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EX-32.1 - EXHIBIT 32.1 - Annec Green Refractories Corpv313849_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Annec Green Refractories Corpv313849_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 March 31, 2012

 

¨ 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 27-2951584
(State or Other Jurisdiction of (IRS Employer
Incorporation) Identification No.)

  

No.5 West Section, Xidajie Street, Xinmi City,  
Henan Province, P.R. China 452370
 (Address of Principal Executive Offices) (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  x

 (Do not check if smaller reporting company)

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 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 x                          No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

As of April 29, 2012, 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 March 31, 2012 (Unaudited) and December 31, 2011   3
  Condensed Consolidated Statements of Operations and Comprehensive loss for the Three Months Ended March 31, 2012 and 2011 (Unaudited)   4
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (Unaudited)   5
  Notes to Condensed Consolidated Financial Statements (Unaudited)   6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
Item 3. Quantitative and Qualitative Disclosures About Market Risk   24
Item 4. Controls and Procedures   25
       
PART II – OTHER INFORMATION    
Item 1. Legal Proceedings   25
Item 1A. Risk Factors   25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   26
Item 3. Defaults Upon Senior Securities   26
Item 4. (Removed and Reserved).   26
Item 5. Other Information   26
Item 6. Exhibits   26
Signature Page   27

 

1
 

 

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. 

 

2
 

 

ANNEC GREEN REFRACTORIES CORPORATION

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ANNEC GREEN REFRACTORIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2012   2011(1) 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $797,222   $343,028 
Restricted cash   7,972,029    1,571,166 
Bank notes receivable   3,194,335    2,026,885 
Accounts receivable (net of allowance of $781,567 and $792,367 at March 31, 2012 and December 31, 2011, respectively)   28,318,488    34,410,920 
Retentions receivable   9,299,939    11,570,262 
Prepaid expenses and deposits   7,005,900    10,515,009 
Other receivables   7,119,833    3,815,159 
Inventories   36,608,718    34,418,964 
Total current assets   100,316,464    98,671,393 
Long-term retentions receivable   4,932,919    4,926,856 
Deposits for capital expenditure   419,333    493,402 
Plant and equipment, net   16,374,292    16,480,469 
Land use rights, net   2,227,997    2,225,555 
Long-term investment   158,110    157,117 
Total assets  $124,429,115   $122,954,792 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Short-term loans  $16,057,679   $15,218,314 
Bank notes payable   6,798,741    1,571,166 
Accounts payable and accrued expenses   16,716,782    19,315,558 
Advances from customers   30,605,550    29,726,898 
Salaries payable   508,459    530,219 
Taxes payable   1,717,939    3,301,944 
Related party payables   683,036    764,461 
Loans payable to employees   2,087,916    1,619,827 
Loans payable to other individuals   6,206,144    6,481,374 
Other payable   2,558,391    3,680,223 
Total current liabilities   83,940,637    82,209,984 
Deferred income   2,786,416    2,812,556 
Long-term loans   852,214    923,846 
Total liabilities   87,579,267    85,946,386 
Commitments and contingencies (Note 15)          
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   30,918,841    31,311,752 
Accumulated other comprehensive income   1,882,015    1,647,662 
Total stockholders' equity   36,849,848    37,008,406 
Total liabilities and stockholders' equity  $124,429,115   $122,954,792 

 

As of April 29, 2012, there were 19,995,701 shares of the registrant’s common stock issued and outstanding. 

(1) Derived from the consolidated audited financial statements included in our annual report filed on Form 10-K with the SEC for the year ended December 31, 2011.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3
 

 

ANNEC GREEN REFRACTORIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   Three Months Ended 
   March 31, 
   2012   2011 
   (Unaudited)   (Unaudited) 
Revenues  $15,849,971   $13,058,029 
Cost of revenues   10,277,356    7,573,416 
Gross profit   5,572,615    5,484,613 
Operating expenses:          
Sales and marketing   3,161,289    2,097,887 
General and administrative   1,594,267    1,352,130 
Total operating expenses   4,755,556    3,450,017 
Income from operations   817,059    2,034,596 
Other income (expense):          
Interest income   97,188    98,835 
Interest expense   (1,279,902)   (603,775)
Other income (expense), net   (1,343)   135,066 
Total other income (expense)   (1,184,057)   (369,874)
Income (loss) before provision for income taxes   (366,998)   1,664,722 
Provision for income taxes   25,912    261,871 
Net income (loss)  $(392,910)  $1,402,851 
Other comprehensive income (loss)          
Foreign currency translation adjustment   234,353    160,416 
Comprehensive income (loss)  $(158,558)  $1,563,267 
Net income (loss) per share-basic and dilutive  $(0.02)  $0.07 
Shares used in computing net income (loss) per share-basic and dilutive   19,995,701    19,995,701 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4
 

