Annec Green Refractories Corp - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Annec Green Refractories Corp	Financial_Report.xls
EX-32 - EXHIBIT 32 - Annec Green Refractories Corp	v239258_ex32.htm
EX-31.2 - EXHIBIT 31.2 - Annec Green Refractories Corp	v239258_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Annec Green Refractories Corp	v239258_ex31-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

For the transition period from _____ to _____.

Commission File No. 0-54117

ANNEC GREEN REFRACTORIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of

Incorporation)

27-2951584

(IRS Employer

Identification No.)

No.5 West Section, Xidajie Street, Xinmi City,

Henan Province, P.R. China

(Address of Principal Executive Offices)

452370

(Zip Code)

86-371- 69999012

(Registrant’s telephone number, including

area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by checkmark 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-3 of the Exchange Act.

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

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

Yes ¨ No x

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 ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 8, 2011 there were 19,995,701 shares of the registrant’s common stock issued and outstanding.

ANNEC GREEN REFRACTORIES CORPORATION

FORM 10-Q INDEX

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and September 30, 2010 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and September 30, 2010 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	(Removed and Reserved).	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signature Page		35

In this Quarterly Report on Form 10-Q, references to “dollars” and “$” are to United States dollars and, unless the context otherwise requires, references to “we,” “us”, “our” and the Company refer to Annec Green Refractories Corporation and its consolidated subsidiaries.

This Quarterly Report contains certain forward-looking statements. When used in this Quarterly Report, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “project,” “plan” or “continue,” and similar expressions are intended to identify forward-looking statements. They also include statements containing anticipated business developments, a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this Quarterly Report are based upon management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to them. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. These forward-looking statements are based on our current plans and expectations and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and our future financial condition and results.

ANNEC GREEN REFRACTORIES CORPORATION

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Annec Green Refractories Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30,		December 31,
	2011		2010 (1)

Assets
Current assets:
Cash	$	511,381	$	1,504,971
Restricted cash		3,124,121		4,425,167
Bank notes receivable		4,999,723		1,056,569
Accounts receivable (net of allowance of $811,190 and $572,793 at September 30, 2011 and December 31, 2010, respectively)		28,966,047		16,130,117
Retentions receivable		9,661,325		4,553,071
Prepaid expenses and deposits		16,272,640		5,604,102
Other receivables		5,061,474		5,420,233
Inventories		38,649,235		25,703,214
Total current assets		107,245,946		64,397,444
Long-term retentions receivable		4,480,732		5,425,110
Deposits for capital expenditure		3,201,283		3,235,272
Plant and equipment, net		12,746,717		12,093,625
Land use rights, net		2,217,205		2,193,823
Long-term investment		156,206		151,722
Total assets	$	130,048,089	$	87,496,996
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term loans	$	12,005,998	$	8,475,193
Bank notes payable		3,124,121		5,310,272
Accounts payable and accrued expenses		23,850,099		11,271,228
Advances from customers		43,951,086		23,105,778
Salaries payable		557,859		436,635
Taxes payable		1,191,687		2,535,965
Related party payable		2,356,968		917,008
Loans payable to employees		2,600,786		2,154,409
Loans payable to other individuals		2,967,915		1,972,387
Other payable		2,180,426		1,918,056
Total current liabilities		94,786,945		58,096,931
Deferred income		2,839,655		2,884,600
Long-term loans		995,033		1,189,501
Total liabilities		98,621,633		62,171,032
Commitments and contingencies (Note 12)
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		2,000		2,000
Additional paid-in capital		4,046,992		4,046,992
Retained earnings		26,000,245		20,700,451
Accumulated other comprehensive income		1,377,219		576,521
Total stockholders’ equity		31,426,456		25,325,964
Total liabilities and stockholders’ equity	$	130,048,089	$	87,496,996

(1)	Derived from the consolidated audited financial statements included in our annual report filed on Form 8-K/A with the SEC for the year ended December 31, 2010.

See accompanying notes to the unaudited condensed consolidated financial statements

Annec Green Refractories Corporation

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Revenues	$	21,284,455		$	15,358,263		$	58,613,778			39,169,826

Cost of revenues		11,415,483			8,377,592			34,780,715			23,936,038

Gross profit		9,868,972			6,980,671			23,833,063			15,233,788

Operating expenses:
Selling		4,288,462			1,308,240			10,926,396			4,231,333
General and administrative		1,289,033			1,274,678			3,970,995			4,102,463

Total operating expenses		5,577,495			2,582,918			14,897,391			8,333,796

Income from operations		4,291,477			4,397,753			8,935,672			6,899,992

Other income (expense):
Interest income		72,579			8,621			257,223			60,113
Interest expense		(638,521	)		(296,713	)		(2,331,305	)		(916,179	)
Other income (expense), net		80,679			(5,969	)		322,442			(384,099	)

Total other income (expense), net		(485,263	)		(294,061	)		(1,751,640	)		(1,240,165	)

Income before provision for income taxes		3,806,214			4,103,692			7,184,032			5,659,827

