China GengSheng Minerals, Inc.: Form 10-K - Filed by newsfilecorp.com

December 31, 2013

December 31, 2012

Balance sheets

Statements of operations and comprehensive income (loss)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2013

[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to _______

CHINA GENGSHENG MINERALS, INC.
(Exact name of small business issuer as specified in its charter)

No. 88 Gengsheng Road
Dayugou Town, Gongyi, Henan
People’s Republic of China, 451271
(Address of Principal Executive Offices and Zip Code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]

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

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

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 28, 2013, was approximately $1,562,125 based on $0.135, the price at which the registrant’s common stock was last sold on that date.

There were a total of 26,803,044 shares of the registrant’s common stock outstanding as of April 14, 2014.

The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains forward-looking statements. Unless the context requires otherwise, references to “we”, “us”, “our”, “the Registrant”, or the “Company” refer to China GengSheng Minerals, Inc. and its subsidiaries. The words or phrases “would be,” “will allow,” “expect to,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” or similar expressions are intended to identify forward-looking statements. Such statements include those concerning our expected financial performance, our corporate strategy and operational plans. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including: (a) those risks and uncertainties related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether we are able to manage our planned growth efficiently and operate profitable operations, including whether our management will be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for cash which are explained below under “Liquidity and Capital Resources.” Such risks and uncertainties also include the risks noted under “Item 1A Risk Factors”. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

We are a Nevada holding company operating in the materials technology industry through our subsidiaries in China. We develop, manufacture and sell a broad range of mineral-based, heat-resistant products capable of withstanding high temperatures, saving energy and boosting productivity in industries such as steel and oil. Our products include refractory products, industrial ceramics, fracture proppants and fine precision abrasives.

Currently, we conduct our operations in China through our wholly owned subsidiaries, Henan GengSheng Refractories Co., Ltd. (“Refractories”), Zhengzhou Duesail Fracture Proppant Co., Ltd. (“Duesail”), Henan GengSheng Micronized Powder Materials Co., Ltd. (“Micronized”), Guizhou Southeast Prefecture GengSheng New Materials Co., Ltd. (“Prefecture”) and Henan Yuxing Proppant Co., Ltd., (“Yuxing”) , and through our majority owned subsidiary, Henan GengSheng High-Temperature Materials Co., Ltd. (“High-Temperature”). Through our wholly owned BVI subsidiary, GengSheng International, and its wholly owned Chinese subsidiary, Refractories, which has an annual production capacity of approximately 127,000 tons, we manufacture refractory products. We manufacture fracture proppant products through Duesail, which has an annual production capacity of approximately 66,000 tons, and Yuxing, which has designed annual production capacity of approximately 60,000 tons. We manufacture fine precision abrasives products through Micronized, which has designed annual production capacity of approximately 22,000 tons. Through our majority owned subsidiary, High-Temperature, which has an annual production capacity of approximately 150,000 units, we manufacture industrial and functional ceramic products.

We sell our products to over 300 customers in the iron, steel, oil, glass, cement, aluminum, chemical and solar industries located in China and other countries in Asia and Europe. Our refractory customers are companies in the steel, iron, petroleum, chemical, coal, glass and mining industries. Our fracture proppant products are sold to oil and gas companies. Our industrial ceramics are used in the utilities and petrochemical industries. Our fine precision abrasives are marketed to solar companies and optical equipment manufacturers. Our largest customers, measured by percentage of our revenue, mainly operate in the steel industry and oil industry. Currently, most of our revenues are derived from the sale of our monolithic refractory products and fracture proppants products to customers in China.

Our principal executive offices are located at No. 88 Gengsheng Road, Dayugou Town, Gongyi, Henan, People’s Republic of China 451271 and our telephone number is (86) 371-6405-9863.

We are required to file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at http://www.sec.gov, from which interested persons can electronically access our SEC filings.

We make available free of charge through our internet site http://www.gengsheng.com our annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; proxy statements, if any, Forms 3, 4 and 5 filed by or on behalf of directors, executive officers and certain large stockholders; and any amendments to those documents filed or furnished pursuant to the Exchange Act. These filings will become available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

In addition, the following information is available on the Investor Relations page of our website: (i) Corporate Governance and (ii) Quarterly Results. These documents will also be available in print without charge to any person who requests them by writing or telephoning our principal executive offices: China GengSheng Minerals, Inc. No. 88 Gengsheng Road, Dayugou Town, Gongyi, Henan, 451271, P.R. China, Tel:(86) 371-6405-9863, Fax:(86) 371-6405-9846. The information posted on our website is not incorporated into this annual report on Form 10-K.

We conduct our operations in China through our wholly owned subsidiaries Refractories, Duesail, Yuxing, Micronized and Prefecture and through our majority owned subsidiary, High-Temperature.

The following chart reflects our organizational structure as of the date of this report.

We were originally incorporated under the laws of the State of Washington, on November 13, 1947, under the name Silver Mountain Mining Company. From our inception until 2001, we operated various unpatented mining claims and deeded mineral rights in the State of Washington, but we abandoned these operations entirely by 2001. On August 15, 2006, we changed our domicile from Washington to Nevada when we merged with and into Point Acquisition Corporation, a Nevada corporation. From about 2001 until our reverse acquisition of Powersmart on April 25, 2007, which is discussed in the next section entitled "Acquisition of Powersmart and Related Financing", we were a blank check company and had no active business operations. On June 11, 2007, we changed our corporate name from "Point Acquisition Corporation" to "China Minerals Technologies, Inc." and subsequently changed our name again to "China GengSheng Minerals, Inc." on July 26, 2007.

On April 25, 2007, we completed a reverse acquisition transaction through a share exchange with GengSheng International Corporation (formerly, Powersmart Holdings Limited) whereby we issued to the sole shareholder of Powersmart Holdings Limited, Shunqing Zhang, 16,887,815 shares of China GengSheng Minerals common stock, in exchange for all of the issued and outstanding capital stock of Powersmart. By this transaction, Powersmart became our wholly owned subsidiary and Mr. Zhang became our controlling stockholder.

On April 25, 2007, we also completed a private placement financing transaction pursuant to which we issued and sold 5,347,594 shares of our common stock to certain accredited investors for $10 million in gross proceeds.

On January 4, 2011, the Company and certain institutional investors entered into a securities purchase agreement pursuant to which the Company sold to such investors an aggregate of 2,500,000 shares of common stock at a price of $4.00 per share for aggregate gross proceeds to the Company of $10,000,000. The shares of common stock were issued pursuant to a prospectus supplement dated as of January 10, 2011, which was filed with the Securities and Exchange Commission in connection with a takedown from the Company’s shelf registration statement on Form S-3 (File No. 333-165486), which became effective on April 28, 2010, and the base prospectus dated as of April 28, 2010 contained in such registration statement.

Our operating segments are functioned by our manufacturing facilities and include four reportable segments: refractories, industrial ceramics, fracture proppants and fine precision abrasives.

For financial information relating to our business segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 21 to the consolidated financial statements appearing elsewhere in this annual report. For a discussion of the risks attendant to our foreign operations and of any dependence on one or more of the Company’s segments upon such foreign operations, please see Item 1A, “Risk Factors”.

The following table set forth sales information about our product mix in each of the last three years.

Our largest product segment is the refractories segment, which accounted for approximately 54.4% of total revenue in 2013. Our refractory products have high-temperature resistance and can function under thermal stress that is common in many heavy industrial production environments. Because of their unique high-temperature resistant qualities, the refractory products are used as linings and key components in many industrial furnaces, such as steel production furnaces, ladles, vessels, and other high-temperature processing machines that must operate at high temperatures for a long period of time without interruption. The majority of our customers are in the iron, steel, cement, chemical, coal, glass, petro-chemical and nonferrous industries.

We provide a customized solution for each order of our monolithic refractory materials based on customer-specific formulas. Upon delivery to customers, the monolithic materials are applied to the inner surfaces of our customers’ furnaces, ladles or other vessels to improve the productivity of that equipment. The product benefits our customers as it lowers the overall cost of production and improves financial performance. The reasons that the monolithic materials can help our customers improve productivity, lower production costs and achieve stronger financial performance include the following: (i) monolithic refractory castables can be cast into complex shapes which are unavailable or difficult to achieve by alternative products such as shaped bricks; (ii) monolithic refractory linings can be repaired, and in some cases, even reinstalled, without furnace cool-down periods or steel-production interruptions, and therefore improve the steel makers’ productivity; (iii) monolithic refractories can form an integral surface without joints, enhancing resistance to penetration, impact and erosion, and thereby improving the equipment’s operational safety and extending their useful service lives; (iv) monolithic refractories can be installed by specialty equipment either automatically or manually, thus saving construction and maintenance time as well as costs; and (v) monolithic refractories can be customized to specific requirements by adjusting individual formulas without the need to change batches of shaped bricks, which is a costly procedure. Our refractory products and their features are described as follows:

We also have a production line for pressed bricks, which is a type of “shaped” refractory, for steel production. The annual designed production capacity of our shaped refractory products is approximately 15,000 metric tons.

Finally, we provide a full-service option to our steel customers, which include refractory product installation, testing, maintenance, repair and replacement. Refractory products sales are often enhanced by our on-site installation and technical support personnel. Our installation services include applying refractory materials to the walls of steel-making furnaces and other high temperature vessels to maintain and extend their lives. Our technical service staff assure that our customers can achieve their desired productivity objectives. They also measure the refractory wear at our customer sites to improve the quality of maintenance and overall performance of our customers’ equipment. Full-service customers contributed approximately 29.6% of the Company’s total sales in 2013, compared with 28.9% in 2012. We believe that these services, together with our refractory products, provide us a strategic advantage for profits.

Industrial Ceramics accounted for approximately 1.8% of the total revenue in 2013. Our industrial ceramic products, including abrasive balls and tiles, valves, electronic ceramics and structural ceramics, are components for a variety of end products such as fuses, vacuum interrupters, electrical components, mud slurry pumps, and high-pressure pumps. Such end use products are used in the electric power, electronic component, industrial pump, and metallurgy industries.

Fracture Proppants accounted for approximately 37.4% of the total revenue in 2013. Our fracture proppant products are very fine ball-like pellets, used to reach pockets of oil and natural gas deposits that are trapped in the fractures under the ground. Oil drillers inject the pellets into those fractures, squeezing out the trapped oil or natural gas, which leads to higher yield. Our fracture proppant products are available in several different particle sizes (measured in millimeters). They are typically used to extract crude oil and natural gas, which increases the productivity of crude oil and natural gas wells. These products are highly resistant to pressure. In October 2007, our fracture proppant products were recognized by China National Petroleum Corporation (the “CNPC”), China Petroleum & Chemical Corporation (the “Sinopec”) and the China National Offshore Oil Corporation (the “CNOOC”) as their supplier of fracture proppant products for their oil and gas-drilling operation.

Fine Precision Abrasives accounted for 6.4% of our total revenue in 2013. Fine precision abrasives are used for producing a super-fine, super-consistent finish on certain products. A high-strength polyester backing provides a uniform base for a coating of micron-graded mineral particles that are uniformly dispersed for greater finishing efficiency. Our fine precision abrasives are made from silicon carbide (“SiC”). They are ultra-fine, high-strength pellets with uniform shape, and are used for surface-polishing and slicing of precision instruments such as solar panels. Currently, the type of abrasives that we produce is in high demand among solar-energy companies. Solar energy companies use fine precision abrasives to cut silicon bars and to polish equipment surfaces so that they can be smooth and reflective. Our products can be utilized in a broad range of areas including machinery manufacturing, electronics, optical glass, architecture, industry development, semiconductor, silicon chip, plastic and lens.

With over 1,500 manufacturers in China, the refractory market in which we compete is highly fragmented and highly competitive. In each of our product segments, there is at least one major competitor. Many of our products are made to industry specifications and may be interchangeable with our competitors’ products. Some of our competitors are large and well-established companies, such as Puyang Refractories Co., Ltd., Wuhan Ruisheng Specialty Refractory Materials Co., Ltd., and Beijing Lirr Refractories Co., Ltd., and their financial resources and ability to gain market share may be greater than ours, which limits our pricing power in the market. Due to the diversity of our product offering, we believe that we still enjoy a competitive advantage as many of our competitors do not offer the entire spectrum of our product line.

Through our wholly-owned Chinese subsidiaries Refractories and High-Temperature, we manufacture refractory products and industrial ceramic products in China. We believe that we are well positioned to compete in the refractories segment and the industrial ceramics segment, because of our long-standing business relationships with major steel companies, the quality and diversity of our products and our competitive price.

We have distinguished ourselves through our customer service team that provides a full range of refractory services, including refractory construction, on-site maintenance and technical support. Our national registered laboratory with high-quality research team meets our customer’s diverse product requirements in a timely manner based on the differences of construction sites. Our products compete on efficient operations, price differential and our quality of service.

Most of our large customers, measured by percentage of our revenue, operate in the steel industry. The steel industry is characterized by intense price competition, which results in continuing emphasis on our need to increase product productivity and performance. Our strategy has been to fulfill the steel industry’s need by developing technologically advanced refractory products to help our customers increase their productivity. We believe that the trend towards greater productivity in the highly competitive steel industry will continue to provide a growing opportunity for our products, especially monolithic refractories.

We first started production of fracture proppant products in December 2006, through our wholly-owned BVI subsidiary, GengSheng International, and its wholly-owned Chinese subsidiary, Duesail. Our products have passed the testing conducted by China Petroleum and Chemical Industry Association (the “CPCIA”), which strengthens our competitiveness in the market compared to our competitors. We were recognized as their fracture proppant supplier by China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec) and China National Offshore Oil Corp. (CNOOC), who monopolize the oil and gas drilling business in China, and we are the signed provider for China National Offshore Oil Corp. (CNOOC). Our main competitors for the production of fracture proppants are Carbo Ceramics Inc. and Saint-Gobain Proppants (Guanghan) Co., Ltd, while these two companies are both subsidiaries of international magnates, which focus on international sales.

Our fine precision abrasives facility is designed to have a production capacity of 22,000 tons per year. Our products can be used in wire slicing of solar ingots for solar cell makers to make wafers and polishing surface of solar panels or high-precision instruments. Our main competitors are two Japanese companies, namely Nanxing and FUJIMI, which currently have the largest share of the fine precision abrasives market in China.

We have over 300 customers in 25 provinces in China, as well as in greater Asia and Europe. Our customers include some of the largest steel and iron producers and petroleum & chemical producers in China. During 2013, sales to one of our customers, PetroChina Changqing Oil Field (“Changqing”) represented 10% or more of our consolidated sales. Our sales to Changqing amounted to approximately $11.1 million or 18.2% of our revenue. During 2012, sales to two of our customers, Jilin Petroleum Group Company Ltd. (“Jilin”) and Shandong Steel Co., Ltd, Rizhao Subsidiary (“Rizhao”) represented 10% or more of our consolidated sales. Our sales to Jilin amounted to $9.0 million or 12.3% of our revenue and sales to Rizhao amounted to $8.6 million or 11.7% of our revenue. During 2011, sales to Shanghai Jolly Trading Co., Ltd. (“Jolly”) and Rizhao represented 10% or more of our consolidated sales. Our sales to Jolly amounted to $10.9 million or 14.1% of our revenue and sales to Rizhao amounted to $8.5 million or 11.1% of our revenue.

Our top ten customers among our segmental lines for the years ended December 31, 2011, 2012 and 2013, which are listed below, accounted for approximately 63.9%, 57.0% and 63.2% of our consolidated revenues, respectively.

The principal raw materials used in our refractory products and fracture proppants products are various forms of aluminum oxide, including bauxite, corundum, processed AI203, magnesia, calcium aluminates cement, resin, and silica. Bauxite is used in the production of refractory materials, fracture proppants products and some industrial ceramic products. Bauxite is abundantly available from mines close to our manufacturing facilities. We purchase a significant portion of our magnesia requirements from sources in Liaoning Province. If we experience supply interruptions of our raw materials, we believe that we could still obtain adequate supplies from alternate sources in local areas or elsewhere in China. However, we may incur higher costs related to transportation and storage.

The average costs of some of our raw materials from 2012 to 2013 are as follows:

The average costs of some of our raw materials from 2011 to 2012 are as follows:

We typically have supply agreements with terms of one to two years that do not impose minimum purchase requirements. The cost of raw materials purchased during the term of a supply agreement usually is the market price for the raw materials at the time of purchase. Our centralized procurement system helps to reduce raw material costs. We generally are not engaged in speculative raw material commodity contracts and attempt to reflect raw material price changes in the sale price of our products. Our ability to achieve anticipated operating results depends in part on having an adequate supply of raw materials for our manufacturing operations. Because of our strategy to maintain multiple suppliers for each material we source, we do not particularly rely on one single supplier.

Our sales and marketing group is comprised of over 100 employees who focus on managing specific product lines across several distribution channels. Our marketing process involves an integrated process of sales leads screening, bidding and negotiating and executing definitive sales agreements.

To maximize the accessibility of our products to a diverse group of end users, we market our products through a variety of distribution channels. We have separate sales and marketing groups that work directly with our customers in each of our target market. Marketing and sales are accomplished through the mailing of brochures, industry trade advertising, trade show exhibitions, online sales and sales presentations.

Because our operations are based in China, we are regulated by the national and local laws of the People’s Republic of China. The refractory materials industry is generally subject to national, local laws and regulations related to the environment, health, and safety. The manufacturing of refractory materials involves the release of powder and dust which are classified as environmental pollutants under applicable government laws and regulations. We regularly monitor and review our operations, procedures, and policies for compliance with these laws and regulations. We have made substantial capital investments in our facilities to ensure compliance with environmental and regulatory laws. We believe that our operations are in substantial compliance with the laws and regulations and that there are no violations that would have a material effect on us. The cost of compliance with these laws and regulations is not expected to have a large financial impact on us.

In addition, we are also subject to PRC’s foreign currency regulations. The PRC government has control over Renminbi reserves through, among other things, direct regulation of the conversion of Renminbi into other foreign currencies. Although foreign currencies which are required for “current account” transactions can be bought freely at authorized Chinese banks, the proper procedural requirements prescribed by Chinese law must be met. At the same time, Chinese companies are also required to sell their foreign exchange earnings to authorized Chinese banks and the purchase of foreign currencies for capital account transactions still requires prior approval of the Chinese government.

We do not face any significant government regulation in connection with the production of our products. We do not need any special government permits to produce our products other than those permits that are required of all corporations in China.

While we consider our patents and trademarks valuable assets, we do not consider any single patent or trademark to be of such material importance that its absence would harm or cause a material disruption of our business. We also consider the production of our refractories to involve proprietary know-how, and we adjust and test the specific composition formulas to ensure optimal product performance.

We currently own 113 Chinese patents which are approved by and registered with the China State Intellectual Property Office. The following table lists part of our important patents:

Patent Name	Patent Number	Application Date	Patent Term	Country
Integral casting technology in mixer furnaces	ZL00137106.1	December 29, 2000	20 years	PRC
Light-slag heat-retaining refractory castables in high-furnaces clinders	ZL200510107341.X	December 27, 2005	20 years	PRC
Ceramic sealing double-gate valve	ZL200520029858.7	January 24, 2005	10 years	PRC
Ceramic plunger in pumps	ZL200520029859.1	January 24, 2005	10 years	PRC
Ceramic cylinder in slurry pumps	ZL200820148214.3	July 25, 2008	10 years	PRC
Ceramic plunger pump	ZL200820148089.6	July 21, 2008	10 years	PRC
Ceramic lining in abrasion-resistance tubes	ZL20082014090.9	July 21, 2008	10 years	PRC

In addition, we have nine pending patent applications with the China State Intellectual Property Office.

