastwell International Co.Ltd proposed to reduce the claim amount to RMB 14.05 million. We declined the proposal and asked for the third hearing to be held. The third hearing was held on August 19, 2014, and the court ruled against Ningbo Keyuan Synthetic Rubbers Co., Ltd for damages of RMB 2.4 million. We plan to appeal to Jiangsu Province Supreme Court in December 2014.

In connection with two industrial accidents that occurred on May 18, 2014 and September 20, 2014, and which resulted in two deaths and two injuries, we paid a total of RMB 2.5 million (approximately $0.2 million) to settle with the decedents’ families who have agreed not to seek any additional monetary damages from us. We have also paid, as of December 3, 2014, approximately RMB 896,000 (approximately $0.15 million) for the medial expenses for two injured employees and expect that additional amounts may be payable. We have taken all necessary measures to prevent such accidents and do not believe they will materially impact our operation or ability to obtain financings, including bank loans going forward.

On October 28, 2014, Dragon State International Limited (the “Dragon Sate”), the shareholder of Series B preferred stock, filed a complaint alleging, among others, we were in breach of a securities purchase agreement dated September 28, 2010 between Dragon State and us, and seeking rescission of the securities purchase agreement and the return of $20 million, and in the alternative, seeking monetary damages to be determined at trial but not less than $20 million (the “Dragon State Complaint”). We intend to contest the case vigorously or alternatively to settle the matter in an appropriate manner.

On October 30, 2014, in connection with a motion for a temporary restraining order and preliminary injunction filed by Dragon State against the Company and Mr. Chunfeng Tao, a consent order was issued by the District Court for the Southern District of New York whereby the Company and Mr. Chunfeng Tao agree that, notwithstanding anything contained in the certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock to the contrary ,the 5,333,334 shares of Series B preferred stock held by Dragon State have not been , and shall not be, automatically converted into shares of Company’s common stock, or any other security prior to the resolution of Dragon State Complaint; and the expiration of Series C and Series D warrants shall be tolled until that time as well.

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

Item 1A. Risk Factors

Not applicable to smaller reporting companies.

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

(a) Not Applicable.

(b) Not Applicable.

(c ) Not Applicable

ITEM 3. Defaults upon Senior Securities

(a) Not Applicable.

(b) Not Applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. OTHER INFORMATION

(a) Not applicable.

(b) Not applicable.

ITEM 6. EXHIBITS

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

2.1		Share Exchange Agreement dated April 22, 2010 (incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K filed on April 28, 2010)
2.2		Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K filed on May 19, 2010)
3.1		Amended Articles of Incorporation of Keyuan Petrochemicals, Inc. (f/k/a Silver Pearls, Inc.), filed with the Secretary of State of Nevada (incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-1 filed on December 29, 2010).
3.2		Articles of Merger (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on May 19, 2010)
3.3		Amended Bylaws of Keyuan Petrochemicals, Inc. dated June 29, 2010 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on July 7, 2010)
4.1		Certificate of Designation of Rights and Preferences of Series A Preferred Stock (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on April 28, 2010)
4.2		Certificate of Designation of Rights and Preferences of Series M Preferred Stock (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on April 28, 2010)
4.3		Certificate of Designation of Rights and Preference of Series B Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on September 30, 2010)
10.1 *		Translation copy of circulating Fund Loan contract by and between Ningbo Keyuan Plastics Co., Ltd and Bank of Ningbo., Baizhang Branch dated August 28, 2014
10.2 *		Translation copy of loan contract by and between Ningbo Keyuan Plastics Co., Ltd and Ping An Bank., Ning Bo Branch dated August 29, 2014
31.1 *		Certification of Chief Executive Officer required by Rule 13a-14/15d-14(a) under the Exchange Act
31.2 *		Certification of Chief Financial Officer required by Rule 13a-14/15d-14(a) under the Exchange Act
32.1 *+		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 *+		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

+ This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

SIGNATURES

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

Date: December 3, 2014	Keyuan Petrochemicals, Inc.
	By:	/s/ Chunfeng Tao
		Chunfeng Tao
		Chief Executive Officer & President
	By:	/s/ Baojun Zheng
		Baojun Zheng Acting Chief Financial Officer/Vice President of Accounting

Filing Compare · Keyuan Petrochemicals, Inc.