Provision for income taxes		598,081			646,719			1,185,972			912,336

Net income	$	3,208,133		$	3,456,973		$	5,998,060			4,747,491

Net income per share–basic and dilutive	$	0.16		$	0.17		$	0.30			0.24
Shares used in computing net income per share–basic and dilutive		19,995,701			19,995,701			19,995,701			19,995,701

See accompanying notes to the unaudited condensed consolidated financial statements

Annec Green Refractories Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	5,998,060		$	4,747,491
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,048,251			845,982
Provision for bad debt		217,922			-
Loss on sale of plant and equipment		31,848			463,371
Change in assets and liabilities:
Accounts receivable, retentions receivable, and long-term retentions receivable		(16,186,208	)		(2,016,266	)
Prepaid expenses and deposits		(10,334,699	)		(4,716,670	)
Other receivables		510,638			2,242,525
Inventories		(11,991,206	)		(4,862,952	)
Accounts payable and accrued expenses		12,092,207			(3,292,671	)
Advances from customers		19,839,514			4,731,836
Salary payable		106,585			216,214
Taxes payable		(1,396,496	)		355,593
Deferred income		(128,112	)		1,869,826
Other payable		202,389			30,243

Net cash provided by operating activities		10,693			614,522

Cash flows from investing activities:
Net proceeds from bank notes receivable		(3,849,275	)		(225,217	)
Restricted cash for issuance of bank notes payable		1,408,896			2,787,395
Deposits for capital expenditure		127,530			-
Purchase of plant and equipment		(1,454,403	)		(1,567,937	)
Purchase of land use rights		-			(2,176,301	)
Proceeds from sale of plant and equipment		79,926			126,753

Net cash used in investing activities		(3,687,326	)		(1,055,307	)

Cash flows from financing activities:
Payments of dividends		(705,276	)		(208,291	)
Proceeds from loans to related parties, employees, and other individuals, net of payments		2,689,031			461,472
Proceeds from issuance of short-term borrowings, net of payments		922,226			1,026,935
Proceeds from issuance of long-term borrowings, net of payments		(225,945	)		-

Net cash provided by financing activities		2,680,036			1,280,116

Net (decrease) increase in cash		(996,597	)		839,331

Effect of exchange rate changes		3,007			33,727
Cash at beginning of period		1,504,971			1,227,457
Cash at end of period	$	511,381		$	2,100,515

Supplementary disclosure of cash flow information
Noncash investing activities:
Reduction of accounts payable through disposal of plant and equipment	$	42,576		$	14,671

Cash paid during the period:
Interest		1,959,534			874,681
Income taxes		662,718			317,668

See accompanying notes to the unaudited condensed consolidated financial statements

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation and Description of the Company

The accompanying unaudited condensed consolidated financial statements of Annec Green Refractories Corporation (the Company) have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information in pursuant to the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the financial statements have been included.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto, together with management’s discussion and analysis of the Company’s financial condition and results of operations, contained in our Annual Report on Form 8-K/A for the fiscal year ended December 31, 2010, which was filed with the Securities and Exchange Commission (SEC) on April 14, 2011. The results of operations for the nine-month period ended September 30, 2011 are not necessarily indicative of the results for the year ended December 31, 2011 or any other interim period. The accompanying condensed consolidated financial statements include all wholly-owned subsidiaries and all subsidiaries over which the Company exercises the power and control to direct activities significantly impacting financial performance. All significant intercompany accounts and transactions have been eliminated in consolidation.

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 10,000,000 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 5,000,000 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 a result of the Share Exchange Agreement, the China Green Shareholders own 98% 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.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation and Description of the Company, continued

The unaudited combined condensed 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 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 material assets or liabilities at the time of closing of the merger and these assets and liabilities do not constitute a business pursuant to ASC Topic 805. Consequently, all of the assets and liabilities of E-Band Media, Inc. have been reflected in the financial statements at their respective fair values and 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.

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.

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 10,000,000 restricted shares to its President, Dean Konstantine, at par value ($0.0001) for services rendered and costs advanced totaling $1,000.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation and Description of the Company, continued

History of E-Band Media, Inc., continued

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 was 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 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 thousand. On October 8, 2003, the shareholders of Zhengzhou Annec reached a resolution to increase the registered capital of Zhengzhou Annec from $730 thousand to $3.0 million. On January 14, 2011, Zhengzhou became the wholly owned subsidiary of Alex Industrial and accordingly became a wholly-foreign owned enterprise (WFOE) under Chinese law.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation and Description 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 thousand as its initial registered capital. In 2010, Beijing Annec’s registered capital was increased from $900 thousand 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 (Cooperation Agreement), where Zhengzhou Annec, in general, becomes Beijing Annec’s exclusive services provider to provide Beijing Annec with business support and technical and consulting services in exchange for annual service fee equal to all of Beijing Annec’s audited total net income for such year;

(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, 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, 2010, 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.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation and Description of the Company, continued

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.

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

Restricted Cash

Restricted cash represents cash that is held by the banks as collateral for notes payable. The banks generally have collateral requirements ranging from 50% to 100% of the outstanding notes payable. At September 30, 2011 and December 31, 2010, the Company has about 100% and 83% of the outstanding notes payable balances held by the banks as collateral.