We also own the following registered trademark associated with the brand “GengSheng” that were issued by the State Industrial and Commercial Administration Bureau of the PRC.

We believe that the development of new products and new technology is critical to our success. We are continuously working to improve the quality, efficiency and cost-effectiveness of our existing products and develop technology to expand the range of specifications of our products.

We have spent $1,394,331, $923,403 and $699,367 on Company-sponsored research and development activities in fiscal years of 2013, 2012 and 2011, respectively. The expenses on research and development include salary, cost of raw material consumed, testing expenses and other costs incurred for research and development of potential new products. We do not have any customer-sponsored research and development activities.

As of April 14, 2014, we had approximately 1,200 full time employees, all of whom are salaried employees and members of a labor union. Approximately 4% of our employees hold a bachelor’s degree, and approximately 1% of our employees hold a master’s degree. We actively recruit our employees from the local market and expect to focus our recruiting efforts on candidates holding bachelor degree in material science, refractory materials and marketing as we implement our expansion plans. We have implemented a comprehensive training program for our employees that focus not only on skills and knowledge for their specific duties, but also on our corporate culture and core values.

Our employees participate in a mandated state pension scheme and social insurance programs managed by Chinese municipal and provincial governments which cover pensions, unemployment and injury insurance. We are required to contribute to the scheme at a rate of 28% of the average monthly salary for employee pensions, 3% of the average monthly salary for the state unemployment fund and 1% of the average monthly salary for injury insurance. Our compensation expenses related to this scheme were $578,770, $522,336 and $466,371 for the years ended December 31, 2013, 2012 and 2011, respectively.

Our Chinese subsidiaries have labor unions which protect employees’ rights, assist in the fulfillment of our economic objectives, encourage employee participation in management decisions and assist in mediating disputes between us and union members. We believe that we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

China enacted a new Labor Contract Law, which became effective on January 1, 2008. We have updated our employment contracts and employee handbook and been in compliance with the new law. We will work with the employees and the labor union to ensure that the employees obtain the full benefit of the law. We do not anticipate that changes in the law will materially impact our financial results.

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

The slow recovery from the global economic crisis could affect the overall availability and cost of external financing for our operation.

The slow recovery of the global financial markets from the global economic crisis and turmoil may adversely impact our business, the business and financial condition of our customers and the business of potential investors from whom we expect to generate our potential sources of capital financing. Presently it is unclear to what extent the economic stimulus measures and other actions taken or contemplated by the Chinese governments and other governments throughout the world will mitigate the effects of the negative impact caused by the economic turmoil on our industry and other industries that affect our business. Although these conditions have not presently impaired our ability to access credit markets and finance our operations, the impact of the current crisis on our ability to obtain capital financing in the future, and the cost and terms of same, is unclear.

A downturn or negative changes in the highly volatile steel and iron industry will harm our business and profitability.

The iron and steel industries accounted for approximately 70% of the consumption in the Chinese refractory industry according to the industry association statistics. Because our largest customers are in the steel industry, our business performance is closely tied to the performance of the steel industry. The sector as a whole is cyclical and its profitability can be volatile as a result of general economic conditions, labor costs, competition, import duties, tariffs and currency exchange rates. These macroeconomic factors have historically resulted in wide fluctuations in Chinese and global economies in which steel companies sell their products. In our case, future economic downturns, stagnant economies or currency fluctuations in China or globally could decrease the demand for steel products both in China and overseas and, in turn, could negatively impact our sales, margins and profits.

Industry growth rate for refractory products may decelerate and may affect our future revenue growth.

In China, the production of refractory materials has experienced fast growth in recent years driven largely by growth in China’s steel production. China has become the largest country for producing and consuming refractories, a majority of which were demanded by companies in the steel industry. Our industry’s growth has been primarily driven by the growth in the Chinese steel industry. According to figures provided by World Steel Association, Chinese steel output grew from an annual output of 157 million tons in 2001 to approximately 779 million tons in 2013, representing a compounded annual growth rate of 14.3% . Going forward, however, the forecast provided by the China International Capital Corporation suggests that the annual output of steel in China will not maintain this growth rate.

If the steel industry experiences such a slowdown, our growth prospects will likewise be curtailed. Additionally, the market for monolithic refractories in China is still in the developmental stage, and successful market penetration of the monolithic refractories depends heavily on two factors. First, successful market penetration depends on technological progress that results in products that provide better performance for our customers, new varieties of products that meet our customer’s future requirements, and more efficient and effective installation and maintenance methods. Second, successful market penetration also depends on our marketing strategy and our ability to execute that strategy while maintaining a high quality of service to our customers. Our future revenue growth without acquisitions may maintain, but nevertheless, we may not match our past growth rate.

Our inability to overcome fierce competition in the highly fragmented and highly competitive Chinese refractory market could reduce our revenue and net income.

The refractory market in China is highly fragmented with over 1,500 producers of refractory products, according to the Chairman of the Association of China Refractory Industry. Our competitors manufacture products that are similar to and directly compete with the products that we manufacture and market. We compete with many other refractory manufacturers in China, on a region-by-region basis, and with international competitors on a world-wide basis. Our main competitors are located in China and include Puyang Punai High-temperature Materials Co., Ltd., Wuhan Ruisheng Specialty Refractory Materials Co., Ltd., Beijing Lirr Refractories Co., Ltd. and others. Currently, our primary international competitor is Mineral Technologies, Inc. in the United States.

As a regional market leader in the monolithic refractory marketplace in China, we can buy raw materials in large quantities allowing us to negotiate volume discount that results in lower price than what is offered to our smaller competitors. As our smaller competitors consolidate and grow larger, they may be able to negotiate similar volume discount from raw material suppliers. Under such scenario, any cost advantage that we currently enjoy may be reduced or eliminated altogether. Although our smaller competitors may pay higher materials costs relative to our material costs, their operating and administrative costs may be lower than ours, which may allow our competitors to offer very competitive prices for their products and services. Their competitive prices may force us to lower our prices, and to sell products and services at a loss in order to maintain our market share. Currently, we have a policy for setting a pricing floor so that we do not sell products at a loss; however, we cannot assure that we can maintain this policy indefinitely. Thus, increased competition in our industry could reduce our revenue and net income.

Any decrease in the availability, or increase in the cost of raw materials and energy could materially increase our costs and jeopardize our current profit margins and profitability.

The principal raw materials used in our refractory products are several forms of the minerals SiO₂, Al₂0₃, and MgO, including bauxite, mullite, corundum, processed Al203, Spinel, magnesia, calcium aluminates cement, and silica. We use bauxite primarily in the production of refractory materials, fracture proppants and some industrial ceramic products. The availability of these raw materials and energy resources may decrease and their prices can become volatile as a result of, among other things, changes in overall supply and demand levels and new laws or regulations. Our ability to achieve our sales target depends on our ability to maintain what we believe to be adequate inventories of raw materials to meet reasonably anticipated orders from our customers. In 2013, raw material costs accounted for approximately 63.9% of the production cost for refractory products, approximately 39.3% for fracture proppant products, approximately 55.0% for industrial ceramics products and 78.0% for micropowder products.

Our production facilities are located in Gongyi, Henan Province, where there is currently abundant reserve of bauxite and corundum for refractory manufacturing. Although our proximity to bauxite allows us to benefit from a relatively short delivery time and lower shipping costs, we may experience supply shortages or price increases or both due to sharp increases in overall industry demand for bauxite. Besides purchasing bauxite from local suppliers, we also purchase bauxite, mullite, magnesia, calcium aluminates cement and other raw materials from suppliers in Shanxi Province, Shandong Province, Liaoning Province and Gansu Province. All of these locations are outside of Henan Province and any increase in shipping costs will increase our cost of raw materials from these sources and will decrease our revenues and profitability.

Further, if our existing suppliers are unable or unwilling to deliver raw materials needed on time to meet our production schedules, we may be unable to produce certain products, which could result in a decrease in revenues and profitability, a loss of goodwill with our customers, and could damage our reputation as a reliable supplier in our industry. In the event that our raw material and energy costs increase, we may not be able to pass these higher costs on to our customers in full or at all due to contractual agreements or pricing pressures in the refractory market. Any increase in the prices for raw materials or energy resources could materially increase our costs and therefore lower our earnings and profitability.

Actions by the Chinese government could drive up our material costs and could have a negative impact on our profitability.

In past years, the Chinese government has shut down some outdated mineral mines in China. These shutdowns have decreased the overall supply of raw materials needed to produce refractory products. As a result, the materials costs for our products have increased. If the Chinese government shuts down more mineral mines, we could experience further supply shortages and price increases that could have a negative impact on our profitability.

We may experience fluctuation of profit performance and our future profitability is not assured.

As we are facing fierce competition and the cost of our raw materials and energy keep rising, we have experienced significant pressure in the refractories segment of our business, our largest product segment which accounted for approximately 54.4% of total revenue in 2013. We may experience fluctuation of profit performance and our profitability is not assured.

Specific factors that may undermine our financial objectives include, among others:

Taken together, these factors limit our ability to predict future profitability levels and to achieve our long-term profitability objectives. While some of these factors may diminish over time as we improve our cost structure and focus on enhancing our product mix, several factors, such as continuous pricing pressure, increasing competition, rising costs of raw materials and energy, are likely to remain endemic to our businesses. If we fail to achieve profitability expectations, our business and financial condition may be materially adversely impacted.

We may not be able to implement our business plan because we may be unable to fund the substantial ongoing capital and maintenance expenditures needed for our operations and to invest in new projects at the same time.

Our operations are capital intensive and the nature of our business and our business strategy need substantial additional working capital investment. We need capital to build new production lines, acquire new equipment, maintain the condition of our existing equipment, maintain compliance with environmental laws and regulations, and to pursue new market opportunities. We may not be able to fund our capital expenditures from operating cash flow and from the proceeds of borrowings available for capital expenditures under our credit facilities, and we may need additional debt or equity financing. We cannot assure that this type of financing will be available or, if available, it may result in increased interest expenses, increased leverage and decreased income available to fund further expansion. In addition, future debt financings may limit our ability to withstand competitive pressures and render us more vulnerable to economic downtowns. If we are unable to fund our capital requirements, we may be unable to implement our business plan and our financial performance may be adversely impacted.

Approximately 63.2% of our sales revenues were derived from our ten largest customers, and any reduction in revenues from any of these customers would reduce our revenues and net income.

While we have over 300 active customers, approximately 63.2% of our sales revenue came from our top ten customers in 2013, with Changqing accounting for 18.2% of our sales revenue in the same period. If we cease to do business at or above current levels with Changqing or any one of our other largest customers which contribute significantly to our sales revenues, and we are unable to generate additional sales revenues with new and existing customers that purchase a similar amount of our products, then our revenues and net income would decline considerably.

A significant interruption or casualty loss at any of our facilities could increase our production costs and reduce our sales and earnings.

Our manufacturing process requires large industrial facilities for crushing, smashing, batching, molding and baking raw materials. After the refractory products come off the production line, we need additional facilities to inspect, package, and store the finished goods. Our facilities may experience interruptions or major accidents and may be subject to unplanned events such as explosions, fires, inclement weather, acts of God, terrorism, accidents and transportation interruptions. Any shutdown or interruption of any facility would reduce the output from that facility, which could substantially impair our ability to meet sales targets. Interruptions in production capabilities will inevitably increase production costs and reduce our sales and earnings. In addition to the revenue losses, longer-term business disruption could result in the loss of goodwill with our customers. To the extent these events are not covered by insurance, our revenues, margins and cash flows may be adversely impacted by events of this type.

Environmental regulations impose substantial costs and limitations on our operations.

Our products are not considered environmentally hazardous materials, however, the powder and dust produced during our production process is considered hazardous to the environment. We have environmental liability risks and limitations on operations brought about by the requirements of environmental laws and regulations. We are subject to various national and local environmental laws and regulations concerning issues such as air emissions, waste water discharges, and solid and hazardous waste management and disposal. These laws and regulations are becoming increasingly stringent. While we believe that our facilities are in material compliance with all applicable environmental laws and regulations, the risks of substantial unanticipated costs and liabilities related to compliance with these laws and regulations are an inherent part of our business. It is possible that future conditions may develop, arise or be discovered that create new environmental compliance or remediation liabilities and costs. While we believe that we can comply with environmental legislation and regulatory requirements and that the costs of compliance have been included within budgeted cost estimates, compliance may prove to be more costly than anticipated.

Climate change as a result of emissions of greenhouse gases is a significant topic of discussion. It is impracticable to predict with any certainty the impact of climate change on our business or the regulatory responses to it, although we recognize that they could be significant. The most direct impact is likely to be an increase in energy costs, which would increase our operating costs, primarily through increased utility and transportations costs. In addition, many of our customers operate in the manufacturing industry. Any restrictions or penalties imposed under a cap and trade system might significantly impact their operations, which in turn, would adversely affect their demand for our products. However, it is too soon for us to predict with any certainty the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses.

If our customers and/or the ultimate consumers of products which use our products successfully assert product liability claims against us due to defects in our products, our operating results may suffer and our reputation may be harmed.

Our products are widely used as protective linings in industrial furnaces operating in highly hazardous environments because those furnaces must operate under extremely high temperatures in order to produce iron, steel and other industrial products. Significant property damage, personal injuries and even death can result from the malfunctioning of high temperature furnaces as a result of defects in our refractory products. The costs and resources needed to defend product liability claims could be substantial. We could be responsible for paying some or all of the damages if found liable. We do not have product liability insurance. The publicity surrounding these sorts of claims is also likely damage our reputation, regardless of whether such claims are successful. Any of these consequences resulting from defects in our products would hurt our operating results and stockholder value.

If we are not able to adequately secure and protect our patent, trademark and other proprietary rights our business may be materially affected.

We hold 113 patents related to our production and some of these patents are key technology widely used in our process to improve the efficiency of production. We also rely on non-disclosure agreements and other confidentiality procedures to protect our intellectual property rights in various jurisdictions. These technologies are very important to our business and it may be possible for unauthorized third parties to copy or reverse engineer our products, or otherwise obtain and use information that we regard as proprietary. Furthermore, third parties could challenge the scope or enforceability of our patents. In certain foreign countries, including China where we operate, the laws do not protect our proprietary rights to the same extent as the laws of the United States. Decided court cases in China’s civil law system do not have binding legal effect on future decisions and even where adequate law exists in China, enforcement based on existing law may be uncertain and sporadic and it may be difficult to obtain enforcement of a judgment by a court of another jurisdiction. In addition, the relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation, and interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Any misappropriation of our intellectual property could have a material adverse effect on our business and results of operations, and we cannot assure that the measures we take to protect our proprietary rights are adequate.

Expansion of our business may place a significant strain on our management and operational infrastructure and impede our ability to meet any increased demand for our products.

Our business plan is to significantly grow our operations by meeting the anticipated growth in demand for existing products and by introducing new product offerings. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. Our business growth also presents numerous risks and challenges, including:

To accommodate the growth and compete effectively, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage existing and additional employees. Funding may not be available in a sufficient amount or on favorable terms, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.

Improvements in the quality and lifespan of refractory products may decrease product turnover and our sales revenues.

Technological and manufacturing improvements have made refractory products more durable and more efficient. While making products more durable and more efficient is generally a positive development, the increased quality and durability of refractory products could lead to declining consumption and turnover of refractory products. With the growth rate in the steel industry decelerating and with the consumption rate of refractory products per metric ton of steel produced decreasing, the refractory industry’s future growth rate may decelerate. We can increase our prices to offset the decrease in product consumption, but we cannot assure that price increases will be acceptable to our customers.

Our new products are complex and may contain defects that are detected only after their release to our customers, which may cause us to incur significant unexpected expenses and lost sales.

Our products are highly complex and must operate at high temperatures for a long period of time. Although our new products are tested prior to release, they can only be fully tested when they are used by our customers. Consequently, our customers may discover defects after new products have been released. Although we have test procedures and quality control standards in place designed to minimize the number of defects in our products, we cannot guarantee that our new products will be completely free of defects when released. If we are unable to quickly and successfully correct the defects identified after their release, we could experience significant costs associated with compensating our customers for damages caused by our products, costs associated with correcting the defects, costs associated with design modifications, and costs associated with service or warranty claims or both. Additionally, we could lose customers, lose market share and suffer damage to our reputation.

We have no direct business operations, other than our ownership of our subsidiaries. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.

Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after-tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.

We completed our new fine precisions abrasives production facility in 2009 and we have earned revenue in 2012 and 2013 but we cannot guarantee that we will earn the estimated revenues in the future or that it ultimately will be profitable.

We initiated the construction of our fine precisions abrasives production facility in 2008 and completed it in 2009. We entered into trial production in July 2009 and initiated sales in August 2010. In 2013, the Company sold approximately 1,702 tons of abrasives. However, we cannot guarantee that we will continue to earn revenue or that the business will be profitable.

We may incur significant costs to ensure compliance with United States corporate governance and accounting requirements.

We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected and investor confidence and the market price of our common stock may be adversely impacted.

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting. Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including our Chairman, Chief Executive Officer and President, Shunqing Zhang, our Interim Chief Financial Officer, Weina Zhang, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2013. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

However, a control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. In addition, we cannot be certain that material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

Chinese corporate income tax law could adversely affect our business and our net income.

China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementation regulations, both of which became effective on January 1, 2008. Under the New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the New EIT Law and its implementation with respect to non-Chinese enterprises or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be generally subject to the uniform 25% enterprise income tax rate as to its worldwide income. Although the Notice is directly applicable to enterprises registered in an offshore jurisdiction and controlled by Chinese domestic enterprises or groups, it is uncertain whether the PRC tax authorities will make reference to the Notice when determining the resident status of other offshore companies, such as China GengSheng Minerals, Inc., Gengsheng International Corporation and Smarthigh Holding Limited. Since substantially all of our management is currently based in China, it is likely we may be treated as a Chinese resident enterprise for enterprise income tax purposes. The tax consequences of such treatment are currently unclear, as they will depend on how local tax authorities apply or enforce the New EIT Law or the implementation regulations.

In addition, under the New EIT Law and implementation regulations, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent that such dividends have their source within the PRC unless there is an applicable tax treaty between the PRC and the jurisdiction in which an overseas holder resides which reduces or exempts the relevant tax. Similarly, any gain realized on the transfer of shares by such investors is also subject to the 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.

If we are considered a PRC “resident enterprise”, it is unclear whether the dividends we pay with respect to our shares, or the gain you may realize from the transfer of our shares, would be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if you are required to pay PRC income tax on the transfer of your shares, the value of your investment in our shares may be materially and adversely affected.

Future inflation in China may inhibit our ability to conduct business in China.

In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been as high as 5.9% and as low as -0.7% . These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.

