As filed with the Securities and Exchange Commission on November 8, 2010

Registration No. 333-170237

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

 

FORM F-1/A
(Amendment No. 1)
  
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

 

CHINA CERAMICS CO., LTD.

(Exact name of registrant as specified in its charter)

British Virgin Islands		3253		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

c/o Jinjiang Hengda Ceramics Co., Ltd.
Junbing Industrial Zone
Anhai, Jinjiang City
Fujian Province, PRC
Tel: +86 (595) 8576 5053
Fax: +86 (595) 8576 5059

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

 

Huang Jia Dong
Tel: +86 (595) 8576 5053
Fax: +86 (595) 8576 5059

(Address, including zip code, and telephone number,
including area code, of agent for service)

 

With copies to:

Mitch Nussbaum, Esq. Giovanni Caruso, Esq. Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 (212) 407-4000 (212) 407-4990 — Facsimile		Louis A. Bevilacqua, Esq. Joseph R. Tiano, Esq. Pillsbury Winthrop Shaw Pittman LLP 2300 N Street, N.W. Washington, DC 20037 (202) 663-8000 (202) 663-8007 — Facsimile

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE CHART

Title of Each Class of Security Being Registered		Proposed Maximum Aggregate Offering Price				Amount of Registration Fee
Shares, $0.001 par value		$	34,865,125.00	(1)		$	2,485.88
Total		$	34,865,125.00			$	2,485.88	(2)

(1)

Estimated solely for the purpose of calculating the amount of the registration in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes an estimated $4,547,625 proposed maximum aggregate offering price from the sale of shares which may be issued pursuant to the exercise of a 45-day option granted by the registrant to the underwriters to cover over-allotments, if any.

(2)

$2,459.85 was previously paid.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS		SUBJECT TO COMPLETION, DATED NOVEMBER 8, 2010

  
  

3,350,000 Shares

China Ceramics Co., Ltd.

We are offering 3,350,000 shares.

Our shares are listed on the NASDAQ Capital Market under the symbol “CCCL”. On November 5, 2010, the closing price of our shares was $9.05 per share.

		Per Share				Total
Public Offering Price		$				$
Underwriting Discount		$				$
Proceeds, before expenses, to us		$				$

We have granted the underwriters a 45-day option to purchase up to an additional       shares from us to cover over-allotments, if any. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $       , and our total proceeds, before expenses, will be $       .

We expect to deliver the shares to purchasers on or about       , 2010.

INVESTING IN OUR SHARES IS HIGHLY RISKY. YOU SHOULD INVEST IN OUR SHARES ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. FOR A DISCUSSION OF SOME OF THE RISKS INVOLVED, SEE “RISK FACTORS” BEGINNING ON PAGE 10 OF THIS PROSPECTUS.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense.

Roth Capital Partners

Maxim Group LLC

The date of this prospectus is       , 2010.

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CHINA CERAMICS CO., LTD

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		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			10
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			27
PER SHARE MARKET INFORMATION			28
CAPITALIZATION			29
USE OF PROCEEDS			30
DIVIDEND POLICY			31
EXCHANGE RATE INFORMATION			31
SELECTED CONSOLIDATED FINANCIAL DATA			32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			34
CORPORATE HISTORY AND STRUCTURE			51
BUSINESS			54
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			70
PRINCIPAL SHAREHOLDERS			77
SHARES ELIGIBLE FOR FUTURE SALE			79
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			81
DESCRIPTION OF SECURITIES			83
BRITISH VIRGIN ISLANDS COMPANY CONSIDERATIONS			88
UNDERWRITING			92
NOTICES TO NON-UNITED STATES INVESTORS			95
TAXATION			97
ENFORCEABILITY OF CIVIL LIABILITIES			109
EXPENSES RELATED TO THIS OFFERING			110
LEGAL MATTERS			111
EXPERTS			111
WHERE YOU CAN FIND ADDITIONAL INFORMATION			111
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

This prospectus is not an offer to sell any securities other than the shares offered hereby. This prospectus is not an offer to sell securities in any circumstances in which such an offer is unlawful.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

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Our Competitive Strengths

We believe the following competitive strengths will enable us to take advantage of the rapid growth of the ceramic tile industry in China:

Our Growth Strategy

We intend to further strengthen our position as a leading manufacturer of ceramic tiles in China by implementing the following strategies:

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Corporate History and Organizational Structure

We are a holding company and all of our active business operations are conducted through our indirect wholly owned Chinese subsidiaries, Jinjiang Hengda Ceramics Co., Ltd. and Jiangxi Hengdali Ceramic Materials Co., Ltd.

The following chart reflects our organizational structure as of the date of this prospectus:

Office Location

Our principal executive office is located at Junbing Industrial Zone, Anhai, Jinjiang City, Fujian Province, People’s Republic of China. Our telephone number at this address is +86 595 8576 5053. Our registered office is Craigmuir Chambers, Road Town, Tortola, British Virgin Islands, and our registered agent is Harneys Corporate Services Limited. We maintain a website at http://www.cceramics.com that contains information about our company, but that information is not part of this prospectus.

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Risks Affecting China Ceramics

In evaluating the investment in our shares, you should carefully read this prospectus and especially consider the factors discussed in the section titled “Risk Factors” commencing on page 10 .

Conventions That Apply to This Prospectus

Unless otherwise indicated, references in this prospectus to:

Unless the context indicates otherwise, “we,” “us,” “our company,” “our” and “China Ceramics” refer to China Ceramics Co., Ltd., a British Virgin Islands company, its predecessor entities and subsidiaries. See “— Corporate History and Organizational Structure.”

Unless otherwise indicated, information in this prospectus assumes that the underwriters do not exercise their option to purchase additional shares.

Solely for your convenience, this prospectus contains translations of certain Renminbi amounts into U.S. dollar amounts at specified rates. For statements of financial position data, translation of Renminbi into U.S. dollars has been made using historic spot exchange rates published by www.oanda.com . These historic spot exchange rates were RMB 6.8372, RMB 6.8542, and RMB 7.3141 as of December 31, 2009, 2008 and 2007, respectively and RMB 6.8086 and RMB 6.8448 as of June 30, 2010 and 2009, respectively. For statements of comprehensive income data, translation of Renminbi into U.S. dollars has been made using the average of historical daily rates. The average historical rates were RMB 6.8409, RMB 6.9623, and RMB 7.6172 to US$1.00 for the years ended December 31, 2009, 2008 and 2007, respectively. They were RMB 6.8347 and RMB 6.8409 to US$1.00 for the six months ended June 30, 2010 and 2009, respectively, and were RMB6.8164 to USD$1.00 for the nine months ended September 30, 2010.

These exchange rates may deviate from the exchange rates published in the section titled “Exchange Rate Information,” in which the historical spot rates were based on the noon buying rates in the City of New York for cable transfers in RMB per U.S. Dollars as certified for customs purpose by the Federal Reserve Bank of New York, and the annual average rates were calculated as the average of the month-end exchange rates within the relevant periods and the monthly average rates were calculated as the average of the daily rates within the relevant periods.

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We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. See “Risk Factors — Risks Relating to Operations in China — PRC foreign exchange control may limit our ability to utilize our profits effectively and affect our ability to receive dividends and other payments from our PRC subsidiary” for discussions of the effects of currency control and fluctuating exchange rates on the value of our shares. On September 30, 2010, the noon buying rate was RMB 6.6981 to US$1.00. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

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Summary Financial Information

The following summary consolidated financial data have been derived from the audited consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009 and the unaudited condensed consolidated financial statements as of and for the six-month period ended June 30, 2009 and 2010. The condensed consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009 are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, or IFRS. The condensed consolidated interim financial information for the six months ended June 30, 2009 and 2010 are prepared in accordance with IAS 34, interim financial reporting. The consolidated statements of comprehensive income and statements of cash flow data for the years ended December 31, 2007, 2008 and 2009 and the six-month period ended June 30, 2009 and 2010, and consolidated statements of financial position as of December 31, 2007, 2008 and 2009 and June 30, 2009 and 2010 are included elsewhere in this prospectus. Our results of operations in any period may not necessarily be indicative of the results that may be expected for any future period. See “Risk Factors” beginning on page 10 of this prospectus. The summary financial information for those periods and as of those dates should be read in conjunction with those consolidated financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

		For the Year Ended December 31,																For the Six Months Ended June 30,
		2007				2008				2009				2009				2009				2010				2010
		RMB				RMB				RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) $
		(In thousands, except net income per share numbers)
Summary statements of comprehensive income data:
Revenues			617,863				737,182				835,747				122,169				380,247				501,413				73,363
Gross profit			175,923				203,852				253,217				37,015				106,347				154,114				22,549
Operating income			165,469				189,060				212,148				31,012				99,195				136,660				19,995
Profit attributable to shareholders			145,606				165,033				152,861				22,345				74,215				101,711				14,882
Basic net income per share			25.35				28.73				24.47				3.58				12.92				10.01				1.46
Diluted net income per share			25.35				28.73				23.65				3.46				12.92				10.01				1.46

		As of December 31,																As of June 30,
		2007				2008				2009				2009				2009				2010				2010
		RMB				RMB				RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) $
		(In thousands)																(In thousands)
Summary statements of financial position:
Cash and bank balances			18,507				51,606				150,121				21,957				93,247				67,986				9,985
Net current assets (1)			149,934				181,111				440,748				64,463				262,866				237,318				34,856
Total assets			440,289				454,720				749,236				109,582				521,829				959,518				140,927
Share capital			58,980				0	(2)			61				9				0	(2)			70				10
Retained earnings			142,402				164,981				307,600				42,786				239,196				409,311				57,668
Total shareholders’ equity			230,872				253,451				505,097				73,875				327,675				599,998				88,124

(1)

Net current assets is calculated as current assets minus current liabilities.

(2)

Amount less than RMB 1,000

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		For the Year Ended December 31,																For the Six Months Ended June 30,
		2007				2008				2009				2009				2009				2010				2010
		RMB				RMB				RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) $
		(In thousands)																(In thousands)
Summary statements of cash flows data:
Net cash provided by operating activities			107,262				155,230				159,620				23,333				42,140				47,074				6,888
Net cash used in investing activities			(4,156	)			(6,625	)			(152,294	)			(22,262	)			(243	)			(140,599	)			(20,571	)
Net cash (used in)/provided by financing activities			(97,192	)			(115,506	)			91,100				13,317				(256	)			11,397				1,668
Net cash flow			5,914				33,099				98,426				14,388				41,641				(82,128	)			(12,016	)

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Recent Developments

We commenced a tender offer for our warrants in late July 2010. At the time of the tender offer we filed a Schedule TO with the Securities and Exchange Commission, or the SEC, including the terms and conditions of the tender offer. Pursuant to the terms of the tender offer, 11,779,649 warrants were exchanged for 2,944,904 of our shares, which are freely tradable. Subsequent to the completion of the tender offer, 2,774,300 warrants remain outstanding as of November 4, 2010.

On November 8, 2010, we issued a press release disclosing financial results for the quarter ended September 30, 2010. The tables below summarize the consolidated financial data. This summary financial information should be read in conjunction with the financial statements, accompanying notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Because China Ceramics is a foreign private issuer, it is not required to provide quarterly reports under Rule 13a-13 of the Securities Exchange Act of 1934, as amended. The financial results for the three and nine months ended September 30, 2010 and 2009 presented below and elsewhere in this prospectus have not been audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) and were not prepared in accordance with Regulation S-X.

		As of September 30,								As of December 31, 2009
		2010				2010
		(Unaudited)				(Unaudited)
		RMB				$				RMB
		(In thousands)
Summary statements of financial position data:
Cash and bank balances			41,478				6,193				150,121
Net current assets (1)			211,444				31,568				440,748
Net assets			663,207				99,015				505,097
Total shareholders’ equity			663,207				99,015				505,097

		For the Three months ended																For the Nine months ended
		September 30, 2010				September 30, 2010				June 30, 2010				September 30, 2009				September 30, 2010				September 30, 2009
		(Unaudited) RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) RMB
		(In thousands, except for net income per share numbers)
Summary statements of comprehensive income data:
Revenues			294,088				43,342				272,304				235,784				795,501				616,031
Gross profit			93,364				13,758				84,830				75,197				247,478				181,544
Profit attributable to shareholders			63,256				9,320				56,461				52,732				164,967				126,947
Basic net income per share			5.69				0.84				5.55				9.18				15.73				22.10
Diluted net income per share			5.69				0.84				5.55				9.18				15.73				22.10

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Payment defaults by the customers to whom we extend credit would harm our cash flows and results.

Our financial position and profitability is dependent on the creditworthiness of our customers. We are exposed to the credit risks of our customers and this risk increases the larger the orders are. We usually offer our customers credit terms of approximately 90 days. Although there has not been any material collection problem for trade receivables or bad debts in the last three fiscal years, there is no assurance that we will not encounter doubtful or bad debts in the future. We have not established any bad debt reserves to mitigate the financial impact of uncollected accounts receivable. Should we experience any unexpected delay or difficulty in collecting receivables from our customers, our cash flows and financial results may be adversely affected.

Our five largest customers, Foshan City Jundian Ceramics Co., Ltd., Chengdu Dehui Building Material Co., Ltd., Xiamen Tongying Trading Co., Ltd., Liaoning Yatong Logistics Co., Ltd., and Shanxi Guanghe Industry Co., Ltd., accounted for an aggregate of 31.8%, 29.1%, 25.4%, and 19.2% of our total revenue in fiscal years 2007, 2008, and 2009, and the first six months of 2010, respectively. We are particularly exposed to the credit risks of these customers as defaults in payment by our major customers would have a significant impact on our cash flows and financial results.

If our suppliers are unable to fulfill our orders for raw materials, we may lose business.

Our suppliers are all located in the PRC. Our purchase of raw materials is based on expected production levels, after taking into consideration, amongst other factors, sales forecasts and actual orders from our customers. To ensure that we are able to deliver quality products at competitive prices, we need to secure sufficient quantities of raw materials at acceptable prices and quality on a timely basis. Typically, we do not enter into any long-term supply agreements with our suppliers. There is no assurance that these suppliers will continue to supply us in the future. In the event our suppliers are unable to fulfill our orders or meet our requirements, we may not be able to find timely replacements at acceptable prices and quality, and this will delay the fulfillment of our customers’ orders. Consequently, our reputation may be negatively affected, leading to a loss of business and affecting our ability to attract new businesses.

Increases in the price of raw materials will negatively impact our profitability.

In fiscal years 2007, 2008, and 2009, and for the six months ended June 30, 2010, our cost of raw materials, which consist of clay (comprising mainly of kaolin, flint and feldspar), coal (used to heat our kilns), coloring materials and glazing materials, accounted for approximately 68.9%, 59.8%, 53.7%, and 65.9% of our total cost of sales, respectively. The price of clay, coal, coloring materials and glazing materials may fluctuate due to factors such as global supply and demand for such raw materials and changes in global economic conditions. Coal accounted for approximately 20.4%, 21.0%, 16.9%, and 20.1% of our total raw material costs in fiscal years 2007, 2008, and 2009, and the first six months of 2010, respectively. Any shortages or interruptions in the supply of clay, coal, coloring materials or glazing materials will result in an increase in the cost of production, thus increasing the Company’s cost of sales. If we are not able to pass on such an increase to our customers or are unable to find alternative sources of clay, coal, coloring materials, or glazing materials or appropriate substitute raw materials at comparable prices, our operations and financial performance will be adversely affected.

We are dependent on our management team and any loss of our key management personnel without timely and suitable replacements may reduce our revenues and profits.

Our chief executive officer, Huang Jia Dong, and our Sales Deputy General Manager, Su Pei Zhi, have worked with our company since founding it over seventeen years ago. Accordingly, our success is dependent to a large extent on our ability to retain Messrs. Huang and Su, who are responsible for formulating and implementing our growth, corporate development and overall business strategies. Neither Mr. Huang nor Mr. Su currently owns any shares or any other equity investment in us. Our business is also dependent on our executive officers who are responsible for implementing our business plans and driving growth. Please refer to “Directors, Senior Management and Employees” in this prospectus for more information about our directors and officers.

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The demand for such experienced personnel is intense and the search for personnel with the relevant skills set can be time consuming. The loss of our key management personnel without timely and suitable replacements may reduce our revenues and profits.

Failure to compete successfully with our competitors and new entrants to the ceramics industry in the PRC may result in China Ceramics losing market share.

We operate in a competitive and fragmented industry. Given the growth potential of our industry, there is no assurance that we will not face competition from our existing competitors and new entrants. We compete with a variety of companies, some of which have advantages that include: longer operating history, larger clientele base, superior products, better access to capital, personnel and technology, or are better entrenched. Our competitors may be able to respond more quickly to new and emerging technologies and changes in customer requirements or succeed in developing products that are more effective or less costly than our products. Any increase in competition could have a negative impact on our pricing (thus eroding our profit margins) and reduce our market share. If we are unable to compete effectively with our existing and future competitors and do not adapt quickly to changing market conditions, we may lose market share.

