China Bio-Energy (PINK:CHIO)

During the Company’s fiscal years ended December 31, 2009 and December 31, 2008 and the subsequent period through the Dismissal Date: (i) there were no disagreements between the Company and Malone Bailey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures which, if not resolved to Malone Bailey’s satisfaction, would have caused Malone Bailey to make reference in connection with Malone Bailey’s opinion to the subject matter of the disagreement; and (ii) there were no reportable events as the term described in Item 304(a)(1)(iv) of Regulation S-K disclosing that, except as reported on the Company’s Current Report on Form 8-K, filed with the SEC on April 22, 2011, Malone Bailey notified the Company on March 30, 2011 that during Malone Bailey’s revenue and account receivables confirmation process, Malone Bailey discovered that Fujian Union Oil & Chemistry Ltd., allegedly one of the Company’s customers during the fiscal years of 2008, 2009 and 2010, did not conduct transactions with the Company as recorded in the Company’s books. The Company formed an independent committee and conducted a thorough investigation with respect to this matter. Based on such investigation, the committee concluded that the aforementioned transactions were entered into by the Company and a PRC resident who wrongfully presented himself as one of Union Oil’s authorized representatives and the Company recorded the related revenues as received from Union Oil based on those transactions.

On December 1, 2011, the Company provided Malone Bailey with a copy of the disclosures that the Company is making in response to Item 4.01 on this Form 8-K, and has requested that Malone Bailey furnish it with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements and, if not, stating the respects in which it does not agree. The Company intends to file such letter from Malone Bailey upon receipt via an amendment to this Current Report.

An email transmitted to the Company by Malone Bailey LLP, the Company’s independent accountant, on March 30 indicated that during Malone Bailey’s revenue and account receivables confirmation process, Malone Bailey discovered that Fujian Union Oil & Chemistry Ltd. (“Union Oil”), allegedly one of the Company’s customers during the fiscal years of 2008, 2009 and 2010, did not conduct transactions with the Company as recorded in the Company’s books. The aforementioned transactions were entered into by the Company and a PRC resident who presented himself as one of Union Oil’s authorized representatives and conducted business under the name of Union Oil. Based on those transactions, the Company recorded the related revenues. In the fiscal years of 2008, 2009 and 2010, the Company recorded sales revenues associated with “Union Oil” of approximately $0.6 million, $0.6 million, and $2.45 million respectively, which comprised approximately 7%, 4% and 8% of our annual revenues for each such fiscal year, respectively. Our Chairman of the Board, Mr. Xinfeng Nie, had been the sole contact person with this customer. As a result, Mr. Xinfeng Nie submitted to our Board of Directors on April 6, 2011 his resignation as Chairman of the Board, which was accepted by our Board on April 6, 2011 and will become effective on May 1, 2011.

On March 30, 2011, China Bio-Energy Corp. received notice from Malone Bailey, the independent auditor of the Company, that it has discovered accounting irregularities in the books and records of the Company during its annual audit process. In addition, Malone Bailey recommended to management of the Company that appropriate steps be taken by the Company to conduct an independent investigation with respect to such irregularities and the Company’s record keeping and financial reporting processes.

On February 17, 2011, the Board of Directors of China Bio-Energy, formerly known as China INSonline Corp., in connection with the Company’s recent acquisition of Ding Neng Holdings Limited (“Ding Neng Holdings”), approved the dismissal of Friedman LLP, as the Company’s independent auditor, effective as of February 17, 2011.

During the Company’s fiscal year ended June 30, 2010, Friedman’s audit reports on the Company's financial statements did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except that Friedman’s audit report on the Company’s June 30, 2010 audited consolidated financial statements contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

 Concurrent with the decision to dismiss Friedman as the Company’s independent auditor, the Board of Directors of the Company elected to continue Ding Neng Holdings’ existing relationship with Malone Bailey, LLP (“Malone”) and appointed Malone as the Company’s independent auditor on February 17, 2011.

On February 10, 2011 Ding Neng Bio-tech  became a public entity via a reverse merger transaction.

Company Snapshot:

engaged in the production, refinement and distribution of biodiesel fuel

Industry Snapshot:

• China’s biodiesel industry is still in its infancy stage and dominated by small-scale operators using animal fats or used cooking oil as feedstock. In 2007, there were more than 2,000 biodiesel production plants in China, most of which were small scale producers making between 100 to 20,000 metric tons (“MT”) per year. However, the prospect of government support is attracting larger market entrants as well as foreign investment. Compared with the ethanol sector, the biodiesel industry is largely unregulated and there is significant involvement from the private sector.