Our business is largely subject to the uncertain legal environment in China and our legal protection could be limited.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which precedents set in earlier legal cases are not generally used. The overall effect of legislation enacted over the past 20 years has been to enhance the legal protections afforded to foreign-invested enterprises in China. However, these laws, regulations and legal requirements are relatively recent and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign-invested enterprises to hold licenses and permits such as requisite business licenses. In addition, all of our executive officers and our directors are residents of China and not of the U.S., and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against our Chinese operations and subsidiaries.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

China only recently has permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

The majority of our revenues are settled in Renminbi, or RMB. Any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside of China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; covering the use of existing offshore entities for offshore financings; purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

We believe our stockholders who are PRC residents as defined in Circular 75 have registered with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries.

However, we cannot provide any assurances that their existing registrations have fully complied with, and they have made all necessary amendments to their registration to fully comply with, all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

Changes in China's political or economic situation could harm us and our operating results.

Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. For example, state-owned enterprises still constitute a large portion of the Chinese economy and weak corporate governance and a lack of flexible currency exchange policy still prevail in China. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy was similar to those of the OECD member countries.

The value of our securities will be affected by the currency exchange rate between U.S. dollars and RMB.

The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies and other currencies in which our sales may be denominated. For example, if we need to convert U.S. dollars into RMB for our operational needs and the RMB appreciate against the U.S. dollar at that time, our financial position, our business, and the price of our common stock may be harmed. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.

Our procurement strategy is to diversify our suppliers both in the PRC and overseas. And some of our raw materials and major equipments are currently imported. These transactions are often settled in U.S. dollars or other foreign currency. In the event that the U.S. dollars or other foreign currency appreciate against RMB, our costs will increase. Our profitability and operating results will suffer if we cannot pass the resulted cost increase to our customers. In addition, because our sales to international customers are growing, we are subject to the risk of foreign currency depreciation.

Until 1994, the RMB experienced a gradual but significant devaluation against most major currencies, including the U.S. dollar, and there was a significant devaluation of the RMB on January 1, 1994 in connection with the replacement of the dual exchange rate system with a unified managed floating rate foreign exchange system. Since 1994, the value of the RMB relative to the U.S. dollar has remained stable and has appreciated slightly. Countries, including the United States, have argued that the RMB is artificially undervalued due to China’s current monetary policies and have pressured China to allow the RMB to float freely in world markets. In July 2005, the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar. Under this policy, which was halted in 2008 due to the worldwide financial crisis, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In June 2010, the Chinese government announced its intention to again allow the Renminbi to fluctuate within the 2005 parameters. It is possible that the Chinese government could adopt an even more flexible currency policy, which could result in more significant fluctuation of Renminbi against the U.S. dollar, or it could adopt a more restrictive policy. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further and more significant appreciation of the RMB against the U.S. dollar.

A slowdown or other adverse developments in the Chinese economy may materially and adversely affect our customers’ demand for our products and services.

All of our operations are conducted in China and a major portion of our revenues are generated from sales to businesses operating in China. Although the Chinese economy has grown significantly in recent years, such growth may not continue. We do not know how sensitive we are to a slowdown in economic growth or other adverse changes in Chinese economy which may affect demand for our products. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our services and in turn reduce our results of operations.

Failure to comply with the U.S. Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

Our executive officers, employees and other agents may violate applicable law in connection with the marketing or sale of our products, including China’s anti-corruption laws and the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive advantage over us. The PRC also strictly prohibits bribery of government officials. However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC.

While we intend to implement measures to ensure compliance with the FCPA and Chinese anti-corruption laws by all individuals involved with our company, our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our common stock could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.

The implementation of the new PRC labor law and increases in the labor costs in China may hurt our business and profitability.

On June 29, 2007, the PRC government promulgated a new labor law, the Labor Agreement Law of the PRC, or the New Labor Agreement Law, which became effective on January 1, 2008. The New Labor Agreement Law imposes greater liability on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the New Labor Agreement Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and future operating prospects.

As our common stock is thinly traded, the stock price may be volatile and investors may have difficulty disposing of their investments at prevailing market prices.

On March 4, 2010, our common stock began trading on the NYSE MKT LLC (“NYSE MKT”, formerly NYSE Amex LLC, American Stock Exchange) under the symbol “CHGS”. Prior to March 4, 2010, our common stock was traded over-the-counter under the symbol CHGS.OB. Despite the relisting on the larger stock exchange, our common stock remains thinly and sporadically traded and no assurances can be given that a larger market will ever develop, or if developed, that it will be maintained.

Our common stock is subject to price volatility unrelated to our operations.

We cannot assure you that our common stock will be liquid or that it will remain listed on the NYSE MKT.

We cannot assure you that we will be able to maintain the continued listing standards of the NYSE MKT. The NYSE MKT requires companies to meet certain continued listing criteria including certain minimum stockholders' equity and equity prices per share as outlined in the NYSE MKT LLC Company Guide. We may not be able to maintain such minimum stockholders' equity or prices per share or may be required to effect a reverse stock split to maintain such minimum prices and/or issue additional equity securities in exchange for cash or other assets, if available, to maintain certain minimum stockholders' equity required by the NYSE MKT. If we are delisted from the NYSE MKT then our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board securities market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Delisting from the NYSE MKT could also have other negative results, including the potential loss of confidence by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities.

Techniques employed by manipulative short sellers in Chinese small cap stocks may drive down the market price of our common stock.

Short selling is the practice of selling securities that the seller does not own but rather has, supposedly, borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the price of the stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. While traditionally these disclosed shorts were limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed shorts to publicly attack a company’s credibility, strategy and veracity by means of so-called research reports that mimic the type of investment analysis performed by large Wall Street firm and independent research analysts. These short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers with business operations based in China and who have limited trading volumes and are susceptible to higher volatility levels than U.S. domestic large-cap stocks can be particularly vulnerable to such short attacks.

These short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in the U.S., are not subject to the certification requirements imposed by the Securities and Exchange Commission in Regulation AC (Regulation Analyst Certification) and, accordingly, the opinions they express may be based on distortions of actual facts or, in some cases, fabrications of facts. In light of the limited risks involved in publishing such information, and the enormous profit that can be made from running just one successful short attack, unless the short sellers become subject to significant penalties, it is more likely than not that disclosed shorts will continue to issue such reports.

Recently, some short sellers actively attack on Chinese small cap stocks. We are a Chinese small cap public company and may be attacked by some short sellers. While we intend to strongly defend our public filings against any such short teller attacks, oftentimes we are constrained, either by principles of freedom of speech, applicable state law (often called “Anti-SLAPP statutes”), or issues of commercial confidentiality, in the manner in which we can proceed against the relevant short seller. You should be aware that in light of the relative freedom to operate that such persons enjoy - oftentimes blogging from outside the U.S. with little or no assets or identity requirements - should we be targeted for such an attack, our stock will likely suffer from a temporary, or possibly long term, decline in market price.

In addition, as many Chinese small cap public companies have been recently subject to intense scrutiny, criticism and negative publicity by investors, short sellers, financial commentators and regulatory agencies, such as the United States Securities and Exchange Commission, and much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud, it is not clear what affect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation could be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations will be severely impacted. It could seriously affect our ability to raise money and your investment in our stock could be rendered worthless.

Our President and CEO hold a significant percentage of our outstanding voting securities.

As of the date of this report, Mr. Shunqing Zhang, our President and CEO, was the beneficial owner of approximately 56.8% of our outstanding voting securities. As a result, he possessed significant influence, giving him the ability to elect a majority of our board of directors and to authorize or prevent significant corporate transactions. His ownership and control may impede or delay any future change in control through merger, consolidation, takeover or other business combinations and may discourage a potential acquirer from making a tender offer.

Certain provisions of our articles of incorporation may make it more difficult for a third party to effect a change-in-control.

Our articles of incorporation authorize the Board of Directors to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include voting rights including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights and redemption rights provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent the stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

All land in China is owned by the government authority. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of up to 50 years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations.

We currently have about 23 manufacturing facilities located on five manufacturing sites in China. We have obtained the land use rights for four of our five manufacturing sites and are in the process of obtaining the right from the relevant governmental authority for periods ranging from 39 to 50 years to use the land on which our Yuxing subsidiary is located. In our Refractories subsidiary in Gongyi City, Henan Province, we have offices and workshops that total approximately 366,166 square feet. In our High-Temperature subsidiary in Zhengzhou City, Henan Province, we have offices and workshops that total approximately 115,777 square feet. In our Duesail subsidiary in Gongyi City, Henan Province, we have offices and workshops that total approximately 193,750 square feet. In our Micronized subsidiary in Gongyi City, Henan Province, we have offices and workshops that total approximately 739,114 square feet, and we have offices and workshops that total approximately 753,000 square feet in the Yuxing subsidiary in Gongyi City, Henan Province.

We believe that our facilities, which are of varying ages and are of different construction types, have been satisfactorily maintained. They are in good conditions and are suitable for our operations and generally provide sufficient capacity to meet our production and operational requirements.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

ITEM 5. MARKET FOR OUR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

On March 4, 2010, our common stock commenced trading on the NYSE MKT LLC under the symbol “CHGS”. Before that, our common stock was traded over-the-counter under the symbol CHGS.OB.

The following table sets forth, for the periods indicated, the high and low sale prices of our common stock as reported on the NYSE MKT LLC. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

⁽¹⁾The above tables set forth the range of high and low bid prices per share of our common stock as reported in our SEC filings and by www.nasdaq.com for the periods indicated.

On April 14, 2014, there were approximately 215 stockholders of record of our common stock. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers.

We have never declared dividends or paid cash dividends. Our board of directors, which currently consists of five directors, has complete discretion on whether to pay dividends, subject to the approval of our shareholders. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

At the Company’s annual shareholder meeting, which was held on September 28, 2011, the Company’s shareholders approved the 2011 Long-Term Incentive Plan (the “Plan”), which authorized a total of 3,000,000 shares of the Company’ common stock. The maximum number of shares of common stock that may be issued to any one grantee during any calendar year shall not exceed 100,000.

The Plan is designed to enhance the Company’s and its affiliates’ ability to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.

For a detailed description of the Plan, see Schedule 14A Information Proxy Statement filed with the SEC on August 15, 2011. The following table sets forth information regarding the Plan.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations, which we refer to as the MD&A, is intended to help the reader understand our Company, our operations and our present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report on Form 10-K. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this annual report on Form 10-K particularly under “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

Unless otherwise specified, references to Notes to our consolidated financial statements are to the Notes to our audited consolidated financial statements as of December 31, 2013 and 2012.

We are a Nevada holding company that operates through our direct and indirect subsidiaries. Through our wholly-owned BVI subsidiary, GengSheng International, and its wholly-owned Chinese subsidiary, Refractories, we manufacture monolithic refractory products in China. Through our wholly-owned BVI subsidiary, GengSheng International, and its wholly-owned Chinese subsidiary, Duesail and Duesail’s wholly-owned subsidiary Yuxing, we manufacture fracture proppant products. Through Micronized, wholly-owned subsidiary of Refractories, we manufacture fine precision abrasives. Through High-Temperature, 89% owned subsidiary of Refractories, we manufacture industrial ceramic products. We have four primary business segments: refractories, industrial ceramics, fracture proppant and fine precision abrasives. Refractories product is a nonmetallic material that is used in heavy industrial processes present with extremely high temperatures, and the main customers for the segment are steel makers. Our industrial ceramic products, including abrasive balls and tiles, valves, electronic ceramics and structural ceramics, are components for a variety of end-use products such as fuses, vacuum interrupters, electrical components, mud slurry pumps, and high-pressure pumps. Such end use products are used in the electric power, electronic component, industrial pump, and metallurgy industries. Our fracture proppants are very fine ball-like pellets, highly resistant to pressure, and used to reach pockets of oil and natural gas deposits that are trapped in the fractures under the ground. Oil drillers inject the pellets into those fractures, squeezing out the trapped oil or natural gas, which leads to higher yield. The fine precision abrasives are essentially very fine, uniformly round, silicon carbide (SiC) based particles. These ultra-fine high-strength particles are applicable in a broad range of applications, including machine manufacturing, electronics, optical glass, architecture, semiconductors, silicon chips, plastics and lenses. In 2013, the refractories segment contributed approximately $33.1 million or 54.4% of our total revenue of approximately $60.9 million, industrial ceramics contributed approximately $1.1 million or 1.8% of the total revenue, fracture proppants contributed approximately $22.7 million or 37.4% of our total revenue and fine precision abrasives contributed approximately $3.9 million or 6.4% of the total revenue.

We sell our products to over 300 customers in the iron, steel, oil, glass, cement, aluminum, chemical and solar industries located in China and 11 countries in other parts of Asia and Europe. Our refractory customers are companies in the steel, iron, petroleum, chemical, coal, glass and mining industries. Our fracture proppant products are sold to oil and gas companies. Our industrial ceramics are products used by the utilities and petrochemical industries. The Company’s fine precision abrasives target solar companies and optical equipment manufacturers. Most of our large customers, measured by percentage of our revenue, mainly operate in the steel industry. Currently, most of our revenues are derived from the sale of our monolithic refractory products and fracture proppants products to customers in China.

During 2013, we experienced further decline in net sales as all of our segments are still facing challenges from deteriorating market condition. From the beginning of 2009, the PRC central government has labeled the steel sector in China an overcapacity-burdened industry and the government is resolved to cut back the industry's excessive capacity. Since then some small and mid-sized steel producers have been shut down, which resulted in the decrease in the demand for refractories. To face the changing market environment, we have adjusted product offerings in the refractories segment, entered into more full-service contracts to sell both our products and service and focused on maintaining current customers. However, due to the weak demand of our products and the inability to find new customers, the sales in our refractories segment declined further in 2013. In the fracture proppant segment, our sales decreased as the price of fracture proppant products continued to decline in 2013. In our fine precision abrasives segment, we failed to maintain our market share and incurred further losses in 2013 as the overcapacity and uncertainty surrounding the solar industry still exists.

Continued Industry Consolidation of Steel Makers Further Squeezed Our Profit in Refractories Segment

Although the crude steel output in China reached a new record of approximately 779 million metric tons in 2013, the steel industry still faces overcapacity and weak demand from both domestic and international market. In addition, the PRC government’s continued policy to close small to mid-sized steel makers reduced the overall demand for refractories. As revenue from our refractories segment accounted for a large portion of our total sales revenue and many of our customers are in the steel industry, the continued industry consolidation of steel makers have a deep impact on us and further reduced our profit in the refractories segment.

The unfavorable payment terms offered by our customers in the refractories segment and fine precision abrasives segment strained our working capital needs, and as a result, significantly increased our financing costs, as banks charged higher interest rates when we discounted more notes receivables to meet our working capital needs.

Starting from 2012, more and more Chinese manufacturers of fracture proppants products started to sell their products directly in the U.S. market. Since our sales of fracture proppants products in the U.S. market were mainly through wholesalers and distributors, the change in the market condition made it nearly impossible for us to continue sales in the U.S. market while still maintaining a reasonable profit margin. As a result, our sales in the U.S. market were discontinued in 2012. We are currently selling all our fracture proppants products to oil drillers in the domestic market. Although the sales volume is higher, the profit margin is lower and the payment terms are less favorable.

China’s solar industry is experiencing severe challenge with many large solar panel manufacturers struggling to survive. As a supplier of solar-energy companies, we are facing remarkable uncertainties in maintaining our current customers. If we cannot continue our sales of fine precision abrasives products to solar industry we may have to reduce selling price significantly to stay competitive, and this will affect our revenue negatively and we may ultimately need to discontinue our production.

The following table summarizes the results of our operations during the fiscal years ended December 31, 2013 and 2012, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such years.

The average conversion rates between RMB and U.S. dollar used for the consolidated statements of operations and comprehensive loss increased approximately 2.0% during the reporting period of 2013 compared with the reporting period of 2012. As substantially all of our revenues and most expenses are denominated in RMB, the appreciation in the value of RMB relative to the U.S. dollar affected our financial results reported in the U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

Net sales. Net sales decreased approximately $12.6 million, or 17.2%, to approximately $60.9 million in 2013 from approximately $73.5 million in 2012. Excluding foreign currency translation, the revenue decreased approximately $13.8 million, or 18.8% compared with 2012. The decrease was mainly attributable to the decreased sales from all of our segments.

In our refractory segment, we sold 74,281 metric tons of refractory products in 2013, a 5.0% decrease compared with 78,186 metric tons sold in 2012. The revenue from our refractory products decreased to approximately $33.1 million in 2013 from approximately $38.9 million in 2012. Excluding foreign currency translation, the revenue decreased approximately $6.4 million, or 16.4% compared with 2012. The average selling prices decreased to $446 per metric ton in 2013, representing a 10.3% decrease compared with $497 per metric ton in 2012. Excluding foreign currency translation, the average selling prices decreased to $437 per metric ton, or a decrease of 12.0% compared with 2012.

In our fracture proppant segment, we sold 88,388 metric tons of fracture proppant products in 2013, compared with 73,958 metric tons in 2012. The increase in sales volume was primarily driven by the increased sales in domestic market as the demand for our products from oil producers in China increased in 2013. Revenue from fracture proppant products was approximately $22.7 million in 2013, a decrease of approximately $1.8 million or 7.2% compared with approximately $24.5 million in 2012. Excluding foreign currency translation, the revenue decreased approximately $2.2 million, or 9.0% compared with 2012. Average selling price decreased to $257 per metric ton in 2013, compared with $331 per metric ton in 2012. Excluding foreign currency translation, the average selling prices decreased $79 per metric ton, or 23.9% compared with 2012. The decrease in average selling price was primarily attributable to the increased sales of low-grade products and generally lower market price for fracture proppant products in 2013.

In our industrial ceramics segment, revenue was approximately $1.1 million in 2013 compared with approximately $1.8 million in 2012. The decrease was primarily attributable to the lower demand for our industrial ceramics products in 2013.

In our fine precision abrasives segment, we realized sales of 1,702 metric tons in 2013, generating revenue of approximately $3.9 million. We sold 3,054 metric tons of fine precision abrasives products for approximately $8.3 million in 2012. The decrease in sales revenue was a result of weak demand for our fine precision abrasives products under current market condition and declined sales to a major customer.

Cost of goods sold. Our cost of goods sold decreased by approximately $8.1 million or 13.3% to approximately $52.8 million in 2013 from approximately $60.9 million in 2012. Excluding foreign currency translation, our cost of goods sold decreased approximately $9.1 million or 14.9% compared with 2012. As a percentage of sales revenue, the cost of goods sold increased by approximately 4.0% to 86.8% in 2013 from 82.8% in 2012. The decrease in cost of goods sold was primarily attributable to the decreased sales in our refractory segment as we terminated more unprofitable full-service contracts in 2013.

Gross margin. Our gross margin decreased by approximately $4.5 million, or 36.2% to approximately $8.1 million in 2013 from approximately $12.6 million in 2012. Excluding foreign currency translation, our gross margin decreased approximately $4.7 million, or 37.5% compared with 2012. Gross margin was 13.2% in 2013, as compared with 17.2% in 2012. The decrease was primarily attributable to the decreased gross margin in our refractory segment and fracture proppants segment.