We have not purchased product liability insurance and any loss resulting from product liability claims must be paid by us.

Accidents may arise as a result of defects in our products. If there are any defects in the products designed and/or manufactured by us, we may face claims from our customers or third parties for the personal injury or property damage suffered as a result of such defects. We have not purchased insurance coverage for product liability or third party liability and are therefore not covered or compensated by insurance in respect of losses, damages, claims and liabilities arising from or in connection with product liability or third party liability.

We do not maintain insurance coverage for the risks related to our business.

Our assets and facilities are vulnerable to damages or interruption from fire, flood, earthquake, equipment failure, break-ins, typhoons and similar events, which could damage or destroy our inventory of raw materials, finished products or infrastructure in our facilities.

We currently do not maintain any property insurance policies covering losses due to fire, flood, earthquake, equipment failure, break-ins, typhoons and similar events, nor do we maintain business interruption insurance. As a result, our business and prospects could be adversely affected in the event of such problems in our operations and may suffer losses that could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Our production facilities may be affected by power shortages which could result in a loss of business.

Our production facilities consume substantial amounts of electrical power, which is the principal source of energy for our manufacturing operations. Although we have a back-up generator at both our production facilities, we may experience occasional temporary power shortages disrupting production due to power rationing activities conducted by the authorities, thunderstorms or other natural events beyond our control. Accordingly, these production disruptions could result in a loss of business.

Our research and development efforts may not result in marketable products.

Our research and development team develops products which we have identified as having good potential in the market. There is no assurance that we will not experience delays in future product developments. There is also no assurance that the products which we are currently developing or may develop in the future will be successful or that we will be able to market these new products to our customers successfully. If our new products are unable to gain the acceptance of our customers or potential customers, we will not be able to generate future sales from our investment in research and development.

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We may not be able to ensure the successful implementation of our future plans and strategies, resulting in reduced financial performance.

We intend to expand our production capacity, expand our market presence and explore opportunities in strategic investments or alliances and acquisitions. These initiatives involve various risks including, but not limited to, the investment costs in setting up new production facilities, offices and sales offices and working capital requirements. There is no assurance that any future plan can be successfully implemented as the successful execution could depend on several factors, some of which are not within our control. Failure to successfully implement our future plans or to effectively manage cost, may lead to a material adverse change in our operating environment or affect our ability to respond to market or industry changes, resulting in reduced financial performance.

If we fail to successfully complete and integrate strategic acquisitions, including our recent acquisition of Hengdali, we may not be able to expand our scope of operations or increase our revenues.

In November 2009, we completed the acquisition of Hengdali and are continuing to integrate our operations with the operations of Hengdali. In the future, we may expand our production capacity through strategic acquisitions. Expansion through strategic acquisitions is subject to a number of risks:

We plan to construct the Hengdali facility in three phases. So far, we have completed the construction of the first phase (with an output capacity of 10 million square meters per year). Currently, we are in the process of applying for acceptance permits from relevant local governmental authorities including, without limitation, the environmental protection authority and the fire administration, for the first phase. However, as the timing and procedures for issuing such permits is under the control of the local governmental authorities, we cannot assure you that we will successfully obtain such permits, or that our operation will not be affected if we fail to obtain such permits for the continuation of operation of Hengdali. If we fail to obtain such permits by January 2011, the relevant authorities may suspend our Hengdali operations and may impose fines.

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We believe our future success depends on our ability to increase our production capacity by expanding our existing facilities and acquiring or developing new production facilities. If we are unable to grow our operations by expanding our facilities or through strategic acquisitions or realize anticipated benefits from past and future acquisitions, we may not be able to achieve the growth we anticipate and our overall business results may be negatively affected.

We may lose revenue if our intellectual property rights are not protected and counterfeit HD, Hengda, HDL, Hengdeli or TOERTO brand products are sold in the market.

We believe our intellectual property rights are important to our success and competitive position. A portion of our products are manufactured and marketed under our “HD” or “Hengda,” “HDL” or “Hengdeli,” and “TOERTO” labels. We have filed our labels as trademarks in the PRC. In addition, we own four utility model patents, have exclusive licenses to use 11 design patents owned by our CEO, Huang Jia Dong, and have certain trade secrets and unpatented proprietary technology. We cannot assure you that there will not be any unauthorized usage or misuse of our trademarks and patent rights or that our intellectual property rights will be adequately protected as it may be difficult and costly to monitor any infringements of our intellectual property rights in the PRC. If we cannot adequately protect our intellectual property, we may lose revenue.

In addition, we believe the branding of our products and the brand equity in our “HD” or “Hengda,” “HDL or Hengdeli,” and “TOERTO” trademarks is critical to our expansion effort and the continued success of our business. Our efforts to build our brand may be undermined by the sale of counterfeit goods. The counterfeiting of our products may increase if our products become more popular.

In order to preserve and enforce our intellectual property rights, we may have to resort to litigation against the infringing or counterfeiting parties. Such litigation could result in substantial costs and diversion of management resources which may have an effect on our financial performance.

We may lose revenue if Huang Jia Dong does not continue to allow us to use the design patents held in his name.

We use 11 design patents owned by our chief executive officer, Huang Jia Dong pursuant to license agreements of indefinite term and for no consideration. However, we have not registered the license agreements and, in the event Mr. Huang breaches such license agreements and does not continue to allow us to use such design patents, we would not be able to enforce the license agreements and would therefore not be able protect our intellectual property rights and our operations may suffer.

We may inadvertently infringe third-party intellectual property rights, which could negatively impact our business and financial results.

We are not aware of, nor have we received any claims from third parties for, any violations or infringements of intellectual property rights of third parties by us as of the date of this prospectus. Nevertheless, there can be no assurance that as we develop new product designs and production methods, we would not inadvertently infringe the intellectual property rights of others or others would not assert infringement claims against us or claim that we have infringed their intellectual property rights. Claims against us, even if untrue or baseless, could result in significant costs, legal or otherwise, cause product shipment delays, require us to develop non-infringing products, enter into licensing agreements or may be a distraction to our management. Licensing agreements, if required, may not be available on terms acceptable to us or at all. In the event of a successful claim of intellectual property rights infringement against us and our failure or inability to develop non-infringing products or to license the infringed intellectual property rights in a timely or cost-effective basis, our business and/or financial results will be negatively impacted.

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Our manufacturing operations are partially dependent upon outsourcing aspects of our manufacturing operations, making us vulnerable to supply problems and price fluctuations, which could harm our business.

We outsource certain aspects of our manufacturing operations to meet the demand for our products, which, despite the additional production from Hengdali, currently exceeds our current capacity. We currently outsource to the following original equipment manufacturers: Fujian Jinjiang Xinrong Ceramics Co., Ltd. and Jinjiang Jinzhaung Ceramics Co., Ltd., to manufacture and supply basic porcelain ceramics tiles.

There can be no assurance that these third parties will meet their obligations. Our manufacturers and suppliers may encounter problems during manufacturing due to a variety of reasons, including failure to procure their raw material on time, failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction and environmental factors, any of which could delay or impede their ability to meet our demand. Our reliance on these outside manufacturers and suppliers also subjects us to other risks that could harm our business, including:

Any interruption or delay in the supply of materials or products, or our inability to obtain materials or products from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause our customers to cancel orders.

The PRC government has recently introduced certain policy and regulatory measures to control the rapid increase in housing prices and cool down the real estate market and may adopt further measures in the future.

Our business depends on the level of business activity in the property development and construction industries that use our products in their operations in the PRC. Our products are sold to customers in the property development and construction industries. If the property and construction industries fall into a recession in the future, the demand for construction materials, such as ceramic tiles, may consequently decrease and have a significant adverse effect on our business.

The PRC government has committed to taking steps to regulate real estate development, promote the healthy development of the real estate industry in China, and strengthen the supervision over land for real estate development purposes. For example, in his 2010 annual report to the National People’s Congress, Chinese Premier Wen Jiabao pledged to curb the rise of housing prices in certain cities to increase the availability of affordable housing. The full effect of such policies on the real estate industry and our business will depend in large part on the implementation and interpretation of the circulars by governmental agencies, local governments, and banks involved in the real estate industry. We cannot be certain that the PRC government will not issue additional and more stringent regulations or measures or that agencies and banks will not adopt restrictive measures or practices in response to PRC governmental policies and regulations, which could negatively affect the main industries we serve in the PRC, and thereby harm our sales.

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Our manufacturing activities are dependent upon availability of skilled and unskilled labor, a deficiency of which could result in a reduction in profits.

Our manufacturing activities are labor intensive and dependent on the availability of skilled and unskilled labor in large numbers. Large labor intensive operations call for good monitoring and maintenance of cordial relations. Non-availability of labor, poor labor management and/or any disputes between the labor and management may result in a reduction in profits. Further, we rely on contractors who engage on-site laborers for performance of many of our unskilled operations. The scarcity or unavailability of contract laborers may affect our operations and financial performance.

We face increasing labor costs and other costs of production in the PRC, which could limit our profitability.

The ceramic tile manufacturing industry is labor intensive. Labor costs in China have been increasing in recent years and our labor costs in the PRC could continue to increase in the future. If labor costs in the PRC continue to increase, our production costs will likely increase which may in turn affect the selling prices of our products. We may not be able to pass on these increased costs to consumers by increasing the selling prices of our products in light of competitive pressure in the markets where we operate. In such circumstances, our profit margin may decrease.

Violation of Foreign Corrupt Practices Act or China anti-corruption law could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States public companies from bribing or making prohibited payments to foreign officials to obtain or retain business. PRC law also strictly prohibits bribery of government officials. While we take precautions to educate our employees about the Foreign Corrupt Practices Act and Chinese anti-corruption law, there can be no assurance that we or the employees or agents of our subsidiaries will not engage in such conduct, for which we may be held responsible. If that were to occur, we could suffer penalties that may have a material adverse effect on our business, financial condition and results of operations.

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The PRC legal system is a codified legal system comprising written laws, regulations, circulars, administrative directives, and internal guidelines as well as judicial interpretations. Decided cases do not form part of the legal structure of the PRC and thus have no binding effect. As such, the administration of PRC laws and regulations may be subject to a certain degree of discretion by the authorities. This has resulted in the outcome of dispute resolutions not having the level of consistency or predictability as in other countries with more developed legal systems. Due to such inconsistency and unpredictability, if we should be involved in any legal dispute in the PRC, we may experience difficulties in obtaining legal redress or in enforcing our legal rights.

From time to time, changes in law, registration requirements, and regulations or the implementation thereof may also require us to obtain additional approvals and licenses from the PRC authorities for carrying out our operations in the PRC which would incur additional expenses in order to comply with such requirements and in turn affect our financial performance with the increase in our business costs. Furthermore, there can be no assurance that approvals, registrations, or licenses will be granted to us promptly or at all. If we experience delays in obtaining or are unable to obtain such required approvals, registrations, or licenses, our operations and business in the PRC, and hence our overall financial performance will be adversely affected.

Our business activities are subject to certain PRC laws and regulations.

As our production and operations are carried out in the PRC, we are subject to certain PRC laws and regulations. In addition, being a wholly foreign-owned enterprise, we are required to comply with certain laws and regulations. Pursuant to PRC laws and regulations, the breach or non-compliance with such laws and regulations may result in the PRC authorities suspending, withdrawing or terminating our business license, causing us to cease production of all or certain of our products, and this would materially and adversely affect our business and financial performance.

Our corporate affairs in the PRC are governed by our articles of association and the corporate and foreign investment laws and regulations of the PRC. The principles of the PRC laws relating to matters such as the fiduciary duties of directors and other corporate governance matters and foreign investment laws in the PRC are relatively new. Hence, the enforcement of investors or shareholders’ rights under the articles of association of a PRC company and the interpretation of the relevant laws relating to corporate governance matters remain largely untested in the PRC.

PRC foreign exchange control may limit our ability to utilize our profits effectively and affect our ability to receive dividends and other payments from our PRC subsidiary.

Hengda is a foreign investment enterprise, or “FIE,” and is subject to the rules and regulations in the PRC on currency conversion. In the PRC, State Administration of Foreign Exchange, or SAFE, regulates the conversion of the RMB into foreign currencies. Currently, FIEs are required to apply to SAFE for “Foreign Exchange Registration Certificates for Foreign Investment Enterprise”. With such registration certifications (which need to be renewed annually), FIEs are allowed to open foreign currency accounts including the “current account” and “capital account”. Currently, conversion of currency within the scope of the “current account” (e.g. remittance of foreign currencies for payment of dividends, etc.) can be effected without requiring the approval of SAFE. However, conversion of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE.

On October 21, 2005, SAFE promulgated the “Notice on Issues concerning Foreign Exchange Management in Financing by PRC Residents by Overseas Special Purpose Vehicle and Return Investments” (the “No. 75 Notice”).

The No. 75 Notice came into effect on November 1, 2005 and requires the following matters, among others, to be complied with: every PRC domestic resident who establishes or controls an overseas special purpose vehicle, or “SPV,” must apply to the local bureau of SAFE for an “overseas investment foreign exchange registration.”

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Every PRC domestic resident of an SPV who has completed the “overseas investment foreign exchange registration”, or “Registrant,” must make an application to the local bureau of SAFE to amend their registration particulars upon (i) the injection of any PRC domestic assets or the equity interests of any PRC domestic company owned by the PRC domestic resident into the SPV, and (ii) the implementation of any overseas equity fund-raising by the SPV following an injection of PRC domestic assets or the equity interests of a PRC domestic company; every Registrant must apply to the local bureau of SAFE for change of registration particulars or recordation within 30 days after the occurrence of any capital increase or reduction, changes in shareholdings or share swap, merger, long-term investment in equities or debentures, guarantee of foreign indebtedness and other major capital changes not involving “return investment”, undertaken by an SPV; and every Registrant must repatriate, within 180 days, dividends or profits which he receives from an SPV and/or income derived from changes in the shareholding of an SPV.

There can be no assurance that SAFE will not continue to issue new rules and regulations and/or further interpretations of the No. 75 Notice that will strengthen the foreign exchange control. As we are located in the PRC and all of our sales are denominated in RMB, our ability to pay dividends or make other distributions may be restricted by PRC foreign exchange control restrictions. There can be no assurance that the relevant regulations will not be amended to our detriment and that our ability to distribute dividends will not be adversely affected.

Introduction of new laws or changes to existing laws by the PRC government may adversely affect our business.

The PRC legal system is based on the PRC Constitution and is made up of written laws, regulations, circulars and directives. With the PRC’s entry into the WTO, the PRC government is in the process of developing its legal system so as to encourage foreign investments and to meet the needs of investors. As the PRC economy is developing at a generally faster rate than its legal system, some degree of uncertainty exists in connection with whether and how existing laws and regulations will apply to certain events or circumstances. Some of the laws and regulations, and the interpretation, implementation and enforcement thereof, are still at the experimental stage and therefore subject to policy changes. There is no assurance that the introduction of new laws or regulations, changes to existing laws and regulations and the interpretation or application thereof or the delays in obtaining approvals from the relevant PRC authorities will not have an adverse impact on our business or prospects.

In particular, on August 8, 2006, the Ministry of Commerce, the China Securities Regulatory Commission, the State-owned Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration of Industry and Commerce and the State Administration of Foreign Exchange promulgated the “Rules on the Mergers and Acquisition of Domestic Enterprises by Foreign Investors” which came into effect on September 8, 2006, or “the M&A Rules.” Foreign investors should comply with the rules when they purchase shareholding equities of a PRC domestic non-foreign-funded enterprise, or Domestic Company, or subscribe to the increased capital of a Domestic Company, and thus changing the nature of the Domestic Company into a foreign investment enterprise. The rules stipulate, inter alia, (i) that the acquisition of a Domestic Company by an affiliated foreign enterprise established or controlled by PRC entities or individuals must be approved by the Ministry of Commerce; (ii) that the incorporation of a special purpose vehicle, which is directly or indirectly controlled by PRC entities for the purpose of an overseas listing of the equity interest of a Domestic Company, must be subject to the approval of the Ministry of Commerce; (iii) that the acquisition of a Domestic Company by a special purpose vehicle shall be subject to approval of the Ministry of Commerce and (iv) the offshore listing of a special purpose vehicle shall be subject to the prior approval from China Securities Regulatory Commission.

As Hengda was incorporated as a FIE and China Ceramics does not fall within the scope of being classified as a special purpose vehicle directly or indirectly established or controlled by PRC entities or individuals, the M&A Rules do not apply to the Business Combination, and we were not required to obtain the approval from the Ministry of Commerce, the approval from the China Securities Regulatory Commission and/or any other approvals from PRC government authorities as stipulated by the M&A Rules. There is however no assurance that the PRC authorities will not issue further directives, regulations, clarifications or implementation rules, which may require us or other relevant parties to obtain further approvals with respect

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to the Business Combination. If new laws are promulgated or the existing laws are reinterpreted, our structure could be determined to be in violation of such laws and subject to sanction by applicable government authorities.

Environmental, health and safety laws could impose material liabilities on us and could require us to incur material capital and operational costs.

