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~~June 30, ~~2013~~2014

¨ ☐ 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~~check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-3 of the Exchange Act.

Large accelerated filer ¨☐ Accelerated filer ¨☐ Non-accelerated filer ¨☐ Smaller reporting company x☒ (Do not check if 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 ~~November~~October 1517, ~~2013~~2014, 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	2
	Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	2
	Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	2
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	3
	Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2014 and 2013(Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2830
Item 4.	Controls and Procedures	2830
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	2931
Item 1A.	Risk Factors	2931
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2931
Item 3.	Defaults Upon Senior Securities	2931
Item 4.	Mine Safety Disclosures	2931
Item 5.	Other Information	2931
Item 6.	Exhibits	2932
Signature Page		30
Signatures		33

1SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

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” and “our” refer to Annec Green Refractories Corporation and its consolidated subsidiaries and variable interest entity.

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. 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 Form 10-K filed on June 13, 2014.

ANNEC GREEN REFRACTORIES CORPORATION

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ANNEC GREEN REFRACTORIES CORPORATION

~~CONDENSED~~ CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	June 30,			December 31,
	2013		2012
	2014			2013
	(Unaudited)
ASSETS
Assets
Current assets:
Cash	$	3311,~~432,612~~182	$	~~380,579~~$	164,484
Restricted cash		63,~~892~~855,~~797~~763		~~6,469,826~~	6,492,268
Bank notes receivable		741,~~963~~243,334		~~1,695,771~~	193,558
Accounts receivable (net of allowance of $1,369,805 and $1,481,000 at September 30, 2013 and December 31, 2012, respectively)		31,460,386		42,214,102
Accounts receivable, net		18,446,541			36,432,332
Retentions receivable (net of allowance of $543,256 and $531,000 at September 30, 2013 and December 31, 2012, respectively)		11,697,741		13,237,473
Retentions receivable, net		5,624,322			9,923,726
Prepaid expenses and deposits		8,516,289		7,613,579
Advances to suppliers		2,997,584			4,937,492
Other receivables		105,~~346~~989,~~341~~070		~~3,005,423~~	7,525,986
Inventories		29,373,651		25,555,534
Related party Receivables		631,522			312,042
Non-current assets within 1 year		331,471		-
Inventories, net		20,194,837			26,444,864
Total current assets		102,126,251		100,172,287
Other current assets		131,858			129,362
Long-term retentions receivable (net of allowance of $1,023,506and $1,172,860 at September 30, 2013 and December 31, 2012, respectively)		1,994,268		2,495,618
Total current assets		59,426,013			92,556,114
Plant and equipment, net		16,082,192		16,505,421
Long-term retentions receivable, net		2,941,319			4,203,396
Construction in progress		-		690,655
Deposits for capital expenditure		891,136			24,930
Land use rights, net		2,391,691		2,258,796
Plant and equipment, net		15,445,620			16,612,618
Long-term investment		-		158,702
Land use rights, net		3,032,051			2,294,989
Long-term assets		11,664		-
Other		-			8,256
Total assets	$	~~122~~81,~~606~~736,~~066~~139	$	~~122,281,479~~$	115,700,303
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities and Stockholders' Equity
Current liabilities:
Short-term loans	$	2723,~~941~~518,~~464~~326	$	~~24,037,073~~$	25,327,311
Bank notes payable		~~2,281,468~~-		~~2,221,834~~	2,454,831
Accounts payable and accrued expenses		2017,~~514~~405,~~877~~267		~~18,895,273~~	19,528,729
Advances from customers		611,~~903~~202,~~426~~713		~~14,535,685~~	11,196,409
Salaries payable		~~370~~734,~~876~~994		~~401,536~~	799,555
Taxes payable		3,~~274~~312,~~956~~069		~~5,215,355~~	3,032,010
Related party payables		43,~~778~~257,~~046~~259		~~407,767~~	4,861,981
Loans payable to employees		-		2,027,032
Other payables		7,126,805			8,077,875
Loans payable to other individuals		-		4,372,570
Total current liabilities		66,557,433			75,278,701
Other payable		9,824,755		3,582,618
Deferred income		2,485,578			2,623,619
Other current liabilities		2,513,502		766,912
Long-term payables		706,167			657,368
Total current liabilities		78,403,371		76,463,655
Long-term loans		159,215			320,765
Deferred income		2,715,295		2,776,599
Total liabilities		69,908,393			78,880,453
Long-term payable		654,583		-
Commitments and Contingencies
Long-term loans		399,257		622,114
Stockholders' equity:
Total liabilities		82,172,506		79,862,368
Series A preferred stock, $0.0001 par value; 20,000,000 shares authorized; zero shares issued and outstanding		-			-
Commitments and contingencies (Note 20)
Common stock, $0.0001 par value; 100,000,000 shares authorized; 19,995,701 shares issued and outstanding		2,000			2,000
Stockholders' equity:
Additional paid-in capital		2,661,026			2,661,026
Series A preferred stock, $0.0001 par value; 20,000,000 shares authorized; zero shares issued and outstanding		-		-
Statutory reserve		1,385,966			1,385,966
Common stock, $0.0001 par value; 100,000,000 shares authorized; 19,995,701 issued and outstanding at September 30, 2013 and December 31, 2012		2,000		2,000
Retained earnings		4,726,822			29,513,353
Additional paid-in capital		2,661,026		2,661,026
Accumulated other comprehensive income		3,051,932			3,257,505
Statutory reserve		1,385,966		1,385,966
Total stockholders' equity		11,827,746			36,819,850
Retained earnings		33,235,448		36,346,896
Total liabilities and stockholders' equity	$	81,736,139		$	115,700,303
Accumulated other comprehensive income		3,149,120		2,023,223
Total stockholders' equity		40,433,560		42,419,111
Total liabilities and stockholders' equity	$	122,606,066	$	122,281,479

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

ANNEC GREEN REFRACTORIES CORPORATION

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~INCOME~~LOSS

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	11,026,510		$	14,924,338		$	31,707,484		$	48,712,709
Cost of revenues		7,290,217			7,972,971			20,190,809			28,675,880
Gross profit		3,736,293			6,951,367			11,516,675			20,036,829
Operating expenses:
Sales and marketing		4,208,901			3,297,129			7,463,581			9,689,346
General and administrative		1,476,933			1,352,386			4,153,020			4,280,005
Total operating expenses		5,685,834			4,649,515			11,616,601			13,969,351
(Loss)income from operations		(1,949,541	)		2,301,852			(99,926	)		6,067,478
Other income (expense):
Interest income		(155,685	)		76,509			150,037			239,553
Interest expense		(1,132,558	)		(968,587	)		(3,313,955	)		(3,249,458	)
Non-operating income		296,913			398,689			375,640			368,973
Non-operating expenditure		(142,285	)		-			(142,285	)		-
Total other income(expense)		(1,133,615	)		(493,389	)		(2,930,563	)		(2,640,932	)
(Loss)income before provision for income taxes		(3,083,156	)		1,808,463			(3,030,489	)		3,426,546
Provision for income taxes		(17,608	)		326,549			80,959			840,647
Net income(loss)		(3,065,548	)		1,481,914			(3,111,448	)		2,585,899
Other comprehensive income(loss):
Foreign currency translation adjustment		1,125,897			63,197			1,125,897			263,364
Comprehensive (loss)income	$	(1,939,651	)	$	1,418,717		$	(1,985,551	)	$	2,849,263
Net (loss)income per share-basic and dilutive	$	(0.10	)	$	0.07		$	(0.10	)	$	0.13
Shares used in computing net loss per share-basic and dilutive		19,995,701			19,995,701			19,995,701			19,995,701

(UNAUDITED)

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013

Revenues	$	7,000,772		$	17,061,559		$	12,623,730		$	20,680,974
Cost of revenues		5,196,473			10,606,480			8,054,742			12,900,591
Gross profit		1,804,299			6,455,079			4,568,988			7,780,383

Operating expenses:
Sales and marketing		1,517,093			2,151,424			2,929,480			3,254,680
General and administrative		2,244,421			1,086,016			25,436,577			2,658,364
Total operating expenses		3,761,514			3,237,440			28,366,057			5,913,044

Income (loss) from operations		(1,957,215	)		3,217,639			(23,797,069	)		1,867,339

Other income (expense):
Interest income		1,067,573			176,304			1,186,742			305,722
Interest expense		(904,173	)		(1,176,211	)		(2,028,950	)		(2,181,397	)
Non-operating income		260,549			-			348,208			-
Non-operating expenditure		(192,507	)		-			(227,235	)		-
Other income, net		26,803			33,369			53,817			104,217
Total other income (expense)		258,245			(966,538	)		(667,418	)		(1,771,458	)

Income (loss) before provision for income taxes		(1,698,970	)		2,251,101			(24,464,487	)		95,881

Provision for income taxes		298,690			92,150			322,045			98,568
Net income (loss)		(1,997,660	)		2,158,951			(24,786,532	)		(2,687	)

Other comprehensive income (loss):
Foreign currency translation adjustment		67,427			622,819			(69,073	)		852,799
Comprehensive income (loss)		(1,930,233	)		2,781,770			(24,855,605	)	$	850,112

Net income (loss) per share-basic and dilutive	$	(0.10	)	$	0.11		$	(1.24	)	$	-

Shares used in computing net loss per share-basic and dilutive		19,995,701			19,995,701			19,995,701			19,995,701

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

ANNEC GREEN REFRACTORIES CORPORATION

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	September 30,
	2013			2012
	(Unaudited)			(Audited)
Cash flows from operating activities:
Net income (loss)	$	(3,111,448	)	$	2,585,899
Adjustments to reconcile net loss to net cash used in operating activities:
Non cash interest expense, discount on bank notes receivable		675,891			-
Depreciation and amortization		1,344,678			1,323,358
Provision (recovery) for bad debt		(332,947	)		(146,246	)
(Gain) loss on sale of plant and equipment		42,347			141,739
Change in assets and liabilities:
Restricted cash		(248,314	)		(581,261	)
Bank notes receivable		983,698
Accounts receivable, retentions receivable and long-term retentions receivable		14,488,004			6,384,124
Prepaid expenses and deposits		(695,541	)		2,742,741
Other receivables		(1,446,183	)		(499,075	)
Inventories		(3,119,552	)		(1,887,993	)
Bank notes payable		-			1,801,001
Non-current assets within 1 year		(330,131	)		-
Accounts payable and accrued expenses		502,994			(2,797,460	)
Advances from customers		(7,989,973	)		(5,798,323	)
Salaries payable		(41,270	)		(73,555)
Taxes payable		(2,071,971	)		(1,247,054	)
Deferred income		(135,279	)		(132,123	)
Other payables		(572,738	)		(596,207	)
Other current liabilities		2,503,344			-
Long-term payable		651,937			-
Proceeds from notes payable		-			554,807
Deferred expenses		(11,617	)		-
Net cash provided by operating activities		1,085,928			1,774,372
Cash flows from investing activities:
Deposits for capital expenditure		-			(177,982	)
Proceeds received from withdrawal of long-term investment		162,303			-
Purchase of plant and equipment		(272,555	)		(828,693	)
Purchase of land use rights		(118,949	)		-
Proceeds from sale of plant and equipment		572,225			-
Net cash provided by (used in) investing activities		343,023			(1,006,675	)
Cash flows from financing activities:
Payment of deposit for bank loan		(4,869,102	)		-
Proceeds from other payables		4,576,956			-
Proceeds from loans to related parties, employees, and other Individuals		(1,332,645	)		(2,631,754	)
Payment of loans to related parties, employees, and other individuals		330,851			-
Proceeds from short-term borrowings		25,108,338			15,677,261
Payment of short-term borrowings		(21,862,269	)		(12,934,929	)
Payment of long-term borrowings		(238,586	)		-
Proceeds from issuance of long-term borrowings, net of payments		-			(233,019	)
Net cash provided by (used in) financing activities		1,713,543			(122,441	)
Net increase in cash		3,142,494			645,256
Effect of exchange rate changes		(90,460	)		(45,979	)
Cash at beginning of period		380,579			343,028
Cash at end of period	$	3,432,612		$	942,305
Noncash financing and investing activities:
Reduction of accounts payable through disposal of plant and equipment	$	224,427		$	85,695
Reduction of accounts receivable through addition of plant and equipment	$	137,958		$	548,527
Supplemental disclosure of cash flow information:
Interest paid	$	2,658,188		$	1,143,816
Income taxes paid	$	191,373		$	462,722