 

ANNEC GREEN REFRACTORIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Three Months Ended 
   March 31 
   2012   2011 
   (Unaudited)   (Unaudited) 
         
Cash flows from operating activities:          
Net (loss) income  $(392,910)  $1,402,851 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:          
Depreciation and amortization   383,034    335,100 
Loss on sale of plant and equipment   4,910    28,582 
Change in assets and liabilities:          
Accounts receivable, retentions receivable and long-term retentions receivable   8,684,972    (1,607,296)
Prepaid expenses and deposits   3,388,342    (6,719,772)
Other receivables   (3,282,932)   (37,151)
Inventories   (1,973,509)   (3,285,805)
Accounts payable and accrued expenses   (2,676,867)   6,516,302 
Advances from customers   691,149    4,006,641 
Salary payable   (25,132)   (137,767)
Taxes payable   (1,606,056)   (492,199)
Deferred income   (43,960)   (42,280)
Other payable   (1,145,943)   658,033 
           
Net cash provided by operating activities   2,005,098    625,239 
           
Cash flows from investing activities:          
Net (payments) proceeds from bank notes receivable   (1,155,472)   337,657 
Restricted cash for issuance of bank notes payable   (6,395,578)   1,521,769 
Deposits for capital expenditure   77,246    126,262 
Purchase of plant and equipment   (21,922)   (462,366)
Proceeds from sale of plant and equipment   -    51,059 
           
Net cash (used in) provided by investing activities   (7,495,726)   1,574,381 
           
Cash flows from financing activities:          
Payments of dividends   -    (698,267)
Proceeds (payments) from loans to related parties, employees, and other individuals, net of payments   55,406    (674,860)
Proceeds (payments) from issuance of short-term borrowings, net   5,965,095    (1,978,300)
Payments from issuance of long-term borrowings, net   (77,530)   (74,567)
Net cash provided (used in) by financing activities   5,942,971    (3,425,994)
Net increase (decrease) in cash   452,343    (1,226,374)
           
Effect of exchange rate changes   1,851    5,429 
           
Cash at beginning of period   343,028    1,504,971 
           
Cash at end of period  $797,222   $284,026 
           
Noncash financing and investing activities:          
Reduction of accounts payable through disposal of plant and equipment  $46,048   $- 
           
Supplemental disclosure of cash flow information:          
Interest paid  $357,799   $245,691 
Income taxes paid  $211,449   $124,458 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5
 

 

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.

 

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 will own 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 following unaudited combined condensed 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.

 

6
 

 

Annec Green refractories corporation and subsidiaries

 

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

 

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 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 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 Annec became the wholly owned subsidiary of Alex Industrial and, accordingly became a wholly-foreign owned enterprise (WFOE) under Chinese law.

 

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 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;

 

  (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;

  

7
 

 

Annec Green refractories corporation and subsidiaries

 

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

  

  (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. 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.

 

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

 

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.

 

Cash

 

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

 

8
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

2.Summary of Significant Accounting Policies, continued

 

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 70% to 110% of the outstanding notes payable. At March 31, 2012 and December 31, 2011, the Company has about 117% and 100%, respectively, in outstanding notes payable balances held by the banks as collateral. The collateral requirements are based on bank financial policy adjustment and improved the reserve proportion. Collateral requirements are increased when December, 2011.

 

Bank Notes Receivable

 

Bank notes receivable consists of bank notes from various banks in the PRC, which generally have a maturity of one to six months. The bank notes are highly liquid and are sometimes given to or received by vendors and customers instead of the local currency (“Renminbi” or “RMB”). The bank notes can generally be presented to the bank before maturity and in such case are redeemable at a slight discount.

 

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.