We are subject to environmental, health and safety laws and regulations in the PRC that impose controls on our air, water and waste discharges, on our storage, handling, use, discharge and disposal of chemicals, and on exposure of our employees to hazardous substances. These laws and regulations could require us to incur costs to maintain compliance and could impose liability to remedy the effects of hazardous substance contamination. Although we do not believe that we have violated any of such laws and regulations and therefore have not incurred any significant liabilities under these laws and regulations in the past, the environmental laws and regulations are constantly evolving and becoming stricter in the PRC. The adoption of new laws or regulations or our failure to comply with these laws or regulations in the future could cause us to incur material liabilities and could require us to incur additional expenses, curtail operations and/or restrict our ability to expand. Hengdali is currently in the process of applying for a Pollutant Discharge Permit, and the environmental protection agency in Gaoan has accepted Hengdali’s application. If the Pollutant Discharge Permit is not issued and Hengdali discharges pollutants, Hengdali may be warned, ordered to stop discharging pollutants, and/or fined by the environmental protection agency.

Our business will suffer if we lose our land use rights.

There is no private ownership of land in China and all land ownership is held by the government of China, its agencies, and collectives. In the case of land used for business purposes, land use rights can be obtained from the government for a period up to 50 years, and are typically renewable. Land use rights can be granted upon approval by the land administrative authorities of China (State Land Administration Bureau) upon payment of the required land granting fee, the entry into a land use agreement with a competent governmental authority and certain other ministerial procedures. We have received land use certificates for certain parcels of land on which our operations reside, but we may not have followed all procedures required to obtain such certificates or paid all required fees. If the Chinese administrative authorities determine that we have not fully complied with all procedures and requirements needed to hold a land use certificate, we may be forced by the Chinese administrative authorities to retroactively comply with such procedures and requirements, which may be burdensome and require us to make payments, or such Chinese administrative authorities may invalidate or revoke our land use certificate entirely. If the land use right certificates needed for our operations are determined by the government of China to be invalid or if they are not renewed, we may lose production facilities or employee accommodations that would be difficult or even impossible to replace. Should we have to relocate, our workforce may be unable or unwilling to work in the new location and our business operations will be disrupted during the relocation. The relocation or loss of facilities could cause us to lose sales and/or increase our costs of production, which would negatively impact our financial results.

We own certain buildings collectively, which may limit our right to use, renovate or dispose of such buildings.

Together with three other companies, we collectively own several buildings located at the Junbing Industrial Zone in Jinjiang City with a total construction area of 29,120.83 square meters. As a result, our right to use, renovate and dispose of such buildings may be limited.

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Risks to China Ceramics’ Shareholders

If outstanding warrants are exercised, the underlying shares will be eligible for future resale in the public market. “Market overhang” from the warrants results in dilution and could reduce the market price of the shares.

Outstanding warrants to purchase an aggregate of 2,774,300 shares issued in connection with our initial public offering and the private placement that took place immediately prior to the initial public offering became exercisable after our acquisition of Success Winner on November 20, 2009. If such remaining warrants, which were not tendered during our tender offer in August 2010, are exercised, a substantial number of additional shares will be eligible for resale in the public market, which may reduce the market price.

There has not been an active public market for our shares so the price of our shares could be volatile and could decline following this offering at a time when you want to sell your holdings.

Our shares are not actively traded and the price of our shares is volatile, and this volatility may continue. For instance, since the completion of the business combination through October 1, 2010, the closing bid price of our shares ranged between $9.95 and $5.05. Although our shares began trading on the NASDAQ Capital Market on November 3, 2010 under the symbol “CCCL,” we cannot assure you that the offering will improve volume, reduce volatility and stabilize our share price.

The NASDAQ Capital Market may delist our securities from quotation on its exchange which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

Our shares are listed on the NASDAQ Capital Market, a national securities exchange. However, we cannot assure you that our securities will continue to be listed on the NASDAQ Capital Market in the future. In order to continue listing our securities on the NASDAQ Capital Market, we must maintain certain financial, distribution and share price levels. Generally, we must (i) maintain a minimum amount in shareholders’ equity (generally above $2,500,000), maintain a minimum market value of listed securities (generally above $35,000,000) or have a minimum net income from operations for the prior year of for two of the preceding years (generally above $500,000); and (ii) a minimum number of publicly held shares (generally greater than 500,000) and a minimum number of public shareholders (generally greater than 300 shareholder). Our shares also cannot have a bid price of less than $1.00. Moreover, we must comply with certain listing standards regarding the independence of our board of directors and members of our audit committee. We currently meet these requirements, but there can be no assurance that we will continue to be able to meet these requirements in the future.

If the NASDAQ Capital Market delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we could face significant material adverse consequences including:

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There is a risk that we could be treated as a U.S. domestic corporation for U.S. federal income tax purposes after the redomestication and the business combination, which, among other things, could result in significantly greater U.S. federal income tax liability to us.

Section 7874(b) of the Code generally provides that a corporation organized outside the United States that acquires, directly or indirectly, pursuant to a plan or series of related transactions substantially all of the assets of a corporation organized in the United States will be treated as a domestic corporation for U.S. federal income tax purposes if shareholders of the acquired corporation, by reason of owning shares of the acquired corporation, own at least 80% (of either the voting power or the value) of the stock of the acquiring corporation after the acquisition. Under temporary regulations recently promulgated under Section 7874, a warrant holder of either the acquired corporation or the acquiring corporation generally is treated for this purpose as owning stock of the acquired corporation or the acquiring corporation, as the case may be, with a value equal to the excess of the value of the shares underlying the warrant over the exercise price of the warrant. If Section 7874(b) were to apply to the redomestication, then, among other things, we, as the surviving entity, would be subject to U.S. federal income tax on our worldwide taxable income following the redomestication and the business combination as if we were a domestic corporation.

Although Section 7874(b) should not apply to treat us as a domestic corporation for U.S. federal income tax purposes, due to the absence of full guidance on how the rules of Section 7874(b) apply to the transactions completed pursuant to the redomestication and business combination, this result is not entirely free from doubt. Shareholders and warrant holders are urged to consult their own tax advisors on this issue. See the discussion in the section entitled “Taxation — United States Federal Income Taxation — Tax Treatment of China Ceramics After the Redomestication and the Business Combination.” The balance of this discussion assumes that we will be treated as a foreign corporation for U.S. federal income tax purposes.

There is a risk that we will be classified as a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences to U.S. holders of our shares or warrants.

In general, we will be treated as a PFIC for any taxable year in which either (1) at least 75% of our gross income (including the gross income of certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (including the assets of certain 25% or more-owned corporate subsidiaries) produce, or are held for the production of, passive income. Passive income generally includes dividends, interest, rents, royalties, and gains from the disposition of passive assets. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in the section entitled “Taxation — United States Federal Income Taxation — General”) for our shares or warrants, the U.S. Holder may be subject to increased U.S. federal income tax liability upon a sale or other disposition of our shares or warrants or the receipt of certain excess distributions from us and may be subject to additional reporting requirements. Based on the expected composition of our assets and income and our subsidiaries during our current taxable year, we do not anticipate that we will be treated as a PFIC for such year. The actual PFIC status of China Ceramics for our current taxable year or any subsequent taxable year, however, will not be determinable until after the end of such taxable year. Accordingly, there also can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. U.S. Holders of our shares and warrants are urged to consult their own tax advisors regarding the possible application of the PFIC rules. See the discussion in the section entitled “Taxation — United States Federal Income Taxation — U.S. Holders — Passive Foreign Investment Company Rules.”

Under the EIT Law, China Ceramics, Success Winner and/or Stand Best may be classified as a “resident enterprise” of the PRC. Such classification could result in PRC tax consequences to China Ceramics, our non-PRC resident enterprise shareholders and warrant holders, Success Winner and/or Stand Best.

On March 16, 2007, the National People’s Congress approved and promulgated a new tax law, the PRC Enterprise Income Tax Law, or “EIT Law,” which took effect on January 1, 2008. Under the EIT Law, enterprises are classified as “resident enterprises” and non-resident enterprises. An enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes.

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The implementing rules of the EIT Law define “de facto management bodies” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise; however, it remains unclear whether the PRC tax authorities would deem our managing body as being located within China. Due to the short history of the EIT Law and lack of applicable legal precedents, the PRC tax authorities determine the PRC tax resident treatment of a foreign (non-PRC) company on a case-by-case basis.

If the PRC tax authorities determine that China Ceramics, Success Winner and/or Stand Best is a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, China Ceramics, Success Winner and/or Stand Best may be subject to the enterprise income tax at a rate of 25% on China Ceramics’, Success Winner’s and/or Stand Best’s worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules, dividends paid between “qualified resident enterprises” are exempt from enterprise income tax. As a result, if China Ceramics, Success Winner and Stand Best are treated as “qualified resident enterprises,” all dividends from Hengda to China Ceramics (through Success Winner and Stand Best) should be exempt from the PRC enterprise income tax.

If Stand Best were treated as a PRC “non-resident enterprise” under the EIT Law, then dividends that Stand Best receives from Hengda (assuming such dividends were considered sourced within the PRC) (i) may be subject to a 5% PRC withholding tax, provided that Stand Best owns more than 25% of the registered capital of Hengda continuously within 12 months immediately prior to obtaining such dividend from Hengda, and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, or the “PRC-Hong Kong Tax Treaty,” were otherwise applicable, or (ii) if such treaty does not apply (i.e., because the PRC tax authorities may deem Stand Best to be a conduit not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Similarly, if Success Winner were treated as a “non-resident enterprise” under the EIT Law and Stand Best were treated as a “resident enterprise” under the EIT Law, then dividends Success Winner receives from Stand Best (assuming such dividends were considered sourced within the PRC) may be subject to a 10% PRC withholding tax. A similar situation may arise if China Ceramics were treated as a “non-resident enterprise” under the EIT Law, and Success Winner were treated as a “resident enterprise” under the EIT Law. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to our shareholders.

Finally, if China Ceramics is determined to be a “resident enterprise” under the EIT Law, this could result in a situation in which a 10% PRC tax is imposed on dividends China Ceramics pays to its enterprise, but not individual, investors that are not tax residents of the PRC, or “non-resident investors” and gains derived by them from transferring China Ceramics’ shares or warrants, if such income is considered PRC-sourced income by the relevant PRC tax authorities. In such event, China Ceramics may be required to withhold a 10% PRC tax on any dividends paid to China Ceramics’ non-resident investors. China Ceramics’ non-resident investors also may be responsible for paying PRC tax at a rate of 10% on any gain derived by such investors from the sale or transfer of China Ceramics’ shares or warrants in certain circumstances. China Ceramics would not, however, have an obligation to withhold PRC tax with respect to such gain under the PRC tax laws. Also, if China Ceramics is determined to be a “resident enterprise,” its non-resident individual shareholders may also be subject to potential PRC individual income tax for dividends and/or gains obtained from transfer of China Ceramics’ shares.

Moreover, the State Administration of Taxation, or “SAT,” released Circular Guoshuihan No. 698, or Circular 698, on December 10, 2009 that reinforces the taxation of certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 addresses indirect equity transfers as well as other issues. Circular 698 is retroactively effective from January 1, 2008. According to Circular 698, where a non-resident investor who indirectly holds an equity interest in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers an equity interest in the PRC resident enterprise by selling an equity interest in the offshore holding company, and the latter is located in a country or jurisdiction where the actual tax burden is less than 12.5% or where the offshore income of its residents is not taxable, the non-resident investor is required to provide the PRC tax authority in charge of that PRC resident enterprise with certain relevant information within 30 days of the execution of the equity transfer agreement. The tax

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authorities in charge will evaluate the offshore transaction for tax purposes. In the event that the tax authorities determine that such transfer is abusing forms of business organization and a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking, the PRC tax authorities will have the power to re-assess the nature of the equity transfer under the doctrine of substance over form. A reasonable commercial purpose may be established when the overall international (including U.S.) offshore structure is set up to comply with the requirements of supervising authorities of international (including U.S.) capital markets. If the SAT’s challenge of a transfer is successful, it may deny the existence of the offshore holding company that is used for tax planning purposes and subject the non-resident investor to PRC tax on the capital gain from such transfer. Since Circular 698 has a short history, there is uncertainty as to its application. We (or a non-resident investor) may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we(or such non-resident investor) should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations (or such non-resident investor’s investment in us).

If any PRC tax applies to a non-resident investor, the non-resident investor may be entitled to a reduced rate of PRC tax under an applicable income tax treaty and/or a deduction for such PRC tax against such investor’s domestic taxable income or a foreign tax credit in respect of such PRC tax against such investor’s domestic income tax liability (subject to applicable conditions and limitations). Investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available deductions or foreign tax credits.

For a further discussion of these issues, see the section of this prospectus captioned “Taxation — PRC Taxation.”

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

The value of our shares will be indirectly affected by the foreign exchange rate between U.S. dollars and the Renminbi and between those currencies and other currencies in which our revenue may be denominated. Because all of our earnings and cash assets are denominated in Renminbi and our proceeds from this offering will be denominated in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and the Renminbi will affect the relative purchasing power of these proceeds, as well as our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business, financial condition or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue after this offering that will be exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Since July 2005, the Renminbi has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future the Chinese authorities may lift restrictions on fluctuations in the Renminbi exchange rate and lessen intervention in the foreign exchange market.

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

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our memorandum and articles of association, the British Virgin Islands Business Companies Act, 2004 (as amended), or the BVI Act, and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of

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the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.

As a result of all of the above, holders of our shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company. For a discussion of significant differences between the provisions of the BVI Act and the laws applicable to companies incorporated in the United States and their shareholders.

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

The laws of the British Virgin Islands provide little protection for minority shareholders, so minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct of our affairs.

Under the laws of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, the company’s memorandum and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of the company.

There are common law rights for the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the British Virgin Islands for business companies is limited. Under the general rule pursuant to English common law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

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Risks Relating to the Offering

The market price for our shares may be volatile.

The market price for our shares is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:

Volatility in the price of our shares may result in shareholder litigation that could in turn result in substantial costs and a diversion of our management’s attention and resources.

The financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices have been and continue to be extremely volatile. Volatility in the price of our shares may be caused by factors outside of our control and may be unrelated or disproportionate to our results of operations. In the past, following periods of volatility in the market price of a public company’s securities, shareholders have frequently instituted securities class action litigation against that company. Litigation of this kind could result in substantial costs and a diversion of our management’s attention and resources.

Because we do not intend to pay dividends on our shares, shareholders will benefit from an investment in our shares only if those shares appreciate in value.

We currently intend to retain all future earnings, if any, for use in the operations and expansion of our business. As a result, we do not anticipate paying cash dividends in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors and will depend on factors our board of directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities, if any, and any other financing arrangements. Accordingly, realization of a gain on shareholders’ investments will depend on the appreciation of the price of our shares, and there is no guarantee that our shares will appreciate in value.

We may not be able to pay any dividends on our shares.

Under British Virgin Islands law, we may only pay dividends to our shareholders if the value of our assets exceeds our liabilities and we are able to pay our debts as they become due. We cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. Future dividends, if any, will be at the discretion of our board of directors, and will depend upon our results of operations, cash flows, financial condition, payment to us of cash dividends by our subsidiaries, capital needs, future prospects and other factors that our directors may deem appropriate.

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If the China Securities Regulatory Commission, or CSRC, or another Chinese regulatory agency, determines that CSRC approval is required in connection with this offering we may become subject to penalties.

On August 8, 2006, six Chinese regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and the State Administration of Foreign Exchange, jointly issued M&A Rule. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.

It is not clear how the provisions in the new regulation regarding the offshore listing and trading of the securities of a special purpose vehicle apply to us. We believe, based on the interpretation of the new regulation and the practice experience of our Chinese legal counsel, Titan & Partners, that CSRC approval is not required for this offering. If the CSRC or another Chinese regulatory agency subsequently determines that the CSRC’s approval is required for this offering, we may face sanctions by the CSRC or another Chinese regulatory agency. If this happens, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of our net proceeds from this offering into China, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our shares.

We have not determined a specific use for a portion of the net proceeds from this offering, and it may use these proceeds in ways with which you may not agree.

We have not determined a specific use for a portion of the net proceeds of this offering. Our management will have considerable discretion in the application of these proceeds received in connection with this offering. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our profitability or increase our share price. The net proceeds from this offering may also be placed in investments that do not produce income or lose value.

We may need additional capital, and the sale of additional shares or equity or debt securities could result in additional dilution to our shareholders.

We believe that our current cash and cash equivalents, anticipated cash flow from operations and the proceeds from this offering will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more additional credit facilities. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.

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PER SHARE MARKET INFORMATION

Our shares, warrants and units have been listed on the NASDAQ Capital Market under the symbols CCCL, CCCLW and CCCLU, respectively, since November 3, 2010. The shares, warrants and units were previously quoted on the OTC Bulletin Board from December 29, 2009 through November 2, 2010. Prior to December 29, 2009, our shares, warrants and units were traded on NYSE Amex, under the symbols “HOL”, “HOL.WS” and “HOL.U,” respectively. CHAC’s units commenced to trade on NYSE Amex on November 16, 2007. CHAC’s shares and warrants commenced to trade separately from its units on December 17, 2007.

