UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2012

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

Commission File Number: 000-54117

ANNEC GREEN REFRACTORIES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	27-2951584
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
No. 5 West Section, Xidajie Street, Xinmi City, Henan Province, P.R. China	452370
(Address of principal executive offices)	(Zip code)

86-371-69999012

(Issuer’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, $0.0001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   ¨   No   þ

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   þ

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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   þ   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   þ   No   ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

Since no market exists for the registrant’s voting and non-voting common equity as of the last business day of the registrant’s most recently completed second fiscal quarter, the registrant is unable to calculate the aggregate market value of its voting and non-voting common equity.

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes   x No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of registrant’s common stock outstanding as of March 23, 2013  was 19,995,701.

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format (Check one): Yes ¨       No þ

FORM 10-K INDEX

PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	15
ITEM 1B.	UNRESOLVED STAFF COMMENTS	32
ITEM 2.	PROPERTIES	32
ITEM 3.	LEGAL PROCEEDINGS	32
ITEM 4.	MINE SAFETY DISCLOSURES	32
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	32
ITEM 6.	SELECTED FINANCIAL DATA	33
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	41
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	41
ITEM 9A	CONTROLS AND PROCEDURES.	41
ITEM 9B.	OTHER INFORMATION	42
PART II
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	43
ITEM 11.	EXECUTIVE COMPENSATION	45
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	46
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	47
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	49
PART IV
ITEM 15.	EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES	50
SIGNATURES		51

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

Ÿ our anticipated growth strategies and our ability to manage the expansion of our business operations effectively;

Ÿ our ability to maintain or increase our market share in the competitive markets in which we do business;

Ÿ our ability to keep up with rapidly changing technologies and evolving industry standards, including our ability to achieve technological advances;

Ÿ our dependence on the growth in demand for our products;

Ÿ our ability to diversify our product offerings and capture new market opportunities;

Ÿ our ability to source our needs for skilled labor, machinery and raw materials economically;

Ÿ the loss of key members of our senior management; and

Ÿ uncertainties with respect to the PRC legal and regulatory environment.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and file as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Use of Certain Defined Terms

Except where the context otherwise requires and for the purposes of this report only:

Ÿ the “Company,” “we,” “us,” and “our” refer to the combined business of Annec Green Refractories Corporation, formerly E-Band Media, Inc., a Delaware corporation, and its subsidiaries, China Green Refractories (“China Green”), a BVI limited company, Alex Industrial Investment Limited (“Alex Industrial”), a Hong Kong limited company, Zhengzhou Annec Industrial Co., Ltd. (“Zhengzhou Annec”), a PRC wholly-Foreign Owned Enterprise, and Zhengzhou Annec’s variable interest entity, through its contractual arrangement with Annec (Beijing) Engineering Technology Co., Ltd. (“Beijing Annec”), a PRC limited company;

Ÿ “BVI” refers to the British Virgin Islands;

Ÿ “Exchange Act” refers the Securities Exchange Act of 1934, as amended;

Ÿ “Hong Kong” refers to the Hong Kong Special Administrative Region of the People's Republic of China;

Ÿ “PRC,” “China,” and “Chinese,” refer to the People's Republic of China;

Ÿ “Renminbi” and “RMB” refer to the legal currency of China;

Ÿ “SEC” refers to the Securities and Exchange Commission;

Ÿ “Securities Act” refers to the Securities Act of 1933, as amended; and

Ÿ “U.S. dollars,” “dollars”, “USD” and “$” refer to the legal currency of the United States.

Ÿ All currency amounts are in USD unless otherwise stated. Foreign currency translation in this Form 10-K (excluding financial statements or amounts from the financial statements) is based on the conversion of $1.00 = RMB 6.3011 as of December 31, 2012 and $1.00 = RMB 6.3647 as of December 31, 2011 for balance sheet numbers and a weighted-average exchange rate of $1.00= RMB 6.3034 during 2012 and $1.00= RMB 6.4735 during 2011 for revenue and expense numbers.

PART I

ITEM 1 — BUSINESS

Overview

We are a competitive refractory enterprise in the PRC. Through Zhengzhou Annec and our VIE, Beijing Annec, we provide integrated stove design, turnkey contracting, refractory production and sales.

History

History of E-Band Media, Inc.

E-Band Media, Inc. was incorporated under the laws of the State of Delaware on April 28, 2010 as part of the implementation of the Chapter 11 plan of reorganization of AP Corporate Services, Inc. ("AP"). On April 18, 2011, we changed our name to Annec Green Refractories Corporation.

AP was incorporated in the State of Nevada in 1997 and was formed to provide a variety of services to small, entrepreneurial businesses. These services included business planning, market research, accounting advice, incorporation and resident agent services. Between 1997 and 1999 AP's business focus changed. In addition to providing business services, AP began to own and develop businesses related to the medical professions. In 1999 AP organized E-Band Media.com with the intent of offering live "chat" consultations via the internet with nurses and physicians. A website was developed but it was unable to generate significant revenues and the site was terminated prior to AP's bankruptcy filing in 2008.

AP filed for Chapter 11 Bankruptcy in September 2008 in the U.S. Bankruptcy Court for the Central District of California. AP's plan of reorganization was confirmed by the Court on December 24, 2009 and became effective on January 4, 2010. This plan of reorganization provided, among other things, for the incorporation of E-Band Media and the distribution of 1,085,000 shares in it to AP's bankruptcy creditors. The shares were distributed pursuant to section 1145 of the U.S. Bankruptcy Code. The plan also provided for the transfer to E-Band Media of any interest which AP and/or E-Band Media.com had in the development of a medical "chat" website. However, no assets existed at the time of reorganization.

As stated in the Plan of Reorganization ordered by the Court, these shares were issued "to enhance the distribution to creditors," i.e. to enhance their opportunity to recover the losses they sustained in the AP bankruptcy. To this end, AP, by and through its president, agreed "to use its best efforts to have the shares... publicly traded on the Over-The-Counter market in order to provide an opportunity for liquidity to the creditors" (from the Court approved "Disclosure Statement" describing the Plan of Reorganization). The present filing is a result of this commitment. Subsequent to the effectiveness of the plan of reorganization the Company issued 695,652 restricted shares (10,000,000 pre-reverse split shares) of common stock to its President, Dean Konstantine, at par value ($0.0001) for services rendered and costs advanced totaling $1,000.

On September 14, 2010, E-Band Media filed a Registration Statement on Form 10SB (File No.: 000-54117) with the SEC to register its common stock under Section 12(g) of the Exchange Act. The Registration Statement went effective by operation of law on November 13, 2010, at which point we became a reporting company under the Exchange Act.

As a result of our reverse acquisition of China Green in February 2011, we are no longer a shell company and active business operations were revived.

History of China Green Refractories Limited

China Green and its wholly-owned subsidiary Alex Industrial Investment Limited (“Alex Industrial”) were created for the sole purpose of conducting a reverse merger transaction with a U.S. public shell company. China Green was incorporated in the British Virgin Islands as a BVI Business Company on March 12, 2010. Under China Green’s Memorandum of Association, it is authorized to issue up to 50,000 shares of one class of stock with a par value of $1.00. Prior to the reverse acquisition of China Green, there were a total of 102 shares of China Green stock, which was held by five shareholders. Each share was purchased for $1.00.

1

Alex Industrial was incorporated in Hong Kong on April 1, 2010 by China Green to acquire Zhengzhou Annec Industrial Co., Ltd. (“Zhengzhou Annec”) and Zhengzhou Annec’s subsidiary Annec (Beijing) Engineering Technology Co., Ltd. (Beijing Annec). Under Alex Industrial’s Memorandum of Association, the capital of Alex Industrial is divided into 10,000 shares at $1.00 each. On March 26, 2010 China Green purchased 100 founder shares in the amount of $100. On January 14, 2011 China Green purchased all of the outstanding shares of Zhengzhou for the total consideration of $2,980,998. As a result of this transaction, the controlling equity holders of Zhengzhou Annec continued to hold 98% of the outstanding equity of Zhengzhou Annec through their direct or beneficial ownership of China Green. Accordingly, this transaction was accounted for as an exchange among related parties and all assets and liabilities were transferred at their net book value.

Zhengzhou Annec was established in 2003, a Company Limited registered in Xinmi city Henan province in the People’s Republic of China (PRC or China) with initial registered capital of $730,000. On October 8, 2003, the shareholders of Zhengzhou Annec reached a resolution to increase the registered capital of Zhengzhou Annec from $730,000 to $3.0 million. On January 14, 2011 Zhengzhou Annec became the wholly owned subsidiary of Alex Industrial and accordingly became a wholly-foreign owned enterprise (“WFOE”) under PRC law.

Beijing Annec was established in January 2008, a Company Limited in Beijing Economic and Technological Development Area in the People’s Republic of China (PRC or China), with approximately $900,000 as its initial registered capital. In 2010, Beijing Annec’s registered capital was increased from $900,000 to approximately $2.8 million. 100% of Beijing Annec’s equity is owned or controlled through assignment by LI Fuchao. On January 16, 2011, Beijing Annec entered into a contractual agreement, or the VIE agreement, with Zhengzhou Annec. The VIE Agreement includes the following arrangements:

(1)           Exclusive Business Cooperation Agreement, as amended (“Cooperation Agreement”), where Zhengzhou Annec, in general, becomes Beijing Annec’s exclusive service provider to provide Beijing Annec with business support and technical and consulting services in exchange for an annual service fee equal to Beijing Annec’s net income for such year, which amount is payable upon request of Zhengzhou Annec;

(2)           Equity Interest Pledge Agreement (“Pledge Agreement”) under which LI Fuchao, our chairman and the 100% owner of all of the equity interest in Beijing Annec, has pledged all of his equity interest in Beijing Annec to Zhengzhou Annec as a guarantee of Beijing Annec’s performance of its obligations under the Cooperation Agreement;

(3)           Exclusive Option Agreement (“Option Agreement”) under which LI Fuchao grants Zhengzhou Annec an irrevocable right and option to acquire any and all of Mr. Li’s equity interest in Beijing Annec, as and when permitted by PRC laws, for an exercise price equal to the actual capital contributions paid in the registered capital of Beijing Annec by Mr. Li unless an appraisal is required by applicable PRC laws; and

(4)           Power of Attorney (“POA”) under which Mr. Li grants Zhengzhou Annec the right to (i) attend shareholders meetings of Beijing Annec, (ii) exercise all of Mr. Li shareholder’s rights and shareholder’s voting rights in Beijing Annec, including, but not limited to the sale or transfer or pledge or disposition of his stock in whole or in part, and (iii) designate and appoint on Mr. Li’s behalf the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management of Beijing Annec.

As a result of the foregoing structure, we control 100% of Beijing Annec and have rights to all of Beijing Annec's audited total net income for such year revenues. In addition to the VIE agreement, 96.3% of the equity ownership, as of December 31, 2012, of Beijing Annec was controlled by shareholders nominated by Zhengzhou Annec. The remaining 3.7% of the equity is owned by Mr. Li Fuchao. Thus, Beijing Annec is treated as a 100% owned subsidiary for accounting purposes.

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Reverse Acquisition of China Green

On February 11, 2011, Annec Green Refractories Corporation, formerly E-Band Media, Inc. ("E-Band Media") entered and closed a  Share Exchange Agreement (“Share Exchange Agreement”), with certain  shareholders and warrant holders, Dean Konstantine, Muzeyyen Balaban, Bernieta Masters, and Linda Masters, and with China Green Refractories Limited , a BVI corporation ("China Green"),  and its shareholders, New-Source Group Limited, a BVI company, High-Sky Assets Management Limited, a BVI company, Joint Rise Investments Limited, a BVI company, Giant Harvest Investment Limited, a BVI company, and Mr. QIAN Yun Ting (collectively the “China Green Shareholders”), pursuant to that E-Band Media acquired 100% of the issued and outstanding capital stock of  China Green in exchange for 19,220 shares of E-Band Media's Series A Convertible Preferred Stock ("Series A Preferred Stock"). Pursuant to the terms of the Share Exchange Agreement, E-Band Media agreed to affect a 1-for-14.375 reverse stock split ("Reverse Split") of its outstanding common stock. The Reverse Stock Split took effect on April 18, 2011.  In addition, pursuant to the Share Exchange Agreement, the China Green shareholders acquired all 695,652 shares (10,000,000 pre-reverse split shares) of E-Band Media’s common stock from Dean Konstantine (“Controlled Shares”) and all outstanding warrants of E-Band Media from Muzeyyen Balaban, Bernieta Masters, and Linda Masters, representing warrants to purchase up to 347,826 shares (5,000,000 pre-reserve split shares) of our common stock (“Warrants”) for an aggregate purchase price of $250,000 and 100 shares of Series A Preferred Stock held by China Green shareholders. The Warrants were cancelled by the China Green shareholders pursuant to the Share Exchange Agreement. As part of the Share Exchange Agreement, the 19,220 shares of Series A Preferred Stock were converted to 19,220,000 post-reverse split shares of common stock.

As a result of the Share Exchange Agreement, the China Green shareholders owned 96% of our issued and outstanding common stock on an as-converted common stock basis as of and immediately after the effectiveness of the Reverse Split as contemplated by the Share Exchange Agreement.

As a result of the reverse acquisition, we have assumed the business and operations of China Green and its subsidiaries, and its VIE, Beijing Annec.

The consolidated financial statements accompanying this Form 10-K have been prepared with the effect of the merger of China Green and E-Band Media, Inc. as a reverse acquisition of assets and a recapitalization in accordance with accounting principles generally accepted in the United States. For accounting purposes, China Green is considered to be acquiring E-Band Media, Inc. in the merger and E-Band Media, Inc. does not meet the definition of a business in accordance with ASC Topic 805-10, Business Combinations , because E-Band Media, Inc. had no assets or liabilities at the time of closing of the merger Consequently, no goodwill or other intangibles will be recorded as part of acquisition accounting and the cost of the merger is measured at net assets acquired.

Our Corporate Structure

All of our current business operations are conducted through our wholly-foreign owned PRC subsidiary, Zhengzhou Annec, and our VIE, Beijing Annec.

Our principal executive office is located at No. 5 West Section, Xidajie Street, Xinmi City, Henan Province, 452370. The telephone number at our principal executive office is (86-371- 69999012).

Below is a chart of our corporate structure:

3

Industry

In general, refractory materials are inorganic, non-metallic, materials that can withstand temperatures of more than 1,580°C, with specific high temperature mechanical properties and high stability. Refractory materials are an important supporting material for iron and steel thermodynamic equipment, non-ferrous metals, and building materials, and are used in the chemical and electrical power industries. According to Luoyang Institute of Refractories, 70% of the world's refractories are used for smelting of iron and steel, 17% for building materials, 4% for chemical industry, 3% for non-ferrous metals industry, and 6% for other industry. In the PRC, the consumption of refractories for the iron and steel industry is approximately 65%.

Historically, the European refractory industry led the development and output of the world refractory industry. However, the refractory industry has been gradually shifting to the PRC because of the PRC’s abundant resources in refractory raw materials and rapid growth of the iron, steel and cements markets. According to Luoyang Institute of Refractories, as of 2009 the total refractory output of the PRC was more than 70% of the total refractory output of the world, making the PRC the largest refractory producing country in the world.

Industry Trends in the PRC

The PRC refractory industry is a large, highly fragmented and competitive industry whose overall performance is closely tied to the performance of other industries, such as the iron and steel industry. According to the data from refractory institute of Henan, there are more than 500 refractory companies in Henan. As such, we believe that the following trends in the iron and steel industry will have a correlating effect on the refractory industry in the PRC:

Ÿ Demand for Green Refractory. The high temperature iron and steel industry is continuously making progress to increase efficiency, lower energy consumption and develop new technologies that rely heavily on high quality of refractory products. As such, the refractory industry must continually develop and improve its refractory products to keep pace with the iron and steel industry. We continue to see a demand for “green refractory” which are refractory materials that meet certain performance levels, are environmentally friendly, and have the following characteristics: high quality, low consumption of resources and energy, environmentally friendly during production and use, and meet national environment policy and high temperature industrial standards. We intend to continue our focus our research and development in green refractory to take advantage of this growing trend.

4

Ÿ Total Solutions. Traditionally, most refractory enterprises have focused on the production of refractory products, with less emphasis on services. However, that trend is changing. The iron and steel industry, in order to reduce refractory costs and meet new requirements for iron and steel smelting technologies, is now demanding total solutions where one or more refractory companies are responsible for the supply of refractory, masonry, operation and maintenance, and dismantling of the lining after the useful life of the refractory. Through Beijing Annec, we believe that we are well positioned to take advantage of this trend.

In addition, even though the PRC is the largest refractory producing country in the world, we believe that most of the PRC’s refractory enterprises are small-scale with low industrial centralization and market shares. We are observing a trend towards industry consolidation and restructuring. We believe that given our market leadership position, we are well positioned to acquire smaller refractory companies to expand our market share and customer base.

Products and Services

We are a refractory company that designs, develops, produces, and markets refractory products. In addition, through our VIE, Beijing Annec, we provide integrated stove design, turnkey contracting, refractory production and sales.

Refractory Products

We offer a broad range of refractory products primarily marketing to the iron and steel industry. Our sales revenues for refractory products were $75,312,493 and $91,291,849 for the years ended on December 31, 2012 and 2011, respectively. We produce our refractory products through our three factories in the Henan Province: Fuliang, Fuhua and Fugang.

Fuliang and Fuhua are mainly responsible for design and production of medium and high level refractory materials for top combustion type, internal combustion type, and external combustion type hot blast stoves. Since 2008, we have focused our resources and production on the design and production of our patented 37 holes checker brick and burner for hot blast stove.

Fugang is responsible for a low temperature sintering production line for special steel smelting, consumables for production of shaped and non-shaped steels, with excellent slag resistance, thermal shock resistance and stability. Currently, the sales of consumables have been limited by the scale of our production line and we are only providing the consumables to small steel factories, such as Wuhan Iron and Steel Company, Xinjiang Iron and Steel Company, Anyang Iron and Steel Company and one foreign client, India Diangang. In 2013, we plan to expand our production capacity by improving the efficiency of machines. We believe that our current production capacity is sufficient to meet current market demand.

The below table is an illustration of our product category in 2012 and 2011:

Product	Percent of variety structure
	2012			2011
High-alumina brick		35	%		36	%
Clay brick		25	%		24	%
Silica brick		20	%		21	%
Carbonic brick		3	%		3	%
Non-shaped material		8	%		8	%
Light brick		9	%		8	%
Total		100	%		100	%

Marketing and Sales

The Company's principal market for its refractory products is the iron and steel industry in the PRC. We sell and market our products mainly through the following channels:

5

Ÿ State-owned large–scale design institutes that design hot blast stoves. Currently there are five main iron and steel design institutes in the PRC and we have established good long-term strategic relationships with three of those institutes: MCC Jingcheng, MCC Nanfang and MCC CISDI.

Ÿ Direct customer sales developed through our own marketing channels and through Beijing Annec.

Currently most of our marketing efforts and sales are focused on the PRC. However, our bricks have been used in a large-scale steel work project in India and we are negotiating with potential clients in Korea, Japan, Taiwan and Poland for sale of our refractory products.

In 2012, Zhengzhou Annec, our wholly-owned subsidiary, signed a total of 55 contracts. These contracts amounted to approximately $63 million, and included contracts with Guangxi Shenglong Metallurgy Co. Ltd valued at approximately $10 million,  Shanxi Gaoyi Steel Co.Ltd valued at approximately $5 million, and Wisdri Wuhan Iron and Steel Design and Research Institute Co.Ltd, valued at approximately $4 million. Of those contracts, there were 44 new customers with signed contracts valued at approximately $56 million.