Concentration of Credit and Other Risks

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash, restricted cash, bank notes receivable, accounts receivable and other receivable. The Company holds all 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 September 30, 2011. 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. We are exposed to credit risk in the event of nonpayment by customers to the extent of amounts recorded on the balance sheet. One customer accounted for 25% and 15% of our trade receivables, retentions receivable and long-term retentions receivable balance as of September 30, 2011 and December 31, 2010, respectively. An additional customer accounted for 16% and 33% of trade receivables, retentions receivable and long-term retentions receivable balance as of September 30, 2011 and December 31, 2010, respectively.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

2.	Summary of Significant Accounting Policies, continued

Concentration of Credit and Other Risks, continued

Two customers individually accounted for 38% and 13% of our revenue in the three month periods ended September 30, 2011. Two customers individually accounted for 34% and 10% of our revenue in the three month periods ended September 30, 2010. One customer individually accounted for 30% of our revenue in the nine month periods ended September 30, 2011. Two customers individually accounted for 13% and 13% of our revenue in the nine month periods ended September 30, 2010.

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, all of which are generally unsecured. The Company is required to advance a security deposit or retentions in certain percentages generally approximately 10% of sales contract value to its customers. Retentions will be returned to the Company upon the completion of the projects. For certain long term customers, prior retentions amounts are carried over to different projects with the same customers.

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. In July 2005, the Chinese Government adjusted its exchange rate policy from “Fixed Rate” to “Floating Rate.” During January 2008 to September 2011, 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 6.4018, 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.

Fair Value of Financial Instruments

The Company’s financial instruments consist mainly of cash, restricted cash, bank notes receivable, other receivables, and debt obligations. Other receivable 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 its 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.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

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 nonoperating 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 $51,040 and $8,271 for the three month periods ended September 30, 2011 and 2010, respectively, and approximately $191,246 and $26,581 for the nine month periods ended September 30, 2011 and 2010, respectively.

Foreign Currency Translation

The accompanying financial statements are presented in United States Dollars. 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 nine month periods ended September 30, 2011 and 2010. 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.

	September 30,				December 31,
	2011		2010		2010

Quarter-end RMB: U.S. Dollar exchange rate		6.4018		6.6981		6.5910
Average RMB: U.S. Dollar exchange rate		6.4231		6.7803		6.7599

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.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

2.	Summary of Significant Accounting Policies, continued

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 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 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 client.

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 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 recognized revenue from this type of sale when the machines and equipments have been delivered and accepted by the client.

Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded net of the amount collected. Shipping and handling expense included in selling expenses amounted to $1,532,903 and $581,029 for the three month periods ended September 30, 2011 and 2010, respectively, and $4,642,913 and $2,310,353 for the nine month periods ended September 30, 2011 and 2010, respectively.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

2.	Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We do not expect adoption of this standard to have a material impact on our financial position, results of operations, or cash flows.

In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. ASU 2010-28 modifies Step 1 of the goodwill impairment test so that for reporting units with zero or negative carrying amounts, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not based on an assessment of qualitative indicators that goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. We do not expect adoption of this standard to have a material impact on our financial position, results of operations, or cash flows.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

2.	Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements, continued

In January 2010, the FASB issued accounting standards update on fair value measurement and disclosures, adding new requirements for disclosures for Levels 1 and 2, separate disclosures and purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. This update was effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. Early adoption is permitted. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on our financial position, results of operations, or cash flows.

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements–a consensus of the FASB Emerging Issues Task Force. ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (“deliverables”) separately rather than as a combined unit. Specifically, this guidance amends the criteria in the “Revenue Recognition – Multiple-Element Arrangements” subtopic of the Codification for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on:

(a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with the option to provide retrospective presentation for prior years. The adoption of this standard will not have a material impact on our financial position, results of operations, or cash flows.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

3.	Inventories

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

	September 30,		December 31,
	2011		2010

Raw materials	$	4,216,773	$	3,258,408
Work in process		508,148		482,242
Finished goods		33,924,314		21,962,564

Total inventories	$	38,649,235	$	25,703,214

4.	Plant and Equipment, net

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

	September 30,			December 31,
	2011			2010

Plants and buildings	$	10,462,775		$	9,773,631
Machinery and equipment		4,633,820			3,966,474
Vehicles		1,743,480			1,588,532
Others		74,508			63,713

		16,914,583			15,392,350
Less accumulated depreciation		(4,167,866	)		(3,298,725	)

Total plant and equipment, net	$	12,746,717		$	12,093,625

Depreciation expense related to property and equipment was $349,201 and $273,158 for the three month periods ended September 30, 2011, and 2010, respectively and of $1,009,377 and $820,863 for the nine month periods ended September 30, 2011 and 2010, respectively. The Company has recorded a gain on sale of property and equipment of $2,852 and $0 for the three month periods ended September 30, 2011 and 2010, respectively, and loss of $31,848 and $463,371 for the nine month periods ended September 30, 2011 and 2010, respectively.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

5.	Land Use Rights, net

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

	Estimated
	Remaining	September 30,
	Life	2011

Land use rights	48.4 years	$	2,300,978
Less accumulated amortization			(83,773	)

Total land use rights, net		$	2,217,205

Amortization expense related to land use rights was $11,455 and $10,851 for the three month periods ended September 30, 2011 and 2010, respectively, and $38,874 and $25,119 for the nine month periods ended September 30, 2011 and 2010, 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.