 

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 us to concentrations of credit risk consist principally of cash, restricted cash, bank notes receivable, accounts receivable and other receivables. 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 March 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. 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 28% and 25% of our trade receivables balance as of March 31, 2012 and December 31, 2011, respectively. An additional customer accounted for 19% and 16% of trade receivables balance as of March 31, 2012 and December 31, 2011, respectively.

 

Three customers individually accounted for 36%, 15%, and 13% of our revenue in the quarter ended March 31, 2012 and three customers individually accounted for 30%, 16%, and 10% of our revenue in the quarter ended March 31, 2011, respectively.

 

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 March 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 6.3247, 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 Renminbiin which its earnings and obligations are denominated.

 

9
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

2.Summary of Significant Accounting Policies, continued

 

Fair Value of Financial Instruments

 

On December 31, 2008, the Company adopted SFAS 157 , Fair Value Measurements, now known as the provisions of ASC Subtopic 820-10, Fair Value Measurements and Disclosures (ASC 820-10), which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. ASC 820-10 applies whenever other statements require or permit assets or liabilities to be measured at fair value.

 

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.

 

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 $126,237 and $51,410 for the three month periods ended March 31, 2012 and 2011 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 quarter ended March 31, 2012 and 2011. Items in the Company’s consolidated statement 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:

 

   March 31,   December 31 
   2012   2011   2011 
             
Year end RMB: U.S. Dollar exchange rate   6.3247    6.5501    6.3647 
Average RMB: U.S. Dollar exchange rate   6.3201    6.5713    6.4735 

 

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.

 

10
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

2.Summary of Significant Accounting Policies, continued

 

Revenue Recognition, continued

 

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.

 

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. Zhengzhou Annec recognizes these revenues based on project completion and acceptance 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 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 customer.

 

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 $491,278 and $802,616 for the quarter ended March 31, 2012 and 2011, respectively.

 

Recent Accounting Pronouncements

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, comprehensive income (Topic 220): Presentation of Comprehensive Income. The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under the amendments to Topic 220, Comprehensive Income, in this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted this standard in the current quarter.

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U. S. GAAP and IFRSs. The amendments in this Update are the result of the work by the FASB and the IASB to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs). The amendments in this Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity’s shareholders’ equity in the financial statements. The amendments in this Update are to be applied prospectively. We do not expect adoption of this standard to have a material impact on our financial position, results of operations, or cash flows.

 

3.Retentions Receivable and Long-term Retentions Receivable

 

The Company enters into sales contracts with customers whereas there is a retention provision that the customers can keep a portion of the payment, generally 10% of the contract price, until the stoves the Company built or supplied refractory materials for were proven to be of good quality. The retention period is usually one year from the 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 are already over a year old.

 

11
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

3.Retentions Receivable and Long-term Retentions Receivable, continued

 

The following table shows the components of retentions receivable from long-term contracts as of March 31, 2012:

 

   Retention receivable   Long-term retention receivable 
         
Chinese government or province owned customers:          
Amounts billed and due  $543,120   $2,699,273 
Amounts billed and not due   5,247,505    - 
    5,790,625    2,699,273 
Commercial customers:          
Amount billed and due   159,870    2,233,646 
amount billed and not due   3,349,444    - 
    3,509,314    2,233,646 
Total  $9,299,939   $4,932,919 
           

 

The balances billed but not due by customers pursuant to retention provisions in contracts will generally be due one year after the blast furnaces or hot air stoves are placed in service by the customers. Based on the Company’s historical experience with similar contracts, all such retention amounts are expected to be collectible, and accordingly no allowance has been recorded.

 

4.Other Receivables

 

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

 

   March 31,   December 31, 
   2012   2011 
         
Other receivables–individuals and employees  $5,190,450   $1,713,371 
Other receivables–companies   1,129,076    1,097,453 
Security deposits   800,307    1,004,335 
Total other receivables  $7,119,833   $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.