The following are our top ten refractory clients for fiscal year ended December 31, 2012:

Clients	Sales (US $) 1		% of Total Revenue
Heibe Iron group Songding Co., Ltd		15,857,528		19	%
MCC Jingcheng		8,368,369		10	%
Hebei Jinxi Steel Group Dafang Industry Technology Co., Ltd		5,846,126		7	%
Shanxi Gaoyi Steel Sino Co., Ltd		4,542,386		5	%
Wuhu Xinxing Ductile Iron Pipes Co. Ltd		4,163,289		5	%
Tianjin Rongcheng Steel & Sino Joint Co., Ltd		6,743,594		8	%
Tangshan Ganglu Iron Co.Ltd		3,722,764		4	%
Xinjiang Daan Special Steel Co., Ltd		2,847,466		3	%
Leng Shuijiang Steel Co.Ltd		2,028,481		2	%
Lucheng Xingbao Steel Co., Ltd		2,332,094		3	%
Total		56,452,097		67	%

¹ Based on 2012 average exchange rate of US $1.00 =RMB 6.3034.

Production process

The raw materials for our refractory products consist primarily of ores, clay, and certain additives. Upon receipt of these raw materials at our facilities, we sort and classify these materials according to various specifications. Next, these materials are conveyed to a crusher for crushing. After being crushed, the raw materials are weighed and conveyed to our electronic blender which is computer-controlled where they are mixed and fully agitated into the various mixtures required for the production of different products. The use of our electronic mixture ensures the accuracy of our mixtures which improves product quality. After being mixed, the materials are conveyed to the forming workshop where the mixtures are formed into bricks – we have the ability to form bricks according to specifications submitted to us by our customers. The shaped bricks are then sent to sinter workshop for sintering after being dried, and formed into the finished products, which are then sorted according to the relevant standards. All finished products are promptly stored and packed for delivering to our customers. All rejected products are recycled.

Production equipment

We have six production lines for production of hot blast stove refractory and consumables for iron-smelting, including two silica product production lines, two alumina product production lines, and two functional product production lines. We also have more than 1,000 sets of modern processing equipment and four (4) high temperature tunnel kilns. One of our high temperature tunnel kilns is 313 meters long, the longest in Asia. Clean energy-coal seam gas is used as source of energy, and the raw material is pulverized through cone and Raymond mill. The forming equipment consists of 400-ton and 600-ton pneumatic brick presses.

6

Suppliers

We procure raw materials and chemicals to manufacture into our end products. All of our suppliers are in the PRC and we believe that there are ample numbers of suppliers and raw materials to meet our current needs. For 2012, our principal raw materials and our suppliers for our products were:

Materials	Supplier	Percent of Total Supply
Grade-one aluminite	Guizhou Zhengdaming Mining Co., Ltd		69	%
Coalbed Methane	Hong Kong and China Gas (Xinmi) Co., Ltd		100	%
Andalusite	Yinge Ciyi andalusite(Xinjian Co., Ltd		96	%
Shanxi coal	Zhengzhou Golden Energy Industrial Co., Ltd		100	%
Bauxite-based Homogenized grogs	Xiao Tianzhang Aluminum Co., Ltd		45	%
Sillimanite	Kefuming Refractories (Tianjin) Co., Ltd		94	%

In recent years, the domestic demand for our raw materials have been fluctuating with a steady increase in some of our raw materials due to the PRC’s rapid growth. As a result, the prices of raw materials have fluctuated from 2010 to 2012 as set forth below. Wide fluctuation in price for raw materials will affect our profitability. The following table shows the price change of some raw materials:

Raw material	Price in 2010 ($/ton)		Price in 2011 ($/ton)		Increased % from 2010 to 2011			Price in 2012 ($/ton)		(Decreased)/ Increased % from 2011 to 2012			(Decreased)/ Increased % from 2010 to 2012
Coal		132.13		159.70		21	%		156.18		(2	)%		18	%
Sillimanite		376.96		396.09		5	%		354.14		(11	)%		(6	)%
White corundum		658.01		686.56		4	%		706.78		3	%		7	%

Moreover, the grade of many raw materials have been declining due to gradual exploitation, resulting in a certain risk to our product quality and production cost. To control the quality, supply and price of our main raw materials, we may consider acquiring mines in the future to ensure our supply of raw materials and reduce pricing volatility.

At this present time, we typically do not enter into supply agreements. When we do, they are usually long term contracts and we do not impose minimum purchase requirements. We enter into a supply agreement not only ensure availability of the raw material but also ensure the quality of the raw material.  The cost of raw materials purchased during the term of a supplier agreement is usually the market price for the raw materials at the time of purchase. We generally do not engage in speculative raw material commodity contracts. Rather, we attempt to reflect raw material price changes in the sale price of our products.

Design and Engineering Services

In keeping pace with the demands from the iron and steel industry, through our VIE, Beijing Annec, we provide design and engineering services for hot blast stoves and blast furnace. Our design and engineering services often entail equipment specification and refractory optimization, project construction, and follow up services. In addition, as part of our services, we also supply the refractory materials for our projects.

As discussed above, in 2012, Zhengzhou Annec, our wholly-owned subsidiary, signed a total of 55 contracts. The table below summarizes the large refractory turnkey projects Zhengzhou Annec contracted during fiscal year 2012:

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Client	Stove body	Total Contract		Started Date	Completed Date/ Expected
Hebei Iron & Steel Group SongtingIron & SteelCo.,Ltd	Repair service of refractory for 4#-5# blast furnace project	$	3,092,000	3/10/2012	9/3/2012
Shanxi Gaoyi Steel Co.Ltd	Turnkey service of refractory for 1080 blast furnace project		4,680,000	7/1/2012	12/21/2012
Shanxi Dongfang Resource and Development Co.Ltd	Turnkey service of refractory for 300 blast furnace project		730,000	7/3/2012	7/3/2013
Total		$	8,502,000

Research and Development

The development of new products and new technology is important to our success. Accordingly, we devote our resources to research and development. Our research and development team consists of approximately 50 persons, which include nine professionals and professors. Our research and development team operates our central laboratory in Fuliang factory, which facilitates chemical examination of raw material, accessory material and our final product to ensure that the chemical and structural composition of our bricks are in accordance with the contract between us and our customer.

We have 16 patents of bricks and 1 patent in hot blast stove burner jointly developed with MCC Jingcheng. Currently, our team is working on developing our MgO-C brick, which has improved thermal shock resistance and thermal stability.

In 2012, we put our design concept into practice by improving our research and development functions, reinforcing tracking and guidance of technical research and development to manufacturing process, and combining our design and manufacturing processes to meet customer’s requirements. We have implemented manufacturing process tracking of Fugang’s torpedo ladle, JISCO (Jiuquan Iron and Steel Co.) Hongxing’s ceramic cup, TISCO’s (Taiyuan Iron and Steel Co.) combustor, MCC Beiying’s torpedo ladle, Tangshan Iron and Steel Co.’s andalusite product for pipe, etc. one by another, from which we have accumulated relative data for future research and development, and to improve applicability of our developed products. To reduce the production risk of developed products, in 2012 we enhanced our pre-production experiments and conducted 19 experiments, including experiments of Xingbao’s thermal shock brick, Japan Co. Ltd’s castable, thermal shock number’s effect on brick’s intensity, recycling of waste clay brick, AM creep brick, etc. We believe these experiments provide reliable experimental data for subsequent production.

We also have established long-term relationships with some of the PRC’s top iron and steel design institutes. For example, with MCC JingCheng Engineering Technology Company, we developed a top combustion swirl type stove that can generate 1250°C hot blast temperature, 100°C higher than ordinary type stoves. We obtained a patent on this technology in 2005 and it is used widely in our business. This improvement reduces the consumption of coke by 20kg/t iron which has the effect of reducing the cost per ton iron by approximately $4.43. The cost price per ton of iron is $354-$443. At an annual output of 0.50 million tons of iron, the cost savings associated with our development amount to approximately $2.21 million per year. This new top combustion stove has promoted our research and development abilities and expands our sales effectively. This service is mainly applicable for the current new-built stove and reforming of old stoves.

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Competition

The refractory manufacturing business is extremely competitive in the PRC. According to the data from Henan refractory institute, in 2012, there are more than 500 refractory companies in Henan province in 2012. We are continuing to explore ways to increase our market share in the PRC.

Our main competitors in the PRC include Sinosteel Refractory Co., Ltd., Yuxing Refractory Co., Ltd., Wunai Group, Kaixiang Refractory Co., Ltd. Sinosteel mainly produces high quality aluminum and silica refractories. Kaixiang Refractory Co., Led mainly produces clay brick and Andalusite brick Yuxing mainly produces the ceramic burner, combination brick of hot blast stove, checker brick, and refractory ball. Yuxing Refractory has an license agreement with MCC CISDI where all of the stoves designed by MCC CISDI using Yuxing Refractory patented technology are required to use the refractory from Yuxing Refractory. Wunai Group has one 200m high temperature tunnel kiln.

Growth Strategy

Our growth strategy is as follows:

Ÿ Adhere to market-oriented, optimize our research and development mode: To establish a scientific and effective research and development team; and to continue to develop our refractory products for blast furnaces, improve non-shaped material products, focus on the development of functional material market, and step up market development.

Ÿ Innovate marketing and management strategies, build Big Marketing Pattern: To improve our marketing and management system and organization, adopt regional division management domestically, enhance regional market management, expand international business to Turkey, Indonesia and Korea, increase input in other key market, such as Central Asia, India, etc., create new economic growth areas of the company, promote brand value and increase market share.

Ÿ Strengthen management of work safety, improve productivity: To strictly implement safety inspection measurement, enhance safety protections of employees, provide integrated management of main production equipment, and improve the utilize efficiency of existing equipment.

Ÿ Set up talent reservation center, create excellent management team: To optimize the human resource allocation, establish company's talent pool, accelerate the introduction of talents needed by the company’s strategic development.

Ÿ Enrich financing channels, integrate industry resources: To make full use of the advantages of capital market, and to expand our market share by pursuing strategic acquisitions of our competitors and other companies in related industries that will expand our product line and manufacturing efficiency.

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Intellectual Property

We take precaution to protect our products and our technical and proprietary know-how. In addition, we own several patents and trademarks described below.

The PRC’s intellectual property protection regime is consistent with those of other modern industrialized countries. The PRC has domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets.

We have 16 independently developed patents, and one patent jointly developed patent with MCC Jingcheng. See table below for a summary of patents in the PRC:

Patent Name	Patent No.	Owned by	Validity period
19 holes cell-type checker brick	ZL200520031144.X	Zhengzhou Annec	Jul. 04, 2005 - Jul. 04, 2015
31 holes cell-type checker brick	ZL200620008222.9	Zhengzhou Annec	Mar. 17, 2006 - Mar. 17, 2016
37 holes cell-type checker brick	ZL200620113567.X	Zhengzhou Annec	Jul. 04, 2005 - Jul. 04, 2015
61 holes cell-type checker brick	ZL200720142954.1	Zhengzhou Annec	Apr. 19, 2007 - Apr. 19, 2017
Perforated wave-shaped cell-type checker brick	ZL201020123918.2	Zhengzhou Annec	May. 5, 2010 - May. 5, 2020
Swirl type top combustion hot blast stove burner	ZL200420008906.X	Zhengzhou Annec and MCC Jingcheng	Mar. 29, 2004 - Mar. 29, 2014
Reform of hot blast stove from internal combustion to top combustion	ZL201020560182.5	Zhengzhou Annec	Oct. 12,2010- Oct 12,2020
Reform from horizontal combustion to vertical combustion	ZL201020560155.8	Zhengzhou Annec	Oct. 12,2010- Oct 12,2020
Reform of hot blast stove from external combustion to top combustion	ZL201020560165.1	Zhengzhou Annec	Oct. 12,2010- Oct 12,2020
Reform from ball type stove to top combustion stove	ZL201020559193.1	Zhengzhou Annec	Oct. 11,2010- Oct 11,2020

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Patent Name	Patent No.	Owned by	Validity period
Outlet stress-relieving arch-type structure	ZL201020597139.6	Zhengzhou Annec	Nov. 5,2010- Nov .5,2020
Compound furnace grate	ZL201020560091.1	Zhengzhou Annec	Oct. 12,2010- Oct 12,2020
Outlet stress-relieving structure	ZL201020590374.0	Zhengzhou Annec	Nov. 2,2010- Nov .2,2020
Stress-free orifice structures	ZL201020589887.X	Zhengzhou Annec	Oct. 29,2010- Oct .29,2020
Three-way pipe structure	ZL201020607825.7	Zhongzhou Annec	Nov.10,2010-   Nov .10,2020
Anti-acid spray coating composite and using method for HBS	ZL201010536567.2	Zhengzhou Annec	Nov.08.2010- Nov.08.2010

We also have several trademarks as follows:

Trademark	Registration No.	Country
	3977113	PRC
	6802049	PRC
ANNEC	6769885	PRC

Competitive Strengths

Ÿ Technical superiority . We employ experts known for their research and development skills and innovation and we observe and utilize the advanced technology of international business leaders in our industry.

Ÿ Product advantage . We have a variety of high quality patented products available in the refractory and hot-blast stove fields.

Ÿ Marketing advantage . We strive to maintain excellent relationships with our customers who include many large and medium size companies in the PRC, and we have a marketing network all over the PRC. Further, we have received high praise for the quality of our products, our post-sale service and its delivery time.

Ÿ Brand advantage . Our brands are well known in the hot stove and refractory fields and have received a number of awards.

Ÿ Environmentally friendly and energy efficient . Our products are in compliance with the PRC’s requirements related to efficiency and environmental protection.

Ÿ Recurring revenue stream . We have developed a series of patented refractory products which we use in our hot-blast furnace designs and other refractory products. These products require our customers to engage us to maintain and repair our proprietary products and, accordingly, provide us a recurring revenue stream.

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PRC Government Regulations

Business license

Zhengzhou Annec was established on July 30, 2003 with a registered capital of approximately $0.73 million. On October 8, 2003, the shareholders of Zhengzhou Annec reached a resolution of increasing the registered capital of Zhengzhou Annec from approximately $0.73 million to $3.0 million. This increase of registered capital was evidenced by amendment to the articles of association, capital assessment report, and registration of alteration filed with Zhengzhou AIC. According to the business license of Zhengzhou Annec issued on April 29, 2005, the registered capital of Zhengzhou Annec was increased to approximately $3.0 million. Any company that conducts business in the PRC must have a business license that covers a particular type of work. Zhengzhou Annec obtained a business license from the Zhengzhou Administration for Industry and Commerce on January 14, 2011, which identifies the business scope of Zhengzhou Annec as “production, sale and after-sale support of refractory and electrofusion products”.

Beijing Annec was established on January 16, 2008 with a registered capital of approximately $0.87 million. Beijing Annec obtained a business license from the Beijing Administration for Industry and Commerce on August 25, 2010, which demonstrates that the registered capital of Beijing Annec has been increased to approximately $2.8 million and identifies the business scope of Beijing Annec as “technology development, technology transfer, technology support, image-text design and production, project technology consultation, sale of construction materials, computer, software and auxiliary equipment, mechanical equipment, chemical products (not include dangerous chemical materials), import and export agency, import and export”. Prior to expanding our business beyond that of our business licenses, we may be required to apply and receive approval from the relevant PRC government authorities and we cannot assure you that we will be able to obtain the necessary government approval for any change or expansion of our business.

Environmental Regulations

We are subject to various PRC laws and regulations on environmental protection, water pollution, occupational disease, air pollution, solid waste pollution, and noise pollution and labor contracts. We are complying with these various laws and regulations and we have the license of pollution discharge. As the relevant PRC laws might be changed, we intend to regularly monitor and review our operations and procedures to ensure compliance with such laws.

Taxation

On March 16, 2007, the National People's Congress of China passed a new Enterprise Income Tax Law, or New EIT Law, and on December 6, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008. Before the implementation of the New EIT Law, foreign invested enterprises, or FIEs, established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an earned income tax, or EIT, rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax. The New EIT Law and its implementing rules impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs, unless they qualify under certain limited exceptions. Despite these changes, the New EIT Law gives FIEs established before March 16, 2007, or Old FIEs, a five-year transition period since January 1, 2008, during which time the tax rate will be increased step by step to the 25% unified tax rate set out in the New EIT Law. From January 1, 2008, for the enterprises whose applicable tax rate was 15% before the promulgation of the New EIT Law , the tax rate will be increased to 18% for year 2008, 20% for year 2009, 22% for year 2010, 24% for year 2011, 25% for year 2012. For the enterprises whose applicable tax rate was 24%, the tax rate will be changed to 25% from January 1, 2008. The discontinuation of any such special or preferential tax treatment or other incentives would have an adverse effect on any organization's business, fiscal condition and current operations in the PRC.

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In addition to the changes to the current tax structure, under the New EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization's global income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see “Risk Factors – Risks Related to Our Business – Under the Enterprise Income Tax Law, we may be classified as a ‘resident enterprise' of the PRC. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.”

The New EIT Law provides that an income tax rate of 20% may be applicable to dividends payable to non-PRC investors that are “non-resident enterprises”. Non-resident enterprises refer to enterprises which do not have an establishment or place of business in the PRC, or which have such establishment or place of business in the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC. The income tax for non-resident enterprises shall be subject to withholding at the income source, with the payor acting as the obligatory withholder under the New EIT Law, and therefore such income taxes generally called withholding tax in practice. The State Council of the PRC has reduced the withholding tax rate from 20% to 10% through the Implementation Rules of the New EIT Law. It is currently unclear in what circumstances a source will be considered as located within the PRC. We are a U.S. holding company and substantially all of our income is derived from dividends we receive from our subsidiaries located in the PRC. Thus, if we are considered a “non-resident enterprise” under the New EIT Law and the dividends paid to us by our subsidiary in the PRC are considered income sourced within the PRC, such dividends may be subject to a 10% withholding tax. Zhengzhou Annec is considered a FIE and is directly held by our subsidiary in Hong Kong. According to a 2006 tax treaty between the Mainland and Hong Kong, dividends payable by an FIE in the PRC to the company in Hong Kong which directly holds at least 25% of the equity interests in the FIE will be subject to a no more than 5% withholding tax. We expect that such 5% withholding tax will apply to dividends paid to Alex Industrial by Zhengzhou Annec, but this treatment will depend on our status as a non-resident enterprise.

Pursuant to the Provisional Regulation of the PRC on Value Added Tax and its implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in the PRC are generally required to pay value added tax, or VAT, at a rate of 17.0% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer.

Pursuant to the New EIT Law, designated hi-tech corporation may be accorded a tax preference at the rate of 15%. Zhengzhou Annec qualifies as a hi-tech corporation and is accorded certain tax incentives for said designation. Accordingly, Zhengzhou Annec was subject to tax at a statutory rate of 15% for the years ended December 31 2012 and 2011 and will continue to be subject to a 15% tax rate for the years ended December 31, 2013, and 2014.

Employment laws

We are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, and social insurance, housing funds and other welfare. These include local labor laws and regulations, which may require substantial resources for compliance.

The PRC’s National Labor Law, which became effective on January 1, 1995, and the PRC’s National Labor Contract Law, which became effective on January 1, 2008, permits workers in both state and private enterprises in the PRC to bargain collectively. The National Labor Law and the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work. The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract. The National Labor Contract Law has enhanced rights for the nation’s workers. The legislation requires employers to provide written contracts to their workers, restricts the use of temporary labor and makes it harder for employers to lay off employees. It also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term contract is renewed twice or the employee has worked for the employer for a consecutive ten-year period.

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Foreign Currency Exchange

Foreign currency exchange in the PRC is governed by a series of regulations, including the Foreign Currency Administrative Rules (1996), as amended, and the Administrative Regulations Regarding Settlement, Sale and Payment of Foreign Exchange (1996), as amended. Under these regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of the PRC State Administration of Foreign Exchange, or SAFE. FIEs established in the PRC may only buy, sell and remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by FIEs outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Reform and Development Commission. We currently do not hedge our exposure to fluctuations in currency exchange rates.

Dividend Distributions

The principal laws and regulations in the PRC governing distribution of dividends by FIEs include:

Ÿ The Sino-foreign Equity Joint Venture Law (1979), as amended, and the Regulations for the Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended;

Ÿ The Sino-foreign Cooperative Enterprise Law (1988), as amended, and the Detailed Rules for the Implementation of the Sino-foreign Cooperative Enterprise Law (1995), as amended; and

Ÿ The Foreign Investment Enterprise Law (1986), as amended, and the Regulations of Implementation of the Foreign Investment Enterprise Law (1990), as amended.