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

Period ending September 30:
2012	$	46,607
2013		46,607
2014		46,607
2015		46,607
2016		46,607
Thereafter		1,984,170

	$	2,217,205

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

6.	Short-Term Loans

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

	September 30,		December 31,
	2011		2010
Short-term loans:
Loans due to financial institutions	$	12,005,998	$	8,475,193

All short-term loans are due to financial institutions and are due within one year and have interest rates ranging from 5.54% to 11.63% during 2011 and 2010. As of September 30, 2011, all of the loans, with the exception of three, are secured by the Company’s movable property or equipment. Three loans are secured by multiple guarantors, one loan is secured by an office building, and one loan is secured by accounts receivable. All loans are also guaranteed by the Company’s Chairman Li Fuchao.

7.	Bank Notes Payable

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

	September 30,		December 31,
	2011		2010
Notes payable:
Loans due to financial institutions	$	3,124,121	$	5,310,272

Bank notes payable are due to financial institutions with maturity dates of six months. All are noninterest-bearing notes with immaterial imputed interest. The notes payable are not secured, but do require cash to be held in reserve of 50% to 100% of the total outstanding notes payable. At September 30, 2011 and 2010 the Company had approximately 100% and 83% of the loan amounts due held in reserve as restricted cash.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

8.	Long-Term Loans

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

	September 30,		December 31,
	2011		2010
Long-term loans:
Loan due to financial institutions	$	995,033	$	1,189,501

The long-term loan is due after one year and has interest rate of 7.15% and is secured by one of the Company’s office buildings.

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

Period ending September 30:
2013	$	306,164
2014		306,164
2015		306,164
2016		76,541

	$	995,033

9. Stockholders’ Equity

Reverse Merger

These unaudited condensed consolidated financial statements have been prepared with the effect of the merger of Annec Green Refractories Corporation, formerly E-Band Media and China Green as a reverse acquisition and a recapitalization; therefore, China Green, its wholly owned subsidiaries, and the consolidated VIE will be deemed to be the acquiring company for accounting purposes. Stockholders’ equity and earnings per share of the Company has been retroactively restated to reflect the number of shares of common stock issued and outstanding retroactively as if the merger had taken place at the earliest period presented. The offset was applied to additional paid in capital.

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 the 1 – for – 14.375 reverse stock split stipulated 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. A reconciliation of the numerator and denominator of basic and diluted net income per common share is provided as follows:

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010

Net income	$	3,208,133		$	3,456,973		$	5,998,060		$	4,747,491

Denominator:
Common shares issued and outstanding		11,150,000			11,150,000			11,150,000			11,150,000
Effect of reverse stock split		(10,474,299	)		(10,474,299	)		(10,474,299	)		(10,474,299	)
Conversion of Series A preferred stock		19,220,000			19,220,000			19,220,000			19,220,000

Weighted-average common stock outstanding		19,995,701			19,995,701			19,995,701			19,995,701

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

10.	Related Party Transactions

At September 30, 2011 and 2010, the Company had loans payable to the Chief Executive Officer (Jiantao Li), the Chairman (Fuchao Li), and a minority shareholder (Yinling Fan) of the Company. The Company and the owners have not signed notes, there are no specific due dates, and no interest is paid on the loans. Money is transferred between the owners and the Company 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 owners as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010

Jiantao Li	$	1,562,061	$	-
Fuchao Li		604,336		731,907
Yinling Fan		190,571		185,101

	$	2,356,968	$	917,008

11.	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 was subject to tax at a statutory rate of 15% for the nine month periods ended September 30, 2011 and 2010. Zhengzhou Annec will continue to be subject to a 15% tax rate for the years ending December 31, 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 $353,473 and $379,204 for the three month periods ended September 30, 2011 and 2010, respectively, and $609,781 and $548,533 for the nine month periods ended September 30, 2011 and 2010, respectively.

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

12.	Commitments and Contingencies

Third Party Guarantees

The Company entered into agreements as a debt guarantor during 2010 and 2011 for six parties. The guaranteed amount is approximately $7,810,303 as of September 30, 2011.

Other parties also acted as a debt guarantor for the Company starting in 2010. As of September 30, 2011, the Company’s loans guaranteed by other parties are approximately $4,686,182. The Company has not historically incurred any losses due to such debt guarantees. Additionally, the Company has determined that the fair value of the guarantees is immaterial.

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

12.	Commitments and Contingencies, continued

Leases

The Company leases one of the factories under a noncancelable operating lease with a third party from April 1, 2010 through April 1, 2014. Rent expense included in general and administrative expense was $18,259 and $52,358 in the three month periods ended September 30, 2011 and 2010, and $77,807 and $124,990 in the nine month periods ended September 30, 2011 and 2010, respectively. A summary of future minimum lease payments as of September 30, 2011 is presented below.