(UNAUDITED)

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

	Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(24,786,532	)	$	(2,687	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non cash interest expense, discount on bank notes receivable		290,282			361,923
Depreciation and amortization		859,077			915,977
Provision (recovery) for bad debts		15,278,052			(70,871	)
Gain (loss) on sale of plant and equipment		(62,567	)		41,557
Provision for obsolete inventory		7,124,313			-
Change in assets and liabilities:
Restricted cash		2,595,789			(184,056	)
Bank notes receivable		(1,344,121	)		268,286
Accounts receivable, retentions receivable and long-term retentions receivable		7,959,746			8,291,111
Prepaid expenses and deposits		1,908,778			423,173
Other receivables		1,811,629			(1,208,739	)
Inventories		(1,051,470	)		(5,484,326	)
Bank notes payable		(2,443,116	)		-
Non-current assets within one year		(3,446	)		-
Other current liabilities		(114,519	)		-
Long-term payables		(159,617	)		-
Accounts payable and accrued expenses		(1,679,397	)		475,752
Advances from customers		88,018			(5,835,626	)
Salaries payable		(58,890	)		416,384
Taxes payable		302,890			(1,704,309	)
Deferred income		(119,245	)		(60,773	)
Other payables		(7,183,115	)		60,562
Deferred expenses		8,217			-
Net cash used in operating activities		(779,244	)		(3,296,662	)

Cash flows from investing activities:
Deposits for capital expenditure		-			(36,650	)
Purchase of plant and equipment		(2,798,742	)		(230,410	)
Proceeds received from withdrawal of long-term investment		-			159,314
Purchase of land use rights		(784,659	)		(89,809	)
Proceeds from sale of plant and equipment		2,581,607			24
Net cash used in investing activities		(1,001,794	)		(197,531	)

Cash flows from financing activities:
Payment of other receivables		-			(4,779,429	)
Proceeds from other payables		-			4,492,664
Proceeds from loans to related parties, employees, and other Individuals		4,715,289			10,429,225
Payment of loans to related parties, employees, and other individuals		(648,312	)		(9,841,457	)
Proceeds from short-term borrowings		9,772,465			13,114,778
Payment of short-term borrowings		(11,401,209	)		(8,335,349	)
Proceeds from long-term borrowings		53,719			-
Payment of long-term borrowings		-			(157,064	)
Net cash provided by financing activities		2,491,952			4,923,368

Net increase in cash		710,914			1,429,175

Effect of exchange rate changes		(564,216	)		(82,658	)

Cash at beginning of period		164,484			380,579

Cash at end of period	$	311,182		$	1,727,096

Noncash financing and investing activities:
Reduction of accounts payable through disposal of plant and equipment	$	248,467		$	184,983
Reduction of accounts receivable through addition of plant and equipment	$	-		$	135,417

Supplemental disclosure of cash flow information:
Interest paid	$	1,714,745		$	1,011,897
Income taxes paid	$	373,298		$	344,414

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

~~Annec~~ANNEC ~~Green~~GREEN ~~refractories~~REFRACTORIES ~~corporation and subsidiaries~~CORPORATION

~~Notes~~NOTES toTO ~~Condensed~~CONSOLIDATED ~~Consolidated~~FINANCIAL ~~Financial Statements~~STATEMENTS

~~September 30, 2013 & 2012~~(UNAUDITED)

~~(Unaudited)~~1. Organization and description of business

1.Annec Green ~~Basis~~Refractory Corporation (“Annec”) was incorporated in the State of ~~Presentation~~Delaware on April 29, 2010. Annec through its 100% owned subsidiaries and ~~Description~~its ofvariable interest entity (“VIE”) (collectively, and together with Annec hereinafter defined, the “Company”), is engaged in the designs, develops, produces, and markets refractory products. In addition, through the VIE, the Company provides integrated stove design, turnkey contracting, refractory production and sales.

~~The~~Annec has ~~accompanying~~a ~~unaudited~~wholly-owned ~~condensed~~subsidiary ~~consolidated~~in ~~financial~~the ~~statements~~British ofVirgin ~~Annec~~Islands, China Green Refractories ~~Corporation~~Limited (~~the~~“China ~~Company~~Green”), ~~have~~which is ~~been~~a ~~prepared~~holding incompany ~~accordance~~ with ~~generally~~no ~~accepted~~operations. ~~accounting~~China ~~principles~~Green inhas ~~the~~a ~~United States for interim financial information pursuant to the instructions to Form 10~~wholly-Qowned ~~and~~subsidiary ~~Rule~~in ~~8-03~~Hong ~~of Regulation S-X. Accordingly~~Kong, ~~they~~Alex doIndustrial ~~not~~Investment ~~include~~Limited (“Alex ~~all~~Industrial”) ofwhich ~~the~~owns ~~information~~Zhengzhou ~~and~~Annec ~~footnotes~~Industrial ~~required by accounting principles generally accepted in the United States for complete financial statements~~Co. ~~In the opinion of management~~, ~~all~~Ltd. ~~adjustments,~~(“Zhengzhou ~~consisting of normal recurring adjustments~~Annec”), ~~considered necessary for~~ a ~~fair~~wholly ~~presentation~~foreign owned ofsubsidiary ~~the~~in ~~financial statements have been included~~China. ~~The~~Zhengzhou ~~financial~~Annec ~~information for December 31, 2012~~ has ~~been~~contractual ~~derived~~agreements ~~from the consolidated audited financial statements included in the Company’s annual report on Form 10-K~~ with ~~the~~Annec ~~Security~~(Beijing) ~~and~~Engineering ~~Exchange~~Technology ~~Commission~~Co., Ltd. (“~~SEC~~Beijing Annec”), ~~for~~an ~~the~~entity ~~year~~which ~~ended~~is ~~December~~considered ~~31,~~as ~~2012~~a VIE.

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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20122. Basis ~~The results~~ of ~~operations~~Presentation ~~for the three~~ and ~~nine~~Description ~~months period ended September 30, 2013 are not necessarily indicative~~ of the results for the year ending December 31, 2013 or any 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. Certain prior period amounts have been reclassified in the consolidated financial statements to conform to the current period presentation.

5The accompanying consolidated financial statements of Annec Green Refractories Corporation (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In management’s opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included.

~~Annec~~The accompanying ~~Green~~consolidated ~~refractories~~financial ~~corporation~~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 the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results for the year ending December 31, 2014 or any interim period. The accompanying 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. Certain prior period amounts have been reclassified in the consolidated financial statements to conform to the current period presentation.

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(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.

~~Annec~~ANNEC ~~Green~~GREEN ~~refractories~~REFRACTORIES ~~corporation and subsidiaries~~CORPORATION

~~Notes~~NOTES toTO ~~Condensed~~CONSOLIDATED ~~Consolidated~~FINANCIAL ~~Financial Statements~~STATEMENTS

~~September 30, 2013 & 2012~~(UNAUDITED)

~~(Unaudited)~~3. Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with UUS ~~.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.

Concentration of Credit and Other Risks

Financial instruments which potentially subject the Company 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 ~~September~~ June 30, ~~2013~~2014. In an effort to mitigate any potential risk, the Company periodically evaluates the credit quality of the financial institutions which hold the bank deposits and the Company holds its cash in multiple banks supported by the local and Central Government of the PRC.

The Company does not require collateral or other security to support the trade receivables. The Company is exposed to credit risk in the event of nonpayment by customers to the extent of amounts recorded on the balance sheet. One customer accounted for 28% and 2823% of the trade receivable balance as of ~~September~~ June 30, ~~2013~~2014 and December 31, ~~2012~~2013, respectively. AnAnother ~~additional~~ customer accounted for 17 16% and 1913% of the trade receivables balance as of ~~September~~ June 30, ~~2013~~2014 and December 31, ~~2012~~2013, respectively.

Two customers individually accounted for 3544% and 1428% of the total revenue in three months ended ~~September~~ June 30, ~~2013~~2014 and two customers individually accounted for 25% and 1516% of the total revenue in three months ended ~~September~~ June 30, ~~2012~~2013, respectively. Two customers individually accounted for 1433% and 1225% of our revenue in the ~~nine~~six ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014. Two customers individually accounted for 2619% and 1312% of our revenue in the ~~nine~~six ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2012~~2013.

~~Annec~~ANNEC ~~Green~~GREEN ~~refractories~~REFRACTORIES ~~corporation and subsidiaries~~CORPORATION

~~Notes~~NOTES toTO ~~Condensed~~CONSOLIDATED ~~Consolidated~~FINANCIAL ~~Financial Statements~~STATEMENTS

~~September 30, 2013 & 2012~~(UNAUDITED)

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, economic, and legal environment in the PRC. The Chinese Government controls its foreign currency reserves through restrictions on imports and conversion of Renminbi (~~Unaudited~~“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 2014, the exchange rate between RMB and US Dollars (“USD” or “$”) has fluctuated from $1.00 to RMB7.3141 and $1.00 to RMB6.1552, respectively. There can be no assurance that the exchange rate will remain stable. The Renminbi could appreciate or depreciate against the US 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.