Under applicable PRC regulations, FIEs in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a FIE in the PRC is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserve fund until the accumulative amount of such reserve fund  reaches 50% of its registered capital. The general reserve fund is not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

Employees

As of December 31, 2012, we employed approximately 1,224 employees as follows, 282 in management, 847 in production, 50 in R&D team and department, and 45 in marketing.

We maintain a satisfactory working relationship with our employees, and we have not experienced any significant labor disputes or any difficulty in recruiting employees for our operations. None of our employees are represented by a labor union. There is no labor union that now represents any of our employees. The number of employees decreased by 11.7% in 2011 due to the reduction of order in 2012. To optimize structure of management and attract professionals needed by our strategic development, we plan to introduce 3-5 persons with doctor’s degree, 15-20 persons with master’s degree and 30-35 persons with bachelor’s degree in 2013.

Our employees are all in the PRC and participate in the state pension plan organized by the PRC municipal and provincial government. We are required by PRC law to cover employees in the PRC with various types of social insurance. We believe that we are in material compliance with the relevant PRC laws.

Property

All land in the PRC is owned by the State. 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 generally granted for a period of 50 years. Granted land use rights are transferable and may be used as security for borrowings and other obligations.

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All of our three factories are located in Xinmi, Henan Province. We own the buildings in connection with the Fuliang and Fuhua factory, and lease the factory in Fugang from an unrelated third party for $222,183 per year for 4 years. The detail information is showed in below in square feet:

Factories	Office		Workshops		Dining Halls		Dormitory		Total
Fuliang		2,411		983,674		6,061		30,425	1,022,571
Fuhua		21,356		270,597		4,758		28,270	324,981
Fugang (lease)		16,404		138,241		3,440		6,889	164,974
Total		40,171		1,392,512		14,259		65,584	1,512,526

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.

Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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.

Financial Information About Geographic Areas

Refer to Note 17, “Segment Reporting,” to our Consolidated Financial Statements included under Item 8, “Financial Statements and Supplementary Data” for financial information about our geographic areas.

Other Information

Our Internet address is http://en.annec.com.cn. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is not part of this annual report.

The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC.

ITEM 1A — RISK FACTORS

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

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RISKS RELATED TO OUR OVERALL BUSINESS OPERATIONS

Current economic conditions may adversely affect consumer spending and the overall general health of our retail customers, which, in turn, may adversely affect our financial condition, results of operations and cash resources.

Uncertainty about the current and future global economic conditions may cause our customers to defer purchases or cancel purchase orders for our products in response to tighter credit, decreased cash availability and weakened consumer confidence. Our financial success is sensitive to changes in general economic conditions, both globally and nationally. Recessionary economic cycles, higher interest borrowing rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying habits could continue to adversely affect the demand for our products. In addition, a number of our customers may be impacted by the significant decrease in available credit that has resulted from the current financial crisis. If credit pressures or other financial difficulties result in insolvency for our customers it could adversely impact our financial results. There can be no assurances that government and consumer responses to the disruptions in the financial markets will restore consumer confidence.

We may be unable to successfully execute our long-term growth strategy or maintain our current revenue levels.

Our ability to maintain our revenue levels or to grow in the future depends upon, among other things, the continued success of our efforts to maintain our brand image and bring new products to market and our ability to expand within our current distribution channels. For the year ended 2012, we experienced a decrease in our revenues as a result of a decrease in orders and order prices, and there can be no assurances that we will be able to maintain or grow our revenues, or successfully execute our long-term growth strategy.

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

Our main customers consist largely of iron and steel companies. Accordingly, 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 factors have historically resulted in wide fluctuations in the PRC and the global economies in which steel companies sell their products. In the event that these fluctuations occur, a resulting decreased demand for steel products could negatively impact our sales, margins and profits. With the spread of the European debt crisis, the global economy entered into post-crisis era in 2012, and China's economic environment changed greatly subsequently. Iron and steel industry in China suffered heavy losses and refractory industry went into an unprecedented severe winter. The PRC is now restructuring its steel industry to build a resource-conserving and environmental-friendly society. Therefore, the fluctuations in the industry could adversely affect our development.

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

In recent years, the production of refractory materials in the PRC has experienced tremendous growth as a result of the growth of the PRC steel industry. However, in 2012, the industry growth rate slowed and it has negatively impacted our growth rate.

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

We compete with many other refractory manufacturers in the PRC and, if we are successful in expanding our market reach, we will have international competitors as well. Remaining competitive requires a variety of things – market share and customer growth, continued success in technology development, access to reasonable priced raw materials and other supplies, etc. Much of our future success will be dependent on our ability to secure and retain adequate financing of our current operations and research and development. If we are unable to secure financing, or if any other market factor makes it difficult to remain competitive, our revenue and net income will be adversely affected.

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Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.

We have a limited operating history because we have only been in operation since 2003. This limited operating history makes it difficult for investors to evaluate our businesses and predict future operating results. An investor in our securities must consider the risks, uncertainties and difficulties frequently encountered by companies in new and rapidly evolving markets. The risks and difficulties we face include challenges in accurate financial planning as a result of limited historical data and the uncertainties resulting from having had a relatively limited time period in which to implement and evaluate our business strategies as compared to older companies with longer operating histories.

Our ability to obtain additional financing may be limited, which could delay or prevent the completion of one or more of our strategies.

We have, to date, financed our working capital and capital expenditure needs primarily from capital contributions of shareholders of our operating entities, bank loans provided by local banking institutions and operating cash flows. We expect our working capital needs and our capital expenditure needs to increase in the future as we continue to expand and enhance our production facilities, increase our design, research and development capabilities and as we continue to implement our other strategies. Our ability to raise additional capital will depend on the financial success of our current business and the successful implementation of our key strategic initiatives, as well as financial, economic and market conditions and other factors, some of which are beyond our control. We may not be successful in raising any required capital on reasonable terms and at required times, or at all. Further, equity financings may have a further dilutive effect on our stockholders. If we require additional debt financing, the lenders may require us to agree on restrictive covenants that could limit our flexibility in conducting future business activities, and the debt service payments may be a significant drain on our free capital allocated for research and other activities. If we are unsuccessful in raising additional capital or if new capital funding costs are higher than our prior capital funding costs, our business operations and our development programs may be materially and adversely impacted, with similar effects on our results of operations and financial condition.

Our production capacity might not be able to meet with growing market demand or changing market conditions.

We believe that our current production capacity is sufficient to meet current market demand and demand this fiscal year. Although we intend to expand our production capacity in the future as demand increases, we cannot give assurance that our production capacity will be able to meet our obligations and the growing market demand for our products in the future. Furthermore, we may not be able to expand our production capacity in response to the changing market conditions. If we fail to meet demand from our customers, we may lose our market share. 

We may not be able to develop new products or expand into new markets.

We intend to continue to develop and produce new refractory products. The launch and development of new products involve considerable time and commitment which may exert a substantial strain on our ability to manage our existing business and operations. We cannot ensure our research and development capacity and capability is sufficient to develop any marketable new products or that any income will be generated from such new products. If we are not able to develop and introduce new products successfully, or if our new products fail to generate sufficient revenues to offset our research and development costs, our business, financial condition and operating results could be adversely affected. Failure of such could lead to wasted resources.

We manufacture our products in a single location, and any material disruption of our operations could adversely affect our business.

Our operations are subject to uncertainties and contingencies beyond our control that could result in material disruptions in our operations and adversely affect our business. These include industrial accidents, fires, floods, droughts, storms, earthquakes, natural disasters and other catastrophes, equipment failures or other operational problems, strikes or other labor difficulties.

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All of our products are manufactured in our production facilities in the PRC. If there is any damage to our production facilities, we may not be able to remedy such situations in a timely and proper manner, and our production could be materially and adversely affected. Any breakdown or malfunction of any of our equipment could cause a material disruption of our operations. Any such disruption in our operations could cause us to reduce or halt our production, prevent us from meeting customer orders, adversely affect our business reputation, increase our costs of production or require us to make unplanned capital expenditures, any one of which could materially and adversely affect our business, financial condition and results of operations. Currently, there have been no disruptions in our operations and no plan to expand our manufacturing outside of the PRC.

The prices for the raw materials and the costs for labor may increase.

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. 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. We anticipate that there will be increase in the cost of raw materials and labor, which could adversely affect our business, financial condition and results of operations.

We enter into some long-term contracts with our suppliers. These suppliers may not be able or willing to deliver our raw materials requirements on time to meet our production schedules, and we may be unable to produce certain products, which could result in a decrease in revenues and profitability, a loss of good will with our customers, and could tarnish 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.

The manufacturing industry is labor intensive. Labor costs in the PRC have been increasing over the past few years, and we cannot assure you that the cost of labor in the PRC will not continue to increase in the future or that we will be able to increase the prices of our products to offset such increases. If we are unable to identify and employ other appropriate means to reduce our costs of production or to pass on the increased labor and other costs of production to our customers by selling our products at higher prices, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Our insurance coverage may not be sufficient to cover all losses.

Although we have obtained insurance coverage for the operation of our business that we believe is customary in the PRC refractory industry, covering risks such as loss as a result of fire, theft or occurrence of certain natural disasters, the insurance may not cover all types of loss. If we incur substantial losses or liabilities that are not covered or compensated by our insurance coverage fully or at all, our business, financial condition and results of operations may be materially and adversely affected.

We may not be able to comply with all applicable government regulations.

We are subject to extensive governmental regulation by the central, regional and local authorities in the PRC, where our business operations take place. We believe that we are currently in substantial compliance with all laws and governmental regulations in the PRC and that we have all material permits and licenses required for our operations. Although, we will continue to strive to be in substantial compliance with current laws and regulations, we cannot assure investors that we will be able to comply with all future laws and regulations. To the extent that new regulations are adopted, we will be required to conform our activities in order to comply with such regulations. Failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on its business, operations and finances.

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

In the past years, the PRC government has shut down some outdated mineral mines in the PRC. 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 PRC government shuts down more mineral mines, we could experience further supply shortages and price increases that could have a negative impact on our profitability.

Approximately 67% 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 numerous customers, approximately 67% of our sales revenue came from our top ten customers in 2012, compared to 70% in 2011. If we cease to do business at or above current levels with any one of our large 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, accidents and other events. 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.

 We have determined that our disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2012.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Sarbanes-Oxley Act of 2002 (“SOX”). These requirements may place a strain on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. SOX require, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed.

In our management’s evaluation of our disclosure controls and procedures, several weaknesses were identified. The weaknesses we identified were: (1) lack of sufficient internal staff with appropriate knowledge, experience, and training in the application of US GAAP, (2) lack of an appropriate level of company qualified resources to perform internal audit properly and inability to effectively communicate its accounting policies and procedures to its accounting staff resulting in inconsistent practice; and (3) the lack of a separate audit committee which effects our Board’s oversight ability. As a result of these weaknesses, we determined that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report.

Although we continue to take measures to improve our disclosure controls and procedures, and internal controls over financial reporting, our failure to address the issues discussed above and to improve our controls over our financial reporting, could cause us to fail to meet our reporting obligations. Any failure to improve our internal controls to address these identified deficiencies could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

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Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

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, wastewater 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 limiting and costly than anticipated.

Additionally, if we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control the use of or to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations. Certain laws, ordinances and regulations could limit our ability to develop, use, or sell our products.

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. 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 a number of patents on our technology. 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 the PRC 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 the PRC’s civil law system do not have binding legal effect on future decisions and even where adequate law exists in the PRC, 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 the PRC’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 you that the measures we take to protect our proprietary rights are adequate.

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 a decrease in product consumption, but we cannot assure that price increases will be acceptable to our customers.

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Our 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 long periods 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.

Our business depends substantially on the continuing efforts of our executive officers, and our business may be severely disrupted if we lose their services.

We believe that our success is largely dependent up on the continued service of the members of our management team, who are critical to establishing our corporate strategies and focus, and ensuring our continued growth. In particular, our chairman, LI Fuchao and our president, LI Jiantao, are crucial to our success. Our continued success will depend on our ability to attract and retain a qualified and competent management team in order to manage our existing operations and support our expansions plans. Although this possibility is low, if any of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some of our customers.

We cannot assure that we will be able to renew all necessary licenses, certificates, approvals and permits for our production. Changes in licensing requirements applicable to our industry may adversely affect us.

We have obtained all necessary licenses, certificates, approvals and permits for the production of our existing products. There was no requirement for a particular license, certificate, approval or permit specific for the production in the PRC. The abovementioned licenses, certificates, approvals and permits that were obtained refer to the government licenses, approvals and permits that we have obtained from the relevant government authorities (1) for the incorporation of our subsidiary in the PRC to conduct the production and manufacturing of our refractory materials and products and the other licenses and permits, including the tax registration, that are generally required for companies to operate their businesses in the PRC; and (2) for the construction and operation of our production facility. There is no assurance that we will be able to renew such licenses, certificates, approvals and permits upon their expiration. The eligibility criteria for such licenses, certificates, approvals and permits may change from time to time and may become more stringent. In addition, new requirements for licenses, certificates, approvals and permits may come into effect in the future. The introduction of any new and/or more stringent laws, regulations, licenses, certificates, approvals or permits requirements relevant to our business operations and the steel flow control products industry may significantly escalate our compliance and maintenance costs or may limit the Company to continue with our existing operations or may limit or prohibit us from expanding our business. Any such event may have an adverse effect to our business, financial results and future prospects.

Certain of our existing stockholders have substantial influence over our company, and their interests may not be aligned with the interests of our other stockholders.

Mr. LI Fuchao, through New-Source Group Limited, owns approximately 76.9% of our outstanding voting securities. As a result, New-Source Group Limited have significant influence over our business, including decisions regarding mergers, consolidations, the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may also have the effect of discouraging, delaying or preventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our Company and might reduce the price of our shares.

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Related to the VIE Agreements

The PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations.

Foreign ownership in construction project design enterprises such as Beijing Annec are subject to restrictions under current PRC laws, rules and regulations. As a Delaware company and our PRC subsidiaries are treated as foreign-invested enterprises under applicable PRC laws, we are subject to ownership limitations as well as special approval requirements on foreign investment. Specifically, foreign entities are not allowed to own more than a 75% equity interest in any PRC company that provides design and engineering services.

To comply with applicable PRC laws, rules and regulations, we conduct our operations in the PRC through the VIE Agreements, a series of contractual arrangements entered into among Zhengzhou Annec and Beijing Annec, which consist of the Cooperation Agreement, Pledge Agreement, Option Agreement, and POA. As a result of these VIE Agreements, Zhengzhou Annec manages and operates our design and engineering business through Beijing Annec pursuant to the rights it holds under our VIE Agreements. A majority of the economic benefit and almost all of the risks arising from Beijing Annec’s operations are ultimately enjoyed and undertaken by Zhengzhou Annec under these agreements. Details of the VIE Agreements are set out in “Description of Business – History of China Green Refractories Limited ” above.

There are risks involved with the operation of our business in reliance on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable. Although we believe we are in compliance with current PRC regulations in the execution and implementation of the VIE Agreements, we cannot assure you that the PRC government would agree that the VIE Agreements fully comply with existing PRC policies or with policies that may be adopted in the future. PRC laws and regulations governing the validity of these the VIE Agreements are uncertain. If the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:

Ÿ imposing economic penalties;

Ÿ discontinuing or restricting the operations of Zhengzhou Annec or Beijing Annec;

Ÿ imposing conditions or requirements in respect of the VIE Agreements with which Zhengzhou Annec or Beijing Annec may not be able to comply;

Ÿ requiring our company to restructure the relevant ownership structure or operations;

Ÿ taking other regulatory or enforcement actions that could adversely affect our business; and

Ÿ revoking the business licenses and/or the licenses or certificates of Zhengzhou Annec or Beijing Annec, and/or voiding the VIE Agreements.

Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of Beijing Annec, which would have a material adverse impact on our business, financial condition and results of operations.

Our ability to manage and operate Beijing Annec under the VIE Agreements may not be as effective as direct ownership.

We conduct our design and engineering business in the PRC and generate virtually all of our revenues for our design and engineering services through the VIE Agreements. Our plans for future growth are based substantially on growing the operations of Beijing Annec. However, the VIE Agreements may not be as effective in providing us with control over Beijing Annec as direct ownership. Under the current VIE Agreements, if Beijing Annec fails to perform its obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under PRC law, which we cannot be sure would be effective. Therefore, if we are unable to effectively control Beijing Annec, it may have an adverse effect on our ability to achieve our business objectives and grow our revenues.

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As the VIE Agreements are governed by PRC law, we would be required to rely on PRC law to enforce our rights and remedies under them; PRC law may not provide us with the same rights and remedies as are available in contractual disputes governed by the law of other jurisdictions.

The VIE Agreements are governed by the PRC law and provide for the resolution of disputes through arbitral proceedings pursuant to PRC law. If Beijing Annec or its shareholders fail to perform the obligations under the VIE Agreements, we would be required to resort to legal remedies available under PRC law, including seeking specific performance or injunctive relief, or claiming damages. We cannot be sure that such remedies would provide us with effective means of causing Beijing Annec to meet its obligations, or recovering any losses or damages as a result of non-performance. Further, the legal environment in the PRC is not as developed as in some other jurisdictions. Uncertainties in the application of various laws, rules, regulations or policies in PRC legal system could limit our liability to enforce the VIE Agreements and protect our interests.

The payment arrangement under the VIE Agreements may be challenged by the PRC tax authorities.

We generate our revenues through the payments we receive pursuant to the VIE Agreements. We could face adverse tax consequences if the PRC tax authorities determine that the VIE Agreements were not entered into based on arm’s length negotiations. For example, PRC tax authorities may adjust our income and expenses for PRC tax purposes which could result in our being subject to higher tax liability, or cause other adverse financial consequences. According to the PRC Tax Administration and Collection Law, in the case of a transfer pricing related adjustment, the statute of limitation is three years normally and 10 years in special instances.

Our stockholders have potential conflicts of interest with us which may adversely affect our business.

Mr. LI Fuchao is our chairman, and he also controls Beijing Annec through both direct equity ownership and the VIE Agreements. There could be conflicts that arise from time to time between our interests and the interests of Mr. LI Fuchao. There could also be conflicts that arise between us and Beijing Annec that would require our stockholders and Beijing Annec’s shareholder to vote on corporate actions necessary to resolve the conflict. There can be no assurance in any such circumstances that Mr. LI Fuchao will vote his shares in our best interest or otherwise act in the best interests of our company. If Mr. LI Fuchao fails to act in our best interests, our operating performance and future growth could be adversely affected.

We rely on the approval certificates and business license held by Beijing Annec for our design and engineering business and any deterioration of the relationship between Zhengzhou Annec and Beijing Annec could materially and adversely affect our business operations.

We operate our design and engineering business in the PRC on the basis of the approval certificates, business license and other requisite licenses held by Beijing Annec. There is no assurance that Beijing Annec will be able to renew its licenses or certificates when their terms expire with substantially similar terms as the ones they currently hold.

Further, our relationship with Beijing Annec is governed by the VIE Agreements that are intended to provide us with effective control over the business operations of Beijing Annec. However, the VIE Agreements may not be effective in providing control over the application for and maintenance of the licenses required for our business operations. Beijing Annec could violate the VIE Agreements, go bankrupt, suffer from difficulties in its business or otherwise become unable to perform its obligations under the VIE Agreements and, as a result, our operations, reputations and business could be severely harmed.

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If Zhengzhou Annec exercises the purchase option it holds over Beijing Annec’s share capital pursuant to the Option Agreement, the payment of the purchase price could materially and adversely affect our financial position.

Under the Option Agreement, Zhengzhou Annec has the option to purchase all of the equity interest in Beijing Annec at a price based on the circumstances of the exercise of the option as determined by the relevant parties, provided that the acquisition will not violate any PRC laws or regulations in effect. As Beijing Annec is already our contractually controlled affiliate, Zhengzhou Annec’s exercising of the option would not bring immediate benefits to our company, and payment of the purchase price could adversely affect our financial position.

RISKS RELATED TO DOING BUSINESS IN CHINA

As substantially all of our assets are located in the PRC and all of our revenues are derived from our operations in the PRC, changes in the political and economic policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.