The following tables set forth, for the calendar quarters indicated and through November 4, 2010, the quarterly high and low sale prices for our units, shares and warrants, respectively, as reported on the NASDAQ Capital Market, the OTC Bulletin Board or the NYSE Amex, as applicable. The OTC Bulletin Board market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

		Units								Shares								Warrants
		High				Low				High				Low				High				Low
Annual Highs and Lows
2007			10.10				9.65				9.00				8.77				0.92				0.84
2008			11.65				6.00				9.40				8.20				1.00				0.01
2009			11.50				7.80				10.01				7.00				3.00				0.02
2010 (through November 4)			n/a				n/a				10.10				5.05				4.00				0.60
Quarterly Highs and Lows
2008
First Quarter			9.85				9.17				9.10				8.85				0.95				0.45
Second Quarter			10.00				9.24				9.20				8.86				1.00				0.35
Third Quarter			11.65				8.00				9.40				8.70				0.78				0.18
Fourth Quarter			8.96				6.00				9.00				8.20				0.29				0.01
2009
First Quarter			9.50				8.21				9.34				8.83				0.19				0.02
Second Quarter			9.65				9.20				9.58				9.29				0.14				0.03
Third Quarter			10.15				9.56				9.75				9.52				0.50				0.07
Fourth Quarter			11.50				7.80				10.01				7.00				3.00				0.12
2010
First Quarter*			n/a				n/a				8.15				5.45				1.25				0.60
Second Quarter*			n/a				n/a				9.20				5.91				1.65				0.75
Third Quarter*			n/a				n/a				8.50				5.05				1.70				0.82
Fourth Quarter (through November 4)*			n/a				n/a				10.10				5.35				4.00				1.34
Monthly Highs and Lows
January 2010*			n/a				n/a				8.15				7.00				1.25				1.01
February 2010*			n/a				n/a				7.40				5.45				1.03				0.60
March 2010*			n/a				n/a				7.20				5.50				1.20				0.66
April 2010*			n/a				n/a				9.20				8.02				1.65				1.16
May 2010*			n/a				n/a				9.00				5.95				1.32				0.75
June 2010*			n/a				n/a				7.00				5.91				1.05				0.85
July 2010*			n/a				n/a				7.00				5.40				1.01				0.82
August 2010*			n/a				n/a				8.50				5.20				1.70				1.25
September 2010*			n/a				n/a				8.00				5.05				1.39				1.17
October 2010*			n/a				n/a				7.79				5.35				1.90				1.34
November 4			n/a				n/a				10.10				6.65				4.00				1.55

*

Reflects the price range of our shares and warrants after our business combination.

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Approximate Number of Holders of Our Shares

On November 4, 2010, there were 24 shareholders of record of our shares. Certain of our shares are held in nominee or street name so we believe the actual number of beneficial owners of our shares is likely to be greater.

CAPITALIZATION

The following table sets forth our capitalization, as of June 30, 2010:

•

on an actual basis; and

•

on an as adjusted basis to give effect to the issuance and sale of shares offered in this offering at an assumed public offering price of $9.05 per share, after deducting estimated underwriting discounts, commissions and other offering expenses of $430,000 (assuming the underwriters do not exercise their over-allotment option).

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The information presented below is unaudited.

		As of June 30, 2010 (unaudited)
		Actual								As adjusted (1)
		RMB				$US				RMB				$US
		(In thousands)
China Ceramic’s shareholders’ equity:
Shares – par value $0.001; 51,000,000 shares authorized; 10,164,298 and       shares issued and outstanding on an actual and as adjusted basis, respectively			70				10				93				13
Share premium and reserves			190,617				27,997				381,724				56,065
Retained earnings			409,311				57,668				409,311				57,668
Total China Ceramic’s shareholders’ equity (2)			599,998				88,124				791,128				116,195
Total capitalization (2)			599,998				88,124				791,128				116,195

(1)

The as adjusted information discussed above is illustrative only. Our share premium and reserves, total shareholders’ equity and total capitalization following the completion of this offering are subject to adjustment based on the actual public offering price and other terms of this offering determined at pricing.

(2)

Assuming the number of shares offered by us as set forth on the cover page of this prospectus remains the same, and after deduction of underwriting discounts and commissions and the estimated offering expenses payable by us, a $1.00 increase (decrease) in the public offering price of $9.05 per share would increase (decrease) each of total shareholders’ equity and total capitalization by $3.1 million.

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our shares. We currently intend to retain all future earnings, if any, for use in the operations and expansion of our business. As a result, we do not anticipate paying cash dividends in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our Board of Directors and will depend on factors our Board of Directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our credit facilities and other financing arrangements.

EXCHANGE RATE INFORMATION

The following table sets forth information concerning exchange rates between the RMB and the US dollar for the periods indicated. Unless otherwise noted, all translation from RMB to U.S. dollars were made at the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of June 30, 2010, which was RMB 6.7815 to $1.00. The exchange rate between RMB and U.S. Dollars on October 29, 2010 was RMB 6.6705 to $1.00. We make no representation that any RMB or US dollar amounts could have been, or could be, converted into US dollar or RMB, as the case may be, at any particular rate, at the rates stated below, or at all. These rates are provided solely for your convenience.

		Spot Exchange Rate
Period		Period Ended				Average (1)				Low				High
		(RMB per US$1.00)
2005			8.0702				8.1826				8.2765				8.0702
2006			7.8041				7.9579				8.0702				7.8041
2007			7.2946				7.5806				7.8127				7.2946
2008			6.8225				6.9477				7.2946				6.7800
2009			6.8259				6.8295				6.8180				6.8395
October			6.8264				6.8267				6.8292				6.8248
November			6.8265				6.8271				6.8300				6.8255
December			6.8259				6.8275				6.8299				6.8244
2010
January			6.8268				6.8269				6.8295				6.8258
February			6.8258				6.8285				6.8330				6.8258
March			6.8258				6.8262				6.8270				6.8254
April			6.8247				6.8256				6.8275				6.8229
May			6.8305				6.8227				6.8323				6.7911
June			6.7815				6.8184				6.7815				6.8323
July			6.7735				6.7762				6.7709				6.7807
August			6.8069				6.7873				6.7670				6.8069
September			6.6905				6.7396				6.6869				6.8102
October			6.6705				6.6675				6.6397				6.6912

Source: Federal Reserve Bank of New York Statistical Release

(1)

Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data have been derived from the audited consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009 and the unaudited consolidated financial statements as of and for the six months ended June 30, 2009 and 2010. The selected condensed consolidated financial data for the year ended December 31, 2006 is derived from our audited consolidated financial statements not included in this prospectus, with revenue and gross margin being restated to reflect the effect of a reclassification of RMB 25,810,000 volume rebates and settlement discount from the selling and distribution expenses to sales rebates and discounts (a contra revenue account). The selected consolidated financial data for the year ended December 31, 2005 is derived from our unaudited financial statements not included in this prospectus. The consolidated financial statements for the years ended December 31, 2007, 2008 and 2009 are prepared and presented in accordance with IFRS. The condensed consolidated interim financial information for the six months ended June 30, 2009 and 2010 are prepared in accordance with IAS 34, interim financial reporting. The consolidated statements of comprehensive income and statements of cash flows data for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010, and consolidated statements of financial position as of December 31, 2007, 2008 and 2009 and June 30, 2009 and 2010 are included elsewhere in this prospectus. Our results of operations in any period may not necessarily be indicative of the results that may be expected for any future period. See “Risk Factors” included elsewhere in this prospectus. The summary consolidated financial information for those periods and as of those dates should be read in conjunction with those consolidated financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

		For the Year Ended December 31,																								For the Six Months Ended June 30,
		2005				2006				2007				2008				2009				2009				2009				2010				2010
		(Unaudited) RMB				RMB				RMB				RMB				RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) $
		(In thousands, except for per share numbers)
Summary statements of comprehensive income data:
Revenues			375,439				470,010				617,863				737,182				835,747				122,169				380,247				501,413				73,363
Gross profit			93,234				123,741				175,923				203,852				253,217				37,015				106,347				154,114				22,549
Operating income			86,718				115,079				165,469				189,060				212,148				31,012				99,195				136,660				19,995
Profit attributable to shareholders			86,718				101,254				145,606				165,033				152,861				22,345				74,215				101,711				14,882
Basic net income per share			15.10				17.63				25.35				28.73				24.47				3.58				12.92				10.01				1.46
Diluted net income per share			15.10				17.63				25.35				28.73				23.65				3.46				12.92				10.01				1.46

		As of December 31,																								As of June 30,
		2005				2006				2007				2008				2009				2009				2009				2010				2010
		(Unaudited) RMB				RMB				RMB				RMB				RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) $
		(In thousands)																								(In thousands)
Summary statements of financial position:
Cash and bank balances			4,902				12,593				18,507				51,606				150,121				21,957				93,247				67,986				9,985
Net current assets (1)			(47,852	)			(5,483	)			149,934				181,111				440,748				64,463				262,866				237,318				34,856
Total assets			308,124				361,676				440,289				454,720				749,236				109,582				521,829				959,518				140,927
Share capital			27,900				58,980				58,980				0	(2)			61				9				0	(2)			70				10
Retained earnings			0				0				142,402				164,981				307,600				42,786				239,196				409,311				57,668
Total shareholders’ equity			44,061				85,266				230,872				253,451				505,097				73,875				327,675				599,998				88,124

(1)

Net current assets is calculated as current assets minus current liabilities.

(2)

Amount less than RMB 1,000

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		For the Year Ended December 31,																								For the Six Months Ended June 30,
		2005				2006				2007				2008				2009				2009				2009				2010				2010
		(Unaudited) RMB				RMB				RMB				RMB				RMB				(Unaudited) $				(Unaudited) RMB				(Unaudited) RMB				(Unaudited) $
		(In thousands)																								(In thousands)
Summary statements of cash flows data:
Net cash provided by operating activities			48,852				103,245				107,262				155,230				159,620				23,333				42,140				47,074				6,888
Net cash used in investing activities			(1,622	)			(3,574	)			(4,156	)			(6,625	)			(152,294	)			(22,262	)			(243	)			(140,599	)			(20,571	)
Net cash (used in)/provided by financing activities			(46,351	)			(91,980	)			(97,192	)			(115,506	)			91,100				13,317				(256	)			11,397				1,668
Net cash flow			879				7,691				5,914				33,099				98,426				14,388				41,641				(82,128	)			(12,016	)

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Results of Operations

The following table sets forth our financial results for the years ended December 31, 2007, 2008, and 2009 and the six months ended June 30, 2009 and 2010.

		Year Ended December 31,												Six Months Ended June 30,
RMB (‘000)		2007				2008				2009				2009				2010
														(Unaudited)				(Unaudited)
Revenue			617,863				737,182				835,747				380,247				501,413
Cost of sales			(441,940	)			(533,330	)			(582,530	)			(273,900	)			(347,299	)
Gross profit			175,923				203,852				253,217				106,347				154,114
Other income			2,339				2,701				3,735				1,271				272
Selling and distribution expenses			(6,059	)			(6,620	)			(6,912	)			(3,174	)			(2,994	)
Administrative expenses			(6,158	)			(9,932	)			(10,088	)			(4,832	)			(11,758	)
Merger costs			—				—				(26,429	)			—				—
Finance costs			(576	)			(941	)			(1,375	)			(417	)			(2,974	)
Profit before taxation			165,469				189,060				212,148				99,195				136,660
Income tax expense			(19,863	)			(24,027	)			(59,287	)			(24,980	)			(34,949	)
Profit attributable to shareholders			145,606				165,033				152,861				74,215				101,711

Description of Selected Income Statement Items

Revenue.   We generate revenue from the sales of ceramic tiles, including porcelain tiles, glazed porcelain tiles, glazed tiles, rustic tiles and ultra-thin tiles, net of rebates and discounts. For the past three fiscal years, the second and third calendar quarters have been the peak season of the property developing industry, and, therefore, our quarterly sales are usually highest from May to September compared to the rest of the year. In addition, we have observed lower sales between the months of January to March. This is because property developing activities are low due to the effects of cold weather and the PRC Spring Festival.

Cost of sales.   Cost of sales consists of costs directly attributable to production, including the cost of clay, color materials, glaze materials, coal, salaries for staff engaged in production activity, electricity, depreciation, packing materials, and related expenses.

The most significant factors that directly or indirectly affect our cost of sales are as follows:

Clay is a key material for making ceramic tiles, and accounted for approximately 27.3% of our cost of sales in the first six months of 2010. The average price of clay increased 17% from approximately RMB 257 per ton in the six months ended June 30, 2009 to approximately RMB 301 per ton in the six months ended June 30, 2010. Fujian and Jiangxi Provinces, where our production facilities are located, are the largest clay production areas in China and clay supply is stable and sufficient for our production and planned production.

Coal is another key material for making ceramic tiles on the natural gas conversion for the firing process. Coal accounted for approximately 20.1% of our cost of sales in the first six months of 2010. We have long-term relationships with our coal suppliers. Prices of coal have experienced fluctuations in the past few years. The average price for coal was approximately RMB 936 per ton in the six months ended June 30, 2009, compared to approximately RMB 1,081 per ton in the six months ended June 30, 2010.

Other income.   Other income consists of sales of waste parts such as the exhausted metals, gears and transportation belts from equipment and moldings.

Selling and distribution expenses.   Selling and distribution expenses consist of payroll, traveling expenses, transportation and advertising expenses incurred by our selling and distribution team.

Administrative expenses.   Administrative expenses consist primarily of employee remuneration, payroll taxes and benefits, general office expenses and depreciation. We expect administrative expenses to continue to

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increase in absolute amounts. We also incur additional expenses related to costs of compliance with securities laws and other regulations, including audit and legal fees and investor relations expenses.

Merger costs.   Merger costs of RMB 26.4 million refer to the transaction costs incurred by Success Winner during the reverse recapitalization transaction that exceeded the net monetary assets received. For accounting purposes, we treat these costs as the costs Success Winner paid to obtain a public listing in the United States.

Finance Costs.   Finance costs consist of interest expense on bank loans.

Income taxes.   Income taxes for the years ended June 30, 2010 and 2009 were RMB 34.9 million and RMB 25.0 million, respectively. The increase in PRC taxes paid was primarily due to the increase in assessable profits of our subsidiaries in the PRC as a result of business expansion and revenue growth.

According to the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign Enterprises and as approved by relevant PRC tax authorities, Hengda, a foreign-invested enterprise, was exempt from the PRC corporate income tax for its first two profitable years, which were 2004 and 2005. Thereafter, it was entitled to a 50% reduction in the PRC corporate income tax for the subsequent three years. Pursuant to the PRC Corporate Income Tax Law and its Implementation Rules effective from January 1, 2008, and the Notice of the State Council on the Implementation of the Transitional Preferential Policies in respect of Enterprise Income Tax and its implementation rules, in the fiscal year of 2008, the applicable tax rate for us was 12.5%, and the effective tax rate became 25% from January 1, 2009. The effective tax rate continues to be 25% in 2010.

Comparison of six months ended June 30, 2010 and June 30, 2009

Revenue.   The following table sets forth the breakdown of revenue, by product segment, for the six months ended June 30, 2009 and 2010:

		June 30,
Revenue RMB (‘000)		2009				%				2010				%
		(Unaudited)								(Unaudited)
Porcelain			303,665				79.9	%			382,739				76.3	%
Glazed Porcelain			13,943				3.7	%			23,407				4.7	%
Glazed			40,825				10.7	%			50,565				10.1	%
Rustic			17,465				4.6	%			27,043				5.4	%
Ultra-thin			4,349				1.1	%			17,659				3.5	%
Total			380,247				100.0	%			501,413				100.0	%

Revenue grew by RMB 121.2 million ($17.8 million), or 31.9%, to RMB 501.4 million ($73.4 million) in the six months ended June 30, 2010, from RMB 380.2 million ($55.6 million) for the six months ended June 30, 2009. The average selling price for ceramic tiles increased by 5.3% to RMB 25.8 ($3.8) per square meter for the six months ended June 30, 2010 from an average selling price of RMB 24.3 ($3.6) per square meter for the six months ended June 30, 2009, and sales volume increased by 3.7 million square meters to approximately 19.4 million square meters for the six months ended June 30, 2010 from 15.7 million square meters for the same period in 2009.

     Porcelain tiles .   Revenue from porcelain tiles increased 26.0% from RMB 303.7 million ($44.4 million) for the six months ended June 30, 2009 to RMB 382.7 million ($56.0 million) for the same period in 2010. The increase was primarily due to the high demand for porcelain tiles in China and our increased capacity due to the acquisition of Hengdali. Porcelain tiles for exterior walls are our most popular product and have the largest market potential of all of our tiles. We expect porcelain tiles to continue to be our key product for the foreseeable future.