Bad debt expenses. Bad debt expenses increased approximately $5.2 million, or 301.4% to approximately $6.9 million in 2013 from approximately $1.7 million in 2012. Excluding foreign currency translation, the bad debt expenses increased approximately $5.1 million, or 293.7% compared with 2012. The increase was primarily attributable to the management’s decision to increase the reserve for other receivables due to their uncertainties in collectability in 2013 and increased allowance for accounts receivable as some of our customers failed to make payments on time.

Selling expenses. Selling expenses decreased by approximately $4.8 million, or 50.1%, to approximately $4.8 million in 2013 compared with approximately $9.6 million in 2012. Excluding foreign currency translation, the selling expenses decreased approximately $4.9 million, or 51.1% compared with 2012. As a percentage of sales revenue, our selling expenses decreased to 7.9% in 2013, as compared with 13.1% in 2012. The decrease in selling expenses as a percentage of sales revenue was primarily attributable to the lower sales related expenses as we terminated several full-service contracts in our refractory segment in 2013.

Research and development cost. Our research and development cost increased to approximately $1.4 million in 2013 compared with approximately $923,000 in 2012. The increase in research and development cost was attributable to more research and development activities in 2013.

General and administrative expenses. Our general and administrative expenses decreased by approximately $362,000 or 4.9%, to approximately $7.0 million in 2013 from approximately $7.3 million in 2012. Excluding foreign currency translation, the general and administrative expenses decreased approximately $495,000, or 6.8% compared with 2012. As a percentage of net sales, general and administrative expenses increased 1.4% to 11.4% in 2013, compared with 10.0% in 2012 as net sales decreased over the year.

Impairment of fixed assets. There was no impairment expense of fixed assets in 2013 as compared with approximately $287,000 in 2012. The impairment expenses in 2012 were related to write-off fixed assets at Prefecture.

Interest income. Interest income was approximately $1.2 million in 2013, an increase of approximately $368,000 or 45.3% compared with approximately $813,000 in 2012. The increase in interest income was primarily due to higher interest earned on our restricted cash accounts held at local financial institutions in 2013.

Interest expenses and banker’s acceptance notes discount. Our interest expenses and banker’s acceptance notes discount increased by approximately $443,000, or 6.1% to approximately $7.7 million in 2013, from approximately $7.3 million in 2012. Excluding foreign currency translation, our interest expenses and banker’s acceptance notes discount increased approximately $294,000 or 4.0% compared with 2012. The increase was primarily attributable to an increase in banker’s acceptance notes discount charges as we discounted more banker's acceptance notes receivable instead of holding them to maturity.

Government grant. Our government grant was approximately $1.2 million in 2013, compared with approximately $559,000 in 2012. The increase in government grant was primarily attributable to a one-time government grant received at Refractory in 2013.

Share of net loss from a non-consolidated entity. Share of net loss from a non-consolidated entity was approximately $101,000 in 2013, compared with approximately $59,000 in 2012. This was related to our investment in Yili Yi Qiang Silicon Limited.

Loss before income tax provision. Our loss before income tax provision was approximately $18.0 million in 2013 as compared to approximately $13.1 million in 2012. Excluding foreign currency translation, our loss before income tax provision was approximately $17.6 million. The increase in loss before income tax provision was primarily attributable to the lower net revenue and the higher operating losses in 2013.

Income tax provision. Our income tax provision was approximately $291,000 in 2013, a decrease of approximately $201,000 from approximately $492,000 in 2012. Despite a net loss, as certain of our PRC subsidiaries recognized taxable income, we still incurred income taxes in 2013.

Net loss attributable to shareholders. Our net loss attributable to shareholders was approximately $18.2 million in 2013, an increase of approximately $4.7 million from approximately $13.5 million in 2012. Excluding foreign currency translation, our net loss attributable to shareholders was approximately $17.8 million. The increase in net loss attributable to shareholders was attributable to the factors described above.

As of December 31, 2013, we had cash of approximately $1.2 million and pledged deposits of approximately $29.1 million. Our current assets were approximately $100.0 million and our current liabilities were approximately $119.0 million as of December 31, 2013 which resulted in a current ratio of approximately 0.84. Total stockholders’ equity as of December 31, 2013 was approximately $23.0 million. The following table sets forth summary of our cash flows for the periods indicated:

Net cash provided by operating activities was approximately $9.2 million in 2013, compared with net cash used in operating activities of approximately $16.9 million in 2012. The increase in net cash provided by operating activities was primarily attributable to the decreased accounts receivable, prepayments and other current assets and banker’s acceptance notes receivable in 2013, which were partly offset by the increase in net loss and decreased banker’s acceptance notes payable compared with 2012.

Net cash used in investing activities in 2013 was approximately $2.2 million, an increase of approximately $0.9 million from net cash used in investing activities of approximately $1.3 million in 2012. The increase in net cash used in investing activities in 2013 was primarily attributable to more activities related to our construction and renovation of our manufacturing and administrative facilities as compared with 2012.

Net cash used in financing activities was approximately $11.2 million in 2013, compared with net cash provided by financing activities of approximately $20.0 million in 2012 as we repaid more bank loans in 2013.

We secured new loans totaling approximately $114.9 million from banks for our working capital needs and we repaid approximately $121.9 million in bank loans during the year ended December 31, 2013. As a result, the balance of all of our bank loans and bank borrowings as of December 31, 2013 was approximately $60.3 million, which includes short-term bank loans of approximately $29.9 million and bank borrowings secured by bank deposits of approximately $30.4 million.

As of December 31, 2013, the details of all our short-term bank loans and bank borrowings are as follows:

No	Type	Contracting Party	Valid Date	Duration	Amount
1	Facility Bank Loan	Zhengzhou Bank	2013-01-07 to 2014-01-06	1 year	$4,911,000
2	Facility Bank Loan	Pingdingshan Bank	2013-03-28 to 2014-03-28	1 year	$1,399,635
3	Facility Bank Loan	Luoyang Bank	2013-04-10 to 2014-04-09	1 year	$3,274,000
4	Facility Bank Loan	Agricultural Bank of China	2013-05-08 to 2014-05-07	1 year	$1,637,000
5	Facility Bank Loan	Bank of China	2013-05-14 to 2014-05-13	1 year	$1,309,600
6	Facility Bank Loan	Kunlun Bank	2013-05-31 to 2014-05-30	1 year	$1,637,000
7	Facility Bank Loan	Shanghai Pudong Development Bank Village Bank	2013-06-24 to 2014-06-24	1 year	$736,650
8	Facility Bank Loan	China CITIC Bank	2013-06-26 to 2014-06-26	1 year	$2,291,800
9	Facility Bank Loan	China CITIC Bank	2013-06-27 to 2014-06-26	1 year	$1,473,300
10	Facility Bank Loan	China CITIC Bank	2013-06-28 to 2014-06-27	1 year	$982,200
11	Facility Bank Loan	Shanghai Pudong Development Bank Village Bank	2013-08-22 to 2014-08-21	1 year	$818,500
12	Facility Bank Loan	Shanghai Pudong Development Bank Village Bank	2013-08-22 to 2014-08-21	1 year	$409,250
13	Facility Bank Loan	Pingdingshan Bank	2013-08-23 to 2014-02-22	6 months	$818,500
14	Facility Bank Loan	Pingdingshan Bank	2013-08-27 to 2014-02-26	6 months	$1,637,000
15	Facility Bank Loan	Industrial and Commercial Bank of China	2013-08-31 to 2014-02-21	6 months	$2,373,650
16	Facility Bank Loan	Shanghai Pudong Development Bank Village Bank	2013-09-02 to 2014-02-25	6 months	$818,500
17	Facility Bank Loan	Shanghai Pudong Development Bank	2013-09-11 to 2014-09-10	1 year	$2,946,600
18	Facility Bank Loan	Shanghai Pudong Development Bank Village Bank	2013-10-16 to 2014-10-15	1 year	$441,990
19	Bank Borrowing	Puyang Commerical Bank	2013-07-08 to 2014-01-05	6 months	$982,200
20	Bank Borrowing	Puyang Commerical Bank	2013-07-10 to 2014-01-10	6 months	$818,500
21	Bank Borrowing	Puyang Commerical Bank	2013-08-09 to 2014-02-08	6 months	$1,145,900
22	Bank Borrowing	Puyang Commerical Bank	2013-08-13 to 2014-02-12	6 months	$1,637,000
23	Bank Borrowing	Puyang Commerical Bank	2013-09-04 to 2014-03-03	6 months	$1,637,000
24	Bank Borrowing	Puyang Commerical Bank	2013-09-10 to 2014-03-09	6 months	$1,637,000
25	Bank Borrowing	Industrial and Commercial Bank of China	2013-09-11 to 2014-03-05	6 months	$818,500
26	Bank Borrowing	Puyang Commerical Bank	2013-09-13 to 2014-03-12	6 months	$4,911,000
27	Bank Borrowing	Puyang Commerical Bank	2013-09-17 to 2014-03-16	6 months	$1,637,000
28	Bank Borrowing	Industrial and Commercial Bank of China	2013-10-25 to 2014-01-30	4 months	$196,440

29	Bank Borrowing	Other	2013-10-28 to 2014-03-23	5 months	$49,110
30	Bank Borrowing	Agricultural Bank of China	2013-11-05 to 2014-05-05	6 months	$1,637,000
31	Bank Borrowing	Industrial and Commercial Bank of China	2013-11-11 to 2014-05-06	6 months	$982,200
32	Bank Borrowing	China Minsheng Bank	2013-11-11 to 2014-11-11	1 year	$3,274,000
33	Bank Borrowing	Industrial and Commercial Bank of China	2013-11-13 to 2014-05-05	6 months	$327,400
34	Bank Borrowing	Industrial and Commercial Bank of China	2013-11-13 to 2014-05-05	6 months	$130,960
35	Bank Borrowing	Agricultural Bank of China	2013-11-14 to 2014-05-13	6 months	$1,227,750
36	Bank Borrowing	Industrial and Commercial Bank of China	2013-11-26 to 2014-03-22	4 months	$327,400
37	Bank Borrowing	Industrial and Commercial Bank of China	2013-11-26 to 2014-03-25	4 months	$114,590
38	Bank Borrowing	Other	2013-11-26 to 2014-04-11	5 months	$27,829
39	Bank Borrowing	Industrial and Commercial Bank of China	2013-12-03 to 2014-05-27	6 months	$818,500
40	Bank Borrowing	Agricultural Bank of China	2013-12-04 to 2014-06-03	6 months	$1,637,000
41	Bank Borrowing	Agricultural Bank of China	2013-12-05 to 2014-06-04	6 months	$982,200
42	Bank Borrowing	Agricultural Bank of China	2013-12-09 to 2014-06-05	6 months	$1,637,000
43	Bank Borrowing	Other	2013-12-17 to 2014-03-26	4 months	$49,110
44	Bank Borrowing	China Minsheng Bank	2013-12-18 to 2014-06-10	6 months	$1,637,000
45	Bank Borrowing	Other	2013-12-23 to 2014-05-19	5 months	$32,740
46	Bank Borrowing	Other	2013-12-23 to 2014-06-05	6 months	$81,850

We have facility bank loans of approximately $29.9 million, maturing from January 6, 2014 to October 15, 2014 and bank borrowings secured by bank deposits of approximately $30.4 million. We will also consider refinancing debts. However, we cannot provide assurance that we will be able to refinance any of our debts on terms favorable to us in a timely manner.

Below is a brief summary of the payment obligations under material contracts to which we are a party:

On January 7, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Zhengzhou Bank (“ZB”), whereby ZB has agreed to loan approximately $4.9 million (RMB 30 million) to Refractories for a term of one year, at an interest rate of 7.80% per year on all outstanding principal.

On March 28, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Pingdingshan Bank (“PB”), whereby PB has agreed to loan approximately $1.4 million (RMB 8.55 million) to Refractories for a term of one year, at an interest rate of 6.60% per year on all outstanding principal.

On April 10, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Luoyang Bank (“LYB”), whereby LYB has agreed to loan approximately $3.3 million (RMB 20 million) to Refractories for a term of one year, at an interest rate of 7.22% per year on all outstanding principal.

On May 8, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Agricultural Bank of China (“ABC”), whereby ABC has agreed to loan approximately $1.6 million (RMB 10 million) to Refractories for a term of one year, at an interest rate of 8.53% per year on all outstanding principal.

On May 14, 2013, our subsidiary, Duesail, entered into a short-term working capital loan agreement with Bank of China (“BC”), whereby BC has agreed to loan approximately $1.3 million (RMB 8 million) to Duesail for a term of one year, at an interest rate of 7.86% per year on all outstanding principal.

On May 31, 2013, our subsidiary, Duesail, entered into a short-term working capital loan agreement with Kunlun Bank, (“KB”), whereby KB has agreed to loan approximately $1.6 million (RMB 10 million) to Duesail for a term of one year, at an interest rate of 8.70% per year on all outstanding principal.

On June 24, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Shanghai Pudong Development Bank Village Bank of Gongyi (“SPDVB”), whereby SPDVB has agreed to loan approximately $737,000 (RMB 4.5 million) to Refractories for a term of one year, at an interest rate of 6.06% per year on all outstanding principal.

On June 26, 2013, our subsidiary, Micronized, entered into a short-term working capital loan agreement with China CITIC Bank (“CITIC”), whereby CITIC has agreed to loan approximately $2.3 million (RMB 14 million) to Micronized for a term of one year, at an interest rate of 6.60% per year on all outstanding principal.

On June 27, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with CITIC, whereby CITIC has agreed to loan approximately $1.5 million (RMB 9 million) to Refractories for a term of one year, at an interest rate of 6.60% per year on all outstanding principal.

On June 28, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with CITIC, whereby CITIC has agreed to loan approximately $982,000 (RMB 6 million) to Refractories for a term of one year, at an interest rate of 6.60% per year on all outstanding principal.

On August 22, 2013, our subsidiary, Refractories, entered into a short term working capital loan agreement with SPDVB, whereby SPDVB has agreed to loan approximately $819,000 (RMB5 million) to Refractories for a term of one year, at an interest rate of 8.46% per year on all outstanding principal.

On August 22, 2013, our subsidiary, Duesail, entered into a short-term working capital loan agreement with SPDVB, whereby SPDVB has agreed to loan approximately $409,000 (RMB 2.5 million) to Duesail for a term of one year, at an interest rate of 8.40% per year on all outstanding principal.

On August 23, 2013, our subsidiary, Duesail, entered into a short-term working capital loan agreement with PB, whereby PB has agreed to loan approximately $819,000 (RMB 5 million) to Duesail for a term of six months, at an interest rate of 6.16% per year on all outstanding principal.

On August 27, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with PB, whereby PB has agreed to loan approximately $1.6 million (RMB 10 million) to Refractories for a term of six months, at an interest rate of 6.16% per year on all outstanding principal.

On August 31, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Industrial and Commercial Bank of China (“ICBC”), whereby ICBC has agreed to loan approximately $2.4 million (RMB 14.5 million) to Refractories for a term of six months, at an interest rate of 8.40% per year on all outstanding principal.

On September 2, 2013, our subsidiary, Duesail, entered into a short-term working capital loan agreement with SPDVB, whereby SPDVB has agreed to loan approximately $819,000 (RMB 5 million) to Duesail for a term of six months, at an interest rate of 7.84% per year on all outstanding principal.

On September 11, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with Shanghai Pudong Development Bank (“SPDB”), whereby SPDB has agreed to loan approximately $2.9 million (RMB 18 million) to Refractories for a term of one year, at an interest rate of 6.60% per year on all outstanding principal.

On October 16, 2013, our subsidiary, Refractories, entered into a short-term working capital loan agreement with SPDVB, whereby SPDVB has agreed to loan approximately $442,000 (RMB 2.7 million) to Refractories for a term of one year, at an interest rate of 6.06% per year on all outstanding principal.

Under PRC regulations, all our subsidiaries in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC GAAP. In addition, these companies are required to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory reserves until the balance of the reserves reaches 50% of their registered capital. The statutory reserves are not distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses.

Before the reorganization, a former subsidiary of Refractories, Gongyi GengSheng Refractories Co., Ltd., was entitled to a special tax concession (“Tax Concession”) because it employed the required number of disabled staff according to the relevant PRC tax rules. In particular, this Tax Concession exempted the subsidiary from paying enterprise income tax. However, these tax savings can only be used for future development of its production facilities or welfare matters, and cannot be distributed as cash dividends. Accordingly, the same amount of tax savings was set aside and taken to special reserve which is not available for distribution. This reserve as maintained by the subsidiary has been combined into Refractories upon the reorganization and is subject to the same restrictions in its usage.

Restrictions on net assets also include the conversion of local currency into foreign currencies, tax withholding obligations on dividend distributions, the need to obtain State Administration of Foreign Exchange approval for loans to a non-PRC consolidated entity and the covenants or financial restrictions related to outstanding debt obligations. We did not have these restrictions on our net assets as of December 31, 2013 and December 31, 2012.

The following table provides the amount of our statutory reserves, special reserve, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage of consolidated net assets, as of December 31, 2013 and December 31, 2012.

Total restricted net assets accounted for approximately 36.0% of our consolidated net assets as of December 31, 2013. As our subsidiaries usually set aside only 10% of after-tax net profits each year to fund the statutory reserves and are not required to fund the statutory reserves when they incur losses, we believe the potential impact of such restricted net assets on our liquidity is limited.

Accounts receivable represents amounts due to us by our customers on the sale of products or services on credit.

Banker’s acceptance notes receivable represents bank undertakings that essentially guarantee the payment of amounts owed by our customers to us. The undertakings are provided by banks upon receipt of collateral deposits from the customers. Banker’s acceptance notes receivable can be sold by us at a discount before maturity.

The following is the aging analysis for accounts receivable as of December 31, 2013 and December 31, 2012:

The following is the aging analysis for notes receivable as of December 31, 2013 and December 31, 2012:

We generally provide our customers in the refractories segment with a payment period of 90 days and our customers in the fine precision abrasives segment with a payment period of 180 days. As there are many producers in the refractories and fine precision abrasives market competing with us, we find it difficult to change these payment terms. The payment term for our other segments varies by customers.

We noted that turnover days of accounts receivable in our refractories segment increased in 2013 due to the macro economic situation. However, we are usually willing to continue the relationship with our customers in the refractory segment and allow for additional time for them to make payments. In the meantime, since most of our large customers are state-owned steel producers and our products are essential for their daily operations, we have not seen a significant increase of risk related to the collection of accounts receivables.

Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The management of the Company considers its significant and critical accounting policies and practices as follows:

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

Pledged deposits consist of amounts held in financial institutions for (i) open banker’s acceptance notes payable maturing between three and nine months from the date of issuance and (ii) outstanding loans payable – banks, secured, maturing one year from the date of signing.

The Company satisfies certain accounts payable, through banker’s acceptance notes issued by financial institutions to certain of the Company’s vendors. The issuing financial institutions of the banker’s acceptance notes require the Company to deposit certain percentage of the amount stipulated under the banker’s acceptance notes as collateral which will be released to the Company as part of the payment toward banker’s acceptance notes payable upon maturity.

The Management of the Company believes that it is appropriate to classify such amounts as current assets as these pledged deposits are of a short term nature, three to nine months in length from the date of issuance.

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.

The Company does not have any off-balance-sheet credit exposure to its customers.

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies for each category of revenue:

Net sales of products represent the invoiced value of goods, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the Company’s products at the rate of 17% on the invoiced value of sales. Sales or Output VAT is borne by customers in addition to the invoiced value of sales and Purchase or Input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales.