~~2. Summary of Significant Accounting Policies, continued~~Going Concern

The ~~operations of the~~ Company ~~are~~had ~~located~~accumulated indeficit ~~the~~of ~~PRC~~$4.73 ~~Accordingly,~~million ~~the~~as ~~Company’s business, financial condition, and results~~ of ~~operations~~June ~~may be influenced by the political~~30, ~~economic,~~2014 and ~~legal~~incurred ~~environment~~net inloss ~~the~~of ~~PRC~~$24.80 ~~The~~million ~~Chinese~~and ~~Government~~$2,687 ~~controls~~for ~~its~~the six ~~foreign~~months ~~currency~~ended ~~reserves~~June ~~through~~30, ~~restrictions~~2014 ~~on imports~~ and ~~conversion of Renminbi (RMB) into foreign currency~~2013. In ~~July 2005~~addition, the ~~Chinese~~Company ~~Government~~had ~~adjusted~~negative ~~its~~working ~~exchange~~capital ~~rate~~of ~~policy~~$7,131,420 ~~from~~as ~~“Fixed~~of ~~Rate”~~June to30, ~~“Floating Rate~~2014.” These ~~During~~conditions ~~January~~raise ~~2008~~a tosubstantial ~~September~~doubt ~~2013,~~as to whether the ~~exchange~~Company ~~rate~~may ~~between~~continue ~~RMB~~as ~~and~~a U.going Sconcern. ~~Dollars~~The ~~(USD)~~Company ~~has~~is ~~fluctuated~~seeking ~~from USD $1.00~~ to obtain ~~RMB~~additional ~~7.3141~~financing ~~and~~from ~~USD~~local ~~$1.00~~banks toin ~~RMB~~the ~~6.1613~~PRC, however ~~respectively.~~there ~~There~~is ~~can be~~ no ~~assurance~~guarantee ~~that~~ the ~~exchange~~Company ~~rate~~ will ~~remain~~be ~~stable.~~able ~~The~~to obtain ~~Renminbi~~the ~~could~~additional ~~appreciate~~required orfunds ~~depreciate~~on ~~against~~a ~~the~~timely ~~U.S.~~basis ~~Dollar.~~or ~~The~~that ~~Company’s~~funds ~~financial~~will ~~condition~~be ~~and~~available ~~results~~on ofterms ~~operations~~acceptable ~~may~~to ~~also~~the beCompany. ~~affected~~The Company bywill ~~changes~~also inseek ~~the~~to ~~value~~improve ofits ~~certain~~cash ~~currencies~~flows ~~other~~from ~~than~~operations ~~the~~by ~~Renminbi~~implementing incost ~~which~~control ~~its~~measures ~~earnings~~ and ~~obligations~~reducing ~~are denominated~~inventory purchases.

Long-term Investment

Long-term investment represents an investment the Company has in a regional bank within China. We do not hold a greater than 5% interest, and we have determined that we do not have significant control or influence in the bank. Accordingly, we record the investment at cost. Our investment is in a private company where there is no market to determine the value of the investment. We withdrew the investment in March 2013 and received proceeds of $159,314.

Fair Value of Financial Instruments

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

Level 1–inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date or other inputs that is observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2–observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active.

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

ANNEC GREEN REFRACTORIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

2. Summary of Significant Accounting Policies, continued

Foreign Currency Translation

The accompanying financial statements are presented in ~~United~~USD ~~States Dollars.~~ The functional currency of our Company is the ~~Renminbi~~RMB, 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~~three and six months ended ~~September~~ June 30, ~~2013~~ 2014 and ~~2012~~2013. 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.~~US Dollars for financial reporting purposes are recorded in other comprehensive income (loss) as a component of equity.

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

2. Summary of Significant Accounting Policies, continued

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

	Nine Months Ended
	Six Months Ended
	September 30,				December 31,
	June 30,				December 31,
	2013		2012		2012
	2014		2013		2013
Period end RMB: U.S. Dollar exchange rate		6.1364		6.3190		6.3011
Period end RMB: USD exchange rate		6.1552		6.1732		6.1104
Average RMB: U.S. Dollar exchange rate		6.2115		6.3084		6.3034
Average RMB: USD exchange rate		6.1397		6.2025		6.1905

Revenue Recognition

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

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

Beijing Annec enters into contracts to design and build blast furnaces and hot-air stoves and recognizes revenues during the construction period using the percentage of completion method. Most of the contracts are fixed-price contracts, which typically provide for a stated contract price and a specified scope of the work to be performed. Beijing Annec estimates the percentage of the job that is complete using variations of the cost-to-cost method. Cost is used as the primary indicator, but the Company also considers contract milestones and work in progress from subcontractor companies. If the estimate of costs left to be incurred plus actual costs already incurred exceeds the total revenue to be expected from a contract, then the full amount of the difference is recognized in the current period as a loss and 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.8

~~During~~ANNEC ~~2011,~~GREEN ~~Zhengzhou~~REFRACTORIES 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.CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 $1841,~~287,287~~974 and $~~647~~816,~~066~~312 for the ~~quarter~~three months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively, and $2993,~~326,108~~106 and $1,~~420~~031,~~191~~ 922 for the ~~nine~~six ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively.

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

2. Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements

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

114. Accounts Receivable, net

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

3. Accounts Receivable

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

	September 30			December 31
	June 30			December 31
	2013			2012
	2014			2013
Amounts billed	$	26,753,918		$	31,619,504
	(Unaudited)
Amounts unbilled		4,706,468			10,594,598
Accounts receivable	$	28,848,019		$	38,507,251
Total	$	31,460,386		$	42,214,102
Provision for bad debt		(10,401,478	)		(2,074,919	)
Accounts receivable, net	$	18,446,541		$	36,432,332

45. Retentions Receivable, net and Long-term Retentions Receivable, net

The Company enters into sales contracts with customers that provide for a retention provision in 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 to two years 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.

~~The following table shows the components of retentions receivable from long-term contracts as of September 30, 2013 and December 31, 2012:~~9

	September 30, 2013				December 31, 2012
	Retentions receivable		Long-term retentions receivable		Retentions receivable		Long-term retentions receivable
Chinese government or province owned customers:
Amounts billed and due	$	2,392,071	$	762,912	$	585,832	$	342,871
Amounts billed and not due		3,290,185				7,218,256		1,098,770
		5,682,256		841,395		7,804,088		1,441,641
Commercial customers:
Amount billed and due		2,636,789		278,416		512,115		319,021
Amount billed and not due		3,378,696		874,457		4,921,270		734,956
		6,015,485		1,152,873		5,433,385		1,053,977
Total	$	11,697,741	$	1,994,268	$	13,237,473	$	2,495,618

ANNEC GREEN REFRACTORIES CORPORATION

5.NOTES ~~Prepaid~~TO ~~expenses~~CONSOLIDATED ~~and~~FINANCIAL ~~deposits~~STATEMENTS

~~The components of the Company’s inventories are as follows:~~(UNAUDITED)

~~Prepaid~~The following ~~expenses~~table ~~and~~shows ~~deposits~~the ~~refers~~components toof ~~payments~~retentions ~~prepaid~~receivable tofrom ~~the~~long-term ~~supplier~~contracts inas ~~accordance~~of ~~with~~June ~~purchase~~30, ~~contract.~~2014 and December 31, 2013:

	September 30,		December 31,
	June 30, 2014 (Unaudited)				December 31, 2013
Prepaid expenses and deposits	2013		2012
	Current		Long-term		Current		Long-term
Prepaid expenses and deposits	$	8,516,289	$	7,613,579
Chinese government or province owned customers:
Amounts billed and due	$1,163,754		172,180		$1,025,085		$1,868,211
Amounts billed and not due		1,751,190		1,289,216		3,197,211		734,021
		2,914,944		1,461,396		4,222,296		2,602,232
Commercial customers:
Amount billed and due		1,576,291		951,706		1,446,511		1,235,410
Amount billed and not due		1,133,087		528,217		4,254,919		365,754
		2,709,378		1,479,923		5,701,430		1,601,164
Total	$	5,624,322		2,941,319	$	9,923,726	$	4,203,396

6. ~~Other Receivables~~ Advances to suppliers

The components of the Company’s advances to suppliers are as follows:

	June 30,		December 31,
	2014		2013
	(Unaudited)

KuanCheng Ruifeng Construction Engineering Group Co., LTD	$	-	$	423,868
Oriental Luyuan Energy Conservation and Environmental Protection Engineering Co., LTD		651,498		654,622
TangshanRich District XinYi Steel Structure Building Engineering Co., LTD		881,258		1,571,092
XiaoYi Oriental Mineral Co., LTD		607,858		-
Other Small Suppliers		856,970		2,287,910
Total	$	2,997,584	$	4,937,492

ANNEC GREEN REFRACTORIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. Other Receivables

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

	September 30,		December 31,
	June 30, 2014		December 31, 2013
	2013		2012
	(Unaudited)
Other receivables	$	9,850,701	$	3,005,423
Other receivables–individuals and employees	$	1,852,483	$	878,379
Advance to management		415,659		-
Other receivables–companies		437,422		893,548
Advance to related party		79,981		-
Security deposits		3,699,165		5,754,059
Total other receivables	$	105,~~346~~989,~~341~~070	$	37,~~005~~525,~~423~~986

7The security deposits relate to a loan made to an employee in connection with the Company’s loan from the Bank of Zhengzhou. ~~Inventories~~ See Note 17.

	September 30,		December 31,
	2013		2012
Raw materials	$	3,973,899	$	3,839,230
Work in process		48,790		191,781
Finished goods		25,350,962		21,524,523
Total inventories	$	29,373,651	$	25,555,534

8. Inventories, net

12The components of the Company’s inventories are as follows:

Annec Green refractories corporation and subsidiaries

	June 30,			December 31,
	2014			2013
	(Unaudited)

Raw materials	$	2,812,114		$	3,373,620
Work in process		1,484,626			2,551,042
Finished goods		21,659,147			22,372,610
Inventories impairment		(5,761,050	)		(1,852,408	)
Total inventories, net	$	20,194,837		$	26,444,864

~~Notes to Condensed Consolidated Financial Statements~~11

~~September~~ANNEC ~~30,~~GREEN ~~2013~~REFRACTORIES ~~& 2012~~CORPORATION

~~(Unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~8. Plant and Equipment, net~~(UNAUDITED)

9. Plant and Equipment, net

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

	September 30,			December 31,
	June 30,			December 31,
	2013			2012
	2014			2013
Plants and buildings	$	15,756,587		$	15,180,863
	(Unaudited)
Machinery and equipment		4,818,320			4,703,072
Plants and buildings	$	14,737,071		$	16,100,888
Vehicles		2,153,271			2,321,267
Machinery and equipment		5,402,040			5,250,258
Others		493,449			541,106
Vehicles		2,130,371			2,352,731
		23,221,627			22,746,308
Others		505,336			510,031
Less accumulated depreciation		(7,139,435)			(6,240,887	)
		22,774,818			24,213,908
Total plant and equipment, net	$	16,082,192		$	16,505,421
Less accumulated depreciation		(7,329,198	)		(7,601,290	)
Total plant and equipment, net		15,445,620		$	16,612,618

Depreciation ~~expense related to property and equipment~~ was $~~433~~407,~~539~~652 and $~~422~~439,~~974~~453 for the three ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively, and was $1830,~~297,706~~087 and $1892,~~283,965~~393 for the six ~~nine~~months ~~month periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The Company recorded a gain (loss) on sale of property and equipment of ($1235,~~071~~213) and $082,445 for the three ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively,. The Company recorded a gain (loss) on sale of property and equipment of ($3262,~~865~~567) and $~~141~~41,~~739~~557 for the ~~nine~~six ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively.