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     Glazed porcelain tiles .   Revenue from glazed porcelain tiles increased 68.3% from approximately RMB 13.9 million ($2.0 million) for the six months ended June 30, 2009 to RMB 23.4 million ($3.4 million) for the same period in 2010. Glazed porcelain tiles are a relatively new product (introduced in 2006) and the demand for this product has been strong.

     Glazed tiles .   Revenue from glazed tiles increased 24.0% from RMB 40.8 million ($6.0 million) for the six months ended June 30, 2009 to RMB 50.6 million ($7.4 million) for the same period in 2010. The selling price and sales volumes increased in the six months ended June 30, 2010 compared to the same period in 2009. Glazed tiles have a lower selling price than our other products.

     Rustic tiles .   Revenue from rustic tiles increased 54.3% from RMB 17.5 million ($2.6 million) for the six months ended June 30, 2009 to RMB 27.0 million ($4.0 million) for the same period in 2010 due to an increase in sales volume.

     Ultra-thin tiles .   Revenue from ultra-thin tiles increased 311.6% from RMB 4.3 million ($0.6 million) for the six months ended June 30, 2009 to RMB 17.7 million ($2.6 million) for the same period in 2010. Sales volume of ultra-thin tiles grew from 179,280 square meters for the six months ended June 30, 2009 to 630,482 square meters for the same period in 2010. Ultra-thin tiles are a new product and were commercialized in May 2008. As the demand for this type of product is strong, ultra-thin tiles are expected to become a larger portion of our product mix.

Cost of sales.   The following table sets forth the breakdown of cost of sales, by product segment, for the six months ended June 30, 2009 and 2010:

		Six Months Ended June 30,
Cost of sales RMB (‘000)		2009				%				2010				%
		(Unaudited)								(Unaudited)
Porcelain			213,461				77.9	%			257,727				74.2	%
Glazed Porcelain			10,547				3.9	%			18,010				5.2	%
Glazed			36,329				13.3	%			44,244				12.7	%
Rustic			11,210				4.1	%			17,741				5.1	%
Ultra-thin			2,353				0.9	%			9,576				2.8	%
Total			273,900				100.0	%			347,299				100.0	%

Cost of sales was RMB 347.3 million ($50.8 million) for the six months ended June 30, 2010 compared to RMB 273.9 million ($40.0 million) for the same period in 2009, representing an increase of RMB 73.4 million ($10.8 million), or 26.8%. The increase in cost of sales was primarily due to higher sales volume and an increase in the price of raw materials. For example, the price of clay increased from approximately RMB 257 ($37.6) per ton in the six months ended June 30, 2009 to approximately RMB 301 ($44.0) per ton in the six months ended June 30, 2010, and the price of coal increased from approximately RMB 936 ($136.8) per ton in the six months ended June 30, 2009 to approximately RMB 1,081 ($158.2) per ton in the six months ended June 30, 2010.

Gross profit.   The following table sets forth the breakdown of our gross profit and gross profit margin, by product segment, for the six months ended June 30, 2009 and 2010:

		Six Months Ended June 30,
		2009								2010
RMB (‘000)		Gross profit				Profit Margin				Gross Profit				Profit Margin
		(Unaudited)								(Unaudited)
Porcelain			90,204				29.7	%			125,012				32.7	%
Glazed Porcelain			3,396				24.4	%			5,397				23.1	%
Glazed			4,496				11.0	%			6,321				12.5	%
Rustic			6,255				35.8	%			9,302				34.4	%
Ultra-thin			1,996				45.9	%			8,083				45.8	%
All products			106,347				28.0	%			154,115				30.7	%

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Our gross profit increased 45.0% from RMB 106.3 million for the six months ended June 30, 2009 to RMB 154.1 million ($22.5 million) for the same period in 2010. Gross profit margin percentage increased from 28.0% for the six months ended June 30, 2009 to 30.7% for the same period in 2010.

     Porcelain tiles .   Gross profit for porcelain tiles increased 38.6% from RMB 90.2 million ($13.2 million) for the six months ended June 30, 2009 to RMB 125.0 million ($18.3 million) for the same period in 2010. Our gross profit margin was 32.7% for the six months ended June 30, 2010 compared to 29.7% for the same period in 2009. The increase in gross margin was due to the increase in selling prices since the second half of 2009.

     Glazed porcelain tiles .   Gross profit for glazed porcelain tiles increased 58.8% from approximately RMB 3.4 million ($0.5 million) for the six months ended June 30, 2009 to RMB 5.4 million ($0.8 million) for the same period in 2010. Gross profit margin was 23.1% for the six months ended June 30, 2010 compared to 24.4% for the same period in 2009. The decrease in gross margin was due to increased raw material prices (which are made using some different materials than our porcelain tiles).

     Glazed tiles .   Gross profit for glazed tiles increased 40.0% from RMB 4.5 million ($0.7 million) for the six months ended June 30, 2009 to RMB 6.3 million ($0.9 million) for the same period in 2010. Gross profit margin was 12.5% for the six months ended June 30, 2010 compared to 11.0% for the same period in 2009. The increase in gross margin was mostly driven by the growth in selling prices since the second half of 2009 and the increase in sales volume.

     Rustic tiles .   Gross profit for rustic tiles increased 47.6% from RMB 6.3 million ($0.9 million) for the six months ended June 30, 2009 to RMB 9.3 million ($1.4 million) for the same period in 2010. Gross profit margin decreased 1.4% from 35.8% for the six months ended June 30, 2009 to 34.4% for the same period in 2010. The decrease in gross margin was mostly driven by the increase of the raw material prices.

     Ultra-thin tiles .   Gross profit for ultra-thin tiles increased 305.0% from RMB 2.0 million ($0.3 million) for the six months ended June 30, 2009 to RMB 8.1 million ($1.2 million) for the six months ended June 30, 2010. Ultra-thin tiles were a new product line which began production in June 2008.

Other income.   Other income declined 78.6% from RMB 1.3 million ($0.2 million) for the six months ended June 30, 2009 to RMB 0.3 million ($0.04 million) for the same period in 2010. Other income mainly consist of the sale of waste parts such as the exhausted metals, gears and transportation belts from equipment and moldings of RMB 1.2 million ($0.2 million) in 2009.

Selling and distribution expenses.   Selling and distribution expenses were RMB 3.2 million ($0.5 million) for the six months ended June 30, 2009 compared to RMB 3.0 million ($0.4 million) for the same period in 2010, representing a decrease of RMB 0.2 million ($0.1 million) or 6.3%. The decrease was mainly attributable to decreased shipping expenses of RMB 1.2 million ($0.18 million) resulting from customers collecting products directly from the company’s facilities rather than having them shipped.

Administrative expenses.   Administrative expenses were RMB 4.8 million ($0.7 million) for the six months ended June 30, 2009, compared to RMB 11.8 million ($1.7 million) for the same period in 2010, representing an increase of RMB 7.0 million ($1.0 million), or 145.8%. The year-over-year increase in administrative expenses resulted mainly from amortization of RMB 1.2 million ($180,000) and depreciation of RMB 1.2 million ($180,000) and pre-operating expenses of RMB 5.2 million ($760,000) incurred at the newly acquired Hengdali as well as legal and other expenses related to our status as a public company.

Finance costs.   Finance costs increased 650.0% from RMB 0.4 million ($0.06 million) for the six months ended June 30, 2009 to RMB 3.0 million ($0.4 million) for the same period in 2010. The increase of interest expenses for the six months ended June 30, 2010 was mainly due to an increase in bank loans.

Profit before taxation.    Profit before taxation increased 37.8% from RMB 99.2 million ($14.5 million) for the six months ended June 30, 2009 to RMB 136.7 million ($20.0 million) for the same period in 2010. The increase of the profit before taxation was mainly due to the increase of sales volume of products produced from our new Hengdali facility.

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Income taxes.    We incurred an income tax expense of RMB 25.0 million ($3.7 million) for the six months ended June 30, 2009 compared to RMB 34.9 million ($5.1 million) for the same period in 2010, representing an increase of RMB 9.9 million ($1.4 million) or 39.6%, mainly due to the increase in profit before taxation for the six months ended June 30, 2010. Our effective enterprise income tax rate was 25.0% for the six months ended June 30, 2009 and 2010.

Profit attributable to shareholders.   Profit attributable to shareholders increased by 37.1% from RMB 74.2 million ($10.8 million) for the six months ended June 30, 2009 to the RMB 101.7 million ($14.9 million) for the same period in 2010 as a result of the factors described above.

Comparison of Fiscal Years ended December 31, 2009 and 2008

Revenue.   Revenue grew by RMB 98.5 million ($16.3 million), or 13.4%, to RMB 835.7 million ($122.2 million) in the year ended December 31, 2009, from RMB 737.2 million ($105.9 million) for the year ended December 31, 2008. Although the average selling price for ceramic tiles decreased by 2.4% to RMB 24.9 ($3.60) per square meter for the year ended December 31, 2009 from an average selling price of RMB 25.5 ($3.70) per square meter for the year ended December 31, 2008, the sales volume increased by 4.7 million square meters to approximately 33.6 million square meters for the year ended December 31, 2009 from 28.9 million square meters for the same period in 2008. In the second half of 2008, China experienced a slow-down in its construction industry due to the global financial crisis. In order to gain more market share and maintain ceramic tile productions volumes, we reduced selling prices during the second half of 2008. Due to the recovery of the PRC construction industry in the second quarter of 2009, we increased the average selling price for our ceramic tiles at the beginning of the second half of 2009.

Cost of sales.   Cost of sales was RMB 582.5 million ($85.1 million) for the year ended December 31, 2009 compared to RMB 533.3 million ($76.6 million) for the same period in 2008, representing an increase of RMB 49.2 million ($8.5 million), or 9.2%. The increase in cost of sales was primarily due to higher sales volume as the price of raw materials such as coal decreased in the fiscal year 2009.

Gross profit.   Our gross profit increased 24.2% from RMB 203.9 million ($29.3 million) for the year ended December 31, 2008 to RMB 253.2 million ($37.0 million)for the same period in 2009, and gross profit margin increased 2.6% from 27.7% for the year ended December 31, 2008 to 30.3% for the same period in 2009.

Other income.   Other income increased 37.0% from RMB 2.7 million ($0.4 million) for the year ended December 31, 2008 to RMB 3.7 million ($0.5 million) for the same period in 2009. Other income mainly consist of the sale of waste parts such as the exhausted metals, gears and transportation belts from equipment and moldings of RMB 3.2 million ($0.5 million) in 2009.

Selling and distribution expenses.   Selling and distribution expenses were RMB 6.9 million ($1.0 million) for the year ended December 31, 2009 compared to RMB 6.6 million ($0.9 million) for the same period in 2008, representing an increase of RMB 0.3 million ($0.04 million) or 4.5%. The increase was mainly attributable to the growth in revenue.

Administrative expenses.   Administrative expenses were RMB 10.1 million ($1.5 million) for the year ended December 31, 2009, compared to RMB 9.9 million ($1.4 million) for the same period in 2008, representing an increase of RMB 0.2 million ($0.1 million), or 2%. The increase was mainly attributable to audit and legal expenses for the transaction between us and Success Winner.

Merger costs.   The merger costs of RMB 26.4 million ($3.9 million) were incremental transaction costs directly attributable to the reverse recapitalization transaction which exceeded the net monetary assets received. We treat these costs as the costs Success Winner incurred to obtain a public listing in the United States.

Finance costs.   Finance costs increased 55.6% from RMB 0.9 million ($0.1 million) for the year ended December 31, 2008 to RMB 1.4 million ($0.2 million) for the same period in 2009. The increase of interest expenses for the year ended December 31, 2009 was mainly due to an increase in bank loans.

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Profit before taxation.   Profit before taxation increased 12.2% from RMB 189.1 million ($27.2 million) for the year ended December 31, 2008 to RMB 212.1 million ($31.0 million) for the same period in 2009. The increase of the profit before taxation was mainly due to the increase of sales volume of our products for the year ended December 31, 2009.

Income taxes.   We incurred an income tax expense of RMB 59.3 million ($8.7 million) for the year ended December 31, 2009 compared to RMB 24.0 million ($3.4 million) for the same period in 2008, representing an increase of RMB 35.3 million ($5.3 million) or 147.1%, due to the aforementioned different tax rates applied between the periods. Our effective enterprise income tax rate was 25.0% for the year ended December 31, 2009 compared to a 12.5% effective enterprise income tax rate for the same period in 2008.

Profit attributable to shareholders.   Profit attributable to shareholders decreased by 7.3% from RMB 165.0 million ($23.7 million) for the year ended December 31, 2008 to the RMB 152.9 million ($22.4 million) for the same period in 2009 mainly as a result of the income tax rate being at a 25% level for the year ended December 31, 2009, as compared to a 12.5% effective enterprise income tax rate for the same period in 2008.

Comparison of Fiscal Years ended December 31, 2008 and 2007

Revenue.   Revenue grew 19.3% from RMB 617.9 million for 2007 to RMB 737.2 million for 2008. The increase in our revenue was primarily the result of strong demand created by the continued growth of the real estate construction market in China. Per square meter sales volume increased from approximately 23.9 million square meters for 2007 to approximately 28.9 million square meters for 2008, representing a 20.9% volume growth rate. Our average selling price decreased 2.3% from approximately RMB 26.1 for 2007 to RMB 25.5 for 2008. We proactively decreased our average selling price in the second half of 2008 in response to the global financial crisis.

Cost of sales.   Cost of sales was RMB 533.3 million in the year ended December 31, 2008, compared to RMB 441.9 million in the year ended December 31, 2007, representing an increase of RMB 91.4 million, or 20.7%. The increase in cost of sales was mainly due to the increase in sales volume and a corresponding increase in cost of raw materials to manufacture products. Following an increase in the market price of coal because the demand to coal surpassed the supply in 2008, we began paying our coal suppliers in advance in order to have a stable supply of coal.

Gross profit.   Gross profit grew 15.9% from RMB 175.9 million for 2007 to RMB 203.9 million for 2008. Our gross profit margin decreased 0.8% from 27.7% for 2007 to 28.5% for 2008.

Other income.   Other income increased 17.4% from approximately RMB 2.3 million for 2007 to RMB 2.7 million for 2008. Other income from selling waste parts grew 4.5% from approximately RMB 2.2 million for 2007 to RMB 2.3 million for 2008. Interest income was RMB 0.4 million for 2008 compared to RMB 0.2 million for 2007, representing an increase of RMB 0.2 million or 134.5%.

Selling and distribution expenses.   Selling and distribution expenses were RMB 6.6 million for 2008, compared to RMB 6.1 million for 2007, representing an increase of RMB 0.5 million or 8.2%.

Administrative expenses.   General and administrative expenses were RMB 9.9 million for 2008, compared to RMB 6.2 million for 2007, representing an increase of RMB 3.7 million, or 59.7%. The increase was mainly attributable to (i) the costs relating to the Company preparing to list on a foreign exchange in 2008, which did not continue due to the financial crisis and resulted in expenses of RMB 1.7 million in 2008 and (ii) the increase in salaries to RMB 3.7 million for 2008 compared to RMB 2.3 million for 2007, representing an increase of RMB 1.4 million, or 60.9%, due to the increase in the number of employees in the administration department by 30 positions during the year of 2008.

Finance costs.   Finance costs increased RMB 0.36 million to RMB 0.94 million for 2008 from RMB 0.58 million for 2007. The increased interest expense was mainly attributable to an increase in bank loans of RMB 2.8 million in the year 2008 and multiple raises of the average interest rates by the Chinese government during 2008.

Profit before taxation.   Profit before taxation grew 14.2% from RMB 165.5 million for 2007 to RMB 189.0 million for 2008. The increase was mainly due to the increase in revenue in 2008.

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Income taxes.   We incurred an income tax expense of RMB 24.0 million for 2008 compared to RMB 19.9 million for 2007, representing an increase of RMB 4.1 million or 21.0%. We were entitled to a tax holiday and had an effective tax rate of 12% in 2007 and 12.5% in 2008.

Profit attributable to shareholders.   Profit attributable to shareholders grew 13.3% from RMB 145.6 million for 2007 to RMB 165.0 million in 2008 as a result of the factors described above.

Liquidity and Capital Resources

The following table presents a summary of our cash flows and beginning and ending cash balances for the years ended December 31, 2007, 2008, and 2009 and for the six months ended June 30, 2009 and 2010:

		Year Ended December 31,												Six Months Ended June 30,
RMB (‘000)		2007				2008				2009				2009				2010
														(Unaudited)				(Unaudited)
Net cash provided by operating activities			107,262				155,230				159,620				42,140				47,074
Net cash used in investing activities			(4,156	)			(6,625	)			(152,294	)			(243	)			(140,599	)
Net cash (used in)/provided by financing activities			(97,192	)			(115,506	)			91,100				(256	)			(11,397	)
Net cash flow			5,914				33,099				98,426				41,641				(82,128	)
Cash and cash equivalents at beginning of year			12,593				18,507				51,606				51,606				150,121
Effect of foreign exchange rate differences			—				—				89				—				(7	)
Cash and cash equivalents at end of year			18,507				51,606				150,121				93,247				67,986

We have historically financed our liquidity requirements mainly through operating cash flow and short-term bank loans.