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the consolidated financial statements.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer, Mr. Shunqing Zhang, and our Interim Chief Financial Officer, Ms. Weina Zhang, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2013. Based on our assessment, Mr. Zhang and Ms. Zhang determined that, as of December 31, 2013, our disclosure controls and procedures were effective.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Interim Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2013.

The Company’s management, including its Chief Executive Officer and Interim Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

The annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The following sets forth the name and position of each of our current executive officers and our directors. All directors of our Company hold office until our next annual board meeting or until their successors have been elected and qualified. The executive officers of our Company and operating subsidiary are appointed by our board of directors and hold office until their death, resignation or removal from office.

There are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there are no arrangements, plans or understandings as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.

Other than the executive officers named above, the Company does not have any “significant employees.”

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our Company and operating subsidiary, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

Shunqing Zhang, age 60. Mr. Zhang became CEO and President of China GengSheng Minerals, Inc. on April 25, 2007 and has served as Chairman of the Board since May 3, 2007. Mr. Zhang was elected Chairman of the Board and CEO of Henan Gengsheng in December, 2005. Prior to that, he served as President of Henan Gengsheng for June 2002 to December 2005, and served as Chairman of the Board and President of the Gengsheng Industry Group of Henan Province, from 1997 to 2002. Prior to that, Mr. Zhang served as Director of the Academy of the Ministry of Metallurgy Lofa Resistance Associated Experimental Plant in Gongyi City, a refractories manufacturer, from 1986 to 1997. Mr. Zhang holds an associate degree from China Central Radio and TV University. In December of 2008, Mr. Zhang was awarded the title of "Gongyi City's Most Influential Person in the 30 Years of Opening & Reform" by the City of Gongyi in Henan Province. In naming Mr. Zhang, the city cited his achievements in creating jobs in the local community, stimulating the rapid growth of Gongyi's economy and setting excellent examples of taking social responsibilities. As Chief Executive Officer of the Company, Mr. Zhang provides the Board with an intimate understanding of the Company’s operations and industry.

Weina Zhang, age 37. Ms. Zhang has been serving as the head of the Corporate Finance Department of Henan GengSheng High-Temperature Materials Co., Ltd., a subsidiary of the Company, since 2002. She worked as the head of the Audit Department of Henan GengSheng Refractories Co., Ltd., another subsidiary of the Company, from January 2000 to December 2001. Prior to that, Ms. Zhang was the secretary to the general manager of Henan GengSheng Refractories Co., Ltd. from August 1997 to December 1999. Ms. Zhang received a bachelor’s degree in accounting from Henan Industry University. Ms. Zhang is a qualified accountant in China and holds the certification of Registered Advanced Tax Planner.

Jingzhong Yu, age 49. Prof. Yu currently is an accounting professor at Zhongnan University of Economics and Law and has served in such position since 1985. Prof. Yu also served as an investment advisor from December 2003 to December 2007 to China Wanke Co., Ltd., which is a residential property developer, 999 Group, which is a pharmaceutical manufacturing company, Sanyi Group., Ltd., which is in the equipment and machinery manufacturing business, and China National Salt Industry Corporation, which is in the business of producing salt and salt chemicals. From December 2003 to June 2008, Prof. Yu served as an investment advisor to China Tobacco Group, which manufactures tobacco products. Prof. Yu serves as the chair of the Compensation Committee and is a member of the Audit Committee and Nominating Committee of the Board.

Ningsheng Zhou, age 55. Prof. Zhou has been a professor and director of High Temperature Materials Institute of Henan University of Science and Technology since 2004. From 2000 to 2004, he was a Vice President of Luoyang Institute of Refractories Research (LIRR) in China. Mr. Zhou is an expert in refractories R&D and applications with 30 years of experiences in the refractory industry. Mr. Zhou received his Ph. D. degree from University of Montreal in Canada in 2000 and a Master of Science degree in Inorganic Non-Metallic Materials from LIRR in 1987. He received his Bachelor of Science degree in Refractories Technology from Wuhan University of Science and Technology in 1982 and also worked as a visiting scholar in Germany during 1991 and 1993.

Hsin-I Lin, age 61. Mr. Lin has been with Rim Asia Capital Partners since 2004, where he served as Partner. Prior to joining Rim Asia Capital Partners, he worked as a Partner at SVO, from 2002-2004. Mr. Lin has approximately twenty years of experience in business administration, direct investment, corporate finance, and investment banking in the United States and China. Mr. Lin received his B.A. from Tamkang University in Taiwan, his M.A. from Waseda University in Japan, his M.B.A from Oklahoma City University in the United States and his PhD in economics from Northwest University in China.

Jeffrey Friedland, age 62. Mr. Friedland has been Managing Director of the corporate finance advisory firm, Friedland Global Capital Pte. Ltd. and its predecessor companies since 1979. Friedland Global Capital provides client companies with assistance in achieving their business planning and financing objectives. Mr. Friedland also has been the CEO of U.S. based Global Corporate Strategies LLC, since 2011, a firm that provides liaison services for non-U.S. companies in primarily the United States and Europe. Mr. Friedland has traveled globally with management of companies based in the United States and overseas, with the objective of assisting them in obtaining capital, expanding globally and entering into strategic alliances. Mr. Friedland has been featured or quoted in numerous publications including the Wall Street Journal, USA Today, The South China Morning Post (Hong Kong) and Forbes and on Bloomberg Radio, and Bloomberg Television. Mr. Friedland has been a frequent speaker at various tradeshows, conferences, conventions and meetings throughout North America, Europe and Asia, including as a panel participant at a Bloomberg Chinese equities conference in London. Mr. Friedland holds a BS in Business from University of Colorado.

Except as noted above, there are no other agreements or understandings for any of our executive officers or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person. Directors are elected until their successors are duly elected and qualified.

Board Composition. All actions of board of directors require the approval of a majority of the directors in attendance at a meeting at which a quorum is present. Our board of directors is composed of Mr. Shunqing Zhang, who is also our President and Chief Executive Officer, Mr. Jingzhong Yu, Mr. Ningsheng Zhou, Mr. Hsin-I Lin and Mr. Jeffrey Friedland. The Board has determined that the following directors, who constitute a majority of the Board (three), are independent in accordance with the NYSE MKT and SEC rules governing director independence: Jeffrey Friedland, Jingzhong Yu and Hsin-I Lin.

Meetings of the Board of Directors. During 2013, the Board of Directors met fourteen times. During that period, each of the incumbent directors attended 100% of the aggregate number of meetings held by the Board and by each of the committees on which such director served.

Board Committees. Our Board of Directors currently has three standing committees: the Audit Committee, the Compensation Committee and the Nominating Committee. The principal functions and the names of the directors currently serving as members of each of those committees are set forth below. In accordance with applicable NYSE MKT and SEC requirements, the Board of Directors has determined that each director serving on the Audit, Compensation and Nominating committees is an independent director.

Audit Committee. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to our financial matters. The Audit Committee operates under a written charter, a copy of which is available on our website at www.gengsheng.com under the heading “Investor Relations.” Under the charter, the committee’s principal responsibilities include reviewing our financial statements, reports and releases; reviewing with the independent auditor all critical accounting policies and alternative treatments of financial information under generally accepted accounting principles; and appointing, compensating, retaining and overseeing the work of the independent auditor.

The Audit Committee met six times during 2013. The current members of the Audit Committee are Jeffrey Friedland (Chairman), Jingzhong Yu and Hsin-I Lin. The Board of Directors has determined that Mr. Friedland is an “audit committee financial expert,” as that term is defined in SEC rules.

Compensation Committee. The Compensation Committee has the primary authority to determine our compensation philosophy and to establish compensation for our executive officers. The Compensation Committee operates under a written charter, a copy of which is available on our website at www.gengsheng.com under the heading “Investor Relations.” Under the charter, the committee’s principal responsibilities include making recommendations to the Board on the Company’s compensation policies, determining the compensation of senior management, making recommendations to the Board on the compensation of independent directors and approving performance-based compensation.

The Compensation Committee met three times during 2013. The current members of the Compensation Committee are Jingzhong Yu (Chairman), Hsin-I Lin and Jeffrey Friedland.

Nominating Committee. The Nominating Committee provides for the nomination of persons to serve on our Board. The qualifications of recommended candidates also will be reviewed and approved by the full Board. The Committee considered the following factors when qualifying candidates: current composition of the Board and the characteristics of each candidate under consideration, including that candidate’s competencies, experience, reputation, integrity, independence, potential for conflicts of interest and other appropriate qualities. When considering a director standing for re-election, in addition to the factors described above, the Committee considers that individual’s past contribution and future commitment to the Company. The independent directors evaluate all candidates, regardless of the source from which the candidate was first identified, based upon the totality of the merits of each candidate and not based upon minimum qualifications or attributes. The Nominating Committee operates under a written charter, a copy of which is available on our website at www.gengsheng.com under the heading “Investor Relations.”

The Nominating Committee met three times during 2013. The current members of the Nominating Committee are Hsin-I Lin (Chairman), Jingzhong Yu and Jeffrey Friedland.

Material Changes to the Procedures by which Security Holders May Recommend Nominees to the Board of Directors

There have been no material changes to the procedures by which security holders may recommend nominees to the Board of Directors.

To the best of our knowledge, during the past ten years, none of our officers or directors were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Under U.S. securities laws, directors, certain executive officers and persons holding more than 10% of our common stock must report their initial ownership of the common stock, and any changes in that ownership, to the SEC. The SEC has designated specific due dates for these reports. Based solely on our review of the copies of such reports received by us and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the fiscal year ended December 31, 2013, our officers and directors, and all of the persons known to us to own more than 10% of our common stock, filed all required reports on a timely basis.

On April 25, 2007, our then sole director adopted a code of ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. The code of ethics is designed to deter wrongdoing and to promote:

The code requires the highest standard of ethical conduct and fair dealing of its senior financial officers, or SFO, defined as the Chief Executive Officer and Interim Chief Financial Officer. While this policy is intended to only cover the actions of the SFO, in accordance with Sarbanes-Oxley, we expect our other officers, directors and employees will also review our code and abide by its provisions. We believe that our reputation is a valuable asset and must continually be guarded by all associated with us so as to continue the trust, confidence and respect of our suppliers, customers and stockholders.

Our SFO are committed to conducting business in accordance with the highest ethical standards. The SFO must comply with all applicable laws, rules and regulations. Furthermore, SFO must not commit an illegal or unethical act, or instruct or authorize others to do so.

Mr. Shunqing Zhang is our chairman and chief executive officer. We have three independent directors. Our lead independent director is Jeffrey Friedland. Our Board has three standing committees, each of which is comprised solely of independent directors with a committee chair. The Board believes that the Company’s chief executive officer is best situated to serve as Chairman of the Board because he is the director most familiar with our business and industry and the director most capable of identifying strategic priorities and executing our business strategy. In addition, having a single leader eliminates the potential for confusion and provides clear leadership for the Company. We believe that this leadership structure has served the Company well.

Our Board of Directors has overall responsibility for risk oversight. The Board has delegated responsibility for the oversight of specific risks to Board committees as follows:

Our Board of Directors is responsible to approve all related party transactions. We have not adopted written policies and procedures specifically for related person transactions.

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the following persons for services rendered in all capacities during the noted periods: Shunqing Zhang, our President and Chief Executive Office, Shuxian Li, our former interim Chief Financial Officer and Weina Zhang, our current interim Chief Financial Officer.

No executive officer’s salary and bonus exceeded $100,000 in any of the applicable years. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.

Name and principal position	Year	Salary ($)	($)	Stock awards ($)	Option awards ($)	Nonequity incentive plan compensation ($)	Nonqualified deferred compensation earnings ($)	All other compensation ($)	Total ($)
Shunqing Zhang, Chairman, CEO, President	2013	48,450	-	-	-	-	-	-	48,450 ⁽¹⁾
Shunqing Zhang, Chairman, CEO, President	2012	47,520	-	-	-	-	-	-	47,520 ⁽¹⁾
Weina Zhang, Interim CFO	2013	3,768	-	-	-	-	-	-	3,768
Weina Zhang, Interim CFO	2012	-	-	-	-	-	-	-	-
Shuxian Li, former Interim CFO⁽²⁾	2013	19,380	-	-	-	-	-	-	19,380
Shuxian Li, former Interim CFO⁽²⁾	2012	-	-	-	-	-	-	-	-

As required by applicable PRC law, we have entered into employment agreements with most of our officers, managers and employees. We have employment agreements with the following named executive officers:

Shunqing Zhang. Mr. Zhang’s preliminary employment agreement became effective as of January 1, 2007 and expired on December, 31, 2009. We have renewed his employment agreement in January 2010 and 2012, which continue on a year-to-year basis unless terminated by either party on not less than 30 days’ notice. Mr. Zhang is entitled to an annual salary of RMB 500,000 (approximately $80,750) under the agreement but voluntarily received a reduced salary of approximately $48,450 and $47,520 during the fiscal year of 2013 and 2012.

Shuxian Li. Ms. Li was appointed the interim Chief Financial Officer of the Company on January 11, 2013. Pursuant to the employment agreement dated January 11, 2013 between the Company and Ms. Li, Ms. Li will be entitled to an annual salary of Renminbi 180,000 (approximately $29,070) and will serve as the Company’s interim Chief Financial Officer until a suitable candidate for Chief Financial Officer has been qualified and selected by the Company. On September 16, 2013, Ms. Li resigned as our interim Chief Financial Officer.

Weina Zhang. Ms. Zhang was appointed the interim Chief Financial Officer of the Company on September 16, 2013. Pursuant to the employment agreement dated September 16, 2013 between the Company and Ms. Zhang, Ms. Zhang will be entitled to an annual salary of Renminbi 70,000 (approximately $11,305) and will serve as the Company’s interim Chief Financial Officer until a suitable candidate for Chief Financial Officer has been qualified and selected by the Company.

On November 18, 2009, we appointed Mr. Jingzhong Yu as our independent director, with engagement term to be one year, renewable for additional one year terms unless terminated by 30 days’ notice. On July 15, 2011, we appointed Mr. Ningsheng Zhou as our director for one year, renewable for additional one year terms unless terminated by 30 days’ notice. On October 5, 2011, we appointed Mr. Hsin-I Lin as our independent director, with engagement term to be one year, renewable for additional one year terms unless terminated by 30 days’ notice. On July 1, 2013, we appointed Mr. Jeffrey Friedland as our independent director, until he fails to be re-elected at an annual general meeting of the Company or until termination by the Company or his resignation. Our board consists of five members, including the CEO, Mr. Shunqing Zhang, sits as the Chairman, Mr. Ningsheng Zhou, and along with the three independent directors. During the fiscal year of 2013 we did not pay Mr. Shunqing Zhang any compensation for his services as our director. For their function as directors, we paid Mr. Zhou, Mr. Yu, Mr. Lin and Mr. Friedland in the amount of $19,380 (RMB 120,000), $8,075 (RMB 50,000), $25,000 and $12,500 respectively. We do reimburse our directors for reasonable travel expenses related to duties as a director.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information regarding beneficial ownership of our common stock as of April 14, 2014 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.

Unless otherwise specified, the address of each of the persons set forth below is in care of GengSheng International, No. 88 Gengsheng Road, Dayugou Town, Gongyi, Henan, China 451271.

Name & Address of Beneficial Owner	Office, if Any	Title of Class	Amount & Nature of Beneficial Ownership ⁽¹⁾	Percent of Class ⁽²⁾
Officers and Directors
Shunqing Zhang	CEO, President and Director	Common Stock, $0.001 par value	15,231,748	56.83%
Weina Zhang	Interim Chief Financial Officer	Common Stock, $0.001 par value	0	*
Jingzhong Yu	Independent Director	Common Stock, $0.001 par value	0	*
Ningsheng Zhou	Director	Common Stock, $0.001 par value	0	*
Hsin-I Lin	Independent Director	Common Stock, $0.001 par value	0	*
Jeffrey Friedland	Independent Director	Common Stock, $0.001 par value	0	*
All officers and directors as a group (6 persons named above)		Common Stock, $0.001 par value	15,231,748	56.83%

¹Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock.

²As of April 14, 2014, a total of 26,803,044 shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner above, any options, warrants and other convertible securities exercisable within 60 days have been included in the denominator.

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of our Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

During the year of 2012, Mr. Shunqing Zhang, our Chairman and Chief Executive Officer, loaned the Company an aggregate of $158,400. The loans are interest free and unsecured. During the year of 2013, the Company repaid Mr. Zhang $140,386 and the outstanding balance is $18,014 as of the date of this report.

Additionally, Mr. Zhang also guaranteed a short term loan for the Company from a third party company of $3,170,000 in 2012, with an interest of $24% per annum. The loan was fully settled on March 11, 2013.

In 2013, Mr. Zhang guaranteed (a) a short term loan for the Company from a third party company of $2,046,250, with an interest rate of $21.6% per annum, which was fully settled in February 2014, and (b) a short term loan for the Company from a third party company of $1,637,000, with an interest rate of 24% per annum. The loan will mature on June 5, 2014.

Except described above, there were no other material transactions, or series of similar transactions, during our last two fiscal year, or any currently proposed transactions, or series of similar transactions, to which our Company or any of our subsidiaries was or is to be a party, in which the amount involved exceeded the lesser of $120,000 and in which any director, executive officer or any security holder who is known to us to own of record or beneficially more than five percent of any class of our common stock, or any member of the immediate family of any of the foregoing persons, had an interest.

The Company’s board of directors has not adopted a written Related Person Transaction Policy that requires the board of directors or Audit Committee to approve or ratify transactions between the Company or one or more of its subsidiaries and any related person involving an amount in excess of $120,000; however, all related party transactions that has not been previously approved or previously ratified during the two most recent reporting period have been ratified by the Company's board of directors and audit committee as of the date when the financial statements were issued.

PKF Hong Kong was our independent registered public accounting firm engaged to examine our consolidated financial statements from the date of recapitalization on April 25, 2007 to December 7, 2012.

EFP Rotenberg, LLP was our independent registered public accounting firm engaged to examine our consolidated financial statements from January 2, 2013 to June 28, 2013.

Li and Company, PC was appointed our independent registered public accounting firm on July 19, 2013.

Audit Fees. PKF Hong Kong, was paid aggregate fees of approximately $45,144 for the reviews of the financial statements for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012.

EFP Rotenberg, LLP was paid aggregate fee of approximately $18,400 for the review of the financial statements for the quarter ended March 31, 2013 and approximately $140,000 for professional services rendered for the audit of our annual financial statements for the year ended December 31, 2012.

Li and Company, PC was paid aggregate fee of approximately $20,000 for the review of the financial statements for the quarters ended June 30, 2013 and September 30, 2013.

Audit Related Fees. Our auditors were not paid additional fees for the fiscal years ended December 31, 2013 and December 31, 2012 for assurance and related services reasonably related to the performance of the audit or review of our financial statements.

Tax Fees. We did not pay our auditors any fees for the fiscal years ended December 31, 2013 and December 31, 2012 for professional services rendered for tax compliance, tax advice and tax planning. This service was not provided.