910. Land Use Rights, net

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

	Estimated Remaining	September 30,			December 31,
	Estimated Remaining Life	June 30, 2014			December 31, 2013
	Life	2013			2012
		(Unaudited)
Land use rights	4645.30 years	$	23,~~555~~313,~~974~~423		$	2,~~399~~527,~~645~~694
Software			52,934			-
Less accumulated amortization			(281,372	)		(232,705	)
Less accumulated amortization			(217,217	)		(140,849	)
Total land use rights, net		$	3,032,051		$	2,294,989
Total land use rights, net		$	2,391,691		$	2,258,796

Amortization ~~expense related to land use rights~~ was $1114,~~941~~438 and $11,~~642~~862 for the three ~~month~~months ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively, and $3528,~~824~~990 and $3923,~~393~~584 for the ~~nine~~six ~~month periods~~ months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The difference between the amortization expense and accumulated amortization is due to exchange rate ~~differences~~fluctuations.

ANNEC GREEN REFRACTORIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Period ending September 30:
12 months ending June 30,
2014		$	51,639
2015	$	66,933
2015			51,639
2016		66,933
2016			51,639
2017		66,933
2017			51,639
2018		66,933
2018			51,639
Thereafter		2,764,319
Thereafter			2,117,180
	$	3,032,051
		$	$2,375,375

~~Annec~~ANNEC ~~Green~~GREEN ~~refractories~~REFRACTORIES ~~corporation and subsidiaries~~CORPORATION

~~Notes~~NOTES toTO ~~Condensed~~CONSOLIDATED ~~Consolidated~~FINANCIAL ~~Financial Statements~~STATEMENTS

~~September 30, 2013 & 2012~~(UNAUDITED)

~~(Unaudited)~~11. Short-Term Loans

10. Short-Term Loans

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

	September 30,				December 31,
Lender	Secured		Starting				Maturity/ Expiration Date		Interest Rates			Outstanding as of June 30, 2014 (Unaudited)		Outstanding as of December 31, 2013
	2013				2012
Agricultural credit union	Third parties			2014.01.23				2015.01.18		12.31	%	$	1,624,643	$	1,636,554
Short-term loans:
Agricultural credit union	Machinery and equipment			2013.08.30				2014.08.19		12.31	%		1,462,178		1,472,899
Loans due to financial institutions	$	27,941,464			$	24,037,073
Shanghai Pudong Development Bank	Office building and land use rights			2013.09.27				2014.09.26		6.00	%		3,249,285		3,273,108
Shanghai Pudong Development Bank	Office building and land use rights			2013.10.31				2014.10.31		6.00	%		1,624,643		1,636,554
China Citic Bank	Third parties			2013.06.26				2014.06.26		6.94	%		-		1,636,554
China Citic Bank	Fuchao Li			2013.10.26				2014.10.23		7.50	%		812,321		818,277
LuoYang Bank	Third parties			2014.04.16				2015.10.15		6.72	%		3,249,285		3,273,108
LuoYang Bank	Deposit			2013.11.25				2014.11.25		6.00	%		3,054,328		3,076,722
China Guangfa bank	Third parties			2013.09.30				2014.09.30		7.20	%		1,624,643		1,636,554
China Merchants Bank	Third parties			2013.09.26				2014.09.26		7.20	%		1,624,643		1,636,554
Zhengzhou Bank	Third parties			2014.02.08				2015.02.07		7.80	%		4,873,927		4,909,662
Shanghai Pudong Development Bank	Office building			2010.12.13				2015.12.13		7.15	%		318,430		320,765
												$	23,518,326	$	25,327,311

At September 30, 2013, the Company has fourteen loans with seven different banks that are due within one year. The weighted average interest rates are 7.147% and 7.571% for the three month periods ended September 30, 2013 and 2012, respectively. Eight of the short-term loans (with an outstanding balance of approximately $17,111,010 at September 30, 2013) are guaranteed by third parties, Beijing Annec, Alex Industrial Investment Limited Company, or Fuchao Li, chairman of the Company’s board of directors (the chairman). One of these eight loans is $4,888,860 due to Bank of Zhengzhou. Four of the loans (with an outstanding balance of approximately $5,045,303 at September 30, 2013) are collateralized by the Company’s office building, land, or machinery and equipment. Two of the loans (with an outstanding balance of approximately $5,785,151 at September 30, 2013) are secured by cash deposits of the Company.

In 2013, the Company borrowed $4,859,716 (RMB 30 million) from the Bank of Zhengzhou. This loan was guaranteed by a third party (Note 20) similar to the other short term bank loans of the Company. Additionally, consistent with local Chinese banking practices, the Bank of Zhengzhou requested that the chairman also borrow funds from the bank in a separate transaction and that such borrowings be collateralized by a cash security deposit to be held in Bank of Zhengzhou. The Company’s chairman borrowed $4,568,133 (RMB 28.2 million) from the Bank of Zhengzhou under a one year loan agreement with interest at 5.4%. The chairman loaned this amount to the Company. This amount is included in “Other payable” on the balance sheet. In order to provide the cash security deposit required by the chairman’s loan from the Bank of Zhengzhou, the Company loaned an employee $4,859,716 (RMB 30 million) and the employee established the cash security deposit with the Bank of Zhengzhou. The receivable from the employee is due in one year. The Bank of Zhengzhou pays interest on the security deposit at 3.3%. This receivable is classified as a component of “Other Receivables – individuals and employees”. The Company, the chairman and the employee have agreed that: 1). The Company has the rights to the cash security deposit and any interest earnings on such deposit. Upon the Company receiving the security deposit, all obligations of the employee to the Company are fulfilled. 2). The Company is obligated to repay the $4,568,133 loan and interest expense on behalf of the chairman. Upon repayment of the chairman’s loan to the Bank of Zhengzhou, all of the Company’s obligations to the chairman are fulfilled.

11. Bank Notes Payable

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

	September 30,		December 31,
	2013		2012
Notes payable:
Loans due to financial institutions	$	2,281,468	$	2,221,834

Bank notes payable represent bank notes paid to the Company’s vendors for purchase of inventory. At September 30, 2013, the Company had bank notes payable with two different banks with maturity dates of six months. All are noninterest-bearing notes, but generally require fees of approximately 0.05%. The notes payable require cash to be held in reserve of 100% of the total outstanding notes payable balance. Cash held by the bank as collateral is included in restricted cash.

~~Annec~~ANNEC ~~Green~~GREEN ~~refractories~~REFRACTORIES ~~corporation and subsidiaries~~CORPORATION

~~Notes~~NOTES toTO ~~Condensed~~CONSOLIDATED ~~Consolidated~~FINANCIAL ~~Financial Statements~~STATEMENTS

~~September 30, 2013 & 2012~~(UNAUDITED)

~~(Unaudited)~~12. Bank Notes Payable

12Bank notes payable represent bank notes paid to the Company’s vendors for purchase of inventory. ~~Advances~~At ~~from~~December ~~customers~~31, 2013, the Company had bank notes payable with two different banks with maturity dates of nine months. All are noninterest-bearing notes. The notes payable require cash to be held in reserve of 100% of the total outstanding notes payable balance. Cash held by the bank as collateral is included in restricted cash.

13. Advances from customers ~~refer to the money from customers before shipment. The earnings will be written down after it meet the revenue recognition conditions.~~

	September 30,		December 31,
	2013		2012
Advances from customers
Balance of advances from customers	$	6,903,426	$	14,535,685

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

1314. Other ~~payable~~payables

~~Other~~The ~~payable~~components of ~~refers~~other to payables inare ~~addition~~as ~~to normal transaction.~~follows:

	September 30,		December 31,
	June 30,			December 31,
	2013		2012
	2014			2013
Other payable	$	9,824,755	$	3,582,618
	(Unaudited)
Unpaid operating expenses	$	1,387,220		$	641,448
Hiring deposits and Unreimbursed expenses payable to employees		1,110,022			2,197,817
Loans payable to others		4,629,563			5,238,610
Total	$	7,126,805		$	8,077,875

14The loans payable to others are interest free loans from non-executive employees. ~~Deferred~~Such ~~income~~loans are payable on demand and are not collateralized.

~~Deferred income refers to revenue or income that are not recognized~~15. ItDeferred ~~includes three parts: return from government, energy saving and emission reduction, and government allowance.~~income

Deferred income refers to revenue or income not yet recognized. The components of the Company’s deferred income are as follows:

	September 30,		December 31,
	June 30,		December 31,
	2013		2012
	2014		2013
Return from government	$	1,696,842	$	1,679,191
	(Unaudited)
Energy saving and emission reduction		903,421		985,383
Government incentive for land use rights	$	1,529,720	$	1,694,884
Government allowance		115,032		112,025
Government incentive for energy savings and emission reduction		792,582		870,974
Total	$	2,715,295	$	2,776,599
Government allowance		163,276		57,761
Total	$	2,485,578	$	2,623,619

~~Annec~~ANNEC ~~Green~~GREEN ~~refractories~~REFRACTORIES ~~corporation and subsidiaries~~CORPORATION

~~Notes~~NOTES toTO ~~Condensed~~CONSOLIDATED ~~Consolidated~~FINANCIAL ~~Financial Statements~~STATEMENTS

~~September 30, 2013 & 2012~~(UNAUDITED)

(Unaudited)

15. Other current liabilities

Other current liabilities are mainly withholding expenses, and refers to accrued expenses that are not paid.

	September 30,		December 31,
	2013		2012
Other current liabilities
Other current liabilities	$	2,513,502	$	766,912

16.

Long-Term Loans

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

	September 30,		December 31,
	2013		2012
Long-term loans:
Loan due to financial institution	$	399,257	$	622,114

The long-term loan is due in 2015 and has an interest rate of 7.152% and is secured by one of the Company’s office buildings.

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

Period ending September 30:
2014	$	319,406
2015		319,406
	$	638,812

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

17.