Cash flows from operating activities.   Our net cash inflow provided by operating activities was RMB 47.1 million for the six months ended June 30, 2010, an increase of RMB 5.0 million, or 11.9% from the RMB 42.1 million net cash provided by operating activities for the same period in 2009. Our net cash flow provided by operating activities for the six months ended June 30, 2010 was primarily attributable to profit before tax of RMB 136.7 million, an increase in inventories of RMB 26.7 million, an increase in trade payables of RMB 32.0 million due to increased procurement from suppliers, increase in trade receivables of RMB 67.3 million, and taxes paid of RMB 31.3 million. Trade receivables increased due to an increase in product deliveries to our distributors. Accrued liabilities and other payables decreased by RMB 12.4 million because certain sales discount payable from 2009 were paid in the first half of 2010.

For the year ended December 31, 2009, our net cash inflow provided by operating activities was RMB 159.6 million and was primarily attributable to profit before tax of RMB 212.1 million, a decrease in inventories of RMB 16.9 million due to increased deliveries of our products and decreased inventory level, an increase in trade payables of RMB 32.0 million due to increased procurement from suppliers, and an increase in trade receivables of RMB 75.0 million. Trade receivables increased due to an increase in product deliveries to our distributors. Accrued liabilities and other payables decreased by RMB 7.7 million because certain sales discount payable from 2008 were paid in the first half of 2009. Income tax paid increased by RMB 23.5 million because we started to pay tax at a 25.0% enterprise income tax rate in 2009, as opposed to 12.5% in 2008.

For the year ended December 31, 2008, our net cash inflow from operating activities was RMB 155.2 million and was primarily attributable to profit before tax of RMB 189.1 million, a decrease in inventories of RMB 24.7 million due to increased deliveries of our products during the fourth quarter of 2008 and an increase in accrued liabilities and other payables of RMB 10.3 million due to an increase in sales discount payable, partially offset by an increase in trade receivables of RMB 14.6 million due to increased deliveries to distributors in the fourth quarter and a decrease in trade payables of RMB 45.1 million due to the fact that our coal suppliers have required payment in advance since the second quarter of 2008, and an adjustment for income tax paid of RMB 24.3 million due to the commensurate growth of the business.

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For the year ended December 31, 2007, our net cash inflow from operating activities was RMB 107.3 million and was primarily attributable to profit before tax of RMB 165.5 million and an increase in trade payables of RMB 27.4 million due to increased purchases of raw materials from our suppliers, partially offset by an increase in inventories of RMB 41.2 million due to a relative proportional increase in output in 2007, an increase in trade receivables of RMB 40.8 million due to sales volume increased in the second half of the year and an adjustment for income tax paid of RMB 17.6 million due to the commensurate growth of the business.

Cash flows from investing activities.   Our cash flows provided by/used in investing activities were primarily payments related to the acquisition/sale of property, plant and equipment and interest.

Net cash used in investing activities in the six months ended June 30, 2009 was RMB 0.2 million, compared to RMB 140.6 million of net cash outflow used in investing activities in the same period of 2010. The increase was mainly due to an increase in acquisition of property, plant and equipment for the final stage of phase I construction and the initial stage of phase II construction of the Hengdali facility and for improvements at the Hengda facility, which led to capital expenditures of RMB 106.3 million during the first six months of 2010.

For the year ended December 31, 2009, our net cash used in investing activities was RMB 152.3 million and was mainly due to an increase in acquisition of property, plant and equipment to RMB 8.0 million and a prepayment of a portion of the acquisition cost of Hengdali of RMB 145.4 million during the year ended December 31, 2009.

For the year ended December 31, 2008, our net cash used in investing activities was RMB 6.6 million and was mainly attributable to purchase of property, plant, and equipment of RMB 7.0 million, partially offset by RMB 0.4 million in interest received.

For the year ended December 31, 2007, our net cash used in investing activities was RMB 4.2 million and was mainly attributable to purchase of property, plant, and equipment of RMB 4.3 million, partially offset by RMB 0.1 million in interest received.

Cash flows from financing activities.   Net cash generated in financing activities was RMB 0.3 million for the six months ended June 30, 2009, as compared to approximately RMB 11.4 million cash provided by financing activities in the same period of 2010.

For the year ended December 31, 2009, our net cash generated in financing activities was RMB 91.1 million and was primarily attributable to RMB 104.5 million of cash acquired in the reverse recapitalization.

For the year ended December 31, 2008, our net cash used in financing activities was RMB 115.5 million and was primarily attributable to a RMB 120.0 million dividend paid to the shareholders.

For the year ended December 31, 2007, our net cash used in financing activities was RMB 97.2 million and was primarily attributable to a RMB 91.2 million dividend paid to the shareholders and a RMB 10.5 million repayment to a director.

Inventory and Accounts Receivable.   Our inventory turnover rate grew from 3.26 times in 2007 to 3.70 times in 2008 due to an increase in the delivery of our products during the fourth quarter of 2008. The annual inventory turnover rate grew to 4.73 times for the year ended December 31, 2009 and grew to 2.57 times for the six months ended June 30, 2010, because the rate of our delivery of products increased in both periods. Based on our historical experience, we believe that the value of our current inventories is realizable.

The average number of days in which we received payment on our trade receivables was 90 days for the year ended December 31, 2007. It was 93 days in 2008 and grew to 102 days for the year ended December 31, 2009 due to the increase in sales to distributors in the second quarter of 2009. Trade receivables turnover was 109 days as of June 30, 2010. Based on our historical experience, we believe that our trade receivables are collectable.

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The major sources of our liquidity for the fiscal years 2007, 2008 and 2009 and six months ended June 30, 2010, were cash generated from operations and short term borrowings. We do not use off-balance sheet financing as a source of liquidity or for other financing purposes. In addition, we increased our liquidity in 2009 by obtaining access to RMB 81.2 million ($11.9 million) in cash through the business combination.

Our working capital was RMB 237.3 million at June 30, 2010 as compared to RMB 440.7 million at December 31, 2009, which was primarily due to a decrease in prepayment for the acquisition of Hengdali for RMB 149.0 million and capital expenditures of RMB 106.3 million during the first six months of 2010. Our working capital was RMB 440.7 million at December 31, 2009 as compared to RMB 181.1 million at December 31, 2008, which was primarily due to an increase in trade receivables of RMB 75.0 million. Our working capital was RMB 181.1 million at December 31, 2008 as compared to RMB 149.9 million at December 31, 2007, which was primarily due to a decrease in trade payables of RMB 45.1 million.

Cash and bank balances were RMB 68.0 million as of June 30, 2010, as compared to RMB 150.1 million at December 31, 2009, RMB 51.6 million at December 31, 2008 and RMB 18.5 million at December 31, 2007.

As of June 30, 2010, our total outstanding bank loans (both short-terms loans and long-term loans) amounted to RMB 104.7 million with interest rates in the range of 4.85% to 6.11% per annum and maturity dates in the range of September 4, 2010 to September 19, 2013.

Operating lease commitments totaled RMB 55.8 million as of June 30, 2010.

In our opinion, our working capital, including our cash, income and cash flows from operations, and financing from certain investors of Hengdali, is sufficient for our present requirements.

However, we may sell additional equity or obtain credit facilities to enhance our liquidity position or to increase our cash reserve for future acquisitions and capital equipment expenditures. The sale of additional equity would result in further dilution to our shareholders. The incurrence in indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot provide assurance that financing will be available in amounts or on terms acceptable to us, if at all.

Inventory Management

Our inventory is comprised of raw materials purchased from our suppliers located in Fujian, Guangdong and Jiangxi Provinces. The inventory comprised mainly of clay, coal, colorings, and glazing materials.

We have sufficient raw materials to support, on average, three weeks of production at any point in time. This helps to minimize any potential delays in our production process which may arise due to insufficient raw materials. Our production of ceramic tiles is based on customers’ orders. In doing so, we minimize storage space and maintain a relatively low inventory level of finished products. Our inventory turnover based on the year-end closing inventory balances for the years ended 2007, 2008 and 2009 and six months ended June 30, 2009 and 2010 are as follows:

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
														(Unaudited)				(Unaudited)
Inventories (RMB ‘000)			156,244				131,562				114,658				107,845				152,849
Inventory turnover (days) (1)			112				98				77				79				70

(1)

The average inventory turnover is computed based on the formula: (simple average of the opening and closing inventories balance in a financial year / cost of goods sold) × 365 days.

There was no provision for inventory obsolescence, inventory written off or inventory written down to net realizable value in the last three years ended December 31, 2009.

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Credit Management

Credit terms to our customers

We typically extend credit terms of approximately 90 days to our customers; credit terms can vary from customer to customer. We will grant credit terms based on the reputation, creditworthiness, size of orders, payment records and number of years we have done business with the customer. We do not have a goods return policy.

Personnel from our sales and marketing department typically conduct visits to new customers to evaluate their credit worthiness before entering into any arrangements with them. In addition, we will usually request a deposit of RMB 400,000 from new distributors upon signing a distributorship agreement.

Our average trade receivables’ turnover days in the last three years ended December 31, 2009 and during the six months ended June 30, 2009 and 2010 were as follows:

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
														(Unaudited)				(Unaudited)
Trade receivables (RMB ‘000)			181,236				195,848				270,840				251,664				338,120
Trade receivables turnover (days) (1)			95				93				102				106				93

Credit terms from our suppliers

Our suppliers typically extend credit periods of three to five months for our purchases of clay while our suppliers for the other materials including coloring, glazing and packaging generally extend a credit period of approximately three to six months and coal suppliers generally extend us credit periods of about one month.

Our average trade and bills payables’ turnover days in the last three years ended December 31, 2009 and during the six months ended June 30, 2009 and 2010 were as follows:

		Year Ended December 31,												Six Months Ended June 30,
		2007				2008				2009				2009				2010
														(Unaudited)				(Unaudited)
Trade payables (RMB ‘000)			137,948				92,888				126,251				94,847				169,770
Trade payables turnover (days) (1)			118				105				97				122				118

In periods where raw material pricing is favorable, we will pay our suppliers in advance. This happened when our trade payables turnover fell from 118 days in 2007 to 97 days in 2009 when the price of coal decreased and we started paying coal suppliers in advance.

Trade payables turnover was 118 days as of June 30, 2010 compared with 97 days as of December 31, 2009. The increase in the trade payables turnover resulted from production outsourcing arrangements with the Company’s Original Equipment Manufacturer in the second quarter of 2010. The use of manufacturing outsourcing was necessary to meet strong demand for our products which exceeded our current capacity despite the additional production from Hengdali which already significantly increased our manufacturing capacity in the first quarter of 2010.

Capital Expenditures

Our capital expenditures primarily consist of expenditures on property, plant and equipment. Capital expenditures on property, plant and equipment was RMB 106.3 million ($15.6 million) for the six months ended June 30, 2010 compared to RMB 0.4 million ($0.06 million) for the same period in 2009. In the

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six months ended June 30, 2010, we invested RMB 32.8 million ($4.8 million) to replace and improve older manufacturing equipment at the Hengda facility. The enhancement of production lines is expected to increase annual capacity at the Hengda facility to 32.2 million square meters of ceramic tiles by the end of 2010 from 28 million square meters per year. In the six months ended June 30, 2010, we invested RMB 30.3 million ($4.4 million) to complete Phase I of the Hengdali facility expansion. The capital expenditures for phase II of the Hengdali facility expansion is expected to be approximately RMB 136.4 million ($20 million) in 2010. The completion of phase II construction at the Hengdali facility is expected to increase capacity to 24 million square meters of ceramic tiles by the end of 2010. As a result, we expect to have total capacity of approximately 56.2 million square meters by the end of 2010 and to incur total capital expenditure of approximately $41.6 million in 2010, of which $15.6 million has been spent in the first half (all of which was spent in the second quarter) of 2010.

Our capital expenditures on property, plant and equipment were RMB 8.0 million for the year ended December 31, 2009 compared to RMB 7.0 million for the same period in 2008. We finance our capital expenditure requirements primarily through cash flows from operating activities.

In connection with the phase II and phase III construction of the Hengdali facility and the enhancement of the Hengda facility, we expect to incur capital expenditures in excess of RMB 484.8 million ($71.3 million) from 2010 to 2011, which includes the RMB 106.3 million ($15.6 million) incurred during the six months ended June 30, 2010.

Contractual Obligations

Our contractual obligations consist mainly of short-term debt obligations and operating lease obligations. The following table sets forth a breakdown of our contractual obligations as of June 30, 2010:

		Payment Due by Period
		Total				Less than 1 year				1 – 3 years				3 – 5 years				More than 5 years
		(RMB in Thousands)
Short-term debt obligations (1)			69,700				69,700				—				—				—
Long-term debt obligations (1)			35,000				—				25,000				10,000				—
Operating lease obligations (2)			55,834				14,984				21,300				19,550				—
Total			160,534				84,684				46,300				29,550				—

The following table sets forth further details regarding our loans outstanding as of June 30, 2010:

Short-term debt obligations:		Amount of loans				Interest rates (p.a)
Agricultural Bank of China			RMB 20 million				6.1065%
China Citic Bank			RMB 44.7 million				4.8600% to 6.1065%

Long-term debt obligations:		Amount of loans				Interest rates (p.a)
Agricultural Bank of China (1)			RMB 40 million				6.1065%

Off-Balance Sheet Arrangements

We do not have any outstanding off-balance arrangements and have not entered into any transactions that are established for the purpose of facilitating off-balance sheet arrangements.

Restatement to Prior Year Financial Statements

In the financial years ended December 31, 2006, 2007 and 2008, we recognized cash consideration that Hengda gave to its distributors to promote sales and timely collection as selling and distribution expenses. We

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and our independent auditor revisited the contractual relationship between Hengda and its distributors in 2009. It was determined that we have incorrectly applied IAS 18, Revenue in recognizing this cash consideration as selling and distribution expenses.

IAS 18 requires revenue be measured at the fair value of the consideration received or receivable, which is normally the price specified in the sales contracts taking into account the amount of any trade discounts and volume rebates allowed by the vendors. We now believe that revenue should be reduced since the cash considerations Hengda paid to its distributors are a combination of volume rebates and settlement discounts in substance. As a result, we restated the comparative revenue, gross profit, and selling and distribution expense figures in the Statements of Comprehensive Income for the financial years ended December 31, 2007 and 2008, and reclassified RMB 32,107,000 and RMB 39,388,000 from selling and distribution expenses to sales rebates and discounts (a contra revenue account) to reflect our revenue at the fair value of the consideration received or receivable for the sales of goods, net of rebates and discounts. This reclassification reduced revenue, gross profit, and selling and distribution expenses by RMB 32,107,000 and RMB 39,388,000 for the financial years of 2007 and 2008, respectively. There was no effect over the profit attributable to shareholders and earnings per share (basic and diluted).

Internal Control over Financial Reporting

Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2009. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures as of December 31, 2009 were effective.

Disclosure controls and procedures are designed to provide that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Management’s annual report on internal control over financial reporting

Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting purposes in accordance with IFRS. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the criteria established in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2009.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Although we have recently engaged an external accounting advisory company to assist us in handling certain nonroutine transactions and consolidations, management believes that our corporate accounting

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personnel does not have adequate in-house knowledge and experience of IFRS to identify, handle and review complex accounting and reporting issues, which, in management’s view, constitute a material weakness in our internal control over financial reporting.

This material weakness resulted in our inability to detect an accounting error where we incorrectly recorded sales rebates and discounts as selling and distribution expenses in the financial years ended December 31, 2009, 2008 and 2007. The identification of this error resulted in an adjustment of RMB 44,380,000 in revenues for the year ended December 31, 2009 and restatement adjustments of RMB 32,107,000 and RMB 39,388,000 in revenues for the years ended December 31, 2007 and 2008, respectively. The error did not affect our reported net income. This error was not detected by our internal control procedures.

We believe that the appointment of Mr. Bill Stulginsky, who has over thirty-six years of public accounting experience and was a partner at PricewaterhouseCoopers and predecessor firms for twenty four years prior to his retirement, as the chairman of our audit committee will help us to strengthen our governing controls over financial reporting.

In addition, our corporate accounting team has attended IFRS training sessions provided by our financial consultants during the year and we believe these training sessions have helped our accounting team to become more cognizant of the differences between IFRS and the generally accepted accounting principles in the PRC and enhanced their awareness of new and emerging IFRS pronouncements with potential impact over our financial reporting.

Furthermore, we have and plan to continue to strengthen the information-sharing process between us and our external accounting advisory consultants, with the goal of improving the consultants’ knowledge of our business and their capability to help us identify accounting issues as they arise and make informed financial reporting decisions.

Critical Accounting Policies and Judgment

Our consolidated financial statements are prepared in accordance with IFRS including related interpretations as issued by IASB, and have been consistently applied throughout the years ended December 31, 2007, 2008, and 2009. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions.