  

5.Inventories

 

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

 

   March 31,   December 31, 
   2012   2011 
         
Raw materials  $3,805,981   $4,100,556 
Work in process   327,933    692,465 
Finished goods   32,474,804    29,625,943 
Total inventories  $36,608,718   $34,418,964 

 

12
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

6.Plant and Equipment, net

 

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

 

   March 31,   December 31, 
   2012   2011 
         
Plants and buildings  $14,443,108   $14,352,338 
Machinery and equipment   4,575,408    4,499,602 
Vehicles   1,660,623    1,763,312 
Others   448,786    462,897 
Construction in progress   189,732    - 
    21,317,657    21,078,149 
Less accumulated depreciation   (4,943,365)   (4,597,680)
Total plant and equipment, net  $16,374,292   $16,480,469 

 

Depreciation expense related to property and equipment was $371,392 and $322,386 for the quarter ended March 31, 2012 and 2011, respectively. The Company has recorded a loss on sale of property and equipment of $4,910 and $28,582 for the three months ended March 31, 2012 and 2011, respectively. 

 

7.Land Use Rights, net

 

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

 

   Estimated     
   Remaining   March 31, 
   Life   2012 
         
Land use rights   47.65 years   $2,329,028 
Less accumulated amortization        (101,031)
Total land use rights, net       $2,227,997 

 

Amortization expense related to land use rights was $11,794 and $12,714 for the three months ended March 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.

 

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

 

Period ending March 31:          
2013     $ 47,175  
2014       47,175  
2015       47,175  
2016       47,175  
2017       47,175  
Thereafter       1,992,122  
      $ 2,227,997  

 

13
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

8.Short-Term Loans

 

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

 

   March 31,   December 31, 
   2012   2011 
Short-term loans:          
Loans due to financial institutions  $16,057,679   $15,218,314 

 

All short-term loans are due within one year and have interest rates ranging from 7.15% to 11.47% during three months ended March 31, 2012 and during 2011. As of March 31, 2012, we have a total of $16,057,679 short-term loans. All of the short-term loans, with the exception of one, are secured by the Company’s movable property or equipment mortgages. Four loans are secured by multiple guarantors with one loan secured by Zhendong company and Yunbao company. Three loans are secured by an office building and land, one loan is secured by letter of credit and one loan is secured by Fuchao Li’s guarantee.

 

9.Bank Notes Payable

 

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

 

   March 31,   December 31, 
   2012   2011 
Notes payable:          
Loans due to financial institutions  $6,798,741   $1,571,166 

 

Bank notes payable are due to financial institutions with maturity dates of six months. All notes are noninterest bearing notes. The notes payable are not secured, but do require cash to be held in reserve ranging from 70% to 110% of the total outstanding notes payable. At March 31, 2012 and December 31, 2011, the Company had approximately 117% and 100%, respectively, of the loan amounts due held in reserve as restricted cash. The collateral requirements are based on bank financial policy adjustment and improved the reserve proportion.  

 

10.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.

 

11.Long-Term Loans

 

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

 

   March 31,   December 31, 
   2012   2011 
Long-term loans:          
Loan due to financial institution  $852,214   $923,846 

 

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 March 31:        
2014   $ 309,896  
2015     309,896  
2016     232,422  
    $ 852,214  


14
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

  

12.Stockholders’ Equity

  

Reverse Merger

 

These 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 are deemed to be 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 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. A reconciliation of the numerator and denominator of basic and diluted net income per common share is provided as follows:

 

   Three months ended March 31, 
   2012   2011 
Net income (loss)  $(392,910)  $1,402,851 
Denominator:          
Common shares issued and outstanding   11,150,000    11,150,000 
Effect of reverse stock split   (10,374,299)   (10,374,299)
Conversion of Series A Prefered stock   19,220,000    19,220,000 
Weighted-average common stock outstanding   19,995,701    19,995,701 

 

13.Related Party Transactions

 

At March 31, 2012 and December 31, 2011, the Company had loans payable to 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 March 31, 2012 and December 31, 2011:

 

   March 31,   December 31, 
   2012   2011 
         
Fuchao Li  $490,141   $572,779 
Yinling Fan   192,895    191,682 
   $683,036   $764,461 

 

15
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

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 was subject to tax at a statutory rate of 15% for the quarter ended March 31, 2012 and 2011. Zhengzhou Annec will continue to be subject to a 15% tax rate for the quarter ended March, 2012, 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 $0 and $154,000 for the three month periods ended March 31, 2012 and 2011, respectively.