Related Party Transactions

At ~~September~~June 30, ~~2013~~2014 and December 31, ~~2012~~2013, the Company had loans payable to the chairman (Fuchao Li), and a minority shareholder (Yin ling Fan) of the Company. The Company and these parties have not signed notes, there are no specific due dates, and no interest is paid on the loans. Money is transferred between these parties and the Company mainly for cash flow purposes. The amounts loaned 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~~ June 30, ~~2013~~2014 and December 31, ~~2012~~2013:

	September 30,		December 31,
	June 30, 2014		December 31, 2013
	2013		2012
	(Unaudited)
Fuchao Li	$	4,595,528	$	214,150
Jing Xu	$	-	$	7,444
Yinling Fan		182,517		193,617
Hongzhe Zhang		-		22,436
	$	4,778,045	$	407,767
Fuchao Li		3,128,912		4,615,083
Yinling Fan		128,347		166,929
	$	3,257,259	$	4,811,892

~~During~~In February 2014, the ~~three~~Company ~~months~~borrowed ~~ended~~$4,873,928 (RMB30 ~~March~~million) 31from the Bank of Zhengzhou. Similar to other short-term bank loans of the Company, ~~2013~~this loan was guaranteed by an unrelated third party (this loan amount is included in the loans guaranteed by third parties in Note 19). As a condition to grant the aforementioned loan to the Company, the Bank of Zhengzhou requested that the chairman of the Company ~~repaid~~also borrow funds from the bank in a separate transaction and that such borrowings shall be collateralized by a cash security deposit to be held in the Bank of Zhengzhou. In order to provide the cash security deposit required by the chairman’s loan from the Bank of Zhengzhou, the Company loaned an employee $~~214~~3,~~150~~249,285 (RMB 20 million) and the employee established the cash security deposit with the Bank of Zhengzhou, with an interest rate at 3.3% for one year. This receivable is classified as a component of “Other Receivables – individuals and employees”. The Company’s chairman borrowed $3,054,328 (RMB18.8 million) from the Bank of Zhengzhou under a one year loan agreement with interest at 6 % and then loaned this amount to ~~Fuchao~~the LiCompany. This loan from the chairman of the Company is included in “Other payable” on the balance sheet. The Company, the chairman and ~~during~~the employee have agreed that: (1) the ~~three~~Company ~~months~~has ~~ended~~the ~~September 30~~rights to the cash security deposit made by the employee and any interest earned on such deposit (upon the Company receiving the security deposit from the Bank of Zhengzhou, ~~2013~~all obligations of the employee to the Company shall be discharged), and (2) the Company ~~repaid~~is obligated to repay the $113,~~100~~054,328 (RMB 18.8 million) loan and interest expense on behalf of the chairman to ~~Yinling~~the ~~Fan~~Bank of Zhengzhou. Upon repayment of the chairman’s loan to the Bank of Zhengzhou, all of the Company’s obligations to the chairman shall be discharged.

In 2013, the Company borrowed $4,595,716 (RMB 30 million) from the Bank of Zhengzhou. This loan was guaranteed by a third party (Note 20) similar to the other short term bank loans of the Company. Additionally, consistent with local Chinese banking practices, the Bank of Zhengzhou requested that the chairman also borrow funds from the bank in a separate transaction and that such borrowings be collateralized by a cash security deposit to be held in Bank of Zhengzhou. The Company’s chairman borrowed $4,595,528 (RMB 28.2 million) from the Bank of Zhengzhou under a one year loan agreement with interest at 5.4%. The chairman loaned this amount to the Company. This amount is included in “Other payable” on the balance sheet. In order to provide the cash security deposit required by the chairman’s loan from the Bank of Zhengzhou, the Company loaned an employee $4,888,860 (RMB 30 million) and the employee established the cash security deposit with the Bank of Zhengzhou. The receivable from the employee is due in one year. The Bank of Zhengzhou pays interest on the security deposit at 3.3%. This receivable is classified as a component of “Other Receivables – individuals and employees”. The Company, the chairman and the employee have agreed that: 1). The Company has the rights to the cash security deposit and any interest earnings on such deposit. Upon the Company receiving the security deposit, all obligations of the employee to the Company are fulfilled. 2). The Company is obligated to repay the $4,568,133 loan and interest expense on behalf of the chairman. Upon repayment of the chairman’s loan to the Bank of Zhengzhou, all of the Company’s obligations to the chairman are fulfilled.16

ANNEC GREEN REFRACTORIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

18.

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 ~~three~~six ~~and nine~~ months ended ~~September~~ June 30, ~~2013~~2014 and for the year ended December 31, ~~2012~~2013. Zhengzhou Annec ~~will~~expects ~~continue~~that toafter ~~be subject to a 15% tax rate for the quarter ended September 30~~October 28, ~~2013,~~2014 ~~and~~it ~~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 $~~65,396~~0 and $~~23,790~~0 for the ~~three~~six month ~~periods~~ ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The high-tech enterprises certificate is valid until October 2014. Zhengzhou Annec has already applied for a new certificate which the revenue bureau has reviewed and approved. Once the current certificate expires, Zhengzhou Annec will receive the new certificate, and the statutory rate will be reduced to 15%.

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

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

19.

Commitments and Contingencies

Third Party Guarantees

During ~~three~~six months ended ~~September~~ June 30, ~~2013~~2014 and the year ended December 31, ~~2012~~2013, the Company had agreements with unrelated third-party entities in which the Company has guaranteed certain debt of these entities, and these entities have guaranteed certain debt of the Company. As of ~~September~~ June 30, ~~2013~~2014 and December 31, ~~2012~~2013, the Company was a debt guarantor to three third-party entities. The maximum guaranteed amount is ~~approximately~~ $2426,~~444~~806,~~300~~603 as of ~~September~~ June 30, ~~2013~~2014. The total guaranteed outstanding borrowings by these parties ~~are~~were ~~approximately~~ $2022,~~044~~420,~~326~~068 as of ~~September~~ June 30, ~~2013~~2014. ~~All~~From ofSeptember ~~the~~12, 2014 ~~guarantee~~to ~~agreements~~February ~~are~~8, ~~for~~2015, Zhengzhou Annec paid and will continue to pay the debt ~~with~~guaranteed ~~maturities~~by the third parties of ~~one~~$15,434,104. At ~~year~~the orend ~~less~~of June, ~~and~~Annec ~~mature~~has ~~through~~already ~~September 30~~pay for the debt on time, ~~2014~~without due loans.

These same parties disclosed above also act as debt guarantors on certain of the Company’s debt with a maximum guaranteed amount of ~~approximately~~ $2821,~~192~~607,~~426~~746 as of ~~September~~ June 30, ~~2013~~2014. The Company’s loans guaranteed by these parties are ~~approximately~~ $1715,~~111~~434,~~010~~104 as of ~~September~~ June 30, ~~2013~~2014. The Company has not historically incurred any losses due to such debt guarantees, and the Company has determined that the fair value of the guarantees is not material.

ANNEC GREEN REFRACTORIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Leases

The Company has non-cancelable operating lease agreements principally for its office and factory facilities. These leases have terms expiring in ~~2015~~April 2014 and April ~~2014~~2015, and are renewable subject to negotiation.

During 2010, the Company entered into operating lease agreements with several county governments of Xinmi City to lease three parcels of land where the Company’s factories are located. These lease terms are for fifty years through August 2059. The rent for the land is approximately $54,332 per year.

Total rent expense for the leases as mentioned above was $9853,~~195~~076 and $84,~~430~~912 for the three months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, and $~~257~~151,~~613~~006 and $~~177~~168,~~282~~817 for the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. A summary of future minimum lease payments as of ~~September~~ June 30, ~~2013~~2014 is presented below.

	~~Minimum~~			Minimum
	~~Lease~~			Lease
	~~Payments~~			Payments
Year ending September 30:
12 months ending June 30,
2014			237,053
2015			$	67,698
2015			109,535
2016				81,243
2016			61,122
2017				54,166
2017			54,332
2018				54,166
Thereafter			~~2,272,868~~	2,252,386
		$	~~2,734,910~~$	2,509,659

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

20. Segment Reporting

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

All revenues are related to end customers in China.

~~Information on reportable segments for the three and nine months ended September 30, 2013 and 2012 is as follows:~~18

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
		2013			2012		2013			2012
Revenues:
Zhengzhou Annec	$	11,026,510		$	14,924,338	$	31,707,484		$	48,712,709
Beijing Annec		-			-		-			-
Total		11,026,510			14,924,338		31,707,484			48,712,709
Cost of revenues:
Zhengzhou Annec		7,290,217			7,972,971		20,190,809			28,675,880
Beijing Annec		-			-		-			-
Total		7,290,217			7,972,971		20,190,809			28,675,880
Operating expenses:
Zhengzhou Annec		5,549,911			4,532,778		11,234,228			12,917,427
Beijing Annec		135,923			116,737		382,373			1,051,924
Total		5,685,834			4,649,515		11,616,601			13,969,351
(Loss)income from operations	$	(1,949,541	)	$	2,301,852	$	(99,926	)	$	6,067,478

ANNEC GREEN REFRACTORIES CORPORATION

	Nine Months Ended September 30
		2013		2012
Depreciation expense
Zhengzhou Annec	$	1,145,292	$	1,061,272
Beijing Annec		152,414		142,612
Total	$	1,297,706	$	1,203,884

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Information on reportable segments for the three and six months ended June 30, 2014 and 2013 is as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014			2013
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
Revenues:
Zhengzhou Annec	$	7,000,772		$	17,061,559	$	12,623,730		$	20,680,974
Beijing Annec		-			-		-			-
Total		7,000,772			17,061,559		12,623,730			20,680,974
Cost of revenues:
Zhengzhou Annec		5,196,473			10,606,480		8,054,742			12,900,591
Beijing Annec		-			-		-			-
Total		5,196,473			10,606,480		8,054,742			12,900,591
Operating expenses:
Zhengzhou Annec		3,628,972			3,108,976		19,636,164			5,668,231
Beijing Annec		132,542			128,464		8,729,893			244,813
Total		3,761,514			3,237,440		28,366,057			5,913,044
Income (loss) from operations	$	(1,957,215	)	$	3,217,639	$	(23,797,069	)	$	1,867,339

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Depreciation expenses:
Zhengzhou Annec	$	362,299	$	388,628	$	738,262	$	793,446
Beijing Annec		45,353		50,825		91,825		98,947
Total	$	407,652	$	439,453	$	830,087	$	892,393

	June 30, 2014		December 31, 2013
	(Unaudited)
Plant and equipment, net:
Zhengzhou Annec	$	12,174,962	$	13,226,950
Beijing Annec		3,270,658		3,385,668
Total	$	15,445,620	$	16,612,618

	Six Months Ended June 30,		December 31,
	2014		2013
	(Unaudited)
Provision (Recovery) for bad debts:
Zhengzhou Annec	$	7,613,336	$	1,760,760
Beijing Annec		7,664,716		314,159
Total	$	15,278,052	$	2,074,919

Annec Green refractories corporation and subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2013 & 2012

(Unaudited)

20. Segment Reporting, continued

	September 30, 2013		December 31, 2012
Identifiable assets
Zhengzhou Annec	$	106,006,866	$	103,640,624
Beijing Annec		16,599,200		18,640,855
Total Identical assets	$	122,606,066	$	122,281,479

	Nine Months Ended September 30
(Loss)income from operations:
Zhengzhou Annec	$	(2,704.187	)	$	3,896,477
Beijing Annec		(407,261	)		(1,310,578	)
(Loss)income from operations	$	(3,111,448	)	$	2,585,899

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 Form 10-K filed led on April 1, 2013.

Overview

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

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, no 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 subcontractors. 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.

Summary of Critical Accounting Policies and Estimates

Use of Estimates

The preparation of financial statements in conformity with ~~U.S.~~US 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.

There are several accounting policies that involve management’s judgments and estimates and are critical to understanding our historical and future performance, as these policies and estimates affect the reported amounts of revenue and other significant areas in our reported financial statements.