	Minimum
	Lease
	Payments
Year ending December 31:
2012	$	221,813
2013		221,813

	$	443,626

Annec Green Refractories Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

13.	Segment Reporting

The Company operates in two reportable segments: Zhengzhou Annec and Beijing Annec. The Zhengzhou Annec segment manufactures and sells a variety of refractory bricks and kits of pre-assembled hot-air ovens. The Beijing Annec segment designs and builds blast furnaces and hot-air stoves on a contract basis and uses subcontractors throughout the construction process.

All revenues are related to end customers in China.

Information on reportable segments for the three and nine month periods ended September 30, 2011 and 2010 and as of September 30, 2011 and December 31, 2010 are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenues:
Zhengzhou Annec	$	21,284,455	$	15,351,952	$	53,037,417	$	35,883,193
Beijing Annec		-		6,311		5,576,361		3,286,633

Total		21,284,455		15,358,263		58,613,778		39,169,826

Cost of revenues:
Zhengzhou Annec		11,415,483		8,377,592		29,945,925		21,193,753
Beijing Annec		-		-		4,834,790		2,742,285

Total		11,415,483		8,377,592		34,780,715		23,936,038

Operating expenses:
Zhengzhou Annec		5,476,900		2,499,059		14,088,156		7,970,609
Beijing Annec		100,596		83,859		809,235		363,187

Total		5,577,496		2,582,918		14,897,391		8,333,796

Income from operations	$	4,291,476	$	4,397,753	$	8,935,672	$	6,899,992

	September 30,		December 31,
	2011		2010
Plant and equipment, net:
Zhengzhou Annec	$	12,632,133	$	11,926,639
Beijing Annec		114,584		166,986

Total identifiable assets	$	12,746,717	$	12,093,625

14.	Subsequent Events

The Company has evaluated all events occurring subsequent to September 30, 2011 through the date which these financial statements were filed with the SEC, during which time nothing has occurred outside the normal course of business operations, except the following: On October 20, 2011, the Company obtained a short-term bank loan of $3,130,527 from the Bank of Luoyang for operating purposes. The loan has a duration of one year and an interest rate of 7.872%.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly 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 those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report. See also Risk Factors contained in our amended current report on Form 8-K/A filed on May 11, 2011.

Overview Business

We are a refractory and production-based company that designs, develops, produces, and markets refractory products. All of our current business operations are conducted through our wholly-foreign owned Chinese subsidiary, Zhengzhou Annec Industrial Co., Ltd. (“Zhengzhou Annec”) and our variable interest entity, Annec (Beijing) Engineering Technology Co., Ltd. (“Beijing Annec”).

Through our subsidiary, Zhengzhou Annec, we are primarily 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. Through a contractual agreement, between Zhengzhou Annec and Beijing Annec, we design and build blast furnaces and hot air stoves, and act as a general contractor working with outside construction companies which 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.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of results of operations and financial condition are based upon our financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. See Note 2 to our financial statements, “Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect our most critical accounting policies that currently affect our financial condition and results of operations.

Restricted Cash

Concentration of Credit and Other Risks

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.

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. Beijing Annec also generates revenue from the sale of a variety of machines and equipment which the Company purchases from vendors. Beijing Annec recognized revenue from this type of sale when the machines and equipments have been delivered and accepted by the client.

Results of Operations

Comparison for the Three Months ended September 30, 2011 and 2010

	Three Months Ended September 30,
	2011		As % of Revenues		2010			As % of Revenues
Statements of Operations Data
Revenues	$	21,284,455		100%	$	15,358,263			100%
Cost of Revenues		11,415,483		54%		8,377,592			55%
Gross Profit		9,868,972		46%		6,980,671			45%
Operating Expenses
Selling		4,288,462		20%		1,308,240			9%
General and administrative		1,289,033		6%		1,274,678			8%
Total other income/(expense), net		80,679		0%		(5,969	)		0
Income before provision for income taxes		3,806,213		18%		4,103,692			27%
Provision for income taxes		598,081		3%		646,719			4%
Net income		3,208,133		15%		3,456,973			23%

Revenues

The Company operates in two reportable segments: Zhengzhou Annec and Beijing Annec. The Zhengzhou Annec segment manufactures and sells a variety of refractory bricks and kits of pre-assembled hot-air ovens, and processed refractory turnkey projects. Beijing Annec segment designs and builds blast furnaces and hot-air stoves on a contract basis and uses subcontractors throughout the construction process. 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 purchases these machines and equipment from outside vendors and generally sells them at cost plus a small mark-up.

Revenues for the three months ended September 30, 2011 was $21,284,455 compared to $15,358,263 for the three months ended September 30, 2010. Revenues for the three months ended September 30, 2011 increased by $5,926,192, or by 39%. Revenues for Zhengzhou Annec for the three months ended September 30, 2011, increased by $5,932,503 or 39%, to $21,284,455 from $15,351,952 for the three months ended September 30, 2010. Revenues for Beijing Annec for the three months ended September 30, 2011 decreased by $6,311 or 100%, to $0 from $6,311 for the three months ended September 30, 2010. Beijing Annec’s intercompany revenue from Zhengzhou Annec for the three months ended September 30, 2011 resulting in a decrease in revenue for Beijing Annec. The increase in revenues of refractory products by Zhengzhou Annec was mainly due to (i) increased demands from existing customers, (ii) increased from 17 clients to 56 clients during quarter ended September 30, 2011, and (iii) increased in sales volume from 34,319 tons to 47,443 tons during the third quarter ended September 30, 2011. The increase in sales of refractory products can be attributed to Zhengzhou Annec’s ongoing marketing efforts and good relationship with engineering and research firms that promote the Company’s products.

