UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

 (Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2012

OR

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

For the transition period from ___________ to ___________

OR

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

Date of event requiring this shell company report _________________________

Commission file number: 001-34532

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

(Exact Name of Registrant as Specified in Its Charter)

Not Applicable

(Translation of Registrant’s Name Into English)

British Virgin Islands

(Jurisdiction of Incorporation or Organization)

1 Shuanghu Development Zone

Xinzheng City

Zhengzhou, Henan Province 451191

People’s Republic of China

(Address of Principal Executive Offices)

Mingwang Lu

1 Shuanghu Development Zone

Xinzheng City

Zhengzhou, Henan Province 451191

People’s Republic of China
Tel: 86-371-62568634; Fax: 86-371-67718787

Email: mingwang.lu@geruigroup.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Ordinary Shares, no par value	NASDAQ Global Select Market

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report (December 31, 2012): 59,561,899 ordinary shares

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

Yes ¨ No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨ No x

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

Yes x No ¨

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

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large Accelerated Filer  o Accelerated Filer   x Non-Accelerated Filer  o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  x	International Financial Reporting        o	Other  o
	Standards as issued by the International
	Accounting Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17 o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

Annual Report on Form 20-F

Year Ended December 31, 2012

TABLE OF CONTENTS

		Page
PART I
Item 1.	Identity of Directors, Senior Management and Advisers	2
	A. Directors and Senior Management	2
	B. Advisors	2
	C. Auditors	2
Item 2.	Offer Statistics and Expected Timetable	2
	A. Offer Statistics	2
	B. Method and Expected Timetable	2
Item 3.	Key Information	2
	A. Selected Financial Data	2
	B. Capitalization and Indebtedness	3
	C. Reasons for the Offer and Use of Proceeds	3
	D. Risk Factors	3
Item 4.	Information on the Company	22
	A. History and Development of the Company	22
	B. Business Overview	23
	C. Organizational Structure	28
	D. Property, Plants and Equipment	28
Item 4A.	Unresolved Staff Comments	28
Item 5.	Operating and Financial Review and Prospects	29
	A. Operating Results	29
	B. Liquidity and Capital Resources	36
	C. Research and Development, Patents and Licenses, Etc.	41
	D. Trend Information	41
	E. Off-Balance Sheet Arrangements	41
	F. Tabular Disclosure of Contractual Obligations	42
	G. Safe Harbor	43
Item 6.	Directors, Senior Management and Employees	43
	A. Directors and Senior Management	43
	B. Compensation	45
	C. Board Practices	48
	D. Employees	50
	E. Share Ownership	50
Item 7.	Major Shareholders and Related Party Transactions	52
	A. Major Shareholders	52
	B. Related Party Transactions	52
	C. Interests of Experts and Counsel	53

i

Item 8.	Financial Information	53
	A. Consolidated Statements and Other Financial Information	53
	B. Significant Changes	53
Item 9.	The Offer and Listing	54
	A. Offer and Listing Details	54
	B. Plan of Distribution	54
	C. Markets	54
	D. Selling Shareholders	54
	E. Dilution	54
	F. Expenses of the Issue	54
Item 10.	Additional Information	55
	A. Share Capital	55
	B. Memorandum and Articles of Association	55
	C. Material Contracts	60
	D. Exchange Controls	60
	E. Taxation	61
	F. Dividends and Paying Agents	64
	G. Statement by Experts	64
	H. Documents on Display	64
	I. Subsidiary Information	64
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 12.	Description of Securities Other Than Equity Securities	65
	A. Debt Securities	65
	B. Warrants and Rights	65
	C. Other Securities	65
	D. American Depositary Shares	66
PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	66
Item 14.	Material Modifications to the Rights of Securities Holders and Use of Proceeds	66
Item 15.	Controls and Procedures	66
Item 16A.	Audit Committee Financial Expert	68
Item 16B.	Code of Ethics	68
Item 16C.	Principal Accountant Fees and Services	68
Item 16D.	Exemptions From the Listing Standards for Audit Committees	69
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	69
Item 16F.	Change in Registrant’s Certifying Accountant	69
Item 16G.	Corporate Governance	69
Item 16H.	Mine Safety Disclosure	69
PART III
Item 17.	Financial Statements	70
Item 18.	Financial Statements	70
Item 19.	Exhibits	70

ii

INTRODUCTORY NOTES

Use of Certain Defined Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

· “China Gerui” “we,” “us,” or “our,” and the “Company,” are to the combined business of China Gerui Advanced Materials Group Limited, a BVI company, and its consolidated subsidiaries, Wealth Rainbow, Henan Green and Zhengzhou Company;

· “Wealth Rainbow” are to our wholly-owned subsidiary Wealth Rainbow Development Limited, a Hong Kong company;

· “Henan Green” are to Wealth Rainbow’s wholly-owned subsidiary Henan Green Complex Materials Co., Ltd., a PRC company;

· “Zhengzhou Company” are to Henan Green’s wholly-owned subsidiary Zhengzhou No. 2 Iron and Steel Company Limited, a PRC company;

· “COAC,” are to China Opportunity Acquisition Corp., a Delaware corporation that merged with and into China Gerui;