Please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” located within our Annual Report on Form 10-K for the year ended December 31,2012 filed with the Securities and Exchange Commission on April 1,2013 for further discussion of our “Critical Accounting Policies.”20

21Please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” located within our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (“SEC”) on June 13, 2014 for further discussion of our “Critical Accounting Policies.”

Results of Operations

For the Three Months Ended ~~September~~June 30, ~~2013~~2014 and ~~2012~~ 2013

	Three Months Ended September 30
	Three Months Ended June 30
	2013			2012
	2014			2013
Revenues	$	117,~~026~~000,~~510~~772		$	1417,~~924~~061,~~338~~559
Cost of revenues		75,~~290~~196,~~217~~473			710,~~972~~606,~~971~~480
Gross profit		31,~~736~~804,~~293~~299			6,~~951~~455,~~367~~079
Operating expenses
Sales and marketing		41,~~208~~517,~~901~~093			32,~~297~~151,~~129~~424
General and administrative		12,~~476~~244,~~933~~421			1,~~352~~086,~~386~~016
Total operating expenses		53,~~685~~761,~~834~~514			43,~~649~~237,~~515~~440
(Loss)income from operations		(1,949,541	)		2,301,852
Income (loss) from operations		(1,957,215	)		3,217,639
Other expense		1,133,615			493,389
Other income（expense）		258,245			(966,538	)
(Loss)income before provision for income taxes		(3,083,156	)		1,808,463
Income (loss) before provision for income taxes		(1,698,970	)		2,251,101
Provision for income taxes		~~(17~~298,~~608~~690	)		~~326~~92,~~549~~150
Net (loss)income	$	(3,065,548	)	$	1,481,914
Net income (loss)	$	(1,997,660	)	$	2,158,951

Revenues

We operate in two reportable segments:, Zhengzhou Annec and Beijing Annec.: ~~The~~(1) Zhengzhou Annec segment manufactures and sells a variety of refractory bricks and kits of pre-assembled hot-air ovens~~. In 2011~~, ~~Zhengzhou~~and ~~Annec~~provides ~~signed~~EPC ~~several~~services ~~refractory~~for ~~turnkey~~blast ~~projects~~furnace ~~which~~and ~~was~~hot ~~under~~blast astove; and ~~new~~(2) ~~business model. The~~ 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. WeBeijing ~~purchase~~Annec purchases these machines and equipment from outside vendors and generally sell them at cost plus a small mark-up.

Segments	Three Months Ended September 30, 2013		% of Revenue		Three Months Ended September 30, 2012		% of Revenue
Zhengzhou Annec	$	11,026,510		100%	$	14,924,338		100	%
Beijing Annec		-		-		-		-
Total	$	11,026,510		100%	$	14,924,338		100	%

Revenues for the three months ended September 30, 2013 were $11,026,510 compared to $ 14,924,338 for the three months ended September 30, 2012. Revenues for the three months ended September 30, 2013 decreased by $3,897,828 or 26%, primarily as a result of a decrease in sales and new orders for Zhengzhou Annec and no revenues from Beijing Annec. Beijing Annec did not generate any revenue for the three months ended September 30, 2012 as there was no order for its technology services or product from iron and steel manufacturers. The decrease in sales of refractory products by Zhengzhou Annec was mainly due to a decrease in number of orders during the three months ended September 30, 2013. Zhengzhou Annec experienced a decrease in orders because of the decline in the demand from the iron and steel industry in 2013. The Company decided to develop new product and markets to improve results of operation, such as tracking and developing markets of functional materials and environment-friendly products, development of the international market. In addition, the Company also intends to maintain contact with current customers, and improve quantity of shipment according to the customer’s payment ability. The following table shows product sales of Zhengzhou Annec from existing and new customers during the three months ended September 30, 2013, and 2012:

Segments	Three Months Ended June 30, 2014		% of Revenue			Three Months Ended June 30, 2013		% of Revenue
Zhengzhou Annec	$	7,000,772		100	%	$	17,061,559		100	%
Beijing Annec		-		-			-		-
Total	$	7,000,772		100	%	$	17,061,559		100	%

Type of Customers’ Sales	Amount (US$) 2013		Amount (US$) 2012
Existing customers		6,621,788		11,970,434
New customers		4,404,722		2,953,904

Revenues for the three months ended June 30, 2014 were $7,000,772 compared to $ 17,061,599 for the three months ended June 30, 2013. Revenues for the three months ended June 30, 2014 decreased by $10,060,827 or 59%, primarily as a result of an decrease in sales of new orders for Zhengzhou Annec. Beijing Annec did not generate any revenue for the three months ended June 30, 2014 and 2013 as there was no order for its technology services or product from iron and steel manufacturers. Zhengzhou Annec experienced a decrease in orders because of the decline in the demand from the iron and steel industry in 2014. The Company decided to develop new product and markets to improve results of operation, such as tracking and developing markets of functional materials and environment-friendly products, development of the international market. In addition, the Company also intends to maintain contact with current customers, and improve quantity of shipment according to the customer’s payment ability. The following table shows product sales of Zhengzhou Annec from existing and new customers during the three months ended June 30, 2014, and 2013:

Type of Customers’ Sales	2014		2013

Existing customers	$	4,180,141		4,876,628
New customers		2,820,631		12,184,931
Total	$	7,000,772	$	17,061,559

Cost of Revenue

Cost of revenue was $75,~~290~~196,~~217~~473and ~~and~~ $710,~~972~~606,~~971~~480 for the three months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. Cost of revenue for the three months ended ~~September~~ June 30, ~~2013~~2014 decreased by $~~682~~5,~~754~~410,007, or 951%. Stated as a percentage of revenues, the cost of revenue for the three months ended ~~September~~ June 30, ~~2013~~2014 was 6674% and for the corresponding period of ~~2012~~2013 was 5362%. The increase in cost of revenue of Zhengzhou Annec was primarily attributable to the change of the structure of the product.

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 $12,~~476~~244,~~933~~421 and $1,~~352~~086,~~386~~016 for the three months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The increase of $~~124~~1,~~547~~158, 405, or 9107%, inwas ~~general~~mainly ~~and~~due ~~administrative~~to ~~expense~~the increase of provision for bad debts. Our provision for bad debts for the three months ended June 30, 2014, was ~~primarily~~significantly ~~attributable~~higher than what we generally recognize due to the ~~increase~~Company’s assessment of ~~consulting~~the ~~fees~~generally weak economic and market environment for steel manufacturers and the resulting impacts on our collection risk.

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 $4,208,901 and $3,297,129 for the three months ended September 30, 2013 and 2012, respectively. The increase of $911,772, or 28%, in sales and marketing expense was due to decrease in revenues and variable cost like commission, shipping expense, packaging expense and traveling expense.22

~~Other~~Sales and ~~Expense,~~Marketing ~~net~~Expenses. ~~The~~Sales ~~total~~and marketing expenses include payroll, employee benefits, and other ~~expense~~headcount-related ~~was~~costs associated with sales and marketing personnel and travel, advertising, promotions, trade shows, seminars, and other programs. Sales and marketing expenses were $1,~~133~~517,~~615~~093 and $~~493~~2,~~389~~151,424 for the three months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The reduce ~~increase~~ of $~~640~~634,~~226~~331, or ~~130~~29%, in ~~total~~sales ~~other~~and marketing expense was ~~primarily~~ due to ~~increase~~decrease in ~~bank~~revenues ~~loan~~and ~~interest~~variable cost like commission, shipping expense, packaging expense and traveling expense.

Items	2013 (US$)		2012 (US$)		Change
Other income (expense)
Interest income		(155,685)		76,509		303%
Interest expense		(1,132,558)		(968,587)		17%
Non-operating income		296,913		398,689		26%
Non-operating expenditure		(142,285)		-		100%
Total Other Expense		(1,133,615)		(493,389)		130%

Other Income (Expense), net. The total other income (expense) was $258,244 and ($966,538) for the three months ended June 30, 2014 and 2013, respectively. The increase of other income $1,224,782 was primarily due to the increase of prepaid interest from the Company’s client.

Items	2014			2013			Change
Other income (expense)
Interest income	$	1,067,573		$	176,304			506	%
Interest expense		(904,173	)		(1,176,211	)		23	%
Other income		94,845			33,369			184	%
Total Other Income（Expense）	$	258,245		$	(966,538	)		127	%

For the Six Months Ended June 30, 2014 and 2013

	Six Months Ended June 30
	2014			2013
Revenues	$	12,623,730		$	20,680,974
Cost of revenues		8,054,742			12,900,591
Gross profit		4,568,988			7,780,383
Operating expenses
Sales and marketing		2,929,480			3,254,680
General and administrative		25,436,577			2,658,364
Total operating expenses		28,366,057			5,913,044
Income (loss) from operations		(23,797,069	)		1,867,339
Other expense, net		(667,418	)		(1,771,458	)
Income (loss) before provision for income taxes		(24,464,487	)		95,881
Provision for income taxes		322,045			98,568
Net loss	$	(24,786,532	)	$	(2,687	)

For the Nine Months Ended September 30, 2013 and 2012

	Nine Months Ended September 30
	2013		2012
Revenues	$	31,707,484	$	48,712,709
Cost of revenues		20,190,809		28,675,880
Gross profit		11,516,675		20,036,829
Operating expenses
Sales and marketing		7,463,581		9,689,346
General and administrative		4,153,020		4,280,005
Total operating expenses		11,616,601		13,969,351
(Loss)income from operations		(99,926)		6,067,478
Other expense		2,930,563		2,640,932
(Loss)income before provision for income taxes		(3,030,489)		3,426,546
Provision for income taxes		80,959		840,647
Net (loss)income	$	(3,111,448)	$	2,585,899

Revenues

Segments	~~Nine~~Six ~~Months~~MonthsEnded ~~Ended~~June ~~September~~ 30, ~~2013~~2014		% of Revenue			~~Nine~~Six Months Ended ~~September~~June 30, ~~2012~~2013		% of Revenue
Zhengzhou Annec	$	3112,~~707~~623,~~484~~730		100%	%	$	4820,~~712~~680,~~709~~974		100	%
Beijing Annec		-		-			-		-
Total	$	3112,~~707~~623,~~484~~730		100%	%	$	4820,~~712~~680,~~709~~974		100	%

Revenues for the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 were $3112,~~707~~623,~~484~~730 compared to $48 20,~~712~~680,~~709~~974 for the ~~nine~~six months ended ~~September~~ June 30, ~~2012~~2013. ~~Revenues~~ Revenues for the ~~three~~six months ended ~~September~~ June 30, ~~2013~~2014 decreased by $178,~~005~~057,~~225~~244 or 3539%, primarily as a result of a decrease in sales ~~and~~of new orders for Zhengzhou Annec ~~and no revenues from Beijing Annec~~. Beijing Annec did not generate any revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2012~~2014 and 2013 as there was no order for its technology services or ~~products~~product from ~~the~~ iron and steel manufacturers. ~~The decrease in sales of refractory products by~~ Zhengzhou Annec ~~was mainly due to a decrease in number of orders during the nine months ended September 30, 2013. Zhengzhou Annec~~ experienced a decrease in orders because of the decline in the demand ~~for~~from ~~Iron~~the iron and steel industry ~~production capacity~~ in ~~20 13~~2014. The Company decided to develop new product and markets to improve results of operation, such as tracking and developing markets of functional materials and environment-friendly products, development of the international market. In addition, the Company also intends to maintain contact with current customers, and improve quantity of shipment according to the customer’s payment ability. The following table shows product sales of Zhengzhou Annec from existing and new customers during the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014, and ~~2012~~2013:

Type of Customers’ Sales	~~Amount (US$) 2013~~2014		~~Amount (US$) 2012~~2013
Existing customers	$	124,~~663~~010,~~980~~881	$	456,~~713~~225,~~673~~434
New customers		198,~~043~~612,~~504~~849		214,~~999~~455,~~036~~540
Total	$	12,623,730	$	20,681,074

Cost of Revenue

Cost of revenue was $20,190,809 and $28,675,880 for the nine months ended September 30, 2013 and 2012, respectively. Cost of revenue for the nine months ended September 30, 2013decreased by $8,485,071, or 30%. Stated as a percentage of revenues, the cost of revenue for the nine months ended September 30, 2013 was 64% and for the corresponding period of 2012 was 59%. The decrease in cost of revenue of Zhengzhou Annec was primarily attributable to the change of the structure of the product.