	Three Months Ended September 30,
Segments	2011		% of Revenue		2010		% of Revenue
Zhengzhou Annec	$	21,284,455		100%	$	15,351,952		100%
Beijing Annec		0		0		6,311		0
Total		21,284,455		100%		15,358,263		100%

Cost of Revenue

Cost of revenue was $11,415,483 and $8,377,592 for three months ended September 30, 2011 and 2010, respectively. Cost of revenue for the three months ended September 30, 2011 increased by $3,037,891 or by 36%. Stated as a percentage of revenues, the cost of revenue for the three months ending September 30, 2011, was 54% and for the corresponding period of 2010 was 55%. Cost of revenue related to Zhengzhou Annec for the three months ended September 30, 2011 increased by $3,037,891, or 36% to $11,415,483 from $8,377,592 for the same period in 2010. The increase in cost of revenue was primarily attributable to increase of sales for the same 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 $1,289,033 and $1,274,678 for the three months ended September 30, 2011 and 2010, respectively. The $14,355 or 1% increase in general and administrative expense was primarily attributable to an increase in employee benefits.

Selling Expenses. Selling 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. Selling expenses were $4,288,462 and $1,308,240 for the three months ended September 30, 2011 and 2010, respectively. The $2,980,222 or a 228% increase in selling expense was due to increased variable costs such as commissions paid to sellers, shipping expense, packaging expense and traveling expense, including payment of such selling expenses in advance for products in transit to customers. In addition, the increase of new clients also caused the increase in selling expenses as well.

Other Income (Expense), net. The total other expense, net was $485,263 and $294,061 for the three months ended September 30, 2011 and 2010, respectively. The increase of $191,202, or 65%, in total other expense was primarily attributable to recognition of a government grant subsidy in 2011, and discount interest of bank notes receivable caused the increase of interest expense in the third quarter end September 30, 2011. An increase in short time loan and an increase in interest expense and other income (expenses), net as detailed in the following table:

	Three Months Ended September 30,
	2011			2010
Other income (expense):
Interest income	$	72,579		$	8,621
Interest expense		(638,521	)		(296,713	)
Other income (expense), net		80,679			(5,969	)
Total other income (expense), net		(485,263	)		(294,061	)

Comparison for the Nine months ended September 30, 2011 and 2010

	Nine Months Ended September 30,
	2011			As % of Revenues		2010			As % of Revenues
Statements of Operations Data
Revenues	$	58,613,778			100%	$	39,169,826			100%
Cost of Revenues		34,780,715			59%		23,936,038			61%
Gross Profit		23,833,063			41%		15,233,788			39%
Operating Expenses
Selling		10,926,396			19%		4,231,333			11%
General and administrative		3,970,995			7%		4,102,463			10%
Total other income/(expense), net		(1,751,640	)		3%		(1,240,165	)		3%
Income before provision for income taxes		7,184,032			12%		5,659,827			14%
Provision for income taxes		1,185,972			2%		912,336			2%
Net income		5,998,060			10%		4,747,491			12%

Revenues

The Company operates in two reportable segments: Zhengzhou Annec and Beijing Annec. The Zhengzhou Annec segment manufactures and sells a variety of refractory bricks and kits of pre-assembled hot-air ovens, and processed refractory turnkey projects. It will take several months for manufacturing and installation refractories. Beijing Annec segment designs and builds blast furnaces and hot-air stoves on a contract basis and uses subcontractors throughout the construction process. 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 purchases these machines and equipment from outside vendors and generally sells them at cost plus a small mark-up.

Revenues for the nine months ended September 30, 2011 was $58,613,778 compared to $39,169,826 for the nine months ended September 30, 2010. Revenues for the nine months ended September 30, 2011 increased by $19,443,952, or by 50%. Revenues for Zhengzhou Annec for the nine months ended September 30, 2011, increased by $17,154,224 or 48%, to $53,037,417 from $35,883,193 for the nine months ended September 30, 2010. Revenues for Beijing Annec for the nine months ended September 30, 2011 increased by $2,289,728 or 70%, to $5,576,361 from $3,286,633 for the nine months ended September 30, 2010. The increase in revenues of refractory products by Zhengzhou Annec was mainly due to (i) increased demands from existing customers, (ii) increased in sales volume from 92,912 tons to 126,817 tons during the ended September 30, 2011, (iii) increased in average sales price from $385 to $433 during the nine months ended September 30, 2011. The increase in sales of refractory products can be attributed to Zhengzhou Annec’s ongoing marketing efforts and good relationship with engineering and research firms that promote the Company’s products.