· “BVI” are to the British Virgin Islands;

· “Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;

· “PRC” and “China” are to the People’s Republic of China;

· “SEC” are to the Securities and Exchange Commission;

· “Exchange Act” are to the Securities Exchange Act of 1934, as amended;

· “Securities Act” are to the Securities Act of 1933, as amended;

· “Renminbi” and “RMB” are to the legal currency of China; and

· “U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

Forward-Looking Information

This annual report contains forward-looking statements and information relating to us that are based on the current beliefs, expectations, assumptions, estimates and projections of our management regarding our company and industry.  When used in this annual report, the words “may”, “will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements.  These statements reflect management’s current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: our potential inability to achieve similar growth in future periods as we did historically, a decrease in the availability of our raw materials, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties related to China’s legal system and economic, political and social events in China, a general economic downturn, a downturn in the securities markets, and other risks and uncertainties which are generally set forth under Item 3 “Key information—D. Risk Factors” and elsewhere in this annual report.  Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described as anticipated, estimated or expected in this annual report.

All forward-looking statements included herein attributable to us or other parties or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A. Directors and Senior Management

Not applicable.

B. Advisors

Not applicable.

C. Auditors

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

A. Offer Statistics

Not applicable.

B. Method and Expected Timetable

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following table presents selected financial data regarding our business.  It should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this annual report and the information under Item 5 “Operating and Financial Review and Prospects.”  The selected consolidated statement of income data for the fiscal years ended December 31, 2012, 2011 and 2010, and the selected consolidated balance sheet data as of December 31, 2012 and 2011 have been derived from our audited consolidated financial statements that are included in this annual report beginning on page F-1.  The selected consolidated statement of income data for the fiscal years ended December 31, 2009 and 2008, and the selected consolidated balance sheet data as of December 31, 2010, 2009 and 2008 have been derived from our audited consolidated financial statements that are not included in this annual report.  

Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.  The selected financial data information is only a summary and should be read in conjunction with the historical consolidated financial statements and related notes contained elsewhere herein.  The financial statements contained elsewhere fully represent our financial condition and operations; however, they are not indicative of our future performance.

(In thousands of U.S. Dollars, except number of shares and per share data)

	Fiscal Year Ended December 31,
	2012		2011		2010		2009		2008
Statement of Income Data:
Revenue	$	265,486	$	341,778	$	253,866	$	218,903	$	196,264
Gross profit		56,945		101,578		75,997		65,807		53,857
Operating income		42,331		83,537		66,950		60,315		49,594
Net income before income taxes		38,030		79,582		63,021		58,200		47,375
Net income		26,133		57,621		47,083		43,448		21,585
Weighted average ordinary shares - basic		58,543,076		56,297,652		43,891,670		33,751,844		30,000,000
Weighted average ordinary shares - diluted		58,543,076		56,297,652		46,655,721		37,675,479		30,000,000
Basic earnings per share	$	0.45	$	1.02	$	1.07	$	1.29	$	0.72
Diluted earnings per share	$	0.45	$	1.02	$	1.01	$	1.15	$	0.72
Balance Sheet Data:
Total current assets	$	495,040	$	445,186	$	227,915	$	146,638	$	94,019
Total assets		673,370		601,076		329,004		184,350		115,376
Total current liabilities		343,302		302,648		161,192		97,307		102,808
Total liabilities		343,302		302,648		161,192		97,307		102,836
Stockholders’ equity		330,067		298,428		167,812		87,043		12,540

2

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

An investment in our capital stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this annual report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our ordinary shares could decline, and you may lose all or part of your investment.

Risks Related to our Business

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.

Recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the United States Securities and Exchange Commission, or the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits, SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations would be severely damaged and your investment in our stock could be rendered worthless.

3

A significant percentage of our revenues are derived from sales to a limited number of large customers and our business will suffer if sales to these customers decline.

We currently sell high precision steel products to more than 20 major customers in the Chinese domestic market. For the fiscal years ended December 31, 2012 and 2011, sales revenues generated from our top 10 customers amounted for 30.8% and 25.8% of total sales revenues, respectively, and sales to our largest single customer for the same periods amounted to 6.8% and 5.5% of our total sales revenues, respectively. We do not enter into long-term contracts with our customers and therefore cannot be certain that sales to these customers will continue. The loss of any of our largest customers would likely have a material negative impact on our sales revenues and business.

Our customers operate in highly competitive markets, and they may be willing to accept substitutes in lieu of our products.

Our customers and other users of cold-rolled steel products operate in highly competitive markets, which are becoming increasingly cost-conscious. Cold-rolled precision steel competes with other materials, such as aluminum, plastics, composite materials and glass, among others, for industrial and commercial applications. Customers have demonstrated a willingness to substitute other materials for cold-rolled steel. If our customers increasingly utilize substitutes for cold-rolled steel products in their operations, sales of our products will decline and our business and results of operations will suffer.

We may be unable to fund the substantial ongoing capital and maintenance expenditures that our operations require.