All Other Fees. Li and Company, PC was paid $1,500 for its service of verifying restricted cash at June 30, 2013 per the request of NYSE MKT LLC. We did not pay our auditors any other fees for professional services during the fiscal year ended December 31, 2012.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

Our audit committee and board of directors reviewed and approved all audit services provided by our auditors, and has determined that our auditors’ provision of such services to us during 2013 and 2012 is compatible with and did not impair their independence. It is the practice of our audit committee and board of directors to consider and approve in advance all auditing services provided to us by our independent auditors.

We have audited the accompanying consolidated balance sheet of China GengSheng Minerals, Inc. (the "Company") as of December 31, 2013, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

The balance sheet of the Company as of December 31, 2012 and the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for the year then ended was audited by another independent registered public accounting firm whose report was dated April 15, 2013. The other independent registered public accounting firm’s report has been furnished to us, and our opinion, insofar as it relates to amounts included for such prior period, is based solely on the report of such other independent registered public accounting firm.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2013, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company had working capital deficiency at December 31, 2013 and a net loss for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have audited the accompanying consolidated balance sheet of China GengSheng Minerals, Inc. and its subsidiaries (the "Company") as of December 31, 2012, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2012, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ EFP Rotenberg, LLP
EFP Rotenberg, LLP
Certified Public Accountants
Rochester, New York
April 15, 2013

	CHGS Stockholders' Equity																Non-controlling interest
												Accumulated Other												Accumulated Other
												Comprehensive												Comprehensive
	Common Stock Par Value $0.001											Income (Loss)												Income (Loss)
					Additional		Statutory		Retained Earnings			Foreign Currency												Foreign Currency			Total Non-
	Number of				Paid-in		and other		(Accumulated			Translation Gain		Total CHGS			Capital		Paid-in		Retained			Translation Gain			controlling
	Shares		Amount		Capital		reserves		Deficit)			(Loss)		Stockholders' Equity			Stock		Capital		Earnings			(Loss)			Interest			Total Equity

Balance, December 31, 2011	26,803,044	$	26,803		28,197,310	$	8,110,972	$	9,541,560		$	7,713,341	$	53,589,986			19,400	$	289,917	$	(48,282	)	$	(47,235	)	$	194,400		$	53,784,386

Comprehensive income (loss)
Net Loss									(13,539,454	)				(13,539,454	)						(55,456	)					(55,456	)		(13,594,910	)
Foreign currency translation gain												281,017		281,017										11,422			11,422			292,439

Total comprehensive income (loss)														(13,258,437	)												(44,034	)		(13,302,471	)

Balance, December 31, 2012	26,803,044		26,803		28,197,310		8,110,972		(3,997,894	)		7,994,358		40,331,549			19,400		289,917		(103,738	)		(35,813	)		150,366			40,481,915

Comprehensive income (loss)
Net Loss									(18,181,093	)				(18,181,093	)						(61,378	)					(61,378	)		(18,242,471	)
Foreign currency translation gain												715,850		715,850										11,809			11,809			727,659
Appropriation to reserves							130,587		(130,587	)				-													-			-

Total comprehensive income (loss)														(17,465,243	)												(49,569	)		(17,514,812	)

Balance, December 31, 2013	26,803,044	$	26,803	$	28,197,310	$	8,241,559	$	(22,309,574	)	$	8,710,208	$	22,866,306		$	19,400	$	289,917	$	(165,116	)	$	(24,004	)	$	100,797		$	22,967,103

China GengSheng Minerals, Inc. (formerly Silver Mountain Mining Company, Leadpoint Consolidated Mines Company, Point Acquisition Corporation, or China Minerals Technologies, Inc.) (CHGS or the “Company”) was originally incorporated on November 13, 1947, in accordance with the laws of the State of Washington and on August 15, 2006 changed its state of incorporation from Washington to Nevada by means of a merger with and into a Nevada corporation formed on May 23, 2006, solely for the purpose of effectuating the reincorporation. On July 26, 2007, the Company changed to its current name, China GengSheng Minerals, Inc.

The Company is a holding company whose primary business operations are conducted through its subsidiaries located in the Henan Province of the People’s Republic of China (“PRC”). Through its operating subsidiaries, the Company produces and markets a broad range of monolithic refractory, functional ceramics, fracture proppant, fine precision abrasives, and corundum materials.

The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.

Company name	Place/date of incorporation or establishment	The Company's effective ownership interest	Common stock / registered capital	Principal activities

GengSheng International Corporation (“GengSheng International”)	The British Virgin Islands (the “BVI”)/ November 3, 2004	100%	Ordinary shares :- Authorized: 50,000 shares of $1 each Paid up: 100 shares of $1 each	Investment holding

Henan GengSheng Refractories Co., Ltd. (“Refractories”)	The People's Republic of China (the “PRC”)/ December 20, 1996	100%	Registered capital of $12,089,879 fully paid up	Manufacturing and distribution of refractory products

Henan GengSheng High-Temperature Materials Co., Ltd. (“High-Temperature”)	PRC/ September 4, 2002	89.33%	Registered capital of $1,246,300 fully paid up	Manufacturing and distribution of functional ceramic products

Smarthigh Holdings Limited (“Smarthigh”)	BVI/ November 5, 2004	100%	Ordinary shares :- Authorized: 50,000 shares of $1 each Paid up: 100 shares of $1 each	Investment holding

Zhengzhou Duesail Fracture Proppant Co., Ltd. (“Duesail”)	PRC/ August 14, 2006	100%	Registered capital of $2,800,000 fully paid up	Manufacturing and distribution of fracture proppant products

Henan GengSheng Micronized Powder Materials Co., Ltd. (“Micronized”)	PRC/ March 31, 2008	100%	Registered capital of $5,823,000 fully paid up	Manufacturing and distribution of fine precision abrasives

Guizhou Southeast Prefecture GengSheng New Materials Co., Ltd. (“Prefecture”)	PRC/ April 13, 2004	100%	Registered capital of $141,840 fully paid up	Manufacturing and distribution of corundum materials

Henan Yuxing Proppant Co., Ltd. (“Yuxing”)	PRC/ June 3, 2011	100%	Registered capital of $3,086,000 fully paid up	Manufacturing and distribution of fracture proppant products

The consolidated financial statements include all accounts of the Company and the consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported earnings or (losses).

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, pledged deposits, accounts receivable, prepayments and other current assets, accounts payable, accrued warranty, corporate income/VAT tax payable, accrued expenses and other current liabilities approximate their fair values because of the short maturity of these instruments.

The Company’s banker’s acceptance notes receivable, loans payable, and banker’s acceptance notes payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at December 31, 2013 and 2012.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property, plant and equipment and land use rights are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

The key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels, gross margins, and operating costs of the manufacturing facilities. These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions. Any difficulty in manufacturing or sourcing raw materials on a cost effective basis would significantly impact the projected future cash flows of the Company’s manufacturing facilities and potentially lead to an impairment charge for long-lived assets. Other factors, such as increased competition or a decrease in the desirability of the Company’s products, could lead to lower projected sales levels, which would adversely impact cash flows. A significant change in cash flows in the future could result in an impairment of long lived assets.

The impairment charges, if any, is included in operating expenses in the accompanying consolidated statements of income and comprehensive income (loss).

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

The Company does not have any off-balance-sheet credit exposure to its customers.

Certain of the Company’s customers satisfy their accounts receivable, through the issuance of banker’s acceptance notes issued by financial institutions to the Company. These notes are usually of a short term nature, three (3) to nine (9) months in length. They are non-interest bearing, due upon maturity, and are paid by the Customers’ financial institutions directly to the Company upon presentation on the date of maturity and the Customers are obliged to repay the note in full to the financial institutions.

The Company values inventories, consisting of raw materials, consumables, packaging material, finished goods, and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method for raw materials and packaging materials and the weighted average cost method for finished goods. Cost of finished goods comprises direct labor, direct materials, direct production cost and an allocated portion of production overhead. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.

Normal Capacity and Period Costs of Underutilized or Idle Capacity of the Production Facilities

The Company follows paragraph 330-10-30-3 of the FASB Accounting Standards Codification for the allocation of production costs and charges to inventories. The Company allocates fixed production overhead to inventories based on the normal capacity of the production facilities expected to be achieved over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. Judgment is required to determine when a production level is abnormally low (that is, outside the range of expected variation in production). Factors that might be anticipated to cause an abnormally low production level include significantly reduced demand, labor and materials shortages, and unplanned facility or equipment down time. The actual level of production may be used if it approximates normal capacity. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of abnormally low production or idle plant and unallocated overheads of underutilized or idle capacity of the production facilities are recognized as period costs in the period in which they are incurred rather than as a portion of the inventory cost.

The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. Other significant estimates include the allocation of variable and fixed production overheads. While variable production overheads are allocated to each unit of production on the basis of actual use of production facilities, the allocation of fixed production overhead to the costs of conversion is based on the normal capacity of the Company’s production facilities, and recognizes abnormal idle facility expenses as current period charges. Certain costs, including categories of indirect materials, indirect labor and other indirect manufacturing costs which are included in the overhead pools are estimated. The management of the Company determines its normal capacity based upon the amount of operating hours of the manufacturing machinery and equipment in a reporting period.

The Company accounts for investments in common stock or in-substance common stock (or both common stock and in-substance common stock) of an investee of which the Company has significant influence (see paragraph 323-10-15-6) in the operating or financial policies even though the Company holds 50% or less of the common stock or in-substance common stock, in accordance with sub-topic 323-10 of the FASB Accounting Standards Codification (“Sub-topic 323-10”).

Investments held in stock of entities other than subsidiaries, namely corporate joint ventures and other non-controlled entities usually are accounted for by one of three methods (i) the fair value method (addressed in Topic 320), (ii) the equity method (addressed in Topic 323), or (iii) the cost method (addressed in Subtopic 325-20). Pursuant to paragraph 323-10-05-5 the equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial policies of the investee.

Pursuant to paragraph 323-10-15-6 the ability to exercise significant influence over operating and financial policies of an investee may be indicated in several ways, including but limited to the following: a. Representation on the board of directors, b. Participation in policy-making processes, c. Material intra-entity transactions, d. Interchange of managerial personnel, and e. Technological dependency. Pursuant to paragraph 323-10-15-8 an investment (direct or indirect) of 20 percent or more of the voting stock of an investee shall lead to a presumption that in the absence of predominant evidence to the contrary an investor has the ability to exercise significant influence over an investee. Conversely, an investment of less than 20 percent of the voting stock of an investee shall lead to a presumption that an investor does not have the ability to exercise significant influence unless such ability can be demonstrated.

Pursuant to Paragraph 323-10-30-2 an investor shall measure an investment in the common stock of an investee (including a joint venture) initially at cost in accordance with the guidance in Section 805-50-30. An investor shall initially measure, at fair value, a retained investment in the common stock of an investee (including a joint venture) in a deconsolidation transaction in accordance with paragraphs 810-10-40-3A through 40-5.

Pursuant to Section 323-10-35 under the equity method, an investor shall recognize its share of the earnings or losses of an investee in the periods for which they are reported by the investee in its financial statements rather than in the period in which an investee declares a dividend. An investor shall adjust the carrying amount of an investment for its share of the earnings or losses of the investee after the date of investment including adjustments similar to those made in preparing consolidated financial statements and shall report the recognized earnings or losses in income. An investor's share of losses of an investee may equal or exceed the carrying amount of an investment accounted for by the equity method plus advances made by the investor. An equity method investor shall continue to report losses up to the investor's investment carrying amount, including any additional financial support made or committed to by the investor and the investor ordinarily shall discontinue applying the equity method if the investment (and net advances) is reduced to zero and shall not provide for additional losses unless the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee. If the investee subsequently reports net income, the investor shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended. If a series of operating losses of an investee or other factors indicate that a decrease in value of the investment has occurred that is other than temporary the loss in value of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. However, a decline in the quoted market price below the carrying amount or the existence of operating losses alone is not necessarily indicative of a loss in value that is other than temporary.

Pursuant to paragraph 323-10-50-3 all of the following disclosures generally shall apply to the equity method of accounting for investments in common stock:

Property, plant and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to statements of operations as incurred. Depreciation of property, plant and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of income and comprehensive income.

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 A lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

Operating leases primarily relate to the Company’s leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

Land use rights represent the cost to obtain the right to use certain parcels of land in China. Land use rights are carried at cost and amortized on a straight-line basis over the lives of the rights of ranging from 39 to 50 years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

The Company satisfies certain accounts payable, through the issuance of banker’s acceptance notes issued by financial institutions to certain of the Company’s vendors. These notes are usually of a short term nature, three (3) to nine (9) months in length. They are non-interest bearing and due upon maturity, and are paid by the Company’s banks directly to the vendors upon presentation on the date of maturity and the Company is obliged to repay the note in full to the financial institutions. In the event of insufficient funds to repay these notes, the Company's bank will convert them to loans on demand with interest at a predetermined rate per annum payable monthly.

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

The Company estimates future costs of warranty obligations in accordance with ASC 460-10, which requires an entity to disclose and recognize a liability for the fair value of the obligation it assumes upon issuance of a warranty. The Company warrants its refractory products for a specific period of time, usually 12 months, against material defects. The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty. The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

The Company follows paragraph 810-10-65-1 of the FASB Accounting Standards Codification to report the non-controlling interests in its majority owned subsidiary in the consolidated statements of balance sheets within the equity section, separately from the Company’s stockholders’ equity. Non-controlling interests represents the non-controlling interest holder’s proportionate share of the equity of the Company’s majority-owned subsidiary. Non-controlling interest is adjusted for the non-controlling interest holder’s proportionate share of the earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.

The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.

The Company follows paragraph 730-10-25-1 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 2 “Accounting for Research and Development Costs”) and paragraph 730-20-25-11 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 68 “Research and Development Arrangements”) for research and development costs. Research and development costs are charged to expense as incurred. Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment, material and testing costs for research and development as well as research and development arrangements with unrelated third party research and development institutions.

Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities

The research and development arrangements usually involve specific research and development projects. Often times, the Company makes non-refundable advances upon signing of these research and development arrangements. The Company adopted paragraph 730-20-25-13 and 730-20-35-1 of the FASB Accounting Standards Codification (formerly Emerging Issues Task Force Issue No. 07-3

“Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities”) for those non-refundable advances. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the related services are performed. The management continues to evaluate whether the Company expect the goods to be delivered or services to be rendered. If the management does not expect the goods to be delivered or services to be rendered, the capitalized advance payment are charged to expense.

Receipts of government grants (i) to construct environmental protection and improvement projects and (ii) to encourage research and development and (iii) to subsidize energy conservation activities which are non-refundable are credited to unearned government grants upon receipt. The grants are used for purchases of assets, to subsidize the research and development and energy conservation expenses incurred, for compensation expenses already incurred or for good performance of the Company.

Grants applicable to the construction of the environmental protection and improvement projects are recorded as a credit to the total cost of pollution prevention projects upon completion of the pollution prevention projects. For research and development expenses, the Company matches and offsets the government grants with the expenses of the research and development activities as specified in the grant approval document in the corresponding period when such expenses are incurred and records related government grants as credit to research and development and pollution prevention project cost accordingly. For government grants received as compensation for expenses already incurred are recognized as income in the period they become recognizable.

The Company has acted as guarantor for certain bank loans granted to third parties which provide guarantees to the Company’s loans payable. The Company assessed its obligation under this guarantee pursuant to the provision of ASC 460 “Guarantee”. The Company recognized in its consolidated financial statements a liability for that guarantee at fair value at the date of inception and recognized as an expense in profit or loss immediately. The amount of guarantee liability is amortized in profit or loss over the term of the guarantee as income from financial guarantees issued.

The Company applies the guidelines as set out in Section 830-20-35 of the FASB Accounting Standards Codification (“Section 830-20-35”) for foreign currency transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency or Chinese Yuan or Renminbi, the Company’s Chinese operating subsidiaries' functional currency. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments. Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following shall apply to all foreign currency transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Income and Comprehensive Income in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended December 31, 2013 or 2012.

The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars. Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign currency (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.

The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered. If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss). If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).

Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiaries’ local currencies to be their respective functional currencies.

The financial records of the Company's Chinese operating subsidiaries are maintained in their local currency, the Renminbi (“RMB”), which is the functional currency. Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC. Commencing July 21, 2005, China adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. The exchange rate of the US dollar against the RMB was adjusted from approximately RMB 8.28 per U.S. dollar to approximately RMB 8.11 per U.S. dollar on July 21, 2005. Since then, the PBOC administers and regulates the exchange rate of the U.S. dollar against the RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.

Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation (www.oanda.com) contained in its consolidated financial statements. Management believes that the difference between RMB vs. U.S. dollar exchange rate quoted by the PBOC and RMB vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial. Translations do not imply that the RMB amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars. Translation of amounts from RMB into U.S. dollars has been made at the following exchange rates for the respective periods:

The Company has applied section 220-10-45 of the FASB Accounting Standards Codification. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income (loss), for the Company, consists of net income (loss) and foreign currency translation adjustments and is presented in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) and Stockholders’ Equity.

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants.

There were no potentially dilutive common shares outstanding for the reporting period ended December 31, 2013 or 2012.

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

The Company follows Topic 280 of the FASB Accounting Standards Codification for segment reporting. Pursuant to Paragraph 280-10-50-1 an operating segment is a component of a public entity that has all of the following characteristics: a. It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). b. Its operating results are regularly reviewed by the public entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. c. Its discrete financial information is available. In accordance with Paragraph 280-10-50-5 the term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the segments of a public entity. Often the chief operating decision maker of a public entity is its chief executive officer or chief operating officer, but it may be a group consisting of, for example, the public entity's president, executive vice presidents, and others. Pursuant to Paragraph 280-10-50-10 a public entity shall report separately information about each operating segment that meets both of the following criteria: a. Has been identified in accordance with paragraphs 280-10-50-1 and 280-10-50-3 through 50-9 or results from aggregating two or more of those segments in accordance with the following paragraph; and b. Exceeds the quantitative thresholds in paragraph 280-10-50-12. In accordance with Paragraph 280-10-50-12 a public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds: a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments. b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either: 1. The combined reported profit of all operating segments that did not report a loss, or 2. The combined reported loss of all operating segments that did report a loss. c. Its assets are 10 percent or more of the combined assets of all operating segments. Pursuant to Paragraphs 280-10-50-22 and 280-10-50-29, a public entity shall report a measure of profit or loss and total assets for each reportable segment and provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following: a. The basis of accounting for any transactions between reportable segments. b. The nature of any differences between the measurements of the reportable segments' profits or losses and the public entity's consolidated income (loss) before income tax provision, extraordinary items, and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). c. The nature of any differences between the measurements of the reportable segments’ assets and the public entity's consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). d. The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss. e. The nature and effect of any asymmetrical allocations to reportable segments.

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the consolidated financial statements.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the consolidated financial statements, the Company had working capital deficiency at December 31, 2013 and a net loss for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is attempting to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company recognized inventory obsolescence adjustments of $75,540 and $123,422 in the cost of goods sold for the year ended December 31, 2013 or 2012, respectively.

There were no lower of cost or market adjustments for the reporting period ended December 31, 2013 or 2012.

The Company acquired a 24.5% equity interest in Yili YiQiang Silicon Limited ("Yili"), a company incorporated in China and engaged in manufacturing and trading of silicon carbide, for RMB 15 million (approximately $2.36 million).