Our business operations may be adversely affected by the current and future political environment in the PRC. The PRC government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in the PRC may be adversely affected by changes in PRC laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

All of our deposits are held with banks in the PRC which are not insured.

We hold all of our bank deposits with banks in the PRC. China does not have an equivalent of federal deposit insurance as in the United States. Accordingly, all of our deposits held in the banks in the PRC are not insured. Although, we hold accounts with several banks in the PRC and periodically evaluate the credit quality of our banks in efforts to mitigate any potential risk, we may be adversely affected in the event of a material disruption or financial distress of the banks.

Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.

The PRC’s legal system is a civil law system based on written statutes. Decided legal cases do not have so much value as precedent in the PRC as those in the common law system prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to, governmental approvals required for conducting business and investments, laws and regulations governing the advertising industry, as well as commercial, antitrust, patent, product liability, environmental laws and regulations, consumer protection, and financial and business taxation laws and regulations.

The PRC government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

Our PRC subsidiary, Zhengzhou Annec, is considered a foreign invested enterprise under PRC laws, and as a result is required to comply with PRC laws and regulations, including laws and regulations specifically governing the activities and conduct of foreign invested enterprises. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:

Ÿ levying fines;

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Ÿ revoking our business license, other licenses or authorities;

Ÿ requiring that we restructure our ownership or operations; and

Ÿ requiring that we discontinue any portion or all of our business.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in the PRC based upon U.S. laws, including the federal securities laws, or other foreign laws against us or our management.

All of our current operations are conducted in the PRC. Moreover, most of our directors and officers are nationals and residents of the PRC. All or substantially all of the assets of these persons are located outside the United States and in the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon these persons. In addition, uncertainty exists as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in the PRC against us or such persons predicated upon the securities laws of the United States or any state thereof.

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

The PRC government has exercised and continues to exercise substantial control over virtually every sector of the PRC economy through regulation and state ownership. Our ability to operate in the PRC 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 the PRC 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 the PRC or particular regions thereof and could require us to divest ourselves of any interest we then hold in PRC properties or joint ventures.

Future inflation in the PRC may inhibit our ability to conduct business in the PRC.

In recent years, the PRC economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in the PRC has been as high as 5.9% and as low as -0.8%. These factors have led to the adoption by the PRC 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 PRC government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in the PRC, and thereby harm the market for our products and our company.

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

The majority of our sales will be settled in RMB and U.S. dollars, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside the PRC or to make dividend or other payments in U.S. dollars. Although the PRC 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 the PRC 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 the PRC, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the PRC regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.

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Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economical, and legal environment in the PRC. The PRC Government controls its foreign currency reserves through restrictions on imports and conversion of Renminbi (RMB) into foreign currency. In July 2005, the PRC Government has adjusted its exchange rate policy from “Fixed Rate” to “Floating Rate.” During January 2008 to December 2012, the exchange rate between RMB and U.S. Dollars (USD) has fluctuated from USD $1.00 to RMB 7.3141 and USD $1.00 to RMB 6.3011, respectively. There can be no assurance that the exchange rate will remain stable. The RMB could appreciate or depreciate against the U.S. Dollar. The Company’s financial condition and results of operations may also be affected by changes in the value of certain currencies other than the RMB in which its earnings and obligations are denominated.

Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. Our financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi in which its earnings and obligations are denominated.

Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.

Substantially all of our sales are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC generally accepted accounting principles to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. The general reserve fund is not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

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

In October 2005, 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 became effective as of November 1, 2005, and was further supplemented by two implementation notices issued by the SAFE on November 24, 2005 and May 29, 2007, respectively. Circular 75 requires 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 the PRC on the strength of domestic PRC assets originally held by those residents. 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 the PRC to guarantee offshore obligations. 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. Failure to comply with the requirements of Circular 75 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 the PRC.

We have asked our shareholders, who are PRC residents as defined in Circular 75, to register 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 subsidiary. However, we cannot provide any assurances that they can obtain the above SAFE registrations 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 shareholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident shareholders 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.

On August 8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and SAFE, released a substantially amended version of the Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which took effect on September 8, 2006 and was further amended on June 22, 2009. These new rules significantly revised the PRC’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in the PRC and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the new rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability of the PRC government to monitor and prohibit foreign control transactions in key industries.

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Among other things, the revised M&A Regulations include new provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. Our PRC counsel believes that it is uncertain whether the transaction is subject to CSRC's approval, and in reality, many other similar companies have completed similar transactions like the share exchange contemplated under the Exchange Agreement without CSRC's approval and our PRC legal counsel is not aware of any situation in which the CSRC has imposed a punishment or penalty in connection with any such transactions. However, if the CSRC or other PRC Government Agencies subsequently determine that CSRC approval is required for the share exchange and private placement contemplated under the Exchange Agreement, we may face material regulatory actions or other sanctions from the CSRC or other PRC Government Agencies.

If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for our restructuring, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common stock.

Also, if later the CSRC requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our common stock.

Under the New Enterprise Income Tax Law, we may be classified as a “resident enterprise” of the PRC. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.

The PRC passed a new Enterprise Income Tax Law, or The New EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under The New EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC 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 against non-PRC enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a PRC enterprise or group will be classified as a “domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in the PRC; (ii) its financial or personnel decisions are made or approved by bodies or persons in the PRC; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in the PRC; and (iv) at least half of its directors with voting rights or senior management often resident in the PRC. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and its non-PRC shareholders would be subject to a withholding tax at a rate of 10% when dividends are paid to such non-PRC shareholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a PRC natural person. Nor are detailed measures on enforcement of PRC tax against non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

We may be deemed to be a resident enterprise by PRC tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-PRC source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under The New EIT Law and its implementing rules dividends paid to us from our PRC subsidiary would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC shareholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2011 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

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If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and PRC, and our PRC tax may not be creditable against our U.S. tax.

Failure to apply for and receive a further tax preference as a designated hi-tech corporation by Zhengzhou Annec may limit our PRC subsidiaries' ability to distribute profits to us.

Pursuant to the New EIT Law, designated hi-tech corporation may be accorded a tax preference at the rate of 15%. Zhengzhou Annec qualified as a hi-tech corporation and was accorded certain tax incentives at a statutory rate of 15% for the years from 2008 to 2012. It will also be afforded certain tax incentives at a statutory rate of 15% until 2014. Zhengzhou Annec may not be able to maintain this tax preference after 2014 unless it applies for and receives a further tax preference for the succeeding five years. If Zhengzhou Annec fails to apply for and receive such further tax preference, it will be subject to a statutory tax rate of 25%. Higher tax contributions may limit our PRC subsidiaries' ability to distribute profits to us. Any limitations on the ability of our PRC subsidiaries to distribute profits to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

We face uncertainty from the PRC’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Share Transfer, or Circular 698, that was released in December 2009 with retroactive effect from January 1, 2008.

The PRC State Administration of Taxation, or SAT, released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in the PRC. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a PRC company. Where a foreign investor indirectly transfers equity interests in a PRC resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that PRC resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a PRC resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term "indirectly transfer" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with the PRC. It is also unclear, in the event that an offshore holding company is treated as a domestically incorporated resident enterprise, whether Circular 698 would still be applicable to transfer of shares in such offshore holding company. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that PRC resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our Company complies with the Circular 698. If Circular 698 is determined to be applicable to us based on the facts and circumstances around such share transfers, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations.

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We may be exposed to liabilities under the Foreign Corrupt Practices Act and PRC anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties, and make most of our sales in the PRC. The PRC also strictly prohibits bribery of government officials. Our activities in the PRC may create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or PRC anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

RISKS RELATED TO THE MARKET FOR OUR STOCK

The market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings.

The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:

Ÿ our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;

Ÿ changes in financial estimates by us or by any securities analysts who might cover our stock;

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Ÿ speculation about our business in the press or the investment community;

Ÿ significant developments relating to our relationships with our customers or suppliers;

Ÿ stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry;

Ÿ customer demand for our products;

Ÿ investor perceptions of our industry in general and our Company in particular;

Ÿ the operating and stock performance of comparable companies;

Ÿ general economic conditions and trends;

Ÿ announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;

Ÿ changes in accounting standards, policies, guidance, interpretation or principles;

Ÿ loss of external funding sources;

Ÿ sales of our common stock, including sales by our directors, officers or significant stockholders; and

Ÿ additions or departures of key personnel.

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted against us, it could result in substantial costs to us and divert our management’s attention and resources.

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us.

We do not intend to pay dividends on shares of our common stock for the foreseeable future.

Prior to the reverse acquisition of China Green, Zhengzhou Annec didn’t pay dividends in 2012. Moreover, E-Band Media has never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on shares of our common stock in the foreseeable future.

Our common stock is illiquid and this low trading volume may adversely affect the price of our common stock.

Our common stock is currently quoted on the OTCQB Marketplace under the symbol “ANNC.” The trading market in our common stock is illiquid. Our limited trading volume will subject our shares of common stock to greater price volatility and may make it difficult for you to sell your shares of common stock.

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. If our common stock becomes a “penny stock,” we may become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by the Penny Stock Rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

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Certain provisions of our Certificate Incorporation may make it more difficult for a third party to effect a change-of-control.

Our Certificate of Incorporation authorize our Board of Directors to issue up to 20,000,000 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 our 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, redemption rights and sinking fund 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 our 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 our 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.

ITEM 1B — UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2 — PROPERTIES

All land in the PRC is owned by the State. 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 generally granted for a period of 50 years. Granted land use rights are transferable and may be used as security for borrowings and other obligations.

All of our facilities are located in Xinmi, Henan Province. We own two manufacturing facilities which includes offices, workshops, dormitory, and dining halls that total approximately 1,347,552 square feet. In addition, we own another workshop located on land that we lease from He Xi village of Xinmi city. The land is approximately 164,974 square feet and the rent is approximately $52,900 per year for 50 years starting in 2010. We also lease another workshop from an unrelated third party. The rent for the workshop is $222,183 per year for 4 years.

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.

ITEM 3 — LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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. To the best knowledge of management, there are no material legal proceedings pending against the Company.

ITEM 4 —Mine Safety Disclosures

None.

PART II

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

Market Information

Our common stock is quoted on the OTCQB Marketplace under the symbol “ANNC.” There is no established trading market for our common stock. Our common stock was previously quoted on the OTCBB. The following table shows the range of the high and low bid for our common stock as quoted by the OTCBB and OTCQB for the time periods indicated: 

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	High		Low
Quarter ended March 31, 2011		*		*
Quarter ended June 30, 2011		*		*
Quarter ended September 30, 2011		*		*
Quarter ended December 31, 2011	$	2.80	$	2.75
Quarter ended March 31, 2012	$	3.50	$	1.50
Quarter ended June 30, 2012	$	3.00	$	1.75
Quarter ended September 30, 2012	$	2.00	$	0.83
Quarter ended December 31, 2012	$	1.35	$	0.80

* No trading activities.

Bid quotations represent interdealer prices without adjustment for retail markup, markdown and/or commissions and may not necessarily represent actual transactions.

Stockholders

As of March 23, 2013, we had 109 stockholders of record and 19,995,701 shares issued and outstanding.. Currently no shares are currently held by Depository Trust Company in "street name.”

Dividend Policy

We presently do not expect to declare or pay such dividends in the foreseeable future and expect to reinvest all undistributed earnings to expand our PRC operations, which the management would be is in the best interest of our stockholders. Undistributed earnings will be reinvested in our operations in the PRC. Payment of dividends to our shareholders would require payment of dividends by our PRC subsidiary to us. PRC accounting standards and regulations currently permit payment of dividends only out of accumulated profits, a portion of which is required to be set aside for certain reserve funds. Our inability to receive all of the revenues from our PRC subsidiary's operations may provide an additional obstacle to our ability to pay dividends if we so decide in the future. The declaration of dividends, if any, will be subject to the discretion of our board of directors, which may consider such factors as our results of operations, financial condition, capital needs and acquisition strategy, among others. Please refer to the risk factors for a more detailed discussion on the limitations on the payment of dividends to us by our subsidiary.

Securities Authorized for Issuance under Equity Compensation Plans

We have no compensation plans under which equity securities are authorized for issuance.

Unregistered Sales of Equity Securities

There were no unregistered shares of our equity securities sold or otherwise issued by the Company during fiscal year ended December 31, 2012.

ITEM 6 — SELECTED FINANCIAL DATA

Not Applicable.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes and other financial information appearing elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from this discussed in the forward-looking statements. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation, the disclosures made under “Risk Factors.”

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Overview

We are a refractory and production-based company that designs, develops, produces, and markets refractory products in the PRC. In addition, through our VIE, Beijing Annec, we provide integrated stove design, turnkey contracting, refractory production and sales.

We generate revenues from the sale of our refractory products, which consists of bricks of various size, shape, and construction material, and from services related to the design, engineering and build out of stoves.

Fiscal 2012 Summary and Outlook

Financial and business highlights for the fiscal year ended December 31, 2012 were as follows:

• Revenue decreased by approximately $9,622,311 or 10% to $84,758,095 in the year ended December 31, 2012 as compared to $94,380,406 in the year ended December 31, 2011, as a result of a reduction of orders. Annec experienced a decrease in orders because of a decline in demand for iron and steel in 2012.

• Our net income decreased by $6,274,424 or 55% to $5,035,144 for fiscal 2012 and $11,309,568 for fiscal 2011. Our net income for fiscal 2012 was negatively impacted by decreased revenues.

• In 2012, Zhengzhou Annec, our wholly-owned subsidiary, signed a total of 55 contracts. These contracts amounted to approximately $63 million, and included contracts with Guangxi Shenglong Metallurgy Co.Ltd valued at approximately $10 million, Shanxi Gaoyi Steel Co.Ltd valued at approximately $5 million, and Wisdri Wuhan Iron and Steel Design and Research Institute Co.Ltd., valued at approximately $4 million. Of those contracts, there were 44 new customers with signed contracts valued at approximately $56 million.

Summary of Critical Accounting Policies and Estimates

Basis of Presentation

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements include the balances and results of Zhengzhou Annec and Beijing Annec (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified in the consolidated financial statements to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. Significant estimates and assumptions are used for, but not limited to: (1) allowance for doubtful accounts, (2) economic lives of property, plant, and equipment, (3) asset impairments, (4) percentage of completion on construction projects, and (5) contingency reserves. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable 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. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results.

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Accounts Receivable

Accounts receivable are reported at net realizable value. The Company has established an allowance for doubtful accounts based on an estimate of the amounts that may be uncollectible. On a monthly basis, the Company examines all significant past due amounts. The Company considers the age of the receivable, the financial standing and credit rating of the customer, and the history of payments or guarantee of payment made by the customer. Many of the Company’s contracts are with large Chinese government-backed organizations with an excellent but slow payment history. Normal payment terms for custom contract sales are: (i) 30% of the contract price as advanced payment after signing of the contract which is used to buy materials and production; (ii) 30% of the contract price will be collected when production is finished and goods are inspected by the customer; (iii) 30% of the contract price will be received after the completion of refractory installation and testing by the customer; and (iv) the final installment of 10% (retentions) is usually due one year after the stove is put into service to allow for quality guarantee. Such retentions are presented as retentions receivable or long-term retentions receivable on the consolidated balance sheets.

 Inventories

Inventories are stated at the lower of cost or market. Cost is determined on an average cost basis, which approximates actual cost on a weighted-average method. Lower of cost or market is evaluated by considering obsolescence, excessive levels of inventory, deterioration, and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess or obsolescence and are charged to cost of revenues.

Revenue Recognition

The Company’s principal revenue sources are from the sale of refractory materials and products and from sales generated from the designing and building of blast furnaces and hot-air stoves.

Zhengzhou Annec primarily generates revenue from the sale of a variety of refractory bricks and the sales from kits of pre-assembled hot-air ovens. Zhengzhou Annec recognizes such revenue when: (1) there is persuasive evidence of an arrangement; (2) customers have accepted receipt of the goods in accordance with the shipping terms; (3) the amount to be paid by the customer is fixed or determinable; and (4) collectability is reasonably assured. Zhengzhou Annec recognizes revenue from the sale of a kit when the kit has been delivered and accepted by the customer.

Beijing Annec enters into contracts to design and build blast furnaces and hot-air stoves and recognizes revenues during the construction period using the percentage of completion method. Most of the contracts are fixed-price contracts, which typically provide for a stated contract price and a specified scope of the work to be performed. Beijing Annec estimates the percentage of the job that is complete using variations of the cost-to-cost method. Cost is used as the primary indicator, but the Company also considers contract milestones and work in progress from subcontractor companies. If the estimate of costs left to be incurred plus actual costs already incurred exceeds the total revenue to be expected from a contract, then the full amount of the difference is recognized in the current period as a loss and is presented on the consolidated balance sheet as a current liability. Beijing Annec also generates revenue from the sale of a variety of machines and equipment which the Company purchases from vendors. Beijing Annec recognizes revenue from this type of sale when the machines and equipment have been delivered and accepted by the customer.

During 2011, Zhengzhou Annec began entering into certain short-term contracts to build blast furnaces and hot blast stoves. These contracts have an average duration of approximately three to six months and do not exceed a period of one year. Zhenghzhou Annec recognizes revenue on these contracts based on the same basis as Beijing Annec.

Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded net of the amount collected. Shipping and handling expense included in sales and marketing expenses amounted to amounted to $3,421,467 and $5,644,113 for the years ended December 31, 2012, and 2011, respectively.

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Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. Some of the accounting standards issued are effective after the end of the Company’s previous fiscal years, and therefore may be applicable to the Company. Management has not identified any standards that it believes will have a significant impact on the Company’s consolidated financial statements. 

For the year ended December 31, 2012 and 2011

Results of Operations

	Year Ended December 31
	2012		2011
Revenues	$	84,758,095	$	94,380,406
Cost of revenues		53,158,322		58,212,245
Gross profit		31,599,773		36,168,161
Operating expenses
Selling		12,905,016		15,324,847
General and administrative		9,064,914		4,736,057
Total operating expenses		21,969,930		20,060,904
Income from operations		9,629,843		16,107,257
Other expense, net		3,513,898		2,680,301
Income before provision for Income taxes		6,115,945		13,426,956
Provision for income taxes		1,080,801		2,117,388
Net income	$	5,035,144	$	11,309,568

Revenues

The Company has two reportable segments: Zhengzhou Annec and Beijing Annec. These segments operate in different geographical areas of China and employ separate management and sales teams. The Zhengzhou Annec segment primarily manufactures and sells a variety of refractory bricks and kits of pre-assembled hot-air ovens. In 2011, Zhengzhou Annec began to enter into contracts to design and build furnaces and stoves. These projects are generally for a term of one year or less. The Beijing Annec segment designs and builds blast furnaces and hot-air stoves on a contract basis and uses subcontractors throughout the construction process. Beijing Annec’s contracts are generally for projects with a term of one year or longer. The Beijing Annec segment purchases substantially all of its bricks and related products from Zhengzhou Annec. In addition, Beijing Annec also sells a variety of machines and equipment which are required as part of the entire blast furnace and hot-air stove package. We purchase these machines and equipment from outside vendors and generally sell them at cost plus a small mark-up. 