 

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

 

15.Commitments and Contingencies

 

Third Party Guarantees

 

The Company entered into agreements as a debt guarantor during 2011 for six parties. The guaranteed amount is approximately $9,644,726 as of March 31, 2012, and $9,584,144 as of December 31, 2011. On April 12, 2012, Zhengzhou Annec company obtained a short-term bank loan of $790,551 from China Citic Bank for operating purposes which was guaranteed by the Zhendong company . On April 28, 2012, Zhengzhou Annec obtained a short-term bank loan of $1,296,504 from SPD Bank for operating purposes. The SPD Bank loan was secured by the Company’s land and office building. Other parties also acted as a debt guarantor for the Company starting in 2011. As of March 31, 2012, the Company’s loans guaranteed by other parties are approximately $9,486,616 and $9,426,996 as of December 31, 2012. 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.

 

Leases

 

The Company leases one of the factories under a non-cancelable operating lease with a third party through April 1, 2014. Rent expense included in general and administrative expense, manufacturing expense are $92,852 and $71,873 for the three months end March 31, 2012 and 2011, respectively. A summary of future minimum lease payments as of March 31, 2012 is presented below.

 

    Minimum  
    Lease  
    Payments  
Year ending March 31:        
2012   $ 168,387  
2013     224,517  
2014     56,129  
    $ 449,033  

 

16.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.

 

16
 

 

Annec Green refractories corporation and subsidiaries

 

Notes to Unaudited Condensed Consolidated Financial Statements

(Unaudited)

 

16.Segment Reporting, continued

 

Information on reportable segments for the three months ended March 31, 2012 and 2011, and as of March 31, 2012 and December 31, 2011 are as follows:

 

   March 31, 
   2012   2011 
Revenues:          
Zhengzhou Annec  $15,849,971   $13,058,029 
Beijing Annec   -    - 
Total   15,849,971    13,058,029 
           
Cost of revenues:          
Zhengzhou Annec   10,277,356    7,573,416 
Beijing Annec   -    - 
           
Total   10,277,356    7,573,416 
Operating expenses:          
Zhengzhou Annec   4,629,645    3,004,410 
Beijing Annec   125,910    445,607 
           
Total   4,755,556    3,450,017 
           
Income from operations  $817,059   $2,034,596 

 

   2012   2011 
Plant and equipment, net:          
Zhengzhou Annec  $12,898,547   $13,177,027 
Beijing Annec   3,475,745    3,303,442 
           
Total identifiable assets  $16,374,292   $16,480,469 

 

17.Subsequent Events

 

The Company has evaluated all events occurring subsequent to March 31, 2012 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 that require additional disclosure in the condensed consolidated financial statements, except for the following:

 

On April 12, 2012, Zhengzhou Annec company obtained a short-term bank loan of $790,551 from China Citic Bank for operating purposes. The loan has a duration of one year with an annual interest rate of 7.2%. On April 28, 2012, Zhengzhou Annec obtained a short-term bank loan of $1,296,504 from SPD Bank for operating purposes. The loan has a duration of six months with an annual interest rate of 7.2%. The loan of $790,551 from China Citic Bank is guaranteed by the Zhendong company, and the loan of $1,296,504 from SPD Bank is secured by Zhengzhou Anne’s office building and land.

 

On May 14, 2012, Zhengzhou Annec entered into an Amendment to Supplemental Agreement to Exclusive Business Cooperation (“Amendment”) with Annec (Beijing) Engineering Technology Co., Ltd, a PRC limited company and a variable interest entity of Zhengzhou Annec (“Annec Beijing”), pursuant to which certain provisions of the Supplement Agreement to Exclusive Business Cooperation Agreement dated January 16, 2011 (the “Original Agreement”) was amended. Under the Original Agreement, Zhengzhou Annec agreed to provide Annec Beijing with exclusive technical, consulting and other services in connection with Annec Beijing’s principal business utilizing its own advantages in human resources, technology and information in exchange for an annual service fee. Under the Amendment, Article 2.2 and 2.3 of the Original Agreement were amended to specify that the payment of the annual service fee will be made upon request of Zhengzhou Annec.

 

17
 

 

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 10-K filed on April 25, 2012.

 

Overview

 

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. 

 

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.