Cost of Revenue

Cost of revenue was $8,054,742 and $12,900,591 for the six months ended June 30, 2014 and 2013, respectively. Cost of revenue for the six months ended June 30, 2014 decreased by $4,845,849, or 38%. Stated as a percentage of revenues, the cost of revenue for the six months ended June 30, 2014 was 64% and for the corresponding period of 2013 was 62%. The increase in cost of revenue of Zhengzhou Annec was primarily attributable to the change of the structure of the product.

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 $425,~~153~~436,~~020~~577 and $42,~~280~~658,~~005~~364 for the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The ~~decrease~~increase of $~~126~~22,~~985~~778, 213, or 3857%, inwas ~~general~~mainly due to the increase of provision for bad debts. Our provision for bad debts for the six months ended June 30, 2014, and ~~administrative~~particularly ~~expense~~for the three months ended March 31, 2014, was ~~primarily~~significantly ~~attributable~~higher than what we generally recognize due to the ~~decrease~~Company’s assessment of ~~patent~~the ~~fees~~generally weak economic and market environment for steel manufacturers and the resulting impacts on our collection risk.

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 $72,~~463~~929,~~581~~480 and $93,~~689~~254,~~346for~~680 for the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 and ~~2012~~2013, respectively. The reduce ~~decrease~~ of $2325,~~225~~200,~~765,~~ or 2310%, in sales and marketing expense was due to decrease in revenues and variable cost like commission, shipping expense, packaging expense and traveling expense.

Other Income (Expense), net. The total other income (expense) was ($2667,~~930,563~~418) and ($21,~~640~~771,~~932~~458) for the ~~nine~~six months ended ~~September~~ June 30, 2014 ~~2013~~ and ~~2012~~2013, respectively. The increase of other income $~~289~~1,~~631~~104,040 ~~or 11%, in total other expense~~ was primarily due to the increase inof ~~notes~~prepaid ~~receivable~~interest ~~discounted~~from the ofCompany’s ~~interest expense~~client.

Items	~~2013 (US$)~~2014			~~2012 (US$)~~2013			Change
Other income (expense)
Interest income	$	~~150~~1,~~037~~186,742		$	~~239~~305,~~553~~722			~~37%~~288	%
Interest expense		(32,~~313~~028,~~955)~~950	)		(32,~~249~~181,~~458)~~397	)		2%7	%
Non-operating income		375,640			368,973			2%
Other income		174,790			104,217			68	%
Non-operating expenditure		(142,285)			-			100%
Total Other Expense, net	$	(667,418	)	$	(1,771,458	)		63	%
Total Other Expense		(2,930,563)			(2,640,932)			11%

Liquidity and Capital Resources

As of September 30, 2013, we had cash and restricted cash of $10,325,409 and total current assets of $102,126,251. As of December 31, 2012, we had cash and restricted cash of $6,850,405 and total current assets of $100,172,287. Restricted cash is used to secure bank notes payable and short-term loans.

As of September 30, 2013, we had accounts receivable of $31,460,386 representing 31% of our total current assets compared to accounts receivable of $42,214,102, representing 42% of our total current assets as of December 31, 2012. Accounts receivable had decreased by $10,753,716 or 25% because of faster collection of accounts receivable.

Our total liabilities as of September 30, 2013 were $82,172,506 compared to $79,862,368 as of December 31, 2012. The increase of $2,310,138 or3% was a result of increase in short-term loans.

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 finish production and inspected by customer. These two 30% pieces of the contract price are the main components of our advances from customer. 30% of contract price will be received after the refractory installation is finished and tested by client. The final installment of 10% is due one or two years after the stove is used to allow for quality guarantee. The last 30% and 10% are the main components of our accounts receivable. As our business is contract-based sales, differentiations exist between contracts signed by different customer.

As of September 30, 2013, we had working capital of $23,722,880 compared to $23,708,632 as of December 31, 2012. We believe our cash and accounts receivable are adequate to satisfy our working capital needs and sustain our ongoing operations for the next twelve months. However, to develop new product and expand our market, we need improve our cash support, we must obtain additional short-term and long term loans from bank and/or- raise additional capital by the sale of our securities in order to implement our strategic growth plans which include increasing our product line, promoting our design and engineering services, improving our products, and the potential acquisitions of mines and other refractory companies.

Liquidity and Capital Resources

As of June 30, 2014, we had cash and restricted cash of $4,166,945 and total current assets of $59,426,012. As of December 31, 2013, we had cash and restricted cash of $6,656,752 and total current assets of $92,556,114. Restricted cash is used to secure bank notes payable and short-term loans.

As of June 30, 2014, we had accounts receivable of $18,446,541 representing 31% of our total current assets compared to accounts receivable of $36,432,332, representing 39% of our total current assets as of December 31, 2013. Accounts receivable had decreased by $17,985,791 or 49% because of faster collection of accounts receivable and increase in bad debt reserves.

Our total current liabilities as of June 30, 2014 were $66,557,433 compared to $75,278,701 as of December 31, 2013. The decrease of $8,721,268 or 12% was a result of payment of bank notes borrowings.

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

As of June 30, 2014, we had working capital of ($7,131,421) compared to $17,277,412 as of December 31, 2013. As discussed further below, we do not believe that our current existing cash resources are sufficient to meet the Company’s anticipated needs during the next twelve months, and that additional financing is required to support current operations. We need improve our cash support, we must obtain additional short-term and long term loans from bank and/or- raise additional capital by the sale of our securities in order to implement our strategic growth plans which include increasing our product line, promoting our design and engineering services, improving our products, and the potential acquisitions of mines and other refractory companies.

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

Below is a summary of our cash flow:

Net Cash used in Operating Activities.

For the ~~nine~~six months ended ~~September~~ June 30, ~~2012~~2014, net cash ~~provided~~used byin operating activities was $1779,~~774,372~~244 compared to ~~cash provided by operating activities of~~ $13,~~085~~296,~~928~~662 for the ~~nine~~six months ended ~~September~~ June 30, 2013. The decrease in net cash ~~provided~~used byin operating activities for the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014 was primarily due to changes in net income, restricted cash, bank notes receivable, prepaid expenses and deposits, account receivable, retentions receivable and long term retentions receivable, other receivable, inventories, bank notes payable, account payable and accrued expenses, and other payable as set forth below:

Items	~~2013~~2014 (US$)			~~2012~~2013 (US$)			~~Increase~~Change /(~~Decrease)(US~~$)			Percentage
Net (Loss)Income		(3,111,448	)		2,585,899			(5,697,347	)		220	%
Net Loss		(24,786,532	)		(2,687	)		(24,783,845	)		922361	%
Restricted cash		~~(248~~2,~~314~~595,789	)		(~~581~~184,~~261~~056	)		~~332~~2,~~947~~864,075			571556	%
Bank notes receivable		~~983~~(1,~~698~~344,121	)		0268,286			~~983~~(1,~~698~~075,835	)		~~100~~(401	%)
Accounts receivable, retentions receivable, and long term retentions receivable		147,~~488~~959,~~004~~746			68,~~384~~291,~~124~~111			8(331,~~103,880~~365	)		~~127~~(4	)%
Prepaid expenses and deposits		~~(695~~1,~~541~~908,778	)		2423,~~742,741~~173			(31,~~438~~485,~~282~~605	)		~~125~~351	%
Other receivables		(1,~~446~~811,~~183~~629	)		(~~499~~1,~~075~~208,739	)		~~(947~~3,~~108~~020,368	)		~~190~~250	%
Inventories		(31,~~119~~051,~~552~~470	)		(15,~~887~~484,~~993~~326	)		(14,~~231~~432,~~559~~856	)		6581	%
Bank notes payable		0(2,443,116	)		~~1,801,001~~-			(12,~~801~~443,~~001~~116	)		100	%
Accounts payable and accrued expenses		~~502~~(1,~~994~~679,397	)		(2475,~~797,460~~752	)		3(2,~~300~~155,~~454~~149	)		~~118~~(453	%)
Other payables		(~~572~~7,~~738~~183,115	)		~~(596~~60,~~207~~562	)		23(7,~~469~~243,677	)		4(11961	%)

Net Cash Used Inin ~~(Provided By)~~ Investing Activities.

For the ~~nine~~six months ended ~~September~~ June 30, ~~2013~~2014, net cash ~~provided~~used byin investing activities was $~~343~~1,~~023~~001,794, compared to ~~net cash used in investing activities of~~ $1197,~~006~~531,~~675,~~ for the ~~nine~~ six months ended ~~September~~ June 30, ~~2012~~2013. The ~~decrease~~increase of net cash used in investment activities for the ~~nine~~six months ended ~~September~~ June 30, ~~2012~~2014 was primarily due to the ~~decrease of~~ purchase of plant equipment and ~~equipment~~land use right.

Items	~~2013~~2014 (US$)			~~2012~~2013 (US$)			~~Increase/(Decrease)~~Change (US$)		Percentage
Purchase of plant and equipment		(~~272~~2,~~555~~798,742	)		(~~828~~230,~~693)~~410	)		~~556~~3,~~138~~029,153		671315	%
Proceeds from sale of plants and equipment		2,581,807			24			2,581,583		-

~~Net Cash Provided by(Used In) Financing Activities.~~ 27

~~For~~Net Cash ~~the~~Provided ~~nine months ended September 30, 2013, net cash provided~~ by ~~financing~~Financing ~~activities was $1,713,543 compared to $122,441 in net cash used in financing activities for the nine months ended September 30, 2012~~Activities. ~~The increase of the net cash used in financing activities was primarily due to the changes of other payables, and short-term borrowings.~~

Type of Proceeds	2013 (US$)		2012 (US$)		Increase/(Decrease) (US$)		Percentage
Proceeds from shareholder		4,576,956		0		4,576,956		100	%
Proceeds from short-term borrowings		25,108,338		15,677,261		9,431,077		60	%

For the six months ended June 30, 2014, net cash provided by financing activities was $2,491,952 compared to $4,923,368 in net cash provided in financing activities for the six months ended June 30, 2013. The decrease of the net cash provided by financing activities was primarily due to proceeds from loans to related parties, employees and other individuals.