Investment in an entity over which the Company does not have control, but has significant influence in the operating or financial policies, is accounted for using the equity method of accounting. The Company accounts for its investment in Yili using the equity method of accounting and reports such in the consolidated balance sheets as investment in a non-consolidated affiliate.

The management of the Company performed its annual impairment testing and determined that there was no impairment as of December 31, 2013 or 2012.

Property, plant and equipment, stated at cost, less accumulated depreciation consisted of the following:

Land use rights, stated at cost, less accumulated amortization consisted of the following:

(*) All banker’s acceptance notes payable outstanding at December 31, 2012 were fully repaid.

From time to time, the Chairman, CEO and significant stockholder of the Company advances funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand and recorded as loan payable – non-interest bearing from the Company’s Chairman and CEO in the consolidated balance sheets.

Guarantee of Loans Payable – Banks by Chairman, CEO and Significant Stockholder

Mr. Shunqing Zhang, the Chairman, CEO and significant stockholder of the Company, provided the guarantee to loans payable – banks and loan payable – non-financial institutions.

On January 1, 2012 the Company entered into an employment agreement with Mr. Shunqing Zhang, Chairman and CEO of the Company effective upon signing.

Unless terminated earlier as provided in Section 5 of this Agreement, this Agreement shall have an initial term (the “Initial Term”) commencing as of the date of this Agreement and expiring on December 31, 2013 and continuing on a year-to-year basis thereafter unless terminated by either party on not less than thirty (30) day notice prior to the expiration of the Initial Term or any one-year extension. The Initial Term and the one-year extensions are collectively referred to as the “Term.”

For her services to the Company during the Term, the Company shall pay Executive an annual salary (“Salary”) at the rate of RMB 70,000 (approximately $11,305) per annum. All Salary payments shall be payable in such installments as the Company regularly pays its employees in accordance with normal payroll practices.

During the period from the date of this Agreement until one (1) year following the date on which Executive’s employment is terminated, he will not, directly or indirectly: (1) Persuade or attempt to persuade any person or entity which is or was a customer, client or supplier of the Company to cease doing business with the Company, or to reduce the amount of business it does with the Company (the terms “customer” and “client” as used in Section 7 to include any potential customer or client to whom the Company submitted bids or proposals, or with whom the Company conducted negotiations, during the term of Executive’s employment hereunder or during the twelve (12) months preceding the termination of his employment); (2) solicit for himself or any other person or entity other than the Company the business of any person or entity which is a customer or client of the Company, or was a customer or client of the Company within one (1) year prior to the termination of his employment; or (3) persuade or attempt to persuade any employee of the Company, or any individual who was an employee of the Company during the one (1) year period prior to the lawful and proper termination of this Agreement, to leave the Company’s employ, or to become employed by any person or entity other than the Company.

Mr. Zhang voluntarily received a reduced salary of approximately $48,450 and $47,520 during the fiscal year of 2013 and 2012.

On September 16, 2013 the Company entered into an employment agreement with Ms. Zhang was appointed the interim Chief Financial Officer effective upon signing.

Unless terminated earlier as provided in Section 6 of this Agreement, this Agreement shall have a term (the “Term”) commencing as of September 16, 2013 and expiring on the date when a suitable candidate for Chief Financial Officer has been qualified and selected unless terminated by either party on not less than thirty (30) day notice prior to the expiration of the Term.

For his services to the Company during the Term, the Company shall pay Executive an annual salary (“Salary”) at the rate of $78,700. All Salary payments shall be payable in such installments as the Company regularly pays its employees in accordance with normal payroll practices.

In accordance with the PRC tax regulations, the Company’s sales are subject to value added tax (“VAT”) at 17% upon the issuance of VAT invoices to its customers. When preparing these consolidated financial statements, the Company recognized revenue when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are delivered to and accepted by customers, and made full tax provision in accordance with relevant national and local laws and regulations of the PRC.

The Company follows the practice of reporting its revenue for PRC tax purposes when invoices are issued. In the statutory financial statements prepared for VAT and corporate income tax purposes the Company recognized revenue on an “invoice basis” instead of when the significant risks and rewards of ownership have been transferred to the buyer at the time when the products are delivered to and accepted by customers. Accordingly, despite the fact the Company has made full tax provision in the consolidated financial statements, the Company may be subject to a penalty for the deferred reporting of tax obligations. The exact amount of penalty cannot be estimated with any reasonable degree of certainty. The management considers it is very unlikely that the tax penalty will be imposed.

The Company has acted as guarantor for bank loans granted to third parties which provide guarantees to the Company’s loans payable.

The amount of bank loans guaranteed by the Company as of December 31, 2013 was as follows:

							Principal
							repaid		Balance		Outstanding
	Term loan						through		Outstanding		interest at		Estimated
Guarantee	draw down	Date of	Interest rate		Principal of		December		at December		December		maximum
(a)	date	Expiration	per annum		the loan		31, 2013		31, 2013		31, 2013		exposure (b)

	08/27/2012	08/26/2015	11.664%		1,637,000		-		1,637,000		320,674		1,957,674
	01/12/2013	01/11/2014	8.640%		8,185,000		-		8,185,000		40,687		8,225,687
	06/08/2013	06/06/2014	6.000%		3,274,000		-		3,274,000		89,878		3,363,878
	06/29/2013	06/25/2014	11.520%		818,500		-		818,500		48,050		866,550
	10/23/2013	10/22/2014	6.000%		3,274,000		-		3,274,000		164,148		3,438,148
	10/29/2013	10/28/2014	7.800%		736,650		-		736,650		48,958		785,608
	11/25/2013	11/24/2014	6.000%		3,274,000		-		3,274,000		181,909		3,455,909

				$	21,199,150	$	-	$	21,199,150	$	894,304	$	22,093,454

The amount of bank loans guaranteed by the Company as of December 31, 2012 was as follows:

							Principal
							repaid		Balance		Outstanding
	Term loan						through		Outstanding		interest at		Estimated
Guarantee	draw down	Date of	Interest rate		Principal of		December		at December		December		maximum
(a)	date	Expiration	per annum		the loan		31, 2012		31, 2012		31, 2012		exposure (b)

	01/12/2012	01/11/2013	6.588%		7,925,000		-		7,925,000		30,039		7,955,039
	03/06/2012	03/05/2013	7.216%		2,060,500		-		2,060,500		30,144		2,090,644
	06/05/2012	06/04/2013	7.930%		4,755,000		-		4,755,000		170,457		4,925,457
	06/29/2012	06/26/2013	12.096%		792,500		-		792,500		49,112		841,612
	07/16/2012	07/15/2013	7.200%		3,170,000		-		3,170,000		129,440		3,299,440
	08/27/2012	08/26/2015	11.664%		1,585,000		-		1,585,000		495,869		2,080,869
	08/31/2012	08/30/2013	6.600%		713,250		-		713,250		32,630		745,880
	09/10/2012	09/09/2013	6.000%		427,950		-		427,950		18,502		446,452
	09/20/2012	09/19/2013	6.000%		3,170,000		-		3,170,000		142,259		3,312,259
	10/26/2012	10/25/2013	6.160%		3,170,000		-		3,170,000		165,312		3,335,312
	11/23/2012	11/22//2013	6.160%		3,170,000		-		3,170,000		179,757		3,349,757

				$	30,939,200	$	-	$	30,939,200	$	1,443,521	$	32,382,721

All of bank loans guaranteed by the Company at December 31, 2012 have been fully repaid by relevant third party borrowers for both principal and interest when they became due.

Upon formation the aggregate number of shares which the Corporation shall have authority to issue is 3,000,000 shares of common stock par value $0.10.

On April 15, 1978 the Company filed first Articles of Amendment with the Secretary of the State of the State of Washington to change total number of shares of Common Stock the Company is authorized to issue to Ten Million (10,000,000) shares, par value $0.05.

On May 22, 2006 the Company formed a Nevada corporation by filing the Articles of Incorporation with the Secretary of the State of the State of Nevada whereby the Company is authorized to issue is One Hundred Fifty Million (150,000,000) shares of which Fifty Million (50,000,000) shares shall be Preferred Stock, par value $0.001 per share, and One Hundred Million (100,000,000) shares shall be Common Stock, par value $0.001 per share.

On August 15, 2006 the Company changed its state of incorporation from Washington to Nevada by means of a merger with and into a Nevada corporation formed on May 22, 2006, solely for the purpose of effectuating the reincorporation.

At the annual meeting of stockholders of the Company held on September 28, 2011, the majority stockholders of the Company approved the 2011 Stock Incentive Plan (the “2011 Stock Incentive Plan”). The purpose of the 2011 Stock Incentive Plan is to advance the interests of the Company by providing an incentive to attract, retain and motivate highly qualified and competent persons who are important to us and upon whose efforts and judgment the success of the Company is largely dependent. Grants to be made under the 2011 Stock Incentive Plan are limited to the Company’s employees, including employees of the Company’s subsidiaries, the Company’s directors and consultants to the Company. The recipients of any grant under the 2011 Stock Incentive Plan, and the amount and terms of a specific grant, are determined by the Board of Directors of the Company. Should any option granted or stock awarded under the 2011 Stock Incentive Plan expire or become un-exercisable for any reason without having been exercised in full or fail to vest, the shares subject to the portion of the option not so exercised or lapsed will become available for subsequent stock or option grants.

Shares of stock issuable under the 2011 Stock Incentive Plan are available either from authorized but unissued shares or from shares reacquired by us on the open market. Subject to the adjustment provision mentioned below, the maximum number of shares of Stock available for issuance under the 2011 Stock Incentive Plan shall be 3,000,000. All of the shares of Stock available for issuance under the 2011 Stock Incentive Plan shall be available for issuance pursuant to Incentive Stock Options. To the extent shares of Stock not issued under an Option must be counted against this limit as a condition to satisfying the rules applicable to incentive stock options, such rule shall apply to the limit on incentive stock options granted under the 2011 Stock Incentive Plan. Stock issued or to be issued under the 2011 Stock Incentive Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been reacquired by the Company. The maximum number of shares of Common Stock that may be subject to Awards (denominated in shares of Stock) to any one Grantee during any calendar year shall not exceed 100,000. If an Award is denominated in shares of Stock but an equivalent value of cash is paid in lieu of shares, the foregoing limit shall be applied to the shares based on the methodology used by the Committee to convert the shares to cash. For any awards that are stated with reference to a specified dollar limit, the maximum amount that may be paid to any one Grantee with respect to a 12 month performance period shall equal to the dollar equivalent of the number of shares that can be awarded to any one Grantee during a 12-month performance period (prorated up or down for performance periods that are greater or lesser than 12 months). If a SAR is granted in tandem with an Option, the SAR and the Option are considered one Award.

The Board of Directors of the Company did not grant any stock option or stock appreciation right under its 2011 Stock Incentive Plan as of the date when the financial statements were issued for the reporting period ended December 31, 2013 or 2012.

As of December 31, 2013, there were 3,000,000 shares of common stock remaining available for issuance under the 2011 Stock Incentive Plan.

Under the laws of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) cumulative prior years’ losses, if any; (ii) allocations to the “Statutory Surplus Reserve” of at least 10% of net income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital; (iii) allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company’s “Statutory Common Welfare Fund”, which is established for the purpose of providing employee facilities and other collective benefits to employees in PRC; and (iv) allocations to any discretionary surplus reserve, if approved by stockholders.

Before the reorganization, a former subsidiary of Refractories, Gongyi GengSheng Refractories Co., Ltd. was entitled to a special tax concession (“Tax Concession”) because it employed the required number of disabled staff according to the relevant PRC tax rules. In particular, this Tax Concession exempted the subsidiary from paying enterprise income tax. However, these tax savings can only be used for future development of its production facilities or welfare matters, and cannot be distributed as cash dividends. Accordingly, the same amount of tax savings was set aside and taken to special reserve which is not available for distribution. This reserve as maintained by the subsidiary has been combined into Refractories upon the reorganization and is subject to the same restrictions in its usage.

As of December 31, 2013, the Company had $8,241,559 statutory and other special reserves established and segregated in the retained earnings.

The Company is incorporated in the United States of America (“U.S.”) and is subject to U.S. tax laws. No income tax provision has been made as the Company has no U.S. taxable income for the reporting periods. The applicable statutory income tax rate is 34% for the reporting periods. The Company has not provided deferred tax on undistributed earnings of its non-U.S. subsidiaries as of December 31, 2013, as it is the Company's current policy to reinvest these earnings in non-U.S. operations.

GengSheng International and Smarthigh were incorporated in the BVI and are not subject to income tax under the current laws of the BVI.

The Company’s PRC subsidiaries are governed by and file separate income tax returns under the Income Tax Law of the People’s Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws (the “PRC Income Tax Law”), which, until January 2008, generally subject to tax at a statutory rate of 33% (30% state income tax plus 3% local income tax) on income reported in the statutory financial statements after appropriate tax adjustments. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “PRC New CIT Law”), effective January 1, 2008. Under the PRC New CIT Law, the corporate income tax rate applicable to all Companies, including both domestic and foreign-invested companies, will be 25%. Enterprises that are currently entitled to exemptions for a fixed term will continue to enjoy such treatment until the exemption term expires. Preferential tax treatment will continue to be granted to industries and projects that qualify for such preferential treatments under the new tax law.

Income Tax Provision in the Consolidated Statements of Operations and Comprehensive Income (Loss)

A reconciliation of the Chinese statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision for PRC subsidiaries is as follows:

During the year ended December 31, 2013 and 2012, the amounts of benefit from the tax holiday and tax concession were $155,725 and $99,218 and the effect on net loss per common share – basic and diluted were $0.006 and $0.004, respectively.

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents.

As of December 31, 2013, all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, none of which are insured; however, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

A reduction in sales from or loss of such customers would have a material adverse effect on the Company’s results of operations and financial condition.

Substantially all of the Company’s operations are carried out and all of its assets are located in the PRC, which may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies since 1980, no assurance can be given that the PRC Government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions; nor that the PRC government’s pursuit of economic reforms will be consistent or effective.

Substantially all of the Company’s operations are carried out in the PRC. The tight monetary policy currently instituted by the PRC government and increases in interest rate would have a material adverse effect on the Company’s results of operations and financial condition.

Substantially all of the Company’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. Under China’s Foreign Exchange Currency Regulation and Administration, the Company is permitted to exchange RMB for foreign currencies through banks authorized to conduct foreign exchange business. All foreign exchange transactions continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with invoices and signed contracts.

On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to U.S. Dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant volatility of the RMB against the U.S. Dollar.

Any significant revaluation of RMB may materially and adversely affect the cash flows, revenues, earnings and financial position reported in U.S. Dollar.

The Company had no foreign currency hedges in place to reduce such exposure for the year ended December 31, 2013 or 2012.

The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company's chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company's reportable segments. Management, including the chief operating decision maker, reviews operating results solely by the revenue of monolithic refractory products, industrial ceramic products, fracture proppant products, fine precision abrasives and operating results of the Company. As such, the Company has determined that it has four operating segments as defined by ASC 280, “Segment Reporting”: refractories, industrial ceramic, fracture proppant and fine precision abrasives.

Adjustments and eliminations of inter-company transactions were not included in determining segment (loss) profit, as they are not used by the chief operating decision maker.

Segment information by products for the years ended December 31, 2013 and 2012

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued. The Management of the Company determined that there were no reportable subsequent events to be disclosed.

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

/s/ Shunqing Zhang
Shunqing Zhang
Chief Executive Officer and President
(Principal Executive Officer)

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

NEVADA	91-0541437
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Large Accelerated Filer [_]	Accelerated Filer [_]
Non-Accelerated Filer [_]	Smaller Reporting Company [X]

		Year Ended December 31,
		2013			2012			2011
			Percentage			Percentage			Percentage
		Sales	of sales		Sales	of sales		Sales	of sales
		revenue	revenue		revenue	revenue		revenue	revenue
Refractories	$	33,131	54.4%	$	38,878	52.9%	$	46,572	60.5%
Industrial Ceramics		1,096	1.8%		1,802	2.5%		430	0.6%
Fracture Proppants		22,749	37.4%		24,517	33.3%		22,526	29.3%
Fine Precision Abrasive		3,905	6.4%		8,338	11.3%		7,408	9.6%
	$	60,881	100.0%	$	73,535	100.0%	$	76,936	100.0%

		Sales (in
		thousands of	Percentage of	Locations of
Customers		US dollars)	net sales	Customers
PetroChina Changqing Oil Field	$	11,108	18.2%	Xi’an, China
Shandong Steel Co., Ltd., Rizhao Subsidiary		5,460	9.0%	Rizhao, China
Fushun New Steel Co., Ltd.		5,173	8.5%	Fushun, China
CNPC Chuanqing Drilling & Exploration Corporation		4,600	7.6%	Xi’an, China
Heilongjiang Jianlong Iron & Steel LLC.		2,976	4.9%	Shuangyashan China
Anshan Baode Iron & Steel Ltd.		2,440	4.0%	Anshan, China
Gansu Jiu Steel Group Hongxing Iron & Steel Co., Ltd.		2,012	3.3%	Jiayu, China
Tuha Oil Drilling & Exploration		1,979	3.3%	Kumul, China
Anhui Chang Jiang Iron & Steel Co., Ltd.		1,676	2.8%	Maanshan China
Gangyu Fracture Proppants Co., Ltd		999	1.6%	Yuanqu, China
Total	$	38,423	63.2%

		Sales (in
		thousands of	Percentage of	Locations of
Customers		US dollars)	net sales	Customers
Jilin Petroleum Group Company Ltd.	$	9,016	12.3%	Jilin, China
Shandong Steel Co., Ltd., Rizhao Subsidiary		8,586	11.7%	Rizhao, China
Trina Solar		5,206	7.1%	Changzhou, China
Fushun New Steel Co., Ltd.		5,194	7.1%	Fushun, China
Heilongjiang Jianlong Iron & Steel LLC.		2,777	3.8%	Shuangyashan China
Zibo Hongda Steel LLC		2,540	3.5%	Zibo, China
Sinopec Shengli Oilfield		2,440	3.3%	Dongying, China
CNPC Chuanqing Drilling & Exploration Corporation		2,254	3.1%	Xi’an, China
Gansu Jiu Steel Group Hongxing Iron & Steel Co., Ltd.		1,937	2.6%	Jiayu, China
Anshan Baode Iron & Steel Ltd.		1,829	2.5%	Anshan, China
Total	$	41,779	57.0%

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.001 per share	NYSE MKT LLC

PART I
	ITEM 1. BUSINESS	2
	ITEM 1A. RISK FACTORS	12
	ITEM 1B. UNRESOLVED STAFF COMMENTS	23
	ITEM 2. PROPERTIES	23
	ITEM 3. LEGAL PROCEEDINGS	23
	ITEM 4. MINE SAFETY DISCLOSURES	23

PART II
	ITEM 5. MARKET FOR OUR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.	23
	ITEM 6. SELECTED FINANCIAL DATA	25
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
	ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA	37
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	38
	ITEM 9A. CONTROLS AND PROCEDURES.	38
	ITEM 9B. OTHER INFORMATION	39

PART III
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	39
	ITEM 11. EXECUTIVE COMPENSATION	42
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	44
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	45
	ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	45