Critical Accounting Estimates and Assumptions

Depreciation of Property, Plant and Equipment

Changes in expected level of usage and technological developments could impact the economic useful lives and the residual values of property, plants and equipment, therefore future depreciation charges could be revised.

Income Tax

We recognize liabilities for expected taxes based on estimates of whether additional taxes will be due. When the final tax outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Impairment of trade receivables

We assess the collectability of trade receivables, which estimate is based on the credit history of our customers and the current market condition. Management assesses the collectability of trade receivables at the balance sheet date and makes provision for non-collectability, if any.

Net realizable value of inventories

Net realization value of inventories is the management’s estimation of future selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the

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current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of various market factors.

Critical judgments in applying the entity’s accounting policies

Accounting for the Success Winner Acquisition

We have accounted for the acquisition of Success Winner as a reverse recapitalization. Our management believes the acquisition agreement resulted in the former owner of Success Winner obtaining effective operating and financial control of the combined entity through 1) the owner’s majority shareholder interest in the combined entity immediately after the acquisition, 2) his significant representation on the Board of Directors and 3) Success Winner’s management being named to all the senior executive positions.

Prior to the acquisition, China Ceramics had no operating business. Accordingly, our management believes the acquisition does not constitute a business combination and treats it as a capital transaction for accounting purposes.

Accounting for the equity-settled share-based payment to financial advisors

The management has measured its equity-settled share-based payment to some financial advisors indirectly at the cost of the equity instruments granted as the fair value of the services could not be estimated reliably.

The management believes this equity-settled share-based payment, together with the audit, legal and consulting fees incurred for China Ceramics’ acquisition of Success Winner, were all incremental transaction costs directly related to the reverse recapitalization transaction and has charged these costs directly to equity to the extent of net monetary assets received and charged the incremental transaction costs in excess of the net monetary assets received to expense.

Determining the date when China Ceramics obtained control of Hengdali

The management has regarded January 8, 2010, the date when the registration and business license was officially transferred to us from Hengdali’s former shareholders and when we appointed an executive officer to take over control of Hengdali’s operating and financing activities, as the date we obtained control of Hengdali.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements.

Foreign Currency Fluctuations

We currently do not have any foreign exchange exposure as our sales and purchases are predominantly denominated in RMB. However, in the future, a proportion of our sales may be denominated in other currencies as we expand into overseas markets. In such circumstances, we may be subject to foreign currency fluctuations in the future.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods, net of rebates and discounts. Provided it is probable that the economic benefits will flow to us and the revenue and costs, if applicable, can be measured reliably, revenue is recognized as follows:

Inventories

Inventories are carried at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and applicable selling expenses.

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Cost is determined using the weighted average basis, and in the case of work in progress and finished goods, comprises direct materials, direct labor and an appropriate proportion of overhead.

Property, plant and equipment

Buildings held for own use which are situated on leasehold land, where the fair value of the building could be measured separately from the fair value of the leasehold land at the inception of the lease, and other items of plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Buildings held under leasing agreements are depreciated over their expected useful lives of 40 years.

Depreciation on other assets is provided to write off the cost less their residual values over their estimated useful lives, using the straight-line method, at the following rates per annum:

Renovation			10%
Plant and machinery			10% – 20%
Motor vehicles			10%
Office equipment			10% – 20%

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Any revaluation surplus remaining in equity is transferred to retained earnings on the disposal of land and building.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to us and the cost of the item can be measured reliably. All other costs, such as repairs and maintenance, are charged to profit or loss during the financial period in which they are incurred.

Financial assets

Our accounting policies for financial assets are set out below.

Financial assets are classified into the following category: loans and receivables.

Management determines the classification of our financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date.

All financial assets are recognized when, and only when, we become a party to the contractual provisions of the instrument. Regular way purchases of financial assets are recognized on trade date. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

At each reporting date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognized based on the classification of the financial asset.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortized cost using the effective interest method, less any impairment losses. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.

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Impairment of financial assets

At each reporting date, financial assets are reviewed to determine whether there is any objective evidence of impairment. Objective evidence of impairment of individual financial assets includes observable data that comes to our attention about one or more of the following loss events:

If any such evidence exists, the impairment loss is measured and recognized as follows:

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognized in profit or loss of the period in which the impairment occurs.

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal is recognized in profit or loss of the period in which the reversal occurs.

For financial assets other than trade receivables that are stated at amortized cost, impairment losses are written off against the corresponding assets directly. Where the recovery of trade receivables is considered doubtful but not remote, the impairment losses for doubtful receivables are recorded using an allowance account. When we are satisfied that recovery of trade receivables is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account in respect of that receivable are reversed.

Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognized in profit or loss.

Financial liabilities

Our financial liabilities include bank loans, trade and other payables and accrued liabilities. They are included in line items in the statement of financial position as borrowings under current or non-current liabilities, accrued liabilities or trade and other payables.

Financial liabilities are recognized when we become a party to the contractual provisions of the instrument. All interest related charges are recognized in accordance with our accounting policy for borrowing costs.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognized in profit or loss.

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CORPORATE HISTORY AND STRUCTURE

Our principal PRC-based operating subsidiary, Hengda, was established on September 30, 1993 under the laws of PRC. All of the interests in Hengda are 100% owned by Stand Best as of June 30, 2010. Hengda is a wholly foreign-owned enterprise in China.

Our other PRC-based operating subsidiary, Hengdali, was established on June 27, 2008 under the laws of PRC. All of the interests in Hengdali are 100% owned by Hengda as of June 30, 2010.

Stand Best was established on January 17, 2008 under the laws of Hong Kong. Stand Best acquired the entire shareholdings of Hengda on April 1, 2008 for consideration of RMB 58,980,000. As a result of this acquisition, Hengda became the wholly owned subsidiary of Stand Best.

Success Winner was established on May 29, 2009 under the laws of British Virgin Islands with Mr. Wong Kung Tok as its sole shareholder and sole director.

On June 30, 2009, pursuant to the capitalization agreement dated June 30, 2009, Success Winner was issued the 9,999 shares allotted by Stand Best as per the capitalization exercise of a shareholder’s loan of HK$67.9 million (RMB 58.9 million). On the same date, the shareholder of Stand Best, Mr. Wong Kung Tok transferred all his shareholdings in Stand Best to Success Winner. Therefore, Mr. Wong Kung Tok, from June 30, 2009 to November 20, 2009, indirectly owned 100% of Stand Best and in turn, 100% of Hengda.

CHAC was incorporated in Delaware on June 22, 2007 and was organized as a blank check company for the purpose of acquiring, through a stock exchange, asset acquisition or other similar business combination, or controlling, through contractual arrangements, an operating business that had its principal operations in Asia, with a focus on potential acquisition target in China.

Pursuant to the terms of a merger and stock purchase agreement dated August 19, 2009, China Ceramics acquired all of the outstanding securities of Success Winner. On November 20, 2009, CHAC merged with and into China Ceramics, its wholly owned British Virgin Islands subsidiary.

Prior to China Ceramics’ acquisition of Success Winner, neither CHAC nor China Ceramics’ had any operations.

On November 19, 2009, Hengda entered into a definitive acquisition agreement to acquire a new production facility in Gaoan, Jiangxi Province, PRC by purchasing 100% of the equity interests in Hengdali. The closing of the acquisition was subject to the Gaoan City Administration for Industry and Commerce transferring the registration and business license of Hengdali from Hengdali’s former shareholders to Hengda. The transfer occurred on January 8, 2010. Hengda appointed an executive officer to take control over Hengdali’s operating and financing activities on the same day. In total, Hengda assumed loans of RMB 60.0 million and paid cash consideration of RMB 185.5 million for the acquisition, of which RMB 145.4 million was advanced to Hengdali’s former shareholders by December 31, 2009.

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The following chart reflects our organizational structure as of the date of this prospectus:

China Ceramics’ History

China Ceramics is a British Virgin Islands limited liability company whose predecessor, CHAC, incorporated in Delaware on June 22, 2007, was organized as a blank check company for the purpose of acquiring, through a stock exchange, asset acquisition or other similar business combination, or controlling, through contractual arrangements, an operating business, that has its principal operations in Asia.

Pre-IPO Private Placement

On November 21, 2007, CHAC completed a private placement of 2,750,000 warrants to Paul K. Kelly, James D. Dunning, Jr., Alan G. Hassenfeld, Gregory E. Smith, Xiao Feng, Cheng Yan Davis, Soapakij (Chris) Cheavranant and Ruby Bin Kao, collectively referred to as the founding shareholders, as a result of which CHAC received net proceeds of $2,750,000.

The Initial Public Offering

On November 21, 2007, CHAC consummated its initial public offering of 12,000,000 units. On December 14, 2007, the underwriters of CHAC’s initial public offering exercised their over-allotment option for an offering of 800,000 units. Each unit in the offering consisted of one share and one share purchase warrant. Each warrant entitles the holder to purchase from China Ceramics one share in China Ceramics at an exercise price of $7.50. CHAC’s shares and warrants started trading separately as of December 17, 2007.

The Business Combination

On November 20, 2009, CHAC merged with and into China Ceramics, its wholly owned British Virgin Islands subsidiary.

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Pursuant to the terms of a merger and stock purchase agreement dated August 19, 2009, China Ceramics acquired all of the issued and outstanding shares of Success Winner held by its former shareholder in exchange for $10.00 and 5,743,320 shares of China Ceramics shares. In addition, 8,185,763 shares of the China Ceramics shares were placed in escrow (the “Contingent Shares”) to be released to the seller in the event certain earnings and stock price thresholds are achieved. Of the Contingent Shares, up to 5,185,763 Contingent Shares will be released based on achieving growth in either net earnings before tax or net earnings after tax, depending on the year, following the completion of an audit in accordance with IFRS. Additionally, 3,000,000 Contingent Shares will be released if China Ceramics shares close at or above certain share price targets for any twenty trading days within a thirty trading day period prior to April 30, 2012. On May 26, 2010, pursuant to the terms of the agreement relating to our acquisition of Success Winner, we issued 1,214,127 shares to Mr. Wong Kung Tok.

Concurrent with the business combination, we redeemed and purchased an aggregate of 11,193,149 of our shares from our public stockholders for an aggregate purchase price of approximately $109.6 million (in transactions intended to assure the successful completion of the business combination). Such shares were voted in favor of the business combination and the other related proposals.

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directly correlates to activity in the construction and real estate development industries. The ceramic tile industry’s two primary markets in the PRC are residential construction applications and commercial construction applications.

In 2009, the PRC ceramic tile industry (both interior and exterior) manufactured more than 5.3 billion square meters, representing year-over-year growth of approximately 15.4% according to a report published by China Research and Intelligence Co. Ltd. We believe that domestic demand in the PRC accounts for the majority of total demand for ceramic tiles produced in the PRC. China is also the world’s largest exporter of ceramic tiles, now accounting for approximately one-third of total global production of ceramic tiles.

China Research and Intelligence Co. Ltd. estimates that global demand for ceramic tile products will grow by approximately 20% in 2010 driven mostly by continued favorable economic trends and policies in China and the gradual recovery of the global economy. Consequently, the size of the construction materials market in China is forecasted to grow from approximately $180 billion in 2006 to $324 billion by 2013, a 7-year compounded annual growth rate of 8.7%.

Key Factors Affecting the Chinese Ceramic Tile Industry

The overall performance of the ceramic tile industry is influenced by consumer confidence, spending for durable goods, interest rates, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy. Demand for our ceramic tile products in the PRC heavily depends on the following economic factors and government policies designed to drive growth in the construction and real estate development sectors of the PRC economy.

Urbanization

Over the last twenty years, China has experienced rapid urbanization due to the increasingly limited capacity of rural areas to provide adequate economic support for a large agrarian population, the increasing disparity in disposable incomes between rural and urban dwellers and the easing of restrictions which historically limited rural to urban migration from rural areas to towns and cities. The development of an industrial base and service sector in urban areas has also driven large labor pools with a broad range of skills to urban areas. It is estimated that China’s urban population will expand from 572 million in 2005 to 926 million in 2025 and hit the one billion mark by 2030. In 20 years, China’s cities will have added 350 million people to its urban population — more than the entire population of the United States today. As a result of the urbanization trend and the associated need to expand an underdeveloped infrastructure to accommodate and house such growth, we believe that commercial and residential construction will expand measurably in future years thereby creating additional demand for our products.

Potential of Tier II and III cities

Much of the growth in China’s GDP is being driven by economic activity in Tier II and Tier III cities, such as Chengdu, Chongqin, and Tianjin, which commonly have populations that exceed 10 million individuals who often live in dwellings that do not meet modern standards. According to Jones Lang LaSalle, Tier I cities will account for only 10% of China’s commercial real estate activities by 2020, which highlights the attractive commercial development opportunities in Tier II and III cities. The economic impact of this trend is being felt across China’s Tier II and Tier III cities as the upswing in new residential and commercial construction projects and renovations is generating new demand for construction materials.

Government Stimulus

At the height of the global financial crisis in 2008, China launched a $585 billion economic stimulus package with the goal of spurring economic activity through both public and private investment in large infrastructure projects and real estate development. As a result of these measures, development loans and land-reserve loans from state-owned banks were made more accessible to real estate developers for new projects and almost 110,000 hectares of land were made available for residential use in April 2010 by the Ministry of Land and Resources (“MLR”). The PRC stimulus package also focused on the demand side of the real estate industry as credit restrictions for mortgages were eased and real estate sales tax lowered thereby making real estate investment more attractive. As a result, China’s construction and real-estate development sectors have grown since implementation of the policies. This trend is creating an increased demand for construction

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materials. In addition, over 5 million buildings, representing 40 billion square meters of floor area, are expected to be built between 2008 and 2025 according to the McKinsey Global Institute. The government has also implemented measures to discourage speculation in order to control any rapid rise in housing prices.

Importance of distributors

The majority of the exterior ceramic tile manufacturers do not have sufficient resources to provide their own sales coverage nationwide and rely heavily on local distributors with roughly 73% of total sales pushed through such channels. As competition has intensified, many manufactures have started to bid directly to real-estate developers for large construction projects. Direct sales represented 25% of the total from 2009 to 2010 and market participants expect this share will continue to increase, placing a premium on a manufacturer’s internal sales force while requiring product lines with greater flexibility to meet direct customer demands.

Low-income / social welfare housing

A central aspect of the government’s housing policy has been to increase the availability of welfare housing inventory. Approximately 77% of the new land supply targets announced in April 2010 by the MLR have been earmarked for low-income, social welfare and small/mid-sized housing, much of this in Tier II and III cities. This plan is expected to produce approximately 3.0 million new social welfare housing units and 2.8 million new public rental housing units. The central government has committed to provide the necessary financial support, budgeting RMB63.2 billion ($9.2 billion) for 2010 towards the construction effort, representing a 15% increase over 2009’s budget, according to Citigroup Capital Markets. Citigroup Capital Markets estimates that roughly 40-50% of the total construction cost is covered by the central government with the other 50-60% of the total construction cost being paid for by the real estate developers. We believe that the increase in low-income and welfare housing will trigger greater demand for our products.

Industry Product Offerings

There are two product segments within the ceramic tile industry: exterior and interior.

Exterior ceramic tiles

Exterior ceramic tile is mainly used as a decorative and protective component on building exteriors. Unlike other types of tiles, exterior ceramic tile must endure harsh environmental conditions and typically is manufactured to be water/dirt-resistant, non-corrosive and energy efficient. In addition, exterior ceramic tiles have other demands that interior ceramic tiles do not always have, including mandatory expansion joints, moisture considerations and thermal demands. Depending on the ultimate use of the ceramic tile and customer preferences, exterior ceramic tiles are often manufactured with customized glazing, coloring and other design and aesthetic features.

Interior ceramic tiles

Interior ceramic tiles are mainly used for decorative purposes on walls and floors in kitchens and bathrooms. Interior ceramic tiles are differentiated by design, style and perceived quality. Within China, interior ceramics tiles are typically purchased by residential owners or renovation contractors rather than property developers.

The manufacturing process is similar for both segments, however the distribution channels are different. Interior ceramic tiles are sold through retail stores and directly to contractors or residential owners. Exterior ceramic tiles are sold through distributors or directly to large property developers. Due to the higher cost distribution chain and typically smaller order sizes, profit margins are generally less within the interior ceramic tile industry.

Future Product Trends

As the ceramic tile industry in the PRC matures, builders are demanding construction materials that reduce building weight, making it possible to use light building structures and accelerate the speed of construction. Government policies meant to address energy efficiency are promoting the use of innovative wall materials, particularly those performing well in heat preservation and insulation and that are light in weight, and manufactured utilizing waste materials, less energy and fewer raw materials. In an effort to differentiate their products and meet government policies, ceramic tile manufacturers are increasingly focusing on research and development efforts.