Type of Proceeds		2014 ($)				2013 ($)				Increase/ (Decrease) ($)				Percentage
Proceeds from loans to related parties, employees and other individuals			4,715,289				10,429,225				5,713,936				(55	%)

Loan Facilities

In China, banks usually do not provide long term loans to businesses. Most loans are short term loans (12 months or less). All of our loans but one with Chinese banks is within twelve months. As such, each year we repay our loans and/or apply for new loans with our banks or with other banks for working capital needs. At ~~September~~ June 30, ~~2013~~2014, we borrowed ~~approximately~~ $2723,~~941~~518,~~464~~326 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 ~~September~~ June 30, ~~2013~~2014, the Company and its subsidiaries have the following short-term loan facilities with the following terms:

In February 2013, the Company borrowed $4,~~888~~868,~~860~~628 (~~RMB~~RMB30 30 million) from the Bank of Zhengzhou. ~~This~~ Similar to other short-term bank loans of the Company, this loan was guaranteed by aan unrelated third party (~~Note~~this ~~20)~~loan ~~similar~~amount towas ~~the~~included ~~other~~in ~~short~~the ~~term~~loans ~~bank~~guaranteed ~~loans~~by third ofparties ~~the~~in ~~Company~~Note 19). ~~Additionally,~~As ~~consistent~~a ~~with~~condition ~~local~~to ~~Chinese~~grant ~~banking~~the ~~practices~~aforementioned loan to the Company, the Bank of Zhengzhou requested that the chairman of the Company also borrow funds from the bank in a separate transaction and that such borrowings shall be collateralized by a cash security deposit to be held in ~~Bank of Zhengzhou. The Company’s chairman borrowed $4,595,528 (RMB 28.2 million) from~~ the Bank of Zhengzhou ~~under a one year loan agreement with interest at 5~~.~~4%. The~~ ~~chairman loaned this amount to the Company. This amount is included in “Other payable” on the balance sheet.~~ In order to provide the cash security deposit required by the chairman’s loan from the Bank of Zhengzhou, the Company loaned an employee $4,~~888~~868,~~860~~628 (RMB 30 million) and the employee established the cash security deposit with the Bank of Zhengzhou~~. The~~, ~~receivable~~with ~~from~~an ~~the~~interest ~~employee~~rate isat ~~due~~3.3% infor one year. This receivable is classified as a component of “Other Receivables – individuals and employees”. The Company’s chairman borrowed $4,576,510 (RMB 28.2 million) from the Bank of Zhengzhou ~~pays~~under ~~interest~~a onone ~~the~~year ~~security~~loan ~~deposit~~agreement with interest at 35.34%~~. This~~ ~~receivable~~and isthen loaned ~~classified~~this asamount ato ~~component~~the Company. This loan from the chairman of ~~“Other~~the ~~Receivables~~Company –is ~~individuals~~included ~~and~~in ~~employees~~“Other payable” ~~(Note~~on 6)the balance sheet. The Company, the chairman and the employee have agreed that: (1). ~~The~~the Company has the rights to the cash security deposit made by the employee and any interest ~~earnings~~earned on such deposit~~. Upon~~ (upon the Company receiving the security deposit from the Bank of Zhengzhou, all obligations of the employee to the Company ~~are~~shall ~~fulfilled.~~be discharged), and (2). ~~The~~the Company is obligated to repay the $4,~~595~~576,~~528~~510 (RMB 28.2 million) loan and interest expense on behalf of the chairman to the Bank of Zhengzhou. Upon repayment of the chairman’s loan to the Bank of Zhengzhou, all of the Company’s obligations to the chairman ~~are~~shall ~~fulfilled~~be discharged. In March of 2014, the cash security deposit matured and the Bank of Zhengzhou repaid the deposit back to the employee who, per the prior arrangement, assigned the proceeds to the Company. Using the proceeds, the Company repaid the loan from chairman which the chairman in turn repaid his loan from the Bank of Zhengzhou to conclude this transaction. The Company received all interests related to this series of transactions.

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Lender	Secured	Duration		~~Outstanding as of September 30, 2013~~		Outstanding as of June 30, 2014		~~Interest rates~~		Interest rates
Agricultural credit union	By third parties	~~1 year~~	1 year	$	~~1,629,620~~	$	1,624,643		~~9.720~~	%	12.310	%
Agricultural credit union	Machinery and equipment	~~1 year~~	1 year		~~1,466,658~~		1,462,178		~~12.312~~	%	12.310	%
Shanghai Pudong Development Bank	Office building and land use rights	~~1 year~~	1 year		~~3,259,240~~		3,249,285		~~6.600~~	%	6.000	%
Shanghai Pudong Development Bank	By third parties and Fuchao Li	~~6 months~~	1 year		~~1,629,620~~		1,624,643		~~6.600~~	%	6.000	%
Shanghai Pudong Development Bank	ByOffice ~~Deposit~~building	~~6 months~~	1 year		~~2,721,465~~		318,430		~~5.280~~	%	7.152	%
Shanghai Pudong Development Bank	Office building	1 year			319,405				7.152	%
China Citic Bank	By Third parties, Beijing Annec and Alex Industrial		1 year				812,321				7.500	%
China Citic Bank	By third parties, Beijing Annec and Alex Industrial	1 year			1,629,620				6.941	%
China Guangfa Bank	By third parties		1 year				1,624,643				7.200	%
China Citic Bank	By Third parties, Beijing Annec and Alex Industrial	1 year			814,810				6.440	%
China Merchants Bank	By third parties		1 year				1,624,643				7.200	%
China Guangfa Bank	By third parties	1 year			1,629,620				7.200	%
LuoYang Bank	By deposit		1 year				3,249,285				6.720	%
China Merchants Bank	By third parties	1 year			1,629,620				7.200	%
LuoYang Bank	By third parties		1 year				3,054,328				6.000	%
LuoYang Bank	By deposit	1 year			3,063,686				6.000	%
Bank of Zhengzhou	By third parties		1 year				4,873,927				7.800	%
LuoYang Bank	By third parties	1 year			3,259,240				7.200	%
	Total					$	23,518,326
Bank of Zhengzhou	By third parties	1 year			4,888,860				7.200	%
	Total current (2013)			$	27,941,464

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

Period ending September 30:
2014	$	319,406
2015		319,406
	$	638,812

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.

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●In China, ~~Any~~because ~~retained~~the orbank ~~contingent~~lending ~~interest~~system inis ~~assets~~still ~~transferred~~relatively tonew, anit ~~unconsolidated~~is ~~entity~~common orpractice ~~similar~~for ~~arrangement~~companies ~~that~~to ~~serves~~enter asinto ~~credit,~~cross-guarantee arrangements ~~liquidity~~in ororder ~~market~~to ~~risk~~secure ~~support~~lines toof ~~that~~credit ~~entity~~with ~~for~~banks. ~~such~~During ~~assets;~~three ●months ~~Any~~ended ~~obligation~~June ~~under~~30,2014 aand ~~contract~~the ~~that~~year ~~would~~ended beDecember 31, ~~accounted~~2013, ~~for~~the asCompany ahad ~~derivative~~agreements ~~instrument,~~with ~~except~~third-party ~~that~~entities itin iswhich ~~both~~the ~~indexed~~Company tohas ~~our~~guaranteed ~~stock~~certain debt of these entities, and ~~classified~~these inentities ~~stockholder’s~~have ~~equity~~guaranteed incertain ~~our~~debt ~~statement~~of the Company. As of ~~financial~~June ~~position;~~30, 2014 and ●December ~~Any~~31, ~~obligation~~2013, ~~arising~~the ~~out~~Company ofwas a ~~material~~debt guarantor ~~variable~~to ~~interest~~three ~~held~~third-party byentities. usThe inmaximum anguaranteed ~~unconsolidated~~amount ~~entity~~is ~~that~~approximately ~~provides financing~~$26,806,603 ~~liquidity~~as of June 30, ~~market~~2014. ~~risk~~The ortotal guaranteed ~~credit~~outstanding ~~risk~~borrowings ~~support~~by tothese usparties are approximately $22,420,068 oras ~~engages~~of inJune ~~leasing~~30, ~~hedging~~2014. All of the guarantee agreements are for debt with maturities of one year or ~~research~~less, and ~~development~~mature ~~services~~through ~~with~~June us30, 2014.

InThese same ~~China,~~parties ~~because~~disclosed ~~the~~above ~~bank~~also ~~lending~~act ~~system~~as 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 three months ended September 30,2013 and the year ended December 31, 2012, the Company had agreements with third-party entities in which the Company has guaranteed certain debt ofguarantors ~~these~~on ~~entities, and these entities have guaranteed~~ certain ~~debt~~ of the Company.’s Asdebt ofwith ~~September 30, 2013 and December 31, 2012, the Company was~~ a ~~debt guarantor to three third-party entities. The~~ maximum guaranteed amount of is approximately $2421,~~444~~607,~~300~~746 as of ~~September~~ June 30, ~~2013~~2014. The ~~total~~Company’s loans guaranteed ~~outstanding borrowings~~ by these parties are approximately $2015,~~044~~434,~~326~~ 104 as of ~~September~~ June 30, ~~2013~~2014. ~~All~~The ofCompany ~~the~~has ~~guarantee~~not ~~agreements~~historically ~~are~~incurred ~~for~~any losses due to such debt ~~with~~guarantees, ~~maturities~~and ofthe ~~one~~Company ~~year~~has ordetermined that ~~less,~~the ~~and~~fair ~~mature~~value ~~through~~of ~~March~~the ~~31,~~guarantees ~~2014~~is not material.

These same parties disclosed above also act as debt guarantors on certain of the Company’s debt with a maximum guaranteed amount of approximately $28,192,426 as of September 30, 2013. The Company’s loans guaranteed by these parties are approximately $17,111,010 as of September 30, 2013. The Company has not historically incurred any losses due to such debt guarantees, and the Company has determined that the fair value of the guarantees is not material.

Item 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, 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 quarter ended September 30, 2013 we have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Based on the management’s assessment and review of our financial statements and results for the three and six months ended June 30, 2014. we have concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and regulations.

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. We intend to continue to devote resources to remediating, improving and documenting our internal controls over financial reporting, including 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.

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. Mine Safety Disclosures

None.

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.

2932

SIGNATURES

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

	~~ANNEC GREEN REFRACTORIES CORPORATION~~	ANNEC GREEN REFRACTORIES CORPORATION
Dated: November 20, 2013	/s/ LI Jiantao
Dated: November 14, 2014	By:	/s/ LI Jiantao
	By: LI Jiantao
		LI Jiantao
	~~Its: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer)~~	Its: Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer)

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