Segments	Year Ended Dec. 31, 2012		% of Revenue			Year Ended Dec. 31, 2011		% of Revenue
Zhengzhou Annec	$	76,747,244		91	%	$	88,830,719		94	%
Beijing Annec		8,010,851		9	%		5,549,687		6	%
Total	$	84,758,095		100	%	$	94,380,406		100	%

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Revenues for the year ended December 31, 2012 was $84,758,095 compared to $94,380,406 for the year ended December 31, 2011. Revenues for the year ended December 31, 2012 decreased by $9,622,311, or 10%, primarily as a result of a decrease in sales and new orders. Revenues for Zhengzhou Annec as of the year ended December 31, 2012 decreased by $12,083,475, or 14 %, to $76,747,244 from $88,830,719 for year ended December 31, 2011. The decrease in sales of refractory products by Zhengzhou Annec was mainly due to a decrease in number of orders during the fiscal year ended December 31, 2012. Zhengzhou Annec experienced a decrease in orders because of decline in demand for Iron and steel industry production capacity in 2012. Revenues for Beijing Annec for the year ended December 31, 2012 increased by $2,461,164, or 44 %, to $8,010,851 from $5,549,687 for the year ended December 31, 2011. The increase in sale in Beijing Annec was mainly due to the project of Jinxi Dafang being completed in fiscal year December 31, 2012. The decrease in sales of refractory products by Zhengzhou Annec was mainly due to decrease in amount of orders. Beijing Annec currently has no project in process. The following table shows product sales of Zhengzhou Annec from existing and new customers during the years ended December 31, 2012, and 2011:

Type of Customers’ Sales	Amount (US$) 2012		Amount (US$) 2011
Existing customer		67,449,206		19,803,265
New customer		9,298,038		69,027,454

Cost of Revenue

Cost of revenue was $53,158,322 and $58,212,245 for the years ended December 31, 2012 and 2011, respectively. Cost of revenue for the year ended December 31, 2012 decreased by $5,053,923, or 9%. Stated as a percentage of revenues, the cost of revenue for the year ending December 31, 2012 was 63% and for the corresponding period of 2011 was 62%. Cost of revenue related to Zhengzhou Annec for the year ended December 31, 2012 decreased by $5,362,066, or 10% to $48,279,271 from $53,641,337 for the same period in 2011. The cost of revenues for Beijing Annec for the year ended December 31, 2012 increased by $308,143 or 7% from $4,570,908 to $4,879,051 for the same period in 2011. The decrease in cost of revenue of Zhengzhou Annec was primarily attributable to the decrease of sales for the lower proportion.

Operating Expenses

General and Administrative. General and administrative expenses include payroll and related employee benefits, and other headcount-related costs associated with facilities, and other administrative expenses. General and administrative expenses were $9,064,914 and $4,736,057 for the years ended December 31, 2012 and 2011, respectively. The increase of $4,328,857, or 91%, in general and administrative expense was primarily attributable to the increase of bad debt losses allowances in accordance with the decreasing demand in the iron and steel industry. 

Sales and Marketing Expenses. Sales and marketing expenses include payroll, employee benefits, and other headcount-related costs associated with sales and marketing personnel and travel, advertising, promotions, trade shows, seminars, and other programs. Sales and marketing expenses were $12,905,016 and $15,324,847 for the years ended December 31, 2012 and 2011, respectively. The decrease of $2,419,831, or 16%, in sales and marketing expense was due to decrease in revenues and variable cost like commission, shipping expense, packaging expense and traveling expense.

Other Expense, net. The total other expense was $3,513,898 and $2,680,301 for the years ended December 31, 2012 and 2011, respectively. The increase of $833,597, or 31%, in total other expense was primarily due to increase in interest expense for increased loans and increase in other expense as detailed in the following table:

Items	2012 (US$)			2011 (US$)			Change
Other income (expense)
Interest income		324,106			278,713			16	%
Interest expense		(4,153,272	)		(3,421,836	)		21	%
Other income (expense), net		315,268			462,822			(32	)%
Total Other expense,		(3,513,898	)		(2,680,301	)		31	%

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Liquidity and Capital Resources

We had retained earnings of $36,346,896 and $31,311,752 as of December 31, 2012 and December 31, 2011, respectively.

As of December 31, 2012, we had cash and restricted cash of $6,850,405 and total current assets of $100,172,287. As of December 31, 2011, we had cash and restricted cash of $1,914,194 and total current assets of $98,671,393. Restricted cash is used to secure bank notes payables. The guaranteed percentage in 2012 and 2011 was 100% and 100%, respectively.

As of December 31, 2012, we had accounts receivable of $42,214,102, representing 42% of our total current assets compared to $34,410,920, representing 35% of our total current assets as of December 31, 2011. Accounts receivable had increased by $7,803,182 or 23% because of slower the collection of accounts receivable.

Our total liabilities as of December 31, 2012 were $79,862,368 compared to $85,946,386 as of December 31, 2011. The decrease of $6,084,018 or 7% was a result of decrease in advances from customers, salaries payable, loans payable to employees, and other payable.

We generally require 30% of contract price as advanced payment after we sign contract which is used to buy materials and production. 30% of contract price will be collected when we finished production and inspected by customer. These two 30% pieces of the contract price are the main components of our advances from customer. 30% of contract price will be received after the refractory installation is finished and tested by client. The final installment of 10% is due one or two years after the stove is used to allow for quality guarantee. The last 30% and 10% are the main components of our accounts receivable. As our business is contract-based sale, differentiations exist between contracts signed by different customer.

As of December 31, 2012, we had working capital of $23,708,632 compared to $16,461,409 as of December 31, 2011. We believe our cash and accounts receivable are adequate to satisfy our working capital needs and sustain our ongoing operations for the next twelve months. However, to develop new product and expand our market, we need improve our cash support, we must obtain additional short-term and long term loans from bank and/or- raise additional capital by the sale of our securities in order to implement our strategic growth plans which include increasing our product line, promoting our design and engineering services, improving our products, and the potential acquisitions of mines and other refractory companies.

Although we continue to explore opportunities for raising capital, we have no funding commitments in place at this time and we can give no assurance that such capital will be available on favorable terms, or at all. Even if we are successful in raising additional funds, there is no assurance regarding the terms of any additional investment and any such investment or other strategic alternative would likely substantially dilute or eliminate the interests of our shareholders. 

.

Below is a summary of our cash flow:

Net Cash used in Operating Activities. For the year ended December 31, 2012, net cash used in operating activities was $4,776,401 compared to net cash used in operating activities of $7,530,794 for the year ended December 31, 2011. The decrease in net cash used in operating activities for the year ended December 31, 2012 was primarily due to changes in net income, provision for bad debt, loss on inventory spoilage and waste, restricted cash, bank notes receivable, prepaid expenses and deposits, account receivable, retentions receivable and long term retentions receivable, advances from customers, inventories, bank notes payable, account payable and accrued expenses, tax payable and other payable as set forth below:

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Items	2012 (US$)			2011 (US$)			Increase /(Decrease)(US$)			Percentage
Net Income		5,035,144			11,309,568			(6,274,424	)		55	%
Provision for bad debt		2,384,136			219,016			2,165,120			989	%
Loss on inventory spoilage and waste		1,392,796			-			1,392,796			100	%
Restricted cash		(4,881,020	)		2,960,729			(7,841,749	)		265	%
Bank notes receivable		(943,471	)		(2,060,740	)		(1,117,269	)		54	%
Accounts receivable, retentions receivable, and long term retentions receivable		(9,455,981	)		(23,689,256	)		14,233,275			60	%
Prepaid expenses and deposits		3,006,466			(4,632,462	)		7,638,928			165	%
Inventories		6,934,116			(7,670,734	)		14,604,850			190	%
Bank notes payable		634,578			(3,861,899	)		4,496,477			116	%
Account payable and accrued expenses		237,414			7,553,729			(7,316,315	)		97	%
Advances from customers		(15,485,609	)		5,702,110			(21,187,719	)		372	%
Taxes payable		1,879,397			664,453			1,214,944			183	%
Other payables		(134,521	)		1,665,500			(1,800,021	)		108	%
Net cash used in operating activities		(4,776,401	)		(7,530,794	)		2,754,393			37	%

New Cash Used in Investing Activities.  

For the year ended December 31, 2012, net cash used in investing activities was $1,343,074, compared to net cash used in investing activities of $2,567,459, for the year ended December 31, 2011. The decrease of net cash used in investment activities for year ended December 31, 2012 was primarily due to the decrease of deposits for capital expenditure and purchase of plant and equipment. 

Items	2012 (US$)			2011 (US$)			Increase/(Decrease)(US$)		Percentage
Deposits for capital expenditure		-			(513,246	)		513,246		100	%
Purchase of plant and equipment		(1,414,476	)		(2,134,540	)		720,064		34	%

Net Cash Provided by Financing Activities.  

For the year ended December 31, 2012, net cash provided by financing activities was $6,204,055 compared to $8,913,777 in net cash provided by financing activities for the year ended December 31, 2011. The decrease of the net cash provided by financing activities was primarily due to the changes of short-term borrowings, and loans to related parties, employees, and other individual.

Type of Proceeds	2012 (US$)			2011 (US$)			Increase/(Decrease)(US$)			Percentage
Proceeds from loans to related parties, employees, and other individuals		390,713			4,364,254			(3,973,541	)		91	%
Payments of loans to related parties, employees, and other individuals, net of payments		(2,537,707	)		(782,951	)		(1,754,756	)		224	%
Proceeds from short-term borrowings		27,978,551			19,139,569			8,838,982			46	%
Payment of short-term borrowings		(19,316,559	)		(12,806,055	)		(6,510,504	)		51	%

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Loan Facilities

In China, banks usually do not provide long term loans to businesses. Most loans are short term loans (12 months or less). All of our loans but one with Chinese banks is within twelve months. As such, each year we repay our loans and/or apply for new loans with our banks or with other banks for working capital needs. At December 31, 2012, we borrowed approximately $24,037,073 from various short-term bank loans for the working capital needs. All of our bank borrowings are secured by our land and buildings and/or guaranteed by third parties. As of December 31, 2012, the Company and its subsidiaries have the following short-term loan facilities with the following terms:

Lender	Secured	Duration	Outstanding as of December 31 2012		Interest rates
Agricultural credit union	By third parties	1 year	$	1,587,025		8.640	%
Agricultural credit union	Machinery and equipment	1 year		1,428,322		12.312	%
Shanghai Pudong Development Bank	By third parties	1 year		3,174,049		6.600	%
Shanghai Pudong Development Bank	Office building and Land	1 year		1,587,025		6.600	%
Shanghai Pudong Development Bank	By Beijing Annec	6 months		1,587,025		6.600	%
Shanghai Pudong Development Bank	By Deposit	6 months		2,650,331		5,280	%
Shanghai Pudong Development Bank	Office building	1 year		311,057		7.152	%
China Citic Bank	By third parties	1 year		1,587,025		6.941	%
China Citic Bank	By Fuchao Li	1 year		793,511		7.216	%
China Guangfa Bank	By third parties	1 year		1,587,025		6.600	%
China Merchants Bank	By third parties	1 year		1,587,025		7.200	%
LuoYang Bank	By third parties	1 year		3,174,048		7.872	%
LuoYang Bank	Deposit	1 year		2,983,605		6.000	%
	Total current (2013)		$	24,037,073

The Company also has a long-term bank loan with a balance of $622,114 as of December 31, 2012. The long-term loan is due on December 13, 2015, and has an interest rate of 7.152% and is secured by one of the Company’s office buildings.

Future minimum payments for the long-term loan are as follows:

Period ending December 31:
2014	$	311,057
2015		311,057
	$	622,114

Off-Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

·          Any obligation under certain guarantee contracts;

·          Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

·          Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position; and

40

Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us

In 2012 and 2011, the Company had agreements with third-party entities in which the Company has guaranteed certain debt of these entities, and these entities have guaranteed certain debt of the Company. As of December 31, 2012, the Company was a debt guarantor to three third-party entities (six third-party entities as of December 31, 2011). The maximum guaranteed amount is approximately $24,758,000 as of December 31, 2012. The total guaranteed outstanding borrowings by these parties are approximately $20,473,000 as of December 31, 2012. All but one of the guarantee agreements are for debt with maturities of one year or less, and mature through December 2013. One of the guarantee agreements is for debt of $3,174,049 as of December 31, 2012, and matures in March 2014.

These same parties disclosed above also act as debt guarantors on certain of the Company’s debt with a maximum guaranteed amount of approximately $17,933,000 as of December 31, 2012. As of December 31, 2012, the Company’s loans guaranteed by these parties are approximately $12,696,000. The Company has not historically incurred any losses due to such debt guarantees, and the Company has determined that the fair value of the guarantees is not material. 

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements that constitute Item 8 are included at the end of this report beginning on Page F-1.

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

None

ITEM 9A - CONTROLS AND PROCEDURES

(a)           Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on the management's assessment and review of the Company’s disclosure controls and procedures and in consideration of material weakness in internal controls identified at December 31, 2012, we have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

(b)           Management’s Report on Internal Control over Financial Reporting

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The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, so as to satisfy the requirements of management improvement and safeguard interest of investors. 

In conducting this assessment, we recognize that we continue to face the challenges and requirements of maintaining our internal control systems and procedures that we have not historically done prior to the reverse acquisition. For example, while we had developed strong accounting systems and procedures to prepare the reports required of a privately held company in China, the reverse acquisition required us to convert our financial reporting that was previously prepared in PRC generally accepted accounting principles to generally accepted accounting principles in the U.S. (“US GAAP”). Similarly, although we have historically relied on direct and extensive oversight of our systems and operations by our experienced management team, we recognized that we would need to implement additional and improved controls and procedures as our company grew and developed.

Based on the evaluation of our internal control over financial reporting, we determined that we have several weaknesses which could adversely affect our ability to initiate, authorize, record, process or report financial data in accordance with US GAAP. While the areas we identified are sources of potential risk, we do not believe that these potential risks have affected our financial statements or that there are any errors in our previously reported financial statements that would require restatement. The weaknesses we identified, which are considered to be material weaknesses were: (1) lack of sufficient internal staff with appropriate knowledge, experience, and training in the application of US GAAP, (2) lack of an appropriate level of company qualified resources to perform internal audit properly and inability to effectively communicate its accounting policies and procedures to its accounting staff resulting in inconsistent practice; and (3) the lack of a separate audit committee which effects our Board’s oversight ability. Based on our evaluation under the framework in Internal Control – Integrated Framework and because of the weakness we identified, our management concluded that our internal control over financial reporting was not effective as of December 31, 2012.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to permanent  rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Remediation Plan

We continue to devote resources to remediating, improving and documenting our disclosure controls and procedures and internal controls and procedures, including actively recruiting a new chief financial officer with US GAAP and SEC reporting experience, additional accounting, and finance staff, and consultants to assist with these functions, and implementing additional financial and management controls, reporting systems and procedures. These measures may not ensure the adequacy of our internal controls over our financial processes and reporting in the future.

Change in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B— OTHER INFORMATION

None.

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PART III

ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers and Significant Employees

Identification of Directors, Executive Officers and Significant Employees

The following table and text set forth the names and ages as of our current directors, executive officers and significant employees as of the date of this report. Our Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships among directors and executive officers.

Name	Age	Position
LI Fuchao	42	Chairman of Board, Director
LI Jiantao	42	Director, President, Chief Executive Officer and Chief Financial Officer
SUN Zhaoqing	67	Director, Vice President,
WU Qichang	75	Chief Technology Officer
ZHENG Yang	41	Director

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.

Business Experience

LI Fuchao. Mr. LI Fuchao became chairman in February 2011. He founded Zhengzhou Annec in July 2003. He worked for Yuhua Industrial Co. Ltd. from 1996 to 2003. He has more than 15 years of experience in refractory material manufacturing industry. He has knowledge and experience in refractory material’s manufacture, market development, maintenance and strategic investment. He is responsible for the Company’s market development, maintenance and strategic investment.

LI Jiantao. Mr. LI Jiantao became our president, Chief Executive Officer and Chief Financial Officer in February 2011 and our director on March 4, 2011. He was also one of the founders of Zhengzhou ANNEC Industrial Co. Ltd He joined Zhengzhou Annec in July 2003. He worked for Attention Electricity Co., Ltd. from 1998 to 2003. Mr. LI Jiantao graduated from Jiaozuo Mining Institute in 1994 with a major in electric automatization. He has more than ten years’ experience in corporate management and marketing.  His is responsible for the Company’s market development, maintenance and strategic investment.

SUN Zhaoqing. Mr. Sun became our vice-president in February 2011 and our director on March 4, 2011. He joined Zhengzhou Annec in 2008. He has worked for several refractory material manufacturing firms before 2008. He graduated from Henan Normal University in 1967 with a major in math. He has more than 40 years’ experience in refractory material corporate management and manufacturing. He is responsible for the Company’s day-to-day operations.

WU Qichang. Mr. Wu became a chief technology officer of Zhengzhou Annec in 2011. He is a professor level senior engineer enjoying the Special Government Allowance granted by the State Council and the leader of the Expert Team of National Registered Metallurgical Exploration & Design Engineers. He has issued many papers in domestic publications, showing his original ideas about the methods of properly handling the coal injection amount of blast furnace and application theory of heat transfer in engineering design of blast furnaces, etc. He was awarded the State Excellent Design Gold Award, the State Excellent Design Silver Award, the second prize of the Excellent Design Award of the Ministry of Metallurgical Industry and the first prize of the National Award for Technological Invention. In 2000, he was awarded the title of National Engineering Design Master by the Ministry of Construction of PRC. He graduated from the Ferrous Metallurgy Major of Beijing University of Iron and Steel Technology in 1962.

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ZHENG Yan. Ms. Zheng became our director on March 4, 2011. She has been a vice-president of High-Sky Asset management Co., Ltd since 2010. She became a vice-chairman of Shang Hai Peng Cheng glass Co., Ltd since 2008. She was a strategic development director of West Holding development Co., Ltd from 2004 to 2007. She was a marketing manager and vice-president of Shang Hai Ji Guo investment Co., Ltd from 1999 and 2003. Ms. Zheng worked at local Administration of Radio, Film and Television from 1994 to 1999. She received bachelor degree from He Nan normal university in 1994. Ms. Zheng familiar with corporate management and company strategy, and also have experience in investment.

Involvement in Certain Legal Proceedings

To the best of our knowledge, during the past ten  years, none of our directors or executive officers 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 Securities and Exchange 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.

Audit Committee Financial Expert

Our Board of Directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Instead, our entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act. In addition, our Board of Directors has not made a determination as to whether a director on the Board meets the definition of an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. We continue to seek candidates for outside directors and for a financial expert to serve on a separate audit committee when we establish one.

In fulfilling its oversight responsibilities, the Board has reviewed and discussed the audited financial statements with management and discussed with the independent auditors the matters required to be discussed under PCAOB standrads. Management is responsible for the financial statements and the reporting process, including the system of internal controls. The independent auditors are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles.

The Board of Director discussed with the independent auditors, the auditors’ independence from the management of the Company and received written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1.

After Board of Director’s review and discussions, as mentioned above, the Board of director recommended that the audited financial statements be included in the Company’s Annual Report on Form 10-K.

Compensation Committee and Governance and Nomination Committee

We have not adopted a compensation committee and governance committee charters. The board of directors currently serves these functions. The board of directors will consider establishing a compensation committee and governance committee in the future.

Code of Conduct and Ethics

We have not adopted a Code of Conduct for our Chief Executive Officer and Senior Financial Officers.

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Compliance with Section 16 of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission (hereinafter referred to as the “Commission”) initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on information available to us in public filings,  we believe that all reports required by Section 16(a) for transactions in the year ended December 31, 2012, were timely filed.

ITEM 11 — EXECUTIVE COMPENSATION

Summary Compensation Table

Our Board of Directors has not established a separate compensation committee nor any other committee that acts as such a committee. Instead, the entire Board of Directors reviews and approves executive compensation policies and practices, reviews, salaries and bonuses for our officers, administers our benefit plans, and considers other matters as may, from time to time, be referred to it. We do not currently have a Compensation Committee Charter. Our Board continues to emphasize the important link between our performance, which ultimately benefits all stockholders, and the compensation of our executives. Therefore, the primary goal of our executive compensation policy is to closely align the interests of the stockholders with the interests of the executive officers. In order to achieve this goal, we attempt to (i) offer compensation opportunities that attract and retain executives whose abilities and skills are critical to our long-term success and reward them for their efforts in ensuring our success and (ii) encourage executives to manage from the perspective of owners with an equity stake in the Company.

The following table sets forth the information, on an accrual basis, with respect to the compensation of our and Zhengzhou Annec's  executive officers for the fiscal years ended December 31, 2012 and December 31, 2011.