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China Ceramics’ Products

We produce five types of ceramic tiles:

Porcelain tiles :  Porcelain tiles are fired at extreme temperatures and are therefore stronger and harder than other types of ceramic tiles. The material and the color is the same throughout and porcelain tiles are extremely durable. Although porcelain tiles have a matte surface, they absorb less water than other ceramic tiles, and as such, they are a superior solution for exterior tiling where there is frequent exposure to moisture.

Glazed tiles :  Glazed tiles have a glossy finish and color patterns may be added to the exterior surface of the tile. The glaze does not go beyond the exterior surface of the tile and the interior color will show if the tile is chipped. Although glazed tiles are less water-resistant than matte porcelain tiles, they are easier to clean due to their glossy surface.

Glazed porcelain tiles :  Glazed porcelain tiles combine the advantages of porcelain tiles and glazed tiles, thus enabling the tiles to have a porcelain body with a stain-proof and glossy finish.

Rustic tiles :  Rustic tiles have greater versatility in their design as textures and colors can be added to their exterior surfaces and therefore can be used in more decorative situations. In addition to being used on exterior walls, rustic tiles are also used for interior walls and flooring.

Ultra-thin tiles :  Ultra-thin tiles can be as thin as 4.0 mm, about half the thickness of traditional tiles. Due to their thinness, these tiles are more environmentally-friendly as the production process requires fewer raw materials and less energy. When used in combination with a specialized insulating material, the combination enables greater heat retention in the winter and keeps buildings cool in the summer with less load bearing stress on exterior building walls. Our ultra-thin tiles were commercialized in 2008.

Ceramic tiles can be manufactured in differing sizes according to customer specifications, with the largest sized tiles measuring 600 mm by 600 mm. We can produce over 2,000 different combinations of products, colors, textures and sizes to meet the various demands of our customers.

Our Competitive Strengths

We believe the following competitive strengths will enable us to take advantage of the rapid growth of the ceramic tile industry in China:

Brand Recognition

We believe that the “Hengda,” “HD,” “Hengdeli,” “HDL,” and “TOERTO” brands are well recognized and highly regarded in markets where our products are sold. In 2005, the brands “Hengda” and “HD” were each certified as a Fujian Well-Known Trademark by the Fujian Well-Known Trademark Award Commission and recognized as a “Chinese Well-known Trademark” in 2005 by the Intermediate People’s Court of Xiantiang City. In 2010, we were recognized with the “Asia’s 500 Most Influential Brands 2010” award from the World Brand Laboratory. Our products are selected for inclusion in strategic and high-profile projects such as the 16 ^th Asian Games, the 11 ^th National Chinese Games Village and the Chinese Academy of Sciences.

Focus on Tier II and Tier III Cities

Because of recent efforts by the PRC government to tighten monetary policy and constrain real estate prices in the “Tier-I” cities such as Beijing, Shanghai, Shenzhen, and Guangzhou, we believe the outlook for our business has improved, given our concentration in Tier-II and Tier-III cities. Approximately 9.8% of our revenue in the six months ended June 30, 2010 was from sales of our products for use in projects in Tier-1 cities, and we expect any weakness in the Tier-1 cities to be offset by continued demand growth in the Tier-2 and Tier-3 cities, driven by urbanization trends as well as by the PRC government’s commitment to low-income housing.

Long-Term Sales Relationships

We have established an extensive distributor network and long term customer relationships, where nine of Hengda’s top ten customers in 2009 have been purchasing from the company for over 10 years each.

Experienced Management Team

Our experienced, professional and dedicated management team brings a wealth of knowledge to our day-to-day operations and provides us with strategic direction. Our Chief Executive Officer and founder, Huang Jia

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Dong, has more than 20 years of experience in the ceramics industry and is Vice-Chairman of the Fujian Province Ceramic Industry Association. The five other members of the senior management team have more than 80 combined years of experience in the ceramic industry.

Modern, environmentally friendly, and efficient manufacturing capabilities

We have modern manufacturing facilities. Our Hengda facility received an ISO 9001:2000 accreditation, an international standard that acknowledged our quality control process. Our employees are required to undergo internal training regarding quality control policies, targets and procedures, as well as production and processing techniques.

We upgraded our Hengda production lines to recover and/or reuse waste water, waste dust, exhaust and kiln after-heat. This upgrade decreased energy costs by 20% in 2008 as compared to 2007. Our new Hengdali production lines were also built using new equipment that incorporates recovery methods for recycling waste water, waste dust, exhaust and kiln after-heat that operate at a higher efficiency rate. We received an Energy Conservation Advance Enterprise Award in 2008 from the Jinjiang City Government.

Focus on Research and Development

We have devoted substantial resources to establishing research and development capabilities in an effort to improve our products and diversify our product mix. Our R&D team has also focused on environmentally friendly products like the ultra-thin tile, which in addition to using fewer raw materials can reduce load-bearing stress and can provide enhanced insulating capabilities, and developed over 2000 types of different product combinations. As of the date of this prospectus, we own four utility model patents. We also exclusively license from our chief executive officer, Huang Jia Dong 11 design patents for no consideration. “Utility model patents” means any new technical solution relating to the shape, the structure, or their combination, of a product, which is fit for practical use. In addition, we were awarded a “High-tech Enterprise Certificate” in 2007 from Fujian Provincial Department of Science and Technology, affirming our innovations in the industry. As of June 30, 2010, our research and development team includes 85 employees and focuses on new products as well as developing energy and resource efficient production methods.

Strategic Location within the PRC

We are located in Jinjiang and Gaoan. The Jinjiang region is an established ceramic and construction material hub in the PRC, and the Gaoan region is a developing ceramic production area supported by the local government. Both of these areas are located near the raw materials required to produce ceramic tiles. As distributors and direct customers come to these areas to procure construction materials for sale, construction projects or export, these locations provide us a regular flow of customers and demand. These centralized industry locations allow us to respond quickly to customer demands and react rapidly to emerging market trends. The proximity and ease of access to major ports and transportation infrastructure in both of these regions enables us to decrease transportation and logistics costs.

Our Growth Strategy

We intend to further strengthen our position as a leading manufacturer of ceramic tiles in China by implementing the following strategies:

Expanding Production Capacity

In January 2010, we acquired Hengdali, a new facility in Gaoan, Jiangxi Province, which has three operating production lines with current annual production capacity of 10 million square meters. Our expansion of the Hengdali facility is to be conducted over three phases. Phase I was completed in 2009 and was put into production in early 2010, bringing current production capacity after completion of phase I to 10 million square meters per year. We anticipate completing phase II by the end of 2010, and expect the production capacity to increase total production to 24 million square meters per year after the completion of phase II. We anticipate completing phase III by the end of 2011, and expect the production capacity to increase by an additional 18 million square meters per year with the completion of phase III. We expect the total capacity of the Hengdali facility to provide 42 million square meters per year starting in 2012. The capital expenditure for phase II is expected to be approximately $20 million in 2010 and for phase III approximately an additional $20 million in 2011.

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Expansion of the Hengda facility will also increase its current production capacity from 28 million square meters per year to 36.8 million square meters by the end of 2011. The capital expenditure for the enhancement of Hengda will be approximately RMB 117 million ($17.2 million) in 2010 and RMB 95 million ($14 million) in 2011.

Combining the two facilities, we expect to have annual production capacity of 78.8 million square meters by the end of 2011 (an increase of 50.8 million square meters since 2009). In addition to a more efficient manufacturing process at both facilities, labor and raw materials costs are also expected to be lower following the capital investments due to the advanced equipment and manufacturing technologies that are being implemented.

Broadening Our Distribution Network

We sell our products mainly to distributors located in major Tier-I cities such as Shanghai and Beijing and Tier-II cities such as Tianjin, Wuhan, Chengdu and Shenyang. We plan to establish and/or increase our presence in Tier-II and Tier-II cities in provinces such as Zhejiang, Anhui, Heilongjiang, Guizhou, Henan, Hebei, Shangdong, Shanxi, Shangxi, and Yunnan.

We believe that our new Hengdali production facility in Gaoan will better position us to expand into new markets and reach additional end customers as transportation and logistical costs of delivering products to these areas will be reduced.

Evaluating Opportunities to Increase Exports

Currently, we export approximately 6% of our products through PRC trading companies. We intend to increase the exported volume of our products with additional PRC trading companies and by promoting our products in regional and international trade shows with a focus on direct selling efforts to property developers in the PRC.

Pursuing Selective Acquisition Opportunities

We will explore business combinations that broaden our product line, expand our customer base and allow us to penetrate new geographic regions. Our management believes that it has sufficient expertise to find and acquire suitable ceramic production facilities and/or companies to increase our scale and geographic diversification within the PRC. Our management intends to only pursue acquisitions where it believes that we will be able to continue to provide cost competitive, high quality ceramic tiles to our customers.

Further Enhancing Our Brand Awareness

We plan to enhance awareness of the “Hengda” or “HD,” “HDL” or “Hengdeli,” and “TOERTO” brands in the PRC exterior ceramic tile industry. Hengda produces our “Hengda” or “HD” brands, which are marketed toward the high-end market. Hengdali produces our “HDL” or “Hengdeli” brands, which are marketed to the mid-level market, and “TOERTO” brand, which is a specialized brand for our large-sized rustic tiles. Our branding strategy is to reach a larger customer base with a wide spectrum of product offerings. We plan on strengthening our brands by marketing our products to property developers and the construction industry, partnering with local distributors, attending national fairs and promoting our products through inclusion in strategic high-profile projects.

Developing Advanced Products That Meet Evolving Building Construction Requirements

We strive to develop new products that address market demand for advanced building materials that meet or exceed evolving government policies for energy efficiency. Our research and development efforts are focused on developing tiles which:

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We will continue to invest in research and development to maintain our competitive position in the industry.

Production Process and Facilities

A typical production line for ceramic tiles is comprised of preparation equipment (which typically includes a miller and a spray dryer), a press (which is used for shaping raw ceramic material), a glazing line (used to supply glazed materials to the pressed tiles), a kiln (used to harden the soft mixture of clay and minerals into a hard ceramic body by subjecting the mixture to high temperature) and packaging.

The following chart sets out the major steps involved in the production process:

The procedures involved in the production of ceramic tiles are summarized below:

Raw materials for ceramic products consist mainly of clay (comprised of inorganic materials such as kaolin, flint and feldspar) obtained mostly from areas adjacent to our facilities, such as Dehua county of Quanzhou city and the Fujian province. Raw materials are inspected by quality control staff upon receipt. Batch calculations that take into consideration both physical properties and chemical compositions of the raw materials are performed to ensure that the right amounts are mixed.

After stringent checks on the quality of the clay and weighing, the raw material department mixes the clay as determined during inspection. The mixture is then sent to a ball mill where water is added to form a slurry for finer grinding. This process takes approximately 12 hours to complete. The slurry is then filtered

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and metallic particles are removed magnetically. The slurry is inspected at this stage for density, flow speed and water ratio. Compared with many competitors who use stone ball millers, we use aluminum ball millers to grind materials. Aluminum ball millers have a higher initial cost, but have higher grinding speed and can better process stone chips existing in the slurry. The slurry is then moved to a large slurry pool. Based on the production schedule, portions of the slurry may be moved to smaller slurry pools where coloring materials can be added. The mixture in smaller slurry pools are churned for approximately 24 hours to keep quality and color consistent in the end product.

A spray dryer is then used to remove most of the water content in the slurry to obtain granules with the required moisture level for processing. The slurry is pumped into an atomizer, consisting of a rapidly rotating disk or nozzle where droplets are formed. The droplets of the slurry spray are then dried by a rising hot air column, forming small free-flowing granules of a standard size and specific moisture content which is used in the next stage. The stream of gases used to dry the slurry can be at temperatures as high as 1,100°C. The granules are then moved to and held in steel containers called hoppers for over 24 hours to ensure consistency and uniformity of granule size and color.

The granules flow from a hopper into the mold die where they are compressed by steel plungers and then ejected by the bottom plunger in varying sizes based on specifications. The automated presses used operate at pressures as high as 1,600 tons per square meter. The ceramic bisque, a shaped non-fired ceramic tile, is then passed through to the dryer to remove most of the remaining water content present in preparation for the firing and/or glazing stages. The tiles are fed into the dryer and conveyed horizontally on rollers, at temperatures of 250°C for approximately 15 to 25 minutes based on tile type.

Glazing involves applying one or more coats of glaze, comprised mainly of silica and other coloring agents such as iron, chromium, cobalt or manganese, onto the tile surface. The dried ceramic bisque is then sent to the glazing station where a design and/or color is added. The glaze concentration and glazing quantity is controlled by computers to avoid chromatic aberration and lack of uniformity. Not all products, such as porcelain tiles, require glazing.

(vi) Firing

After molding and/or glazing, the ceramic bisque is fired in a kiln. Typically, the temperature in a kiln is about 1,200°C and the firing process takes less than one hour. The entire firing process is monitored and controlled by computers. We currently have twelve firing lines, nine located in the Hengda facility and three located at the Hengdali facility.

After the firing process, tiles are inspected for quality. Tiles which pass inspection are packaged and moved to the storage facility.

Quality Control & Assurance

The quality of our products is critical to our continued growth and success. In July 2002, our Hengda facility received ISO 9001:2000 accreditation, an international certification certificate, acknowledging our quality control process. Quality control procedures begin at the receipt of raw materials and continue throughout the manufacturing process ending with a final quality check prior to packaging. Our employees are required to undergo internal training regarding our quality control policies, targets and procedures, as well as production and processing techniques. As of June 30, 2010, our quality assurance team consisted of 105 members.

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Notable Awards & Certificates

We have received numerous awards and certificates for our branding, product quality and R&D achievements. Select awards include:

Year Initially Received		Award & Certificate Name		Issuer
2002		ISO 9001:2000 Quality Management System Certificate		China Certification Center for Quality Mark
2005		ISO 14001:2004 Environmental Management Standards Certificate		Fujian Branch of Beijing World Standards Certification Centre
2005		Fujian Well-known Trademark		Fujian Well-known Trademark Award Commission
2005		Chinese Well-known Trademark		Intermediate People’s Court of Xiangtan City
2006		Inspection Exempted Products Certificate		National Bureau of Quality and Technical Supervision
2007		High-tech Enterprise Certificate		Fujian Provincial Department of Science and Technology
2008		Energy Conservation Advanced Enterprise		Jinjiang City Government
2009		Fujian 100 Important Industrial Enterprise		Fujian Economic and Trading Commission
2010		Asia’s 500 Most Influential Brands 2010		World Brand Laboratory

Customers, Sales & Marketing

We primarily sell our products through an exclusive distributor network or directly to property developers. Distributors are located in major cities such as Shanghai, Beijing, and Shenyang and second and third tier cities such as Chengdu, Haihao, Hefei, Tianjin, Wuhan and other rural areas in the PRC. We have long-term relationships with many of our customers; nine of our top ten customers in 2009 have been purchasing from us for over ten years. We pay commissions to our distributors on the cash collected for us and pay the distributors after the end of each fiscal year. The general commissions are calculated at a progressive rate of sales, with the average commission rate for 2009 being approximately 5.5%.

Our major customers accounted for 5% or more of our total revenue for the last three years and for the six months ended June 30, 2010 are: Foshan City Jundian Ceramics Co., Ltd., Chengdu Dehui Building Material Co., Ltd., Xiamen Tongying Trading Co., Ltd., Liaoning Yatong Logistics Co. Ltd., Shanxi Guanghe Industry Co., Ltd., Beijing Zhihe Construction Industry Trading Co., Ltd., Fuzhou Yuanteng Construction Decoration Co., Ltd. and Chengdu City Dehui Construction Materials Co., Ltd. None of these customers individually accounted for more than 10% of our total revenue for the year ended December 31, 2009 or the six months ended June 30, 2010.

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The following table sets forth revenue for our major customers and the related percentage of our total revenue for the years ended 2007, 2008, 2009, and the six months ended June 30, 2010.

		2007								2008								2009								First Six Months of 2010
Customer Name		RMB’000				Percentage				RMB’000				Percentage				RMB’000				Percentage				RMB’000				Percentage
Foshan City Jundian Ceramics Co., Ltd.			62,710				9.65	%			66,163				8.52	%			50,718				5.76	%			22,603				4.25	%
Xiamen Tongying Trading Co., Ltd.			53,567				8.24	%			51,862				6.68	%			43,890				4.99	%			23,402				4.40	%
Liaoning Yatong Logistics Co. Ltd.			39,952				6.15	%			51,433				6.62	%			41,304				4.69	%			17,961				3.38	%
Shanxi Guanghe Industry Co., Ltd.			19,954				3.07	%			23,726				3.06	%			39,653				4.51	%			17,145				3.23	%
Beijing Zhihe Construction Industry Trading Co., Ltd.			42,679				6.57	%			42,344				5.45	%			35,805				4.07	%			18,555				3.49	%
Fuzhou Yuanteng Construction Decoration Co., Ltd.			30,430				4.68	%			27,843				3.59	%			27,793				3.16	%			17,642				3.32	%
Chengdu City Dehui Construction Materials Co., Ltd.			30,688				4.72	%			32,837				4.23	%			48,200				5.48	%			20,705				3.90	%