	Nine Months Ended September 30,
Segments	2011		% of Revenue		2010		% of Revenue
Zhengzhou Annec	$	53,037,417		90%	$	35,883,192		92%
Beijing Annec		5,576,361		10%		3,286,634		8%
Total		58,613,778		100%		39,169,826		100%

Cost of Revenue

Cost of revenue was $34,780,715 and $23,936,038 for nine months ended September 30, 2011 and 2010, respectively. Cost of revenue for the nine months ended September 30, 2011 increased by $10,844,677 or by 45%. Stated as a percentage of revenues, the cost of revenue for the nine months ending September 30, 2011, was 59% and for the corresponding prior period of 2010 was 61%. Cost of revenue related to Zhengzhou Annec for the nine months ended September 30, 2011 increased by $8,752,172, or 41% to $29,945,925 from $21,193,753 for the same period in 2010. The cost of revenues for Beijing Annec for the nine months ended September 30, 2011 increased by $2,092,505, or 76% to $4,834,790 from $2,742,285 for the same period in 2010. The increase in cost of revenue was primarily attributable to increase of sales.

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 $3,970,995 and $4,102,463 for the nine months ended September 30, 2011 and 2010, respectively. The $131,468 or 3% decrease in general and administrative expense was primarily attributable to a decrease in consulting fees paid to third party designers as a result of improved in-house design capabilities.

Selling Expenses. Selling 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. Selling expenses were $10,926,396 and $4,231,333 for the nine months ended September 30, 2011 and 2010, respectively. The $6,695,063 or a 158% increase in selling expense was due to increased variable costs such as commissions paid to sellers, shipping expense, packaging expense and traveling expense, including payment of such selling expenses in advance for products in transit to customers. In addition, the increase of new clients also caused the increase in selling expenses as well.

Other Income (Expense), net. The total other expense, net was $1,751,640 and $1,240,165 for the nine months ended September 30, 2011 and 2010, respectively. The increase of $511,475, or 41%, in total other expense was primarily attributable to recognition of a government grant subsidy in 2011, and discount interest of bank notes receivable caused the increase of interest expense for the nine months ended September 30, 2011. An increase in interest income, and an increase in interest expense and other income (expenses), net as detailed in the following table:

	Nine Months Ended September 30,
	2011			2010
Other income (expense):
Interest income	$	257,223		$	60,113
Interest expense		(2,331,305	)		(916,179	)
Other income (expense), net		322,442			(384,099	)
Total other income (expense), net		1,751,640			(1,240,165	)

Liquidity and Capital Resources

We had retained earnings of $26,000,245 and $20,700,451 as of September 30, 2011 and December 31, 2010, respectively.

As of September 30, 2011, we had cash and restricted cash of $3,635,502 and total current assets of $107,245,946 compared to cash and restricted cash of $5,930,138, and total current assets of $64,397,444 as of December 31, 2010. Restricted cash is used to secure bank notes. At September 30, 2011 and December 31, 2010, we had approximately 100% and 83% respectively of the outstanding notes payable balances held by banks as collateral.

As of September 30, 2011, we had accounts receivable of $28,966,047 representing 27% of our total current assets, compared to $16,130,117, representing 25% of total current assets as of December 31, 2010. As of September 30, 2011, accounts receivable increased $12,835,930 or 80% compared to December 31, 2010 as a result of increased sales.

Inventory has increased to $38,649,235 at September 30, 2011, from $25,703,214 at December 31, 2010. The Company had increase in sales in the quarter ended September 30, 2011, which increased the inventory level in order to fulfill orders. The inventory consists of final-products awaiting shipment, semi-finished products and raw materials. The Company believes that it will be able to convert inventory into cash within 6 to 18 months.

As of September 30, 2011, loans payable to related parties increased by $1,439,960, or 157%, compared to December 31, 2010. At September 30, 2011, the Company had loans payable to the related parties as follows: $604,336 to Mr. LI Fuchao, our chairman, $1,562,061 to Mr. LI Jiantao, our president, chief executive officer and chief financial officer, and $190,571 to Mr. FAN Yinling, a minority shareholder. The loans were made for working capital purposes to purchase raw materials and to expand production capacity. This loans from related parties do not carry interest and are payable at the request of the lender.

Our total liabilities as of September 30, 2011 was $98,621,633 compared to $62,171,032 as of December 31, 2010. The increase of $36,450,601, or 59%, was a result of increase in accounts payables, advances from customer and other payables. Advances from customer have increased $20,845,308, or 90%, compared to December 31, 2010 primarily due to increased orders. Accounts payables and accrued expenses increased by $12,578,871, or 112% compared to December 31, 2010 primarily because of increased purchases of raw materials from vendors. Other payables which consist of payables to individuals for employee borrowing for working capital purposes increased by $262,370, or 14% compared to December 31, 2010.

As of September 30, 2011, we had working capital of $12,459,001 and as of December 31, 2010, we had working capital of $6,300,513. 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, even if we believe that our cash reserves are sufficient to sustain operations, we must raise additional capital by the sale of our securities and/or financing 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.

We have had preliminary discussions for additional investments by existing and prospective investors but 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 stockholders.