Name and Principal Position	Year	Salary ($)		Bonus ($)	Stock Awards ($)	Option Awards ($)	Non- Equity  Incentive  Plan  Compensation  ($)	Non- Qualified Deferred Compensation Earnings	All Other Compensation ($)	Total ($)
LI Fuchao(1)	2012	$	14,264							$	14,264
Chairman	2011	$	15,079							$	15,078
LI Jiantao(2)	2012	$	13,861							$	13,861
President, CEO and CFO	2011	$	17,051							$	17,051
SUN Zhaoqing(3)	2012	$	14,596							$	14,596
Vice president	2011	$	16,237							$	16,237

(1) Mr. LI Fuchao serves as the chairman of Zhengzhou Annec.

(2) Mr. LI Jiantao serves as the president, CEO, and CFO of Zhengzhou Annec.

(3) Mr. SUN Zhaoqing serves as the vice president of Zhengzhou Annec.

Options/SAR Grants

During the last fiscal year, we have not granted any stock options or Stock Appreciation Rights (“SARS”) to any executive officers or other individuals.

Aggregated Option/SAR exercised and Fiscal year-end Option/SAR value table

Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during the last fiscal year.

Stock Option Plan

We have not adopted a stock option plan.

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Long-term incentive plans

We have not adopted long term incentive plan.

Defined benefit or actuarial plan disclosure

As required by PRC law, our PRC subsidiaries contribute 10% of an individual employee’s monthly salary to pension insurance.

Compensation of Directors

Our non-executive director does not receive any compensation for services as a director and currently no compensation arrangements are in place for the compensation of directors.

Employment contracts and termination of employment and change-in-control arrangements

None of our officers or employees is under an employment contract or has contractual rights triggered by a change in control of the Company.

Compensation Committee Interlocks and Insider Participation

We have not established a Compensation Committee and our Board of Directors continues to serve this function. No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other entity.

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

As of March 23, 2013, we had a total of 19,995,701 shares of common stock outstanding and no shares of Series A Preferred Stock outstanding.

The following table sets forth, as of  March 23, 2013: (a) the names and addresses of each beneficial owner of more than five percent of our common stock known to us, the number of shares of common stock beneficially owned by each such person, and the percent of our common stock so owned; and (b) the names of each director and executive officer, the number of shares our common stock beneficially owned, and the percentage of our common stock so owned, by each such person, and by all of our directors and executive officers as a group. Unless otherwise indicated, the business address of each of our directors and executive offices is c/o Zhengzhou Annec Industrial Co. Ltd., 15/F, Central Bldg, 5 West St., Xinmi, Henan, China. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.

Name of Beneficial Owner	Title of Class	Amount and Nature of Beneficial Ownership(1)		Percentage of Common Stock
LI Fuchao, Chairman (2)	Common Stock		15,369,610		76.9	%
LI Jiantao, Director, President, Chief Executive Officer, Chief Financial Officer	Common Stock		0		0
SUN Zhaoqing, Director, Vice President	Common Stock		0		0
WU Qichang, Chief Technology Officer	Common Stock		0		0
ZHENG Yang, Director	Common Stock		0		0
All Officers & Directors as a Group (5 people)	Common Stock		15,369,610		76.9	%
More than 5% Holders
LI Ling (3)	Common Stock		1,921,202		9.6	%

* Individual owns less than 1% of our securities.

46

(1)           As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. Includes shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants and such are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group.

(2)           Includes shares held by New-Source Group Limited, a British Virgin Islands company.  Mr. LI Fuchao is the sole director and beneficial owner.

(3)           Includes shares held by High-Sky Assets Management Limited, a British Virgin Islands company. Ms. LI Ling is the sole director and shareholder.

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

At December 31, 2012 and 2011, Zhengzhou Annec had loans payable to the Chairman (LI Fuchao) and a minority shareholder (FAN Yinling) in the aggregate amount of $407,767 and $764,461, respectively. Zhengzhou Annec and the lenders have not signed notes, there are no specific due dates, and no interest is paid on the loans. Money is transferred between the lenders and Zhengzhou Annec mainly for cash flow purposes. The amounts loaned and borrowed are short-term in nature and the balances at both year-ends are considered at the fair market value of the amounts owed. The following amounts were payable to the lenders as of December 31, 2012 and 2011:

	December 31,
	2012		2011
LI Fuchao	$	214,150	$	572,779
FAN Yinling		193,617		191,682
Total	$	407,767	$	764,461

Related Entities

The reverse acquisition of China Green  resulted in a change of control by issuance of our securities to the following entities and individuals:

Ÿ New-Source Group Limited. New-Source Group Limited is our major shareholder which owns approximately 76.87% of our common stock on completion of the share exchange. Mr. LI Fuchao, our chairman, is a director of this entity. The shares of this entity are held by Ms. LI Ling who holds the shares for the benefit of Mr. LI Fuchao.

47

Ÿ High-Sky Assets Management Limited . High-Sky Assets Management Limited owns approximately 9.61% of our common stock on completion of the share exchange. Ms. LI Ling is the director and shareholder of this entity.

Ÿ Joint Rise Investment Limited. Joint Rise Investment Limited owns less than 5% of our common stock on completion of the share exchange. Mr. LEE Hon Wah is the director and shareholder of this entity.

Ÿ Giant Harvest Investment Limited. Giant Harvest Investment Limited owns less than 5% of our common stock on completion of the share exchange. Ms. CHEUNG Yun Nai Annie is the director and shareholder of this entity.

Ÿ Mr. Qian Yun Ting . Mr. Qian owns less than 2% of our common stock on completion of the share exchange.

Beijing Annec

On January 16, 2011, prior to the reverse acquisition transaction, Beijing Annec entered into a contractual agreement, or the VIE Agreement, with Zhengzhou Annec pursuant to which Beijing Annec became our VIE. The VIE structure is a common structure used to acquire PRC companies, particularly in certain industries where foreign investment is restricted or forbidden by the PRC government. The VIE Agreements include the following arrangements:

(1)              Exclusive Business Cooperation Agreement, as amended (“Cooperation Agreement”), where Zhengzhou Annec, in general, becomes Beijing Annec’s exclusive service provider to provide Beijing Annec with business support and technical and consulting services in exchange for an annual service fee equal to Beijing Annec’s net income for such year, which amount is payable upon request of Zhengzhou Annec;

(2)              Equity Interest Pledge Agreement (“Pledge Agreement”) under which LI Fuchao the 100% owner of all of the equity interest in Beijing Annec, has pledged all of his equity interest in Beijing Annec to Zhengzhou Annec as a guarantee of Beijing Annec’s performance of its obligations under the Cooperation Agreement;

(3)              Exclusive Option Agreement (“Option Agreement”) under which LI Fuchao grants Zhengzhou Annec an irrevocable right and option to acquire any and all of Mr. Li’s equity interest in Beijing Annec, as and when permitted by PRC laws, for an exercise price equal to the actual capital contributions paid in the registered capital of Beijing Annec by Mr. Li unless an appraisal is required by applicable PRC laws; and

(4)              Power of Attorney (“POA”) under which Mr. Li grants Zhengzhou Annec the right to (i) attend shareholders meetings of Beijing Annec, (ii) exercise all of Mr. Li shareholder’s rights and shareholder’s voting rights in Beijing Annec, including, but not limited to the sale or transfer or pledge or disposition of his stock in whole or in part, and (iii) designate and appoint on Mr. Li’s behalf the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management of Beijing Annec.

As a result of the foregoing structure, we control 100% of Beijing Annec and have rights to all of Beijing Annec's audited total net income for such year revenues. In addition to the VIE agreement, as of December 31, 2012 and 2011, 96.3% of the equity ownership, of Beijing Annec was controlled by shareholders nominated by Zhengzhou Annec. The remaining 3.7% of the equity is owned by Mr. Li Fuchao. Thus, Beijing Annec is treated as a 100% owned subsidiary for accounting purposes.

Director Independence

We currently do not have any independent directors as the term “independent” is defined by the rules of the Nasdaq Stock Market.

48

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

On February 28, 2011, we engaged Burr Pilger Mayer, Inc., or “BPM” as our independent registered public accounting firm. On June 28, 2012, our board of directors approved the dismissal of BPM. The Company notified BPM of this decision on June 28, 2012.

Concurrent with the decision to dismiss BPM as our independent registered public accounting firm, our board of directors appointed GHP Horwath, P.C. (“GHP”) as our independent registered public accounting firm.

Audit Fees. The aggregate fees for the annual audit of 2012 financial statements included in our Annual Report for the year ended December 31, 2012 are $160,000 and the fees for the reviews of our second and third quarter interim financial statements are $40,000. The total aggregate fees to GHP as discussed above amounted to $200,000.

The aggregate fees paid to BPM for the annual audit of financial statements included in our Annual Report for the year ended December 31, 2011 and the review of our quarterly reports for such year, amounted to $145,000. The fees paid to BPM for the review of our first quarter interim financial statements for 2012 amounted to $30,000.

Audit Related Fees. During the years ended December 31, 2012 and 2011 there were no fees relating to the performance of any other audit or review of our financial statements by BPM or GHP.

Tax Fees. During the years ended December 31, 2012 and 2011, there were no fees relating to professional tax services by BPM or GHP.

All Other Fees . During the years ended December 31, 2012 and 2011 there were no other fees relating to services provided by BPM or GHP.

The above-mentioned fees are set forth as follows in tabular form:

	2012		2011
Audit Fees to GHP	$	200,000	$	-
Audit Fees to BPM	$	30,000	$	145,000
Audit Related Fees	$	-0-	$	-0-
Tax Fees	$	-0-	$	-0-
All Other Fees	$	-0-	$	-0-

The Company’s Board of Directors serves as the Audit Committee and has unanimously approved all audit and non-audit services provided by the independent auditors. The independent accountants and management are required to periodically report to the Board of Directors regarding the extent of services provided by the independent accountants, and the fees for the services performed to date.

49

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit
No.	Description
2.1	Securities Exchange Agreement dated February 11, 2011 (2)
3.1	Articles of Incorporation (1)
3.2	Bylaws (1)
3.3	Certificate of Designation of Series A Convertible Preferred Stock (2)
3.4	Certificate of Amendment of Certificate of Incorporation of E-Band Media, Inc. (3)
10.1	Exclusive Business Cooperation Agreement, dated January 16, 2011, between Zhengzhou Annec Industrial Co., Ltd. and Annec (Beijing) Engineering Technology Co., Ltd. (2)
10.2	Supplemental Agreement to Exclusive Business Cooperation Agreement, dated January 16, 2011 between Zhengzhou Annec Industrial Co., Ltd. and Annec (Beijing) Engineering Technology Co., Ltd. (2)
10.3	Equity Interest Pledge Agreement, dated January 16, 2011, among Zhengzhou Annec Industrial Co., Ltd., Li Fuchao, and Annec (Beijing) Engineering Technology Co., Ltd. (2)
10.4	Power of Attorney, dated January 16, 2011 by Li Fuchao (2)
10.5	Exclusive Option Agreement, dated January 16, 2011 among Zhengzhou Annec Industrial Co., Ltd., Li Fuchao, and Annec (Beijing) Engineering Technology Co., Ltd. (2)
10.6	Amendment To Supplemental Agreement to Exclusive Business Cooperation Agreement(4)
21.1	Subsidiaries of the Company (2)
31.1	Certification of Officers pursuant to Rules 13a-14 and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Officers pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS	XBRL Instance Document (5)
101.SCH	XBRL Taxonomy Extension Schema (5)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase (5)
101.DEF	XBRL Taxonomy Extension Definition Linkbase (5)
101.LAB	XBRL Taxonomy Extension Label Linkbase (5)
101.FRE	XBRL Taxonomy Extension Presentation Linkbase (5)

* Filed herewith.

⁽¹⁾ Incorporated by reference from Form 10/A filed with the SEC on December 3, 2010.

⁽²⁾ Incorporated by reference from Form 8-K filed with the SEC on February 11. 2011.

⁽³⁾ Incorporated by reference from Form 8-K filed with the SEC on May 11, 2011.

⁽⁴⁾ Incorporated by reference to from Form 8-K filed with the SEC on May 18, 2012

⁽⁵⁾ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

50

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ANNEC GREEN REFRACTORIES CORPORATION
Dated: April 1, 2013	/s/ LI Jiantao
	By: LI Jiantao
	Its: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer)

In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: April 1, 2013	/s/LI Fuchao
	LI Fuchao, Chairman of the Board of Directors
Dated: April 1, 2013	/s/ LI Jiantao
	LI Jiantao,
	Director, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer)
Dated: April 1, 2013	/s/ ZHENG Yang
	ZHENG Yang, Director

Dated: April 1, 2013	/s/ SUN Zhaoqing
	SUN Zhaoqing, director

51

Annec green Refractories Corporation

Consolidated Financial Statements

For the years ended December 31, 2012 and 2011

Annec Green refractories corporation

Consolidated Financial Statements 

For the years ended December 31, 2012 and 2011

Contents 

	Page
Reports of Independent Registered Public Accounting Firms	F-1
Consolidated Balance Sheets	F-3
Consolidated Statements of Income and Comprehensive Income	F-4
Consolidated Statements of Stockholders' Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

The Board of Directors and Shareholders

Annec Green Refractories Corporation

We have audited the accompanying consolidated balance sheet of Annec Green Refractories Corporation and its subsidiaries as of December 31, 2012, and the related consolidated statements of income and comprehensive income, stockholder’s equity and cash flows for the year ended December 31, 2012. These financial statements are the responsibility of Annec Green Refractories Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 financial position of Annec Green Refractories Corporation and its subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/GHP Horwath, P.C.

Denver, Colorado

April 1, 2013

Report Of Independent Registered Public Accounting Firm

To the Board of Directors

of Annec Green Refractories Corporation

We have audited the accompanying consolidated balance sheets of Annec Green Refractories Corporation and its subsidiaries (the “Company”) as of December 31, 2011, and the related consolidated statements of operations, 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 consolidated financial statements based on our audit.

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 financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Annec Green Refractories Corporation and its subsidiaries as of December 31, 2011, and the 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/ Burr Pilger Mayer, Inc.

Burr Pilger Mayer, Inc.

E. Palo Alto, California

April 24, 2012

F-2

Annec green refractories corporation

Consolidated Balance Sheets

	December 31,
	2012		2011
Assets
Current assets:
Cash	$	380,579	$	343,028
Restricted cash		6,469,826		1,571,166
Bank notes receivable		1,695,771		2,026,885
Accounts receivable (net of allowance of $1,481,307 and $792,367 at December 31, 2012 and 2011, respectively)		42,214,102		34,410,920
Retentions receivable (net of allowance of $531,203 at December 31, 2012)		13,237,473		11,570,262
Prepaid expenses and deposits		7,613,579		10,515,009
Other receivables		3,005,423		3,815,159
Inventories		25,555,534		34,418,964
Total current assets		100,172,287		98,671,393
Long-term retentions receivable (net of allowance of $1,172,860 at December 31,2012)		2,495,618		4,926,856
Deposits for capital expenditure				493,402
Plant and equipment, net		16,505,421		16,480,469
Construction in progress		690,655
Land use rights, net		2,258,796		2,225,555
Long-term investment		158,702		157,117
Total assets	$	122,281,479	$	122,954,792
Liabilities and stockholders' Equity
Current liabilities:
Short-term loans	$	24,037,073	$	15,218,314
Bank notes payable		2,221,834		1,571,166
Accounts payable and accrued expenses		19,662,185		19,315,558
Advances from customers		14,535,685		29,726,898
Salaries payable		401,536		530,219
Taxes payable		5,215,355		3,301,944
Related party payables		407,767		764,461
Loans payable to employees		2,027,032		1,619,827
Loans payable to other individuals		4,372,570		6,481,374
Other payables		3,582,618		3,680,223
Total current liabilities		76,463,655		82,209,984
Deferred income		2,776,599		2,812,556
Long-term loans		622,114		923,846
Total liabilities		79,862,368		85,946,386
Stockholders' equity:
Series A preferred stock, $0.0001 par value; 20,000,000 shares authorized; zero shares issued and outstanding		-		-
Common stock, $0.0001 par value; 100,000,000 shares authorized; 19,995,701 issued and outstanding at December 31, 2012 and 2011		2,000		2,000
Additional paid-in capital		2,661,026		2,661,026
Statutory reserve		1,385,966		1,385,966
Retained earnings		36,346,896		31,311,752
Accumulated other comprehensive income		2,023,223		1,647,662
Total stockholders' equity		42,419,111		37,008,406
Total liabilities and stockholders' equity	$	122,281,479	$	122,954,792

See accompanying notes to the consolidated financial statements. 

F-3

Annec Green refractories corporation  

Consolidated Statements of Income And Comprehensive Income

	Year Ended
	December 31,
	2012			2011
Revenues:
Products	$	75,312,493		$	91,291,849
Services		9,445,602			3,088,557
Total revenues		84,758,095			94,380,406
Cost of revenues:
Products		45,016,916			56,442,411
Services		8,141,406			1,769,834
Total cost of revenues		53,158,322			58,212,245
Gross profit		31,599,773			36,168,161
Operating expenses:
Sales and marketing		12,905,016			15,324,847
General and administrative		9,064,914			4,736,057
Total operating expenses		21,969,930			20,060,904
Income from operations		9,629,843			16,107,257
Other income (expense):
Interest income		324,106			278,713
Interest expense		(4,153,272	)		(3,421,836	)
Other income, net		315,268			462,822
Total other expense		(3,513,898	)		(2,680,301	)
Income before provision for income taxes		6,115,945			13,426,956
Provision for income taxes		1,080,801			2,117,388
Net income		5,035,144			11,309,568
Other comprehensive income:
Foreign currency translation adjustment		375,561			1,071,144
Comprehensive income	$	5,410,705		$	12,380,712
Net income per share-basic and dilutive	$	0.25		$	0.57
Shares used in computing net income per share-basic and dilutive		19,995,701			19,995,701

 See accompanying notes to the consolidated financial statements. 

F-4

Annec Green refractories corporation 

Consolidated Statements of Stockholders' Equity  

	Common Stock				Additional Paid In		Statutory		Retained			Accumulated Other Comprehensive		Total Stockholders’
	Shares		Amount		Capital		reserve		earnings			Income		Equity
Balance at December 31, 2010		19,995,701	$	2,000	$	2,661,026	$	1,385,966	$	20,700,451		$	576,521	$	25,325,964
Dividends										(698,267	)				(698,267	)
Net income										11,309,568					11,309,568
Currency translation adjustment, net of tax													1,071,141		1,071,141
Balance at December 31, 2011		19,995,701		2,000		2,661,026		1,385,966		31,311,752			1,647,662		37,008,406
Net income										5,035,144					5,035,144
Currency translation adjustment, net of tax													375,561		375,561
Balance at December 31, 2012		19,995,701	$	2,000	$	2,661,026	$	1,385,966	$	36,346,896		$	2,023,223	$	42,419,111

See accompanying notes to the consolidated financial statements.

F-5

ANNEC GREEN REFRACTORIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended
	December 31,
	2012			2011
Cash flows from operating activities:
Net income	$	5,035,144		$	11,309,568
Adjustments to reconcile net income to net cash used in operating activities:
Non cash interest expense, discount on bank notes receivable		1,294,915			1,143,668
Depreciation and amortization		1,781,836			1,436,151
Provision for bad debt		2,384,136			219,016
Provision for obsolete inventory		880,562			-
Loss on inventory spoilage and waste		1,392,796			-
Loss on sale of plant and equipment		13,214			56,721
Change in assets and liabilities:
Restricted cash		(4,881,020	)		2,960,729
Bank notes receivable		(943,471	)		(2,060,740	)
Accounts receivable, retentions receivable and long-term retentions receivable		(9,455,981	)		(23,689,256	)
Prepaid expenses and deposits		3,006,466			(4,632,462	)
Other receivables		847,935			1,767,577
Inventories		6,934,116			(7,670,734	)
Bank notes payable		634,578			(3,861,899	)
Accounts payable and accrued expenses		237,414			7,553,729
Advances from customers		(15,485,609	)		5,702,110
Salaries payable		(133,986	)		76,748
Taxes payable		1,879,397			664,453
Deferred income		(64,322	)		(171,673	)
Other payables		(134,521	)		1,665,500
Net cash used in operating activities		(4,776,401	)		(7,530,794	)
Cash flows from investing activities:
Deposits for capital expenditure		-			(513,246	)
Purchase of plant and equipment		(1,414,476	)		(2,134,540	)
Purchase of land use rights		(57,263	)		-
Proceeds from sale of plant and equipment		128,665			80,327
Net cash used in investing activities		(1,343,074	)		(2,567,459	)
Cash flows from financing activities:
Payments of dividends		-			(698,267	)
Proceeds from loans to related parties, employees, and other individuals		390,713			4,364,254
Payment of loans to related parties, employees, and other individuals		(2,537,707	)		(782,951	)
Proceeds from short-term borrowings		27,978,551			19,139,569
Payment of short-term borrowings		(19,316,559	)		(12,806,055	)
Payment of long-term borrowings		(310,943	)		(302,773	)
Net cash provided by financing activities		6,204,055			8,913,777
Net increase (decrease) in cash		84,580			(1,184,476	)
Effect of exchange rate changes		(47,029	)		22,533
Cash at beginning of year		343,028			1,504,971
Cash at end of year	$	380,579		$	343,028
Noncash financing and investing activities:
Reduction of accounts payable through disposal of plant and equipment	$	85,803		$	34,566
Reduction of accounts receivable through addition of plant and equipment	$	548,910		$	45,407
Supplemental disclosure of cash flow information:
Interest paid	$	2,533,273		$	1,651,498
Income taxes paid	$	540,149		$	852,670

See accompanying notes to the consolidated financial statements.