• The increase in biodiesel production in China is fueled by China’s rapid economic growth, which requires ever increasing use of transport fuel, estimated to grow at an annual rate of 5.1% through 2030. China now imports more than 50% of the oil products it consumes. The Chinese National Bureau of Statistics predicts that by 2020 it will import more than 60% of its oil. For reasons both economic and strategic, the PRC government has committed itself to increasing the supply of non-petroleum based transportation fuel in order to reduce its dependence on foreign oil. To date, ethanol has been the greatest beneficiary of this policy as it was the first mover in the Chinese biofuel industry, but ethanol competes with food supply for its feedstock, and the government has also placed a high priority on independence in food supply. As a result, the expansion of ethanol plants has been restricted. However, biodiesel has more feedstock options that do not compete with food supply (although it may compete for arable land in some places), and is often made from food refuse. Base on those characteristics, biodiesel is expected to enjoy a larger market share in the Chinese biofuel market in the near future.

• During the past decade, the Chinese government has launched a series of policy initiatives in support of the biofuel market. In 2005, the Standing Committee of the National People’s Congress passed “The Renewable Energy Law of the People’s Republic of China”. The legislation aims to “promote the development and utilization of renewable energy, improve the energy structure, diversify energy supplies, safeguard energy security, protect the environment and realize the sustainable development of the economy and society.” This legislation states that fuel retail businesses must begin to include “biological liquid fuel”, or biofuels, in their enterprises or they will be fined.

Post Merger Share Calculation:

•   1,150,000: Pre reverse merger outstanding shares (Adjusted for a 1 for 40 reverse stock split)
• 25,875,000: Newly issued shares of Common Stock

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  27,025,000

Financial Snapshot: December Year End

2009 vs. 2008

• Revenues:$15.3 million vs $9.4 million
• Net Income: $2.1 million vs. $1.2 million

Nine Months 2010 vs 2009

• Revenues: $24.4 million vs. $11.5 million
• Net Income: $6.2  million vs. $1.8 million 

Pro Forma Valuation: using current price of $2.50 and new share count

• Trailing EPS: $0.20
• Trailing P/E: 12.3

Our Growth Strategy

In the next three years, we seek to grow our business by pursuing the following strategies:

• Increase manufacturing, sales and distribution capabilities through potential acquisitions and organic growth;
• Enhance R&D efforts to improve biodiesel production technology and efficiency and to develop new biodiesel products (such as solid bio-fuel and other specialty bio-fuels);
• Continue to search for and develop alternative feedstock (such as microalgae) to enhance the availability of raw materials; and
• Strengthen relationships with key suppliers.
  

On November 12, 2010, China INSOnline Corp. entered into a Share Exchange Agreement with Ding Neng Holdings Limited, a British Virgin Islands holding company (“Ding Neng Holdings”), which owns (i) 100% of Ding Neng Bio-technology Co., Limited, a Hong Kong company, which owns (ii) 100% of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd., a foreign investment enterprise organized under the laws of the People’s Republic of China, or PRC, and which has, through various contractual agreements (VIE), management control and the rights to the profits of Fujian Zhangzhou Dingneng Bio-technology Co., Ltd., a corporation organized under the laws of the PRC, which engages in the production, refinement and distribution of bio-diesel fuel in southern China. The Share Exchange Agreement provides for an acquisition transaction  in which the Company through the issuance of shares of Common Stock representing 85% of the Common Stock issued and outstanding immediately following the closing of the Acquisition, will acquire 100% of Ding Neng Holdings. Ding Neng Holdings indirectly owns 100% of the outstanding capital stock of Fuhua, which has, through various contractual agreements (VIE), management control and the rights to the profits of Ding Neng Bio-tech and establishes Ding Neng Bio-tech as a variable interest entity, with Fuhua as the beneficiary.

In addition to the Acquisition, the Share Exchange Agreement requires that a reverse stock split precede the completion of the Acquisition. The reverse stock split is primarily because the NASDAQ Stock Market has indicated that based on the Company’s lack of business operations, it is categorized as a “public shell.” Based on this status, the post-acquisition entity must meet the initial listing requirements of the NASDAQ Capital Market which requires a minimum bid price of $4.00 per share. To assist the post-acquisition entity in meeting this minimum bid requirement, the Company will effect a reverse stock split of a ratio between 1:20 and 1:40 prior to the consummation of the Acquisition.

Dingneng Bio-Technology Co. Ltd. (“Dingneng”) has retained Maxim Group (“Maxim”), a New York based investment banking, securities and investment management firm to represent Dingneng in the previously announced transaction to acquire common shares of CHIO through merger, direct exchange or any other form in one or a series of mutually agreed upon transactions. CHIO is currently working closely with Maxim and other professionals to proceed forward on such proposed transaction.

During the quarter ended June 30, 2010, the Company began winding down its operations. During the fourth quarter ended June 30, 2010, the Company did not have any operating income. The weak economic market, which resulted in a significant decline in revenues of all areas of the Company’s business, led to the Company’s decision to wind down its operations. Thus, the Company currently has no business operations and is considered a shell company. Management is currently looking to either sell shares of the Company to a third party through a reverse acquisition or complete a business combination or other similar transaction.