 

Recent Developments

 

On April 12, 2012, Zhengzhou Annec obtained a short-term bank loan of $790,551 from China Citic Bank for operating purposes. The loan has duration of one year with an annual interest rate of 7.2%. On April 28, 2012, Zhengzhou Annec obtained a short-term bank loan of $1,296,504 from SPD Bank for operating purposes. The loan has duration of six months with an annual interest rate of 7.2%. The loan of $790,551 from China Citic Bank is guaranteed by the Zhendong company, and the loan of $1,296,504 from SPD Bank is mortagage by the Zhengzhou Annec’s office building and land mortgage.

 

On May 14, 2012, Zhengzhou Annec entered into an Amendment to Supplemental Agreement to Exclusive Business Cooperation (“Amendment”) with Annec (Beijing) Engineering Technology Co., Ltd, a PRC limited company and a variable interest entity of Zhengzhou Annec (“Annec Beijing”), pursuant to which certain provisions of the Supplement Agreement to Exclusive Business Cooperation Agreement dated January 16, 2011 (the “Original Agreement”) was amended. Under the Original Agreement, Zhengzhou Annec agreed to provide Annec Beijing with exclusive technical, consulting and other services in connection with Annec Beijing’s principal business utilizing its own advantages in human resources, technology and information in exchange for an annual service fee. Under the Amendment, Article 2.2 and 2.3 of the Original Agreement were amended to specify that the payment of the annual service fee will be made upon request of Zhengzhou Annec.

 

18
 

 

Summary of 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.

 

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.

 

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 first-in, first-out (FIFO) 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 generates revenue from the sale of a variety of refractory bricks and the sales from kits of pre-assembled hot-air ovens. Zhengzhou Annec primarily 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.

 

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During 2011, Zhengzhou ANNEC began entering into short-term contracts to build blast furnaces and hot blast stoves. These contracts have an average duration of three to six months and do not exceed a period of one year. Zhenghzhou ANNEC recognizes these revenues based on project completion and acceptance 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 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 customer. 

 

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 $491,278 and $802,616 for the three months ended March 31, 2012, and 2011, respectively.

  

Results of Operations

 

Comparison for the Three Months ended March 31, 2012 and 2011 

 

   Three Months Ended March 31 
       As % of       As % of 
Statements of Operations Data  2012   Revenues   2011   Revenues 
Revenues  $15,849,971    100%  $13,058,029    100%
Cost of Revenues   10,277,356    65%   7,573,416    58%
Gross Profit   5,572,615    35%   5,484,613    42%
Operating Expenses:                    
Selling   3,161,289    20%   2,097,887    16%
General and administrative   1,594,267    10%   1,352,130    10%
Total other income (expense), net   (1,184,057)   (7.50)%   (369,874)   3%
Income ( loss) before provision for income taxes   (366,998)   (2.30)%   1,664,722    13%
Provision for income taxes   25,912    0.16%   261,871    2%
Net income (loss)   (392,910)   (2.50)%   1,402,851    11%

 

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. In 2011, Zhengzhou Annec signed several refractory turnkey projects which are a new business model for them. 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.

 

Segments  Mar. 31, 
2012
   % of
Revenue
   Mar. 31, 
2011
   % of
Revenue
 
Zhengzhou Annec  $15,849,971    100%  $13,058,029    100%
Beijing Annec   -    -    -    - 
Total  $15,849,971    100%  $13,058,029    100%

 

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Revenues for the three months ended March 31, 2012 was $15,849,971 compared to $13,058,029 for the three months ended March 31, 2011.  Revenues for the three months ended March 31, 2012 increased by $2,791,942, or by 21%.  We had no revenues from Beijing Annec for the three months ended March 31, 2012 and 2011 because no new contract were entered into and no project was completed during the respective periods. In June Beijing Annec will receive revenue. Revenues for Zhengzhou Annec for the three month ended March 31, 2012, increased by $2,791,942 or 21%, to $15,849,971 from $13,058,029 for the three months ended March 31, 2011. Beijing Annec had no revenue. The increase in sales of refractory products by Zhengzhou Annec was mainly due increased in number of orders. The existing customers increased their demand and Zhengzhou Annec obtained new customers in first three months of ended March 31, 2012 compared to March 31, 2011, as set forth below: 

 

Type of Customers’ Sales  Amount (US$) 
     
Existing customer  $8,357,002 
      
New customer  $7,474,298 

 

Cost of Revenue

 

Cost of revenue was $10,277,356 and $7,573,416. for the three months ended March 31, 2012 and 2011, respectively.  Cost of revenue for the three months ended March 31, 2012 increased by $2,703,940 or by 36%.  Stated as a percentage of revenues, the cost of revenue for the three months ended March 31, 2012, was 65% compared to 58% for the three months ended March 31, 2011. Cost of revenue related to Zhengzhou Annec for the three months ended March 31, 2012 increased by $2,703,940, or 36% to $10,277,356 from $7,573,416 for the same period in 2011.  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 $1,594,267 and $1,352,130 for the three months ended March 31, 2012 and 2011, respectively. The increase of $242,137, or 18%, 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. 