F-6

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

1. Business of the Company

On February 11, 2011, Annec Green Refractories Corporation, formerly E-Band Media, Inc. (“E-Band Media”) entered and closed a Share Exchange Agreement (“Share Exchange Agreement”), with certain shareholders and warrant holders, Dean Konstantine, Muzeyyen Balaban, Bernieta Masters, and Linda Masters, and with China Green Refractories Limited , a BVI corporation (“China Green”), and its shareholders, New-Source Group Limited, a BVI company, High-Sky Assets Management Limited, a BVI company, Joint Rise Investments Limited, a BVI company, Giant Harvest Investment Limited, a BVI company, and Mr. QIAN Yun Ting (collectively the “China Green Shareholders”), pursuant to which E-Band Media acquired 100% of the issued and outstanding capital stock of China Green in exchange for 19,220 shares of E-Band Media’s Series A Convertible Preferred Stock (“Series A Preferred Stock”). Pursuant to the terms of the Share Exchange Agreement, E-Band Media agreed to affect a 1-for-14.375 reverse stock split (“Reverse Split”) of its outstanding common stock. The Reverse Stock Split was affected on April 18, 2011. In addition, pursuant to the Share Exchange Agreement, the China Green shareholders acquired all 695,652 shares (10,000,000 pre-reverse split shares) of E-Band Media’s common stock from Dean Konstantine (“Controlled Shares”) and all outstanding warrants of E-Band Media from Muzeyyen Balaban, Bernieta Masters, and Linda Masters, representing warrants to purchase up to 347,826 shares (5,000,000 pre-reverse split shares) of our common stock (“Warrants”) for an aggregate purchase price of $250,000 and 100 shares of Series A Preferred Stock held by China Green shareholders. The Warrants were cancelled by the China Green shareholders pursuant to the Share Exchange Agreement. As part of the Exchange Agreement, the 19,220 shares of Series A Preferred Stock were converted to 19,220,000 post-reserve split shares of common stock. As a result of the Share Exchange Agreement, the China Green shareholders owned 96% of our issued and outstanding common stock on an as-converted common stock basis as of and immediately after the effectiveness of the Reverse Split as contemplated by the Share Exchange Agreement.

The consolidated financial statements have been prepared with the effect of the merger of China Green and E-Band Media, Inc. as a reverse acquisition of assets and a recapitalization in accordance with accounting principles generally accepted in the United States. For accounting purposes, China Green is considered to have acquired E-Band Media, Inc. in the merger and E-Band Media, Inc. does not meet the definition of a business in accordance with ASC Topic 805-10, Business Combinations , because E-Band Media, Inc. had no assets or liabilities at the time of closing of the merger Consequently, no goodwill or other intangibles were recorded as part of acquisition accounting and the cost of the merger is measured at net assets acquired. Stockholders’ equity and earnings per share of the Company has been retroactively restated as if the merger had taken place as of January 1, 2011. The impact to stockholders’ equity and earnings per share for the period January 1, 2011 through February, 2011 was not significant.

History of E-Band Media, Inc.

E-Band Media was organized under the laws of the State of Delaware on April 29, 2010 as part of the implementation of the Chapter 11 plan of reorganization of AP Corporate Services, Inc. (“AP”). AP was incorporated in the State of Nevada in 1997 and was formed to provide a variety of services to small, entrepreneurial businesses. These services included business planning, market research, accounting advice, incorporation, and resident agent services. Between 1997 and 1999, AP’s business focus changed. In addition to providing business services, AP began to own and develop businesses related to the medical professions. In 1999 AP organized E-Band Media.com with the intent of offering live “chat” consultations via the internet with nurses and physicians. A website was developed but it was unable to generate significant revenues and the site was terminated prior to AP’s bankruptcy filing in 2008.

AP filed for Chapter 11 Bankruptcy in September 2008 in the U.S. Bankruptcy Court for the Central District of California. AP’s plan of reorganization was confirmed by the Court on December 24, 2009 and became effective on January 4, 2009. This plan of reorganization provided, among other things, for the incorporation of E-Band Media and the distribution of 1,085,000 shares in it to AP’s bankruptcy creditors. The shares were distributed pursuant to section 1145 of the U.S. Bankruptcy Code. The plan also provided for the transfer to E-Band Media of any interest which AP and/or E-Band Media.com had in the development of a medical “chat” website.

Continued

F-7

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

1. Business of the Company , continued

History of E-Band Media, Inc. , continued

As stated in the plan of reorganization ordered by the Court, these shares were issued “to enhance the distribution to creditors,” i.e. to enhance their opportunity to recover the losses they sustained in the AP bankruptcy. To this end, AP, by and through its President, agreed “to use its best efforts to have the shares publicly traded on the Over-The-Counter market in order to provide an opportunity for liquidity to the creditors” (from the Court approved “Disclosure Statement” describing the Plan of Reorganization). Subsequent to the effectiveness of the plan of reorganization the Company issued 695,652 restricted shares (10,000,000 pre-reverse split shares) of common stock to its President, Dean Konstantine, at par value ($0.0001) for services rendered and costs advanced totaling $1,000.

On September 14, 2010, E-Band Media filed a Registration Statement on Form 10SB (File No.: 000-54117) with the SEC to register its common stock under Section 12(g) of the Exchange Act. The Registration Statement went effective by operation of law on November 13, 2010, at which point E-Band became a reporting company under the Exchange Act.

On April 18, 2011, E-Band Media changed its name to Annec Green Refractories Corporation.

History of China Green Refractories Limited

China Green and its wholly-owned subsidiary Alex Industrial Investment Limited (“Alex Industrial”) were created for the sole purpose of conducting a reverse merger transaction with a U.S. public shell company. China Green was incorporated in the British Virgin Islands as a BVI Business Company on March 12, 2010. Under China Green’s Memorandum of Association, it is authorized to issue up to 50,000 shares of one class of stock with a par value of $1.00. Prior to the Share Exchange, there were a total of 102 shares of China Green stock, which were held by five shareholders. Each share was purchased for $1.00.

Alex Industrial was incorporated in Hong Kong on April 1, 2010 by China Green to acquire Zhengzhou Annec Industrial Co., Ltd. (“Zhengzhou Annec”) and Zhengzhou Annec’s subsidiary Annec (Beijing) Engineering Technology Co., Ltd. (Beijing Annec). Under Alex Industrial’s Memorandum of Association, the capital of Alex Industrial is divided into 10,000 shares at $1.00 each. On March 26, 2010, China Green purchased 100 founder shares in the amount of $100. On January 14, 2011 , China Green purchased all of the outstanding shares of Zhengzhou Annec for the total consideration of $2,980,998. As a result of this transaction, the controlling equity holders of Zhengzhou Annec continued to hold 98% of the outstanding equity of Zhengzhou Annec through their direct or beneficial ownership of China Green. Accordingly, this transaction was accounted for as an exchange among related parties and all assets and liabilities were transferred at their net book value.

Zhengzhou Annec was established in 2003, a Company Limited, registered in Xinmi City Henan province in the People’s Republic of China (“PRC” or “China”) with initial registered capital of $730,000. On October 8, 2003, the shareholders of Zhengzhou Annec reached a resolution to increase the registered capital of Zhengzhou Annec from $730,000 to $3.0 million. On January 14, 2011, Zhengzhou Annec became the wholly owned subsidiary of Alex Industrial and , accordingly, became a wholly-foreign owned enterprise (WFOE) under Chinese law.

Continued

F-8

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

1. Business of the Company , continued

History of China Green Refractories Limited , continued

Beijing Annec was established in January 2008 in Xuanwu district Beijing as a Company Limited, registered in Beijing, PRC, with approximately $900,000 as its initial registered capital. In 2010, Beijing Annec’s registered capital was increased from $900,000 to approximately $2.8 million. 100% of Beijing Annec’s equity is owned or controlled through assignment by Fuchao Li. On January 16, 2011, Beijing Annec entered into a contractual agreement, or the VIE agreement, with Zhengzhou Annec. The VIE Agreement includes the following arrangements:

(1) Exclusive Business Cooperation Agreement, as amended (“Cooperation Agreement”), where Zhengzhou Annec, in general, becomes Beijing Annec’s exclusive service provider to provide Beijing Annec with business support and technical and consulting services in exchange for an annual service fee equal to Beijing Annec’s net income for such year, which amount is payable upon request of Zhengzhou Annec;

(2) Equity Interest Pledge Agreement (“Pledge Agreement”) under which Fuchao Li the 100% owner of all of the equity interest in Beijing Annec, has pledged all of his equity interest in Beijing Annec to Zhengzhou Annec as a guarantee of Beijing Annec’s performance of its obligations under the Cooperation Agreement;

(3) Exclusive Option Agreement (“Option Agreement”) under which Fuchao Li grants Zhengzhou Annec an irrevocable right and option to acquire any and all of Mr. Li’s equity interest in Beijing Annec, as and when permitted by PRC laws, for an exercise price equal to the actual capital contributions paid in the registered capital of Beijing Annec by Mr. Li unless an appraisal is required by applicable PRC laws; and

(4) Power of Attorney (POA) under which Mr. Li grants Zhengzhou Annec the right to (i) attend shareholders meetings of Beijing Annec, (ii) exercise all of Mr. Li shareholder’s rights and shareholder’s voting rights in Beijing Annec, including, but not limited to the sale or transfer or pledge or disposition of his stock in whole or in part, and (iii) designate and appoint on Mr. Li’s behalf the legal representative, the executive director and/or director, supervisor, the chief executive officer and other senior management of Beijing Annec.

As a result of the foregoing structure, the company controls 100% of Beijing Annec. In addition to the VIE agreement, 96.3% of the equity ownership, as of December 31, 2012, of Beijing Annec is controlled by shareholders nominated by Zhengzhou Annec and Mr. Li. The remaining 3.7% of the equity is owned by Mr. Li. Thus, Beijing Annec is treated as a 100% owned subsidiary for accounting purposes.

Business Description

Zhengzhou Annec is principally engaged in the manufacture, design, development, sale, installation, and maintenance of refractory materials and products. Zhengzhou Annec’s primary products are heat shock bricks for internal, top, and external combustion hot air stoves, high alumina brick with heat shock, cordierite-mullite bricks, non-recasting, soft and high-heating andalusite brick, and silica bricks with high thermal conductivity and high density. Zhengzhou Annec produces refractory products through three factories in the Henan Province, PRC: Fuliang, Fuhua, and Fugang.

Continued 

F-9

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

1. Business of the Company , continued

Business Description , continued

Beijing Annec’s primary business is to design and build blast furnaces and hot air stoves. Beijing Annec acts as a general contractor and has outside construction companies serve as sub-contractors. Beijing Annec also derives revenue from technology research and development, graphic design, production, engineering and technical consulting, and sales of building materials.

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U. S. GAAP). The consolidated financial statements include the balances and results of Zhengzhou Annec and Beijing Annec (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U. S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. Significant estimates and assumptions are used for, but not limited to: (1) allowance for doubtful accounts, (2) economic lives of property, plant, and equipment, (3) asset impairments, (4) percentage of completion on construction projects, and (5) contingency reserves. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable 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. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on our operating results.

Cash

Cash consists primarily of cash on hand or cash deposits in banks that are available for withdrawal without restriction.

Restricted Cash

Restricted cash represents cash that is held by the banks as collateral for bank notes payable (see Note 10). 

Continued

F-10

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies , continued

Bank Notes

Bank notes receivable represents short-term notes receivable issued by the customer and an accepting bank that entitles the Company to receive the full face amount from the accepting bank at maturity, which is generally six months from the date of issuance. Bank notes receivable are typically sold at a discount prior to maturity, and the discount is included in interest expense. Historically, the Company has experienced no losses on bank notes receivable.

Bank notes payable represent notes issued by an accepting bank in favor of the Company’s suppliers. The Company’s suppliers receive payments from the accepting bank directly upon maturity of the notes, and the Company is obliged to repay the face value of the notes to the accepting bank. 

Accounts Receivable

Accounts receivable are reported at net realizable value. The Company has established an allowance for doubtful accounts based on an estimate of the amounts that may be uncollectible. On a monthly basis, the Company examines all significant past due amounts. The Company considers the age of the receivable, the financial standing and credit rating of the customer, and the history of payments or guarantee of payment made by the customer. Many of the Company’s contracts are with large Chinese government-backed organizations with an excellent but slow payment history. Normal payment terms for custom contract sales are: (i) 30% of the contract price as advanced payment after signing of the contract which is used to buy materials and production; (ii) 30% of the contract price will be collected when production is finished and goods are inspected by the customer; (iii) 30% of the contract price will be received after the completion of refractory installation and testing by the customer; and (iv) the final installment of 10% (retentions) is usually due one to two years after the stove is put into service to allow for quality guarantee. Such retentions are presented as retentions receivable or long-term retentions receivable on the consolidated balance sheets.

Estimated warranty costs, if material, are accrued at the time of sales. Such costs have not been material to date.

Concentration of Credit and Other Risks

Financial instruments which potentially subject to concentrations of credit risk consist principally of cash, restricted cash, bank notes receivable, accounts receivable and other receivables. The Company holds all of its bank deposits with banks in China. In China, there is no equivalent federal deposit insurance as in the United States; as such, these amounts held in banks in China are not insured. The Company has not experienced any losses in such bank accounts through December 31, 2012. In an effort to mitigate any potential risk, the Company periodically evaluates the credit quality of the financial institutions which hold the bank deposits and the Company holds its cash in multiple banks supported by the local and Central Government of the PRC.

The Company does not require collateral or other security to support the trade receivables. The Company is exposed to credit risk in the event of nonpayment by customers to the extent of amounts recorded on the balance sheet. One customer (A) accounted for 21% and 25% of trade receivables balance as of December 31, 2012 and 2011, respectively. An additional customer (B) accounted for 19% and 16% of trade receivables balance as of December 31, 2012 and 2011, respectively.

Continued 

F-11

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies , continued

Concentration of Credit and Other Risks, continued

One customer (C) individually accounted for 19% of our revenue for the year ended December 31, 2012, and one customer (A) individually accounted for 24% of our revenue for the year ended December 31, 2011. 

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economical, and legal environment in the PRC. The Chinese Government controls its foreign currency reserves through restrictions on imports and conversion of Renminbi (RMB) into foreign currency. Between January 2008 and December 2012, the exchange rate between RMB and U. S. Dollars (USD) has fluctuated from USD $1.00 to RMB 7.3141 and USD $1.00 to RMB 6.3011, respectively. There can be no assurance that the exchange rate will remain stable. The Renminbi could appreciate or depreciate against the U. S. Dollar. The Company’s financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi in which its earnings and obligations are denominated.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on an average cost basis, which approximates actual cost on a weighted average method. Lower of cost or market is evaluated by considering obsolescence, excessive levels of inventory, deterioration, and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess or obsolescence and charged to cost of revenue.

Plant and Equipment

Plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line basis over the estimated useful lives of the related assets as follows:

Plant and buildings	20 years
Machinery and equipment	10 years
Vehicles	4 years
Electronic equipment	3 years
Furniture and tools	5 years
Software	5 years

Repairs and maintenance costs are expensed as incurred. Gains or losses on disposals are included in general and administrative expense.

Continued 

F-12

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies , continued

Plant and Equipment, continued

The Company capitalizes interest attributable to capital construction projects, if material, in accordance with Accounting Standards Codification (ASC) Subtopic 835-20, Capitalization of Interest, which defines that interest shall be capitalized for assets that are constructed or otherwise produced for an entity’s own use, including assets constructed or produced for the entity by others for which deposits or progress payments have been made.

Occasionally the Company will settle outstanding accounts receivable and accounts payable balances through non-monetary exchanges such as receiving or signing over the title to vehicles. The Company accounts for these transactions in accordance with ASC 845, Nonmonetary Transactions. The Company records a gain or loss on the disposal/transfer of the vehicles to the extent that the fair value of the receivable or payable balance differs from the book value of the vehicles.

Land Use Rights

In the PRC there is no land ownership, but land use rights can be obtained. The Company has acquired land use rights for the areas where the Company’s manufactory facilities are located. Land use rights are stated at cost less accumulated amortization. Amortization expense is recorded on a straight-line basis over the term of the land use rights. Land use rights are an intangible asset. The Company reviews intangible assets for impairment periodically and at least annually.

Long-term Investment

Long-term investment represents an investment the Company has in a regional bank within China. We do not hold a greater than 5% interest, and we have determined that we do not have significant control or influence in the bank. Accordingly, we record the investment at cost. Our investment is in a private company where there is no market to determine the value of the investment.

Impairment of Long-Lived Assets

Long-lived assets held and used by the Company, including long-term investments, are reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be recoverable (carrying amount exceeds the gross, undiscounted cash flows from use and disposition), then an impairment loss is recognized. The impairment loss is measured as the excess of the carrying amount over the asset’s or asset group’s fair value. Through December 31, 2012, there was no impairment of the Company’s long-lived assets.

Continued 

F-13

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies , continued

Fair Value of Financial Instruments

Fair Value Measurements and Disclosures (ASC 820-10) include a fair value hierarchy that is intended to increase the consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing an asset or liability based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

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

Level 2– observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that is observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –instrument valuations are obtained without observable market values and require a high-level of judgment to determine the fair value.

The Company’s financial instruments consist mainly of cash, restricted cash, bank notes receivable, other receivables, and debt obligations. Other receivables are reflected in the accompanying financial statements at historical cost, which approximates fair value due to the short-term nature of these instruments. Based on the borrowing rates currently available to the Company for loans and similar terms and average maturities, the fair value of debt obligations also approximates their carrying value due to the short-term nature of the instruments. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The Company had no assets or liabilities measured at fair value and subject to the disclosure requirements based on the fair value hierarchy.

Continued 

F-14

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements 

2. Summary of Significant Accounting Policies , continued

Government Assistance

The Company is currently the beneficiary of government grants that are generally intended to be used towards capital technology improvement with the end goal of increased production and energy efficiency. These grants are recorded as deferred income in the liabilities section of the balance sheet when cash is received and are accreted into non-operating income over the life of the asset, to the extent that the grant is related to an asset. For grants not related to any assets in certain cases, the Company records non-operating income when earned. The government grant income included in other income amounted to approximately $311,154 and $235,008 for the years ended December 31, 2012 and 2011, respectively.

Foreign Currency Translation

The accompanying financial statements are presented in United States Dollars. We use the United States Dollar as our reporting currency, primarily because our shares were previously quoted on the OTCBB and currently quoted on the OTCQB in the United States. The functional currency of our Company is the Renminbi, the official currency of the PRC. Capital accounts of the financial statements are translated into United States Dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rates for the years ended December 31, 2012 and 2011. Items in the Company’s consolidated statements of cash flows are translated using a weighted average exchange rate, which approximates the exchange rate in effect at the time of the cash flows. For all periods reported, there were no transactions outside the PRC; thus, all of our transactions are in RMB, our functional currency. Currency translation adjustments from translation to U.S. Dollars for financial reporting purposes are recorded in other comprehensive income (loss) as a component of equity.