Below is a summary of our cash flow:

Net Cash Provided by Operating Activities. For the nine months ended September 30, 2011, net cash provided by operating activities was $10,693 compared to net cash provided by operating activities of $614,522 for the nine months ended September 30, 2010. The net cash provided by operating activities for the nine months ended September 30, 2011 was primarily due to the dramatic decrease of accounts receivable (the accounts receivable created by Beijing Annec will be received in the next quarter), prepaid expenses and deposits and advances from customers:

Items	2011 (US$)			2010 (US$)			Increase /(Decrease) (US$)			Percentage
Prepaid expenses and deposits		(10,334,699	)		(4,716,670	)		(5,618,029	)		(119%)
Accounts receivable, retentions receivable, and long term retentions receivable		(16,186,208	)		(2,016,266	)		(14,169,942	)		(703%)
Advances from customers		19,839,514			4,731,836			15,107,678			319%
Accounts payable and accrued expenses		12,092,207			(3,292,671	)		15,384,878			4,673%
Inventories		(11,991,206	)		(4,862,952	)		(7,128,254	)		1,466%

Net Cash Used in Investing Activities. For the nine months ended September 30, 2011, net cash used in investing activities was $3,687,326 compared to net cash used by investing activities of $1,055,307 for the nine months ended September 30, 2010 The net cash used in investment activities for the nine months ended September 30, 2010 was primarily due to restricted cash for issuance of bank notes payable and net proceeds from bank notes receivable:

Items	2011 (US$)			2010 (US$)			Increase/ (Decrease) (US$)			Percentage
Restricted cash for issuance of bank notes payable		1,408,896			2,787,395			(1,378,499	)		(49%)
Net proceeds from bank notes receivable		(3,849,275	)		(225,217	)		(3,624,058	)		1,609%
Purchase of plant and equipment		(1,454,403	)		(1,567,937	)		113,534			( 7.24%)

Net Cash Provided by Financing Activities. For the nine months ended September 30, 2011, net cash provided by financing activities was $2,680,036 compared to net cash provided by financing activities of $1,280,116 for the nine months ended September 30, 2010. The net cash provided by financing activities consisted primarily of payments of dividends, proceeds from loans from related parties, employees, and other individuals, net of payments, proceeds from issuance of short-term borrowings, net of payments:

Type of Proceeds	2011 (US$)			2010 (US$)			Increase/ (Decrease) (US$)			Percentage
Payments of dividends		(705,276	)		(208,291	)		(496,985	)		(239%)
Proceeds from loans to related parties, employees, and other individuals, net of payments		2,689,031			461,472			2,227,559			483%
Proceeds from issuance of short-term borrowings, net of payments		922,226			1,026,935			(104,709	)		(10)%

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 with Chinese banks are for a period of 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 September 30, 2011, we borrowed approximately $12 million from various short-term bank loans for the working capital needs and repaid approximately $3.1 million. All of our bank borrowings are secured by our land and buildings and/or guaranteed by third parties. As of September 30, 2011, the Company and its subsidiaries have the following loan facilities with the following terms:

Lender

Secured

Duration

Outstanding

As of

September 30

2011

Annual

Interest

Rates

Agricultural Credit Union

By third parties

1 year

1,562,061

5.54%

Agricultural Credit Union

Machinery and equipments

1 year

624,824

10.5%

Agricultural Credit Union

Machinery and equipments

1year

468,618

11.52%

Agricultural Credit Union

Machinery and equipments

1year

140,585

10.98%

Agricultural Credit Union

Machinery and equipments

1 year

312,412

11.63%

China CITIC Bank

By third parties

1 year

1,562,061

6.941%

Guangdong Development Bank

By third parties

1 year

1,562,061

7.572%

Industrial and Commercial Bank of China

Accounting receivable

8 months

2,343,091

7.216%

Shanghai Pudong Development Bank

Land and office building

1 year

3,124,121

7.216%

Shanghai Pudong Development Bank

Office building

1 year

306,164

7.15%

12,005,998

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

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 China, because the bank lending system is still relatively new, it is common practice for companies to enter into cross-guarantee arrangements in order to secure lines of credit with banks. Zhengzhou Annec entered into agreements as a debt guarantor during 2010 for six unaffiliated companies (“Unaffiliated Companies”). We do not consolidate the Unaffiliated Companies into our financial statements. In China, companies provide guarantees to other companies in the community to assist them in getting bank loans. The guaranteed amount is approximately $7,810,303 as of September 30, 2011. In exchange, the other unaffiliated companies also act as a debt guarantor for Zhengzhou Annec. As of September 30, 2011, Zhengzhou Annec's loans guaranteed by other unaffiliated companies are approximately $4,686,182. Zhengzhou Annec has not historically incurred any losses due to such debt guarantees. Additionally, Zhengzhou Annec has determined that the fair value of the guarantees is immaterial.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this quarterly report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

Item 1A. Risk Factors

Not Applicable.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved).

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No		Description
31.1*		Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act

31.2*		Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act

32.1*		Certifications of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.DEF**		XBRL Taxonomy Extension Definition Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith

**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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Annec Green Refractories Corporation

Date: November 14, 2011	By:	/s/ LI Jiantao
		LI Jiantao
		Title: Chief Executive Officer and Chief Financial Officer

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