 

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 $3,161,289 and $2,097,887 for the three months ended March 31, 2012 and 2011, respectively. The increase of $1,063,402, or 51%, in sales and marketing expense was due to increased variable cost like commission paid to sellers, shipping expense, packaging expense and traveling expense which activities in direct sales and marketing.

 

Other Income (Expense), net.   The total other income (expense), net was $(1,184,057) and $(369,874) for the three months ended March 31, 2012 and 2011, respectively.  The increase of $814,183, or 220%, in total other expense was primarily attributable to recognition of a government grant subsidy in 2011, and an increase in interest expense as detailed in the following table:

 

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   Three Months End 
   March 31,   March 31, 
   2012   2012 
Other income (expense):          
Interest income  $97,188   $98,835 
Interest expense   (1,279,902)   (603,775)
Other income (expense), net   (1,343)   135,066 
   $(1,184,057)  $(369,874)

 

Liquidity and Capital Resources

 

We had retained earnings of $30,918,841 and $31,311,752 as of March 31, 2012, and December 31, 2011 respectively.

 

As of March 31, 2012, we had cash and restricted cash of $8,769,251 and total current assets of $100,316,464 compared to cash and restricted cash of $1,914,194 and total current assets of $98,671,393 as of December 31, 2011. Restricted cash is used to secure bank notes; the guaranteed percentage at March 31, 2012 was 117% compared to December 31, 2011 of 100%. The increase in restricted cash was a result of bank financial policy adjustment and improved the reserve proportion.

 

As of March 31, 2012, we had accounts receivable of $28,318,488, representing 28% of our total current assets, compared to $34,410,920, representing 35% of total current assets as of December 31, 2011. Also, accounts receivable decreased of $6,092,432 or 18%. At the same time, we had a 21.38% increase in total revenue.

 

Our total liabilities as of March 31, 2012 was $87,579,267 compared to $85,946,386 at December 31, 2011. The increase of $1,632,881 or 1.9%, was a result of increase in loans payables, short terms loans, and advances from customer. On April 12, 2012, Zhengzhou Annec company obtained a short-term bank loan of $790,551 from China Citic Bank for operating purposes. The loan has a duration of one year with an annual interest rate of 7.2%. On April 28, 2012, Zhengzhou Annec obtained a short-term bank loan of $1,296,504 from SPD Bank for operating purposes. The loan has a duration of six months with an annual interest rate of 7.2%. The loan of $790,551 from China Citic Bank is guaranteed by the Zhendong company, and the loan of $1,296,504 from SPD Bank is secured by Zhengzhou Anne’s office building and land. The funds were used or allocated to raise salaries and improve the market development. Advances from customer have increased $878,652 or 3 % compared to December 31, 2011.

 

Since most of our contracts are for custom made refractory material, in most cases 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 checked by client. 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 year 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 clients.

 

As of March 31, 2012 we had working capital of $16,375,827, compared to working capital of $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 remainder of our fiscal year. 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.

 

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 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 Provided by Operating Activities. For the three months ended March 31, 2012, net cash provided in operating activities was $2,005,098 compared to cash provided by operating activities of $625,239, for the three months ended March 31, 2011. The increase in net cash provided by operating activities for the three months ended March 31, 2012 was primarily due to changes in prepaid expenses and deposits, Accounts receivable and other receivable as set forth below:

 

Items  2012 (US$)   2011(US$)
Prepaid expenses and deposits (ending balances)   3,388,342    (6,719,772)
Accounts receivable (ending balances)   8,684,972    (1,607,296)
Other receivable (ending balances)   (3,282,932)   (37,151)

 

New Cash Used in Investing Activities.   For the three months ended March 31, 2012, net cash used in investing activities was $(7,495,726), compared to net cash provided in investing activities of $1,574,381, for the three months ended March 31, 2011. The net cash used in investment activities for three months ended March 31, 2012 was primarily due to the net proceeds from bank notes receivable, restricted cash for issuance of bank notes payable and the deposits for capital expenditure.