A summary of the conversion rates for the periods presented is as follows:

	December 31,
	2012		2011
Year end RMB: U.S. Dollar exchange rate		6.3011		6.3647
Average RMB: U.S. Dollar exchange rate		6.3034		6.4735

Continued 

F-15

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies , continued

Accumulated Other Comprehensive Income (Loss)

We report comprehensive income (loss) in accordance with the provisions of ASC Topic 220, Comprehensive Income, which establishes standards for reporting comprehensive income or loss and its components in the financial statements. The accumulated other comprehensive income (loss) represents foreign currency translation adjustments.

Revenue Recognition

The Company’s principal revenue sources are from the sale of refractory materials and products and from sales generated from the designing and building of blast furnaces and hot-air stoves.

Zhengzhou Annec primarily generates revenue from the sale of a variety of refractory bricks and the sales from kits of pre-assembled hot-air ovens. Zhengzhou Annec recognizes such revenue when: (1) there is persuasive evidence of an arrangement; (2) customers have accepted receipt of the goods in accordance with the shipping terms; (3) the amount to be paid by the customer is fixed or determinable; and (4) collectability is reasonably assured. Zhengzhou Annec recognizes revenue from the sale of a kit when the kit has been delivered and accepted by the customer.

Beijing Annec enters into contracts to design and build blast furnaces and hot-air stoves and recognizes revenues during the construction period using the percentage of completion method. Most of the contracts are fixed-price contracts, which typically provide for a stated contract price and a specified scope of the work to be performed. Beijing Annec estimates the percentage of the job that is complete using variations of the cost-to-cost method. Cost is used as the primary indicator, but the Company also considers contract milestones and work in progress from subcontractor companies. If the estimate of costs left to be incurred plus actual costs already incurred exceeds the total revenue to be expected from a contract, then the full amount of the difference is recognized in the current period as a loss and is presented on the consolidated balance sheet as a current liability. Beijing Annec also generates revenue from the sale of a variety of machines and equipment which the Company purchases from vendors. Beijing Annec recognizes revenue from this type of sale when the machines and equipment have been delivered and accepted by the customer.

During 2011, Zhengzhou Annec began entering into certain short-term contracts to build blast furnaces and hot blast stoves. These contracts have an average duration of approximately three to six months and do not exceed a period of one year. Zhenghzhou Annec recognizes revenue on these contracts based on the same basis as Beijing Annec.

Sales Returns Allowance

We estimate future product returns related to current period product revenue. We analyze historical returns, and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns allowance. Significant management judgment and estimates must be made and used in connection with establishing the sales returns allowance in any accounting period. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates. Based on our analysis, we did not record any provision for sales returns as of December 31, 2012 and 2011. There were no significant sales returns. 

Continued 

F-16

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements 

2. Summary of Significant Accounting Policies, continued

Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded in revenues. Shipping and handling expense included in selling expenses amounted to $3,421,467 and $5,644,113 for the years ended December 31, 2012 and 2011, respectively.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes (ASC 740). ASC 740 requires the 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 income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. There were no significant deferred tax assets or liabilities during the years ended December 31, 2012 and 2011.

The Interpretation provisions of ASC 740, Income Taxes, on January 1, 2009, accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in our financial statements. The Interpretation also provides guidance for the measurement and classification of tax positions, interest and penalties, and requires additional disclosure on an annual basis. The ongoing recognition of changes in measurement of uncertain tax positions will be reflected as a component of income tax expense. Interest and penalties incurred associated with unresolved income tax positions are included in other income (expense).

Earnings per share

Basis and diluted net income per share is computed by dividing net income for the period by the weighted average number of shares outstanding during the period which includes the effect of 1-for-14,375 reverse stock split stipulated it in the Share Exchange Agreement and the automatic conversion of the 19,220 Series A preferred shares into common stock at a 1-for-1,000 conversion rate. There are no warrants, options, or other common stock equivalents outstanding. A reconciliation of the numerator and denominator of basic and diluted net income per common share is provided as follows:

	December 31
	2012		2011
Net income	$	5,035,144	$	11,309,568
Denominator
Common shares issued and outstanding		19,995,701		19,995,701
Weighted-average common stock outstanding		19,995,701		19,995,701

Reclassification

Certain amounts reported in the 2011 consolidated statement of cash flows have been reclassified to conform to the 2012 presentation. The Company determined that the net change in bank notes receivable and payable should be reclassified from investing and financing activities, respectively, to operating activities, because such receivables and payables arise directly in connection with the sale of products and purchases of raw materials. The net change in restricted cash used to secure the related payables has also been reclassified from financing activities to operating activities. As a result of the reclassifications, net cash used in operating activities increased by $1,818,242, net cash used in investing activities increased by $2,043,657, and net cash provided by financing activities increased by $3,861,899 from the amounts previously presented in the December 31 2012 statement of cash flows. There was no impact to the Company’s December 31, 2012 consolidated balance sheet or statement of operations and no impact to the net decrease in cash for the period ended December 31, 2012. 

Continued 

F-17

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements 

2. Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. Some of the accounting standards issued are effective after the end of the Company’s previous fiscal years, and therefore may be applicable to the Company. Management has not identified any standards that it believes will have a significant impact on the Company’s consolidated financial statements. 

Continued

F-18

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

3. Accounts Receivable

The components of the Company’s net accounts receivable are as follows:

	December 31
	2012		2011
Amounts billed	$	31,619,504	$	30,424,588
Amounts unbilled		10,594,598		3,986,332
Total	$	42,214,102	$	34,410,920

4. Retentions Receivable

The Company enters into sales contracts with customers that provide for a retainage provision in which the customers can retain a portion of the payment, generally 10% of the contract price, until the stoves the Company built or refractory materials supplied are proven to be of good quality. The retention period is usually one to two years from the first day the stoves are placed into service. The current portion on the balance sheet represents amounts due within a year. The long-term portion represents the amounts that are due over a year or that are already over a year old.

The following table shows the components of net retentions receivable from long-term contracts:

	December 31
	2012				2011
	Current   retentions receivable		Long-term  retentions  receivable		Current   retentions receivable		Long-term  retentions  receivable
Chinese government or province owned customers:
Amounts billed and due	$	585,832	$	342,871	$	794,088	$	3,368,750
Amounts billed and not due		7,218,256		1,098,770		6,113,772		87,671
		7,804,088		1,441,641		6,907,860		3,456,421
Commercial customers:
Amounts billed and due		512,115		319,021		178,392		1,470,435
Amounts billed and not due		4,921,270		734,956		4,484,010		-
		5,433,385		1,053,977		4,662,402		1,470,435
Total, net	$	13,237,473	$	2,495,618	$	11,570,262	$	4,926,856

The balances billed but not due by customers pursuant to retainage provisions in contracts will generally be due one to two years after the blast furnaces or hot air stoves are placed in service by the customers.

5. Other Receivables

The components of the Company’s other receivables are as follows:

	December 31,
	2012		2011
Other receivables–individuals and employees	$	1,214,957	$	1,713,371
Other receivables–companies		678,423		1,097,453
Security deposits		1,112,043		1,004,335
Total other receivables	$	3,005,423	$	3,815,159

Other receivables are comprised of three categories: receivables from individuals (both employees and other individuals), receivables from other companies and security deposits for large contracts and are generally unsecured. Security deposits will be returned to the Company upon the completion of the projects. Receivables from employees include cash advanced to employees for purchased supplies and services and employees travel and miscellaneous business expenses.

Continued
 

F-19

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements  

6. Inventories

The components of the Company’s inventories are as follows:

	December 31,
	2012		2011
Raw materials	$	3,839,230	$	4,100,556
Work in process		191,781		692,465
Finished goods		21,524,523		29,625,943
Total inventories	$	25,555,534	$	34,418,964

Continued 

F-20

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

7. Plant and Equipment, net

The components of the Company’s plant and equipment are as follows:

	December 31,
	2012			2011
Plants and buildings	$	15,180,863		$	14,352,338
Machinery and equipment		4,703,072			4,499,602
Vehicles		2,321,267			1,763,312
Others		541,106			462,897
		22,746,308			21,078,149
Less accumulated depreciation		(6,240,887	)		(4,597,680	)
Total plant and equipment, net	$	16,505,421		$	16,480,469

Depreciation expense related to property and equipment was $1,735,347 and $1,389,879 for the years ended December 31, 2012 and 2011, respectively. The Company recorded a loss on sale of property and equipment of $13,214 and $56,721 for the years ended December 31, 2012 and 2011, respectively.

8. Land Use Rights, net

The components of the Company’s land use rights are as follows:

	Estimated
	Remaining Life	December 31,
		2012			2011
Land use rights	46.90 years	$	2,399,645		$	2,314,389
Less accumulated amortization			(140,849	)		(88,834	)
Total land use rights, net		$	2,258,796		$	2,225,555

Amortization expense related to land use rights was $46,489 and $46,272 for the years ended December 31, 2012 and 2011, respectively. The difference between the amortization expense and accumulated amortization is due to exchange rate differences, as we translate expense using an average exchange rate for the fiscal year and translate the accumulated amortization using the fiscal year end exchange rate.

Continued 

F-21

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

8. Land Use Rights, net , continued

Amortization of land use rights attributable to future periods is as follows:

Period ending December 31:
2013	$	46,489
2014		46,489
2015		46,489
2016		46,489
2017		46,489
Thereafter		2,026,351
	$	2,258,796

9. Short-Term Loans

The components of the Company’s short-term loans are as follows:

December 31,
2012		2011
$	24,037,073	$	15,218,314

On December 31, 2012, the company has thirteen loans with seven different banks that are due within one year. The weighted average interest rates are 7.03% and 7.16% for the years ended 2012 and 2011, respectively. Eight of the short-term loans (with an outstanding balance of approximately $15,077,000 at December 31, 2012) are guaranteed by third parties, Beijing Annec, or Fuchao Li, the Company’s chairman. Three of the loans (with an outstanding balance of approximately $3,326,000 at December 31, 2012) are collateralized by the Company’s office building, land use rights, or machinery and equipment. Two of the loans (with an outstanding balance of approximately $5,634,000 at December 31, 2012) are secured by cash deposits of the Company.

10. Bank Notes Payable

The components of the Company’s bank notes payable are as follows:

December 31,
2012		2011
$	2,221,834	$	1,571,166

Bank notes payable represent bank notes paid to the Company’s vendors for purchase of inventory. At December 31,2012, the Company had bank notes payable with three different banks with maturity dates of nine months. All are noninterest-bearing notes, but generally require fees of approximately 0.05%. The notes payable require cash to be held in reserve of 100% of the total outstanding notes payable balance. Cash held by the bank as collateral is included in restricted cash.

Continued 

F-22

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

11. Advances from Customers

The Company’s customer deposits consists of amounts payable to various customers for deposits received and prepayments received from customers for products to be delivered or services to be performed.

12. Long-Term Loans

The long-term loan due on December 13, 2015, bears interest at 7.15%, and is secured by one of the Company’s office buildings .

Future minimum payments for the long-term loan are as follows:

Period ending December 31:
2014	$	311,057
2015		311,057
	$	622,114

13. Related Party Transactions

At December 31, 2012 and 2011, the Company had loans payable to the Chairman (Fuchao Li), and a minority shareholder (Yinling Fan) of the Company. The Company and these parties have not signed notes, there are no specific due dates, and no interest is paid on the loans. Money is transferred between these parties and the Company mainly for cash flow purposes. The amounts loaned to the Company are short-term in nature. The following amounts were payable to these parties as of December 31, 2012 and 2011:

	December 31,
	2012		2011
Fuchao Li	$	214,150	$	572,779
Yinling Fan		193,617		191,682
	$	407,767	$	764,461

During the year ended December 31, 2012, the Company repaid $358,629 to Fuchao Li. There was no other activity in these payables during the year ended December 31, 2012.

Continued 

F-23

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

14. Income Taxes

The Company is subject to applicable local tax statutes and is governed by the Income Tax Law of the PRC and local income tax laws (the “PRC Income Tax Law”).

Zhengzhou Annec qualified as a hi-tech corporation and was accorded certain tax incentives for said designation. Accordingly, Zhengzhou Annec maintained tax at a statutory rate of 15% for the years ended December 31 2012 and 2011, and expects that thereafter will become subject to a rate of 25% unless Zhengzhou Annec applies for and receives a further tax holiday for the succeeding five years. The tax savings due to this tax holiday is approximately $711,140 (or $0.04 per ordinary share) and $1,371,300 (or $0.07 per ordinary share) for the years ended December 31, 2012 and 2011, respectively.

Beijing Annec is subject to taxes at a statutory rate of 25%.

Per PRC Enterprise Income Tax (EIT), assessments shall be completed before the end of May every year. Based on PRC regulations, the tax authority conducts reviews of the EIT returns once a year. Based on PRC tax regulations, the tax authority has rights to review for underpaid or unpaid taxes for a period of three years. If an amount of underpaid or unpaid taxes exceeds RMB 100,000, the tax authority has rights to review for five years. If any tax evasion is involved, there is no time limitation for review.

Annec Green Refractories Corporation is incorporated in the state of Delaware, United States and thus the Company is also subject to applicable U.S. tax statutes effective for the years ended December 31, 2012 and 2011, respectively.

As of December 31, 2012 and 2011, the Company is not in any uncertain tax positions and thus has no accrued interest and penalties related to those matters.

VAT tax receivables and VAT tax payables are netted and reported as a liability under taxes payable in the amount of $2,575,614 and $696,898 as of December 31, 2012 and 2011, respectively.

The Company has made no provision for U.S. income taxes on undistributed earnings of certain foreign subsidiaries because it is the Company's intention to permanently reinvest such earnings in its foreign subsidiaries. If such earnings were distributed, the Company would be subject to additional U.S. income tax expense. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

Income before provision of income taxes:

	Year Ended December 31
	2012		2011
U.S. operations	$	-	$	-
China operations		6,115,945		13,426,956
Total	$	6,115,945	$	13,426,956

Continued 

F-24

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

The provision for income taxes includes:

	Year Ended December 31
	2012		2011
Current
U.S.	$	-	$	-
China		1,080,801		2,117,388
Total current		1,080,801		2,117,388
Deferred
U.S.		-		-
China		-		-
Total deferred		-		-
Total net provision for income taxes	$	1,080,801	$	2,117,388

The following is a reconciliation of the provision for income tax at the U.S. tax rate to the income tax reflected in the Consolidated Statement of Income and Comprehensive Income: 

	Year Ended December 31,
	2012			2011
Tax expense at statutory rate - U.S.		35.0	%		35.0	%
Rate differential between U.S. and China		(10.0	)%		(10.0	)%
Foreign income tax rate – PRC		25.0	%		25.0	%
Effect of favorable tax rate		(10.0	)%		(10.0	)%
Other items		2.7	%		.8	%
		17.7	%		15.8	%

Continued 

F-25

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements

15. Statutory Reserves

In accordance with the relevant laws and regulations of the PRC, the Company’s PRC subsidiaries are required to allocate at least 10% of their after tax profits to a statutory surplus reserve until the reserve balances reach 50% of their respective registered capital. The reserve may be used to offset accumulated losses or to increase the registered capital, subject to approval from the PRC authorities, and are not available for dividend distribution to equity owners. As of December 31, 2012, the Company had fulfilled the 50% statutory reserve contribution requirement; therefore, no further transfers are required.

16. Commitments and Contingencies

Third Party Guarantees

In 2012 and 2011, the Company had agreements with third-party entities in which the Company has guaranteed certain debt of these entities, and these entities have guaranteed certain debt of the Company. As of December 31, 2012, the Company was a debt guarantor to three third-party entities (six third-party entities as of December 31, 2011). The maximum guaranteed amount is approximately $24,758,000 as of December 31, 2012. The total guaranteed outstanding borrowings by these parties are approximately $20,473,000 as of December 31, 2012. All but one of the guarantee agreements are for debt with maturities of one year or less, and mature through December 2013. One of the guarantee agreements is for debt of $3,174,049 as of December 31, 2012, and matures in March 2014.

These same parties disclosed above also act as debt guarantors on certain of the Company’s debt with a maximum guaranteed amount of approximately $17,933,000 as of December 31, 2012. As of December 31, 2012, the Company’s loans guaranteed by these parties are approximately $12,696,000. The Company has not historically incurred any losses due to such debt guarantees, and the Company has determined that the fair value of the guarantees is not material. 

Leases

The Company has non-cancelable operating lease agreements principally for its office and factory facilities. These leases have terms expiring in 2013 and April 2014, and are renewable subject to negotiation.

During 2010, the Company entered into operating lease agreements with several county governments of Xinmi City to lease three parcels of land where the Company’s factories are located. These lease terms are for fifty years through August 2059. The rent for the land is approximately $52,900 per year.

Total rent expense for the leases as mentioned above was $300,261 and $311,159 in 2012 and 2011, respectively. A summary of future minimum lease payments as of December 31, 2012 is presented below. 

Period ending December 31:
2013	$	293,653
2014		109,251
2015		52,911
2016		52,911
2017		52,911
Thereafter		2,204,642
	$	2,766,279

Continued 

F-26

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements 

17. Segment Reporting

The Company has two reportable segments: Zhengzhou Annec and Beijing Annec. These segments operate in different geographical areas of China and employ separate management and sales teams. The Zhengzhou Annec segment primarily manufactures and sells a variety of refractory bricks and kits of pre-assembled hot-air ovens. In 2011, Zhengzhou Annec began to enter into contracts to design and build furnaces and stoves. These projects are generally for a term of one year or less. The Beijing Annec segment designs and builds blast furnaces and hot-air stoves on a contract basis and uses subcontractors throughout the construction process. Beijing Annec’s contracts are generally for projects with a term of one year or longer. The Beijing Annec segment purchases substantially all of its bricks and related products from Zhengzhou Annec. In addition, Beijing Annec also sells a variety of machines and equipment which are required as part of the entire blast furnace and hot-air stove package. The Company purchase these machines and equipment from outside vendors and generally sell them at cost plus a small mark-up.

All revenues are related to end customers in China.

Information on reportable segments for the years ended December 31, 2012 and 2011 is as follows:

	Year Ended December 31
	2012				2011
	External customers		Inter- segment		External customers		Inter- segment
Revenues:
Zhengzhou Annec	$	76,747,244	$	2,425,838	$	88,830,719	$	2,231,319
Beijing Annec		8,010,851		260,990		5,549,687		-
Total		84,758,095		2,686,828		94,380,406		2,231,319
Cost of revenues:
Zhengzhou Annec		48,279,271		260,990		53,641,337		-
Beijing Annec		4,879,051		2,425,838		4,570,908		2,231,319
Total		53,158,322		2,686,828		58,212,245		2,231,319
Operating expenses:
Zhengzhou Annec		20,553,407		-		19,621,232		-
Beijing Annec		1,416,523		-		439,672		-
Total		21,969,930		-		20,060,904		-
Income from operations	$	9,629,843		-	$	16,107,257		-

Continued

F-27

Annec Green refractories corporation and subsidiaries

Notes to Consolidated Financial Statements 

17. Segment Reporting, continued

	Year Ended December 31
	2012		2011
Depreciation expenses:
Zhengzhou Annec	$	1,544,439	$	1,300,545
Beijing Annec		190,908		89,334
Total	$	1,735,347	$	1,389,879

Significant non-cash items:

	Year Ended December 31
	2012		2011
Provision for bad debts:
Zhengzhou Annec	$	2,187,994	$	219,016
Beijing Annec		196,142
Total identifiable assets	$	2,384,136	$	219,016

	Year Ended December 31
	2012		2011
Provision for obsolete inventory and spoilage:
Zhengzhou Annec	$	2,273,358	$	-
Beijing Annec		-		-
Total	$	2,273,358	$	-

	December 31
	2012		2011
Plant and equipment, net:
Zhengzhou Annec	$	13,336,054	$	13,177,027
Beijing Annec		3,169,367		3,303,442
Total	$	16,505,421	$	16,480,469

F-28