PART IV
	ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	46

(Per ton and stated in US dollar)	2013	2012	% change
Ordinary bauxite	81.7	112.4	-27.3%
Refined bauxite	294.3	280.9	4.8%
Middle class magnesia	228.2	220.3	3.6%
High class magnesia	318.7	307.9	3.5%
Silica	392.5	339.9	15.5%
Calcium aluminates cement	881.9	847.8	4.0%
Processed aluminum oxide	723.4	755.2	-4.2%
Brown fused corundum	630.6	616.2	2.3%
White fused corundum	673.9	784.8	-14.1%

(Per ton and stated in US dollar)	2012	2011	% change
Ordinary bauxite	112.4	86.0	30.7%
Refined bauxite	280.9	261.3	7.5%
Middle class magnesia	220.3	218.8	0.7%
High class magnesia	307.9	270.5	13.8%
Silica	339.9	334.6	1.6%
Calcium aluminates cement	847.8	817.6	3.7%
Processed aluminum oxide	755.2	733.3	3.0%
Brown fused corundum	616.2	581.7	5.9%
White fused corundum	784.8	825.6	-4.9%

Trademark	Registered Number	Termination Date	Use
	6269829	March 6, 2020	Used for refractories catalogued as class number 19

*Year Ended December 31, 2013*		Sale Prices ⁽¹⁾
		High		Low
4^thQuarter	$	0.39	$	0.13
3^rdQuarter		0.21		0.07
2^ndQuarter		0.28		0.12
1^stQuarter		0.39		0.19

*Year Ended December 31, 2012*		Sale Prices
		High		Low
4^thQuarter	$	0.48	$	0.28
3^rdQuarter		0.51		0.34
2^ndQuarter		1.08		0.45
1^stQuarter		1.19		0.69

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	3,000,000	n/a	3,000,000
Equity compensation plans not approved by security holders	0	n/a	0
Total	3,000,000	n/a	3,000,000

		2013			2012
				As a percentage			As a percentage
		Dollars		of	Dollars		of
Statement of operations data:		in thousands		sales revenue	in thousands		sales revenue

Net Sales	$	60,881		100.0%	73,535		100.0%
Cost of goods sold		52,815		86.8%	60,886		82.8%
Gross margin		8,066		13.2%	12,649		17.2%

Operating expenses
Bad debt expenses		6,947		11.4%	1,731		2.4%
Selling expenses		4,804		7.9%	9,630		13.1%
Research and development expenses		1,394		2.3%	923		1.3%
General & administrative expenses		6,957		11.4%	7,319		10.0%
Impairment of fixed assets		-		0.0%	287		0.4%
Total operating expenses		20,102		33.0%	19,890		27.0%

Loss from operations		(12,036	)	-19.8%	(7,241	)	-9.8%

Other (income) expense
Interest income		(1,181	)	-1.9%	(813	)	-1.1%
Interest expense and banker’s acceptance notes discount		7,744		12.7%	7,301		9.9%
Government grant		(1,163	)	-1.9%	(559	)	-0.8%
CHGS share of net loss from a non-consolidated entity		101		0.2%	59		0.1%
Loan guarantee income		(338	)	-0.6%	(563	)	-0.8%
Loan guarantee expenses		257		0.4%	462		0.6%
Other (income) expense		496		0.8%	(25	)	0.0%

Loss before income tax provision		(17,951	)	-29.5%	(13,103	)	-17.8%

Income tax provision (benefit)		291		0.5%	492		0.7%

Net loss before non-controlling interest		(18,242	)	-30.0%	(13,595	)	-18.5%
Net loss attributable to non-controlling interest		(61	)	-0.1%	(56	)	-0.1%

Net loss attributable to CHGS stockholders		(18,181	)	-29.9%	(13,539	)	-18.4%

								Dollar ($)		Percentage
								Increase		Increase
Dollars in thousands		2013			2012			(Decrease)		(Decrease)
Net Sales	$	60,881		$	73,535		$	(12,654	)	-17.2%
Cost of goods sold		52,815			60,886			(8,071	)	-13.3%
Gross margin		8,066			12,649			(4,583	)	-36.2%

Operating expenses
Bad debt expenses		6,947			1,731			5,216		301.4%
Selling expenses		4,804			9,630			(4,826	)	-50.1%
Research and development expenses		1,394			923			471		51.0%
General & administrative expenses		6,957			7,319			(362	)	-4.9%
Impairment of fixed assets		-			287			(287	)	-100.0%
Total operating expenses		20,102			19,890			212		1.1%

Loss from operations		(12,036	)		(7,241	)		(4,795	)	66.2%

Other (income) expense
Interest income		(1,181	)		(813	)		(368	)	45.3%
Interest expense and banker’s acceptance notes discount		7,744			7,301			443		6.1%
Government grant		(1,163	)		(559	)		(604	)	108.2%
CHGS share of net loss from a non-consolidated entity		101			59			42		70.8%
Loan guarantee income		(338	)		(563	)		225		-39.9%
Loan guarantee expenses		257			462			(205	)	-44.3%
Other (income) expense		496			(25	)		521		-2,015.3%

Loss before income tax provision		(17,951	)		(13,103	)		(4,848	)	37.0%

Income tax provision (benefit)		291			492			(201	)	-40.9%

Net loss before non-controlling interest		(18,242	)		(13,595	)		(4,647	)	34.2%
Net loss attributable to non-controlling interest		(61	)		(56	)		(6	)	10.0%

Net loss attributable to CHGS stockholders		(18,181	)		(13,539	)		(4,642	)	34.3%

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

		As of		As of
		December 31,		December 31,
		2013		2012

Statutory reserves	$	4,685,523	$	4,554,936
Special reserve		3,556,036		3,556,036
Total restricted net assets	$	8,241,559	$	8,110,972
Consolidated net assets	$	22,866,306	$	40,331,549
Restricted net assets as percentage of consolidated net assets		36.0%		20.1%

	(i)	Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.
	(ii)	Inventory obsolescence and markdowns: The Company’s estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical results of physical inventory cycle counts.
	(iii)	Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
	(iv)	Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
	(v)	Accrued warranty: The Company estimates accrued warranty costs at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty. The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as reasonable allowance for warranty expenses associated with new products.
	(vi)	Revenue recognition: The Company assumes all of the revenue recognition criteria are met including reasonable assurance of collectability when recognizing revenue. The Company evaluates the key factors and assumptions used to determine the collectability of revenue being recognized.

	1)	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

	2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

	3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Name	Age	Date of Appt.	Position
Shunqing Zhang	60	April 25, 2007	Chief Executive Officer, President and Chairman
Weina Zhang	37	September 16, 2013	Interim Chief Financial Officer
Jingzhong Yu	49	November 18, 2009	Director
Ningsheng Zhou	55	July 15, 2011	Director
Hsin-I Lin	61	October 5, 2011	Director
Jeffrey Friedland	62	July 1, 2013	Director

⁽¹⁾	Mr. Zhang took a voluntary pay cut in 2012 and 2013.
⁽²⁾	Ms. Li resigned as our interim CFO on September 16, 2013.

Exhibit No.	Description
2.1	Share Exchange Agreement, dated April 25, 2007, among the Registrant, Gengsheng International and Shunqing Zhang [Incorporated by reference to Exhibit 2.1 to the Registrant’s current report on Form 8-K filed on April 27, 2007].
3.1	Articles of Incorporation of the Registrant as filed with the Secretary of State of the State of Nevada on May 22, 2006 [Incorporated by reference to Exhibit 3i.1 to the Registrant’s current report on Form 8-K filed on October 10, 2006].
3.2	Articles of Merger of the Registrant as filed with the Secretary of State of the State of Nevada on August 15, 2006 [Incorporated by reference to Exhibit 3i.2 to the Registrant’s current report on Form 8-K filed on October 10, 2006,].
3.3	Certificate of Amendment to Articles of Incorporation as filed with the Secretary of State of the State of Nevada [Incorporated by reference to Exhibit 3.1 to the Registrant’s current report on Form 8-K filed on December 13, 2006].
3.4	Certificate of Correction as filed with the Secretary of State of the State of Nevada on April 17, 2007 [Incorporated by reference to Exhibit 3.4 to the Registrant’s current report on Form 8-K filed on April 27, 2007].
3.5	Amended and Restated Bylaws of the Registrant, adopted on May 23, 2006 [Incorporated by reference to Exhibit 3.5 to the Registrant’s current report on Form 8-K filed on April 27, 2007].
4.1	Form of Registration Rights Agreement, dated April 25, 2007 [Incorporated by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K filed on April 27, 2007].
10.1	Employment Agreement, dated January 1, 2012, by and between China GengSheng Minerals, Inc. and Shunqing Zhang [Incorporated by reference to Exhibit 10.1 to the Registrant’s annual report on Form 10-K filed on April 15, 2013].
10.2	Agreement, dated June 19, 2011, by and between Zhengzhou Duesail Fracture Proppant Co., Ltd. and another party. (confidential treatment has been requested with respect to certain portions of this agreement) [Incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on June 23, 2011]
10.3	Subscription Agreement dated March 31, 2011, by and between China GengSheng Minerals, Inc. and Yili Yiqiang Silicon Company (the “Silicon”) and Silicon’s two shareholders [Incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on April 6, 2011]
10.4	Employment Agreement, dated January 11, 2013, by and between Ms. Shuxian Li and the Company [Incorporated by reference to Exhibit 10.1 to the Registration’s current report on Form 8-K filed on January 14, 2013].
10.5	Appointment Letter for Jeffrey Friedland, dated July 1, 2013 [Incorporated by reference to Exhibit 20.1 to the Registrant’s current report on Form 8-K filed on July 5, 2013]
14	Business Ethics Policy and Code of Conduct, adopted on April 25, 2007 [Incorporated by reference to Exhibit 14 to the Registrant’s current report on Form 8-K filed on April 27, 2007].
21.1	Subsidiaries of the Registrant. [Incorporated by reference to Exhibit 21 to the Registrant’s current report on Form 8-K field on April 16, 2012.]
31.1	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

Exhibit No.	Description
31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Principal Executive Officer furnished 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 Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

Contents	Page(s)

Report of Independent Registered Public Accounting Firm	F-2

Report of Independent Registered Public Accounting Firm	F-3

Consolidated Balance Sheets at December 31, 2013 and 2012	F-4

Consolidated Statements of Operations for the Year Ended December 31, 2013 and 2012	F-5

Consolidated Statement of Stockholders’ Equity for the Year Ended December 31, 2013 and 2012	F-6

Consolidated Statements of Cash Flows for the Year Ended December 31, 2013 and 2012	F-7

Notes to the Consolidated Financial Statements	F-8

		December 31, 2013			December 31, 2012

ASSETS
Current assets
Cash	$	1,169,371		$	5,408,309
Pledged deposits		29,061,661			27,079,527
Banker's acceptance notes receivable		6,325,532			9,913,668
Accounts receivable, net		45,291,341			55,811,468
Inventories, net		13,044,545			12,971,168
Prepayments and other current assets		5,077,041			9,509,182
Deferred tax assets		2,502			210,544
Total current assets		99,971,993			120,903,866
Investment in a non-consolidated entity
Investment		972,386			1,040,492
Accumulated earnings and losses		-			-
Investment in a non-consolidated entity, net		972,386			1,040,492
Property, plant and equipment
Property, plant and equipment		51,383,596			47,273,179
Accumulated depreciation		(14,422,743	)		(10,848,175	)

Property, plant and equipment, net		36,960,853			36,425,004
Land use rights
Land use rights		4,536,072			4,427,495
Accumulated amortization		(492,512	)		(391,547	)
Land use rights, net		4,043,560			4,035,948
Total Assets	$	141,948,792		$	162,405,310

LIABILITIES AND EQUITY
Current liabilities
Loans payable	$	76,267,390		$	75,127,348
Banker's acceptance notes payable		10,460,430			13,995,550
Accounts payable		24,372,133			23,808,926
Accrued warranty		76,961			100,570
Corporate tax payable		170,333			166,719
Value added tax and other taxes payable		2,670,647			2,979,261
Accrued expenses and other current liabilities		4,468,946			4,581,885
Deferred tax liabilities		396,629			513,524
Unearned government grants		98,220			649,612

Total current liabilities		118,981,689			121,923,395

Total liabilities		118,981,689			121,923,395
Commitments and contingencies

Equity
CHGS stockholders' equity
Preferred stock par value $0.001: 50,000,000 shares authorized; none issued or outstanding		-			-
Common stock par value $0.001: 100,000,000 shares authorized, 26,803,044 shares issued and outstanding		26,803			26,803
Additional paid-in capital		28,197,310			28,197,310
Statutory and other reserves		8,241,559			8,110,972
Retained earnings (accumulated deficits)		(22,309,574	)		(3,997,894	)
Accumulated other comprehensive income (loss):
Foreign currency translation gain (loss)		8,710,208			7,994,358

Total CHGS stockholders' equity		22,866,306			40,331,549

Non-controlling interest		100,797			150,366

Total equity		22,967,103			40,481,915

Total Liabilities and Equity	$	141,948,792		$	162,405,310

		For the Year			For the Year
		Ended			Ended
		December 31, 2013			December 31, 2012


Net sales	$	60,881,377		$	73,534,827

Cost of goods sold		52,814,862			60,885,990

Gross margin		8,066,515			12,648,837

Operating expenses
Bad debt expense		6,946,970			1,730,835
Selling expenses		4,803,553			9,629,997
Research and development		1,394,331			923,403
General and administrative expenses		6,957,202			7,318,775
Impairment of fixed assets		-			287,247

Total operating expenses		20,102,056			19,890,257

Loss from operations		(12,035,541	)		(7,241,420	)

Other (income) expense
Interest income		(1,181,389	)		(813,049	)
Interest expense and banker's acceptance notes discount		7,743,649			7,300,886
Government grant		(1,162,913	)		(558,665	)
CHGS share of net loss from a non-consolidated entity		100,868			59,143
Loan guarantee income		(338,285	)		(562,847	)
Loan guarantee expense		256,785			461,578
Other (income) expense		496,875			(25,845	)

Other (income) expense, net		5,915,590			5,861,201

Loss before income tax provision		(17,951,131	)		(13,102,621	)

Income tax provision		291,340			492,289

Net loss
Net loss before non-controlling interest		(18,242,471	)		(13,594,910	)
Net loss attributable to non-controlling interest		(61,378	)		(55,456	)

Net loss attributable to CHGS stockholders		(18,181,093	)		(13,539,454	)

Other comprehensive loss
FX translation loss before non-controlling interest		727,659			292,439
FX translation loss attributable to non-controlling interest		11,809			11,422

Other comprehensive loss attributable to CHGS stockholders		715,850			281,017

Comprehensive loss
Comprehensive loss before non-controlling interest		(17,514,812	)		(13,302,471	)
Comprehensive loss attributable to non-controlling interest		(49,569	)		(44,034	)

Comprehensive loss attributable to CHGS stockholders	$	(17,465,243	)	$	(13,258,437	)

Net loss per common share - Basic and diluted:

Net loss per common share - basic and diluted	$	(0.65	)	$	(0.49	)

Weighted Average Common Shares Outstanding - basic and diluted		26,803,044			26,803,044

Level 1	Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3	Pricing inputs that are generally observable inputs and not corroborated by market data.

	a.	Financial statements of an investor shall disclose all of the following parenthetically, in notes to financial statements, or in separate statements or schedules: (1) the name of each investee and percentage of ownership of common stock. (2) The accounting policies of the investor with respect to investments in common stock. Disclosure shall include the names of any significant investee entities in which the investor holds 20 percent or more of the voting stock, but the common stock is not accounted for on the equity method, together with the reasons why the equity method is not considered appropriate, and the names of any significant investee corporations in which the investor holds less than 20 percent of the voting stock and the common stock is accounted for on the equity method, together with the reasons why the equity method is considered appropriate. (3) The difference, if any, between the amount at which an investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference.
	b.	For those investments in common stock for which a quoted market price is available, the aggregate value of each identified investment based on the quoted market price usually shall be disclosed.
	c.	If investments in common stock of corporate joint ventures or other investments accounted for under the equity method are, in the aggregate, material in relation to the financial position or results of operations of an investor, it may be necessary for summarized information as to assets, liabilities, and results of operations of the investees to be presented in the notes or in separate statements, either individually or in groups, as appropriate.
	d.	Conversion of outstanding convertible securities, exercise of outstanding options and warrants, and other contingent issuances of an investee may have a significant effect on an investor's share of reported earnings or losses. Accordingly, material effects of possible conversions, exercises, or contingent issuances shall be disclosed in notes to financial statements of an investor.

	Estimated Useful
	Life (Years)

Auto	3

Buildings and leasehold improvements (i) (ii)	20

Construction in progress (iii)	-

Furniture and fixture	4-5

Machinery and equipment	5-10

	(i)	Amortization of leasehold improvements: Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.
	(ii)	Capitalized interest: The interest cost associated with the major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using weighted-average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially completed or development activity is suspended for more than a brief period.
	(iii)	Construction in progress: Construction in progress represents direct costs of construction or the acquisition cost of long-lived assets. Under U.S. GAAP, all costs associated with construction of long-lived assets should be reflected as long-term as part of construction-in-progress. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment when substantially all of the activities necessary to prepare the long-lived assets for their intended use are completed. No depreciation is provided until the construction of the long-lived assets is complete and ready for their intended use.

		December 31, 2013		December 31, 2012

Bank deposits held as collateral for banker’s acceptance notes payable (i)	$	1,969,311	$	9,585,882

Bank deposits held as collateral for loans payable – banks, secured (ii)		27,092,350		17,493,645

	$	29,061,661	$	27,079,527

	(i)	Certain suppliers require the Company to settle accounts payable in the form of banker’s acceptance notes issued by banks for which the banks undertake to guarantee the Company’s settlement of these amounts at maturity. These banker’s acceptance notes are interest free and usually mature within six to nine months from the date of issuance. The Company is required to pay the bank charges as well as maintain deposits with such banks in amounts ranging from 50% to 100% of the face amount of banker’s acceptance notes as collateral for the banks’ undertakings.
	(ii)	The Company is required to maintain deposits with banks in the amounts ranging from 75% to 100% of the principal amount of the loans as collateral for the loans payable.

		December 31, 2013			December 31, 2012

Accounts receivable	$	50,369,937		$	58,542,915

Allowance for doubtful accounts		(5,078,596	)		(2,731,447	)

	$	45,291,341		$	55,811,468

		December 31, 2013			December 31, 2012

Balance at the beginning of the reporting period	$	(2,731,447	)	$	(2,046,820	)

Additions to allowance for doubtful accounts		(2,227,197	)		(669,900	)

Foreign currency translation adjustments		(119,952	)		(14,727	)

Balance at the end of the reporting period	$	(5,078,596	)	$	(2,731,447	)

		December 31, 2013			December 31, 2012

Raw materials	$	4,397,033		$	4,327,856

Work-in-process		2,938,559			2,249,471

Finished goods		5,940,565			6,543,959

Total inventories		13,276,157			13,121,286

Inventory obsolescence reserve		(231,612	)		(150,118	)

Inventory lower of cost or market reserve		(-)			(-)

Inventory reserve		(231,612	)		(150,118	)

Inventories, net	$	13,044,545		$	12,971,168