 

Items  2012 (US$)   2011(US$)  Increase/(Decrease)(US$)   Percentage 
Deposits for capital expenditure   77,246    126,262    49,016    39%
Restricted cash for issuance of bank notes payable   (6,395,578)   1,521,769    7,917,347    520%
Net (payments) proceeds from bank notes receivable   (1,155,472)   337,657    1,493,129    -442%

 

Net Cash Provided by Financing Activities.   For the three months ended March 31, 2012, net cash provided by financing activities was $5,942,971 compared to $(3,425,994) for the three months ended March 31, 2011. The net cash provided by financing activities consisted primarily of proceeds from the issuance of short-term borrowings and proceeds from loans to other individuals.

 

Type of Proceeds  2012 (US$)   2011(US$)  Increase/(Decrease)(US$)   Percentage 
Proceeds (payments) from issuance of short-term borrowings, net   5,965,095    (1,978,300)   7,943,395    -401%
(Payments) from issuance of long-term borrowings, net   (77,530)   (74,567)   (2,963)   4%
Proceeds (payments) from loans to related parties, employees, and other individuals, net of payments   55,406    (674,860)   730,266    -108%

 

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 March 31, 2012, we borrowed approximately $16.06 million 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 March 31, 2012, the Company and its subsidiaries have the following loan facilities with the following terms:

 

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Lender  Secured  Duration   Outstanding as of
March,31 2012
   Interest
rates
 
Agricultural credit union  By third parties   1 year    1,581,103    8.928%
Agricultural credit union  Machinery and equipment   1 year    316,221    11.470%
Agricultural credit union  owner guarnteen   1 year    142,299    8.556%
Guangdong Development Bank  By third parties   1 year    1,581,103    7.32%
Shanghai Pufa Development Bank  Office building and Land   1 year    3,162,205    6.975%
Shanghai Pufa Development Bank  Office building and Land   6 months    1,581,103    7.216%
Shanghai Pufa Development Bank  L/C   6 months    2,640,441    7.216%
Shanghai Pufa Development Bank  Office building   1 year   309,896    7.15%
Zhongxin Bank  By third parties   1 year    1,581,103    7.216%
LuoYang Bank  By third parties   1 year    3,162,205    7.87%
           $16,057,679      

 

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. During 2011, Zhengzhou Annec entered into agreements as a debt guarantor for seven 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 $9,644,726 as of March 31, 2012 compared to $9,584,112 as of December 31, 2011. In exchange, the other unaffiliated companies also act as a debt guarantor for Zhengzhou Annec. As of March 31, 2012, Zhengzhou Annec's loans guaranteed by other unaffiliated companies are approximately $9,486,616 compared to $9,426,996 as of December 31, 2011. 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.

 

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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, 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 our financial statements and results for the three months ended March 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.

 

We discovered information that indicated deficiencies in the controls and procedures we use to ensure that information we are required to disclose in our reports to the SEC is summarized and reported within the required periods. The significant deficiencies we have found include: (1) lack of sufficient staff with appropriate knowledge, experience, and training in the application of U.S. GAAP, and (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. As a result of these deficiencies, we determined that our disclosure controls and procedures were not effective as of the end of the period covered by this Report.

 

Remediation Plan

 

We intend 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.

 

Changes in Internal Controls Over Financial Reporting

 

There have been no material 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

 

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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   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 (1)
101.SCH   XBRL Taxonomy Extension Schema (1)
101.CAL   XBRL Taxonomy Extension Calculation Linkbase (1)
101.DEF   XBRL Taxonomy Extension Definition Linkbase (1)
101.LAB   XBRL Taxonomy Extension Label Linkbase (1)
101.FRE   XBRL Taxonomy Extension Presentation Linkbase (1)

  

  * Filed here with.
  (1)   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.  

 

26
 

 

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: June 12, 2012 /s/ LI Jiantao
  By: LI Jiantao
  Its: Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Accounting
Officer)


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