Our operations are capital intensive and our business strategy is likely to require additional substantial capital investment. We completed an underwritten public offering in November 2009 and a private placement financing in June 2010 in which we raised total net proceeds of approximately $43 million.

As of December 31, 2012, we have used the net proceeds from the aforementioned financings to expand our cold-rolled steel processing capacity from 250,000 metric tons per annum to 500,000 metric tons per annum and to add 200,000 metric tons per annum of capacity to our 50,000-metric ton-per-annum chromium plating line so as to be capable of producing additional 250,000 tons of cold-rolled steel per annum. The estimated total capital expenditure for these expansion projects was approximately $45 million. We will also need to use capital to test and optimize our new production lines in order to bring them into full operation, maintain the condition of our equipment, and comply with environmental laws and regulations.

On February 26, 2013, we entered into an equity/asset transfer agreement to acquire 100% ownership of Zhengzhou Company, a related party of the Company. We agreed to pay a total cash purchase price of RMB 268 million (approximately $42.6 million) to the shareholders of Zhengzhou Company, of which we paid RMB 150.0 million (approximately $24.1 million) as of December 31, 2012. We expect that the balance of the purchase price will be paid within the next 6 months. If we fail to pay the full purchase price timely, we will be liable for a penalty fee at a daily rate of 0.03% of the outstanding purchase price. In addition, if any party breaches its representations and warranties provided in the equity/asset transfer agreement, the breaching party is required to pay the other parties for damages in an amount of RMB 1 million (approximately $0.16 million).

Our capital expenditure plans and estimates are subject to change as determined by our management and we may determine that we do not have sufficient cash on hand to fund these initiatives without seeking external capital funds. Sourcing external capital funds for these purposes are key factors that have constrained and may in the future constrain our growth, production capability and profitability. To the extent that we finance our capital expansion and maintenance projects with debt financing, we may become subject to financial covenants or operating covenants that restrict our ability to freely operate our business or take actions that are desired by shareholders, such as the payment of dividends. If we elect to finance our capital expansion and maintenance plans through equity financing, our shareholders may experience dilution or may have their voting or economic rights as shareholders subordinated to a senior class of stock. In either event, we may be unable to find external sources of financing on favorable terms or at all. Our failure to obtain external financing for our capital expansion and maintenance projects can severely impede our growth plans and strategy and impair our revenue, earnings and overall financial performance.

4

The recent global economic crisis could further impair the steel industry thereby limiting demand for our products and affecting the overall availability and cost of external financing for our operations.

The repetition, continuation or intensification of the recent global economic crisis and turmoil in the global financial markets have adversely impacted our business, the businesses of our customers from whom we generate revenues and our potential sources of capital financing. Our high precision, cold rolled steel products parts are primarily sold to customers who operate in the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables industries. The global economic crisis harmed most industries and has been particularly detrimental to the steel industry. Since virtually all of our sales are made to end users in other industries, our sales and business operations are dependent on the financial health of both the steel industry and other industries in which our customers operate. Therefore, our business could suffer further if our customers continue to experience, difficulties in their respective industries or a downturn in their business. Presently, it is unclear whether and to what extent the economic stimulus measures and other actions taken or contemplated by the Chinese government and other governments throughout the world will mitigate the effects of the crisis on the steel industry and other industries that affect our business. Although these conditions have not presently impaired our ability to access credit markets and finance our operations, the impact of the current crisis on our ability to obtain capital financing in the future, and the cost and terms of same, is unclear.

A downturn or negative changes in the highly volatile steel industry has harmed our business and profitability.

Steel consumption is highly cyclical and generally follows general economic and industrial conditions, both worldwide and in various smaller geographic areas. Pricing can be volatile as a result of general economic conditions, labor costs, competition, import duties, tariffs and currency exchange rates. The steel industry has historically been characterized by excess world supply and wide fluctuations in results of operations both in China and globally. This has led to substantial price decreases during periods of economic weakness, which have not been offset by commensurate price increases during periods of economic strength. Substitute materials are increasingly available for many steel products, which may further reduce demand for steel. Additional overcapacity or the use of alternative products could further hurt our results of operations.

We are subject to risks associated with changing technology and manufacturing techniques, which could place us at a competitive disadvantage.

Our ability to implement our business plan and to achieve the results projected by management will depend on management's ability to anticipate technological advances in our industry and implement strategies to take advantage of technological change. We may be unable to address technological advances or introduce new designs or products that may be necessary to remain competitive within the steel industry.

We produce steel products that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. We believe that our customers rigorously evaluate our services and products on the basis of a number of factors, including, but not limited to:

· quality;

· price competitiveness;

· technical expertise and development capability;

· innovation;

· reliability and timeliness of delivery;

· product design capability;

· operational flexibility;

· customer service; and

· overall management.

Our success depends on our ability to continue to meet our customers’ changing requirements and specifications with respect to these and other criteria. There can be no assurance that we will be able to address technological advances or introduce new designs or products that may be necessary to remain competitive within the precision steel industry.

Our revenues will decrease if there is less demand for the end product in which our products are utilized.

Our finished steel products mainly serve as key components in food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables. Therefore, we are subject to the general changes in economic conditions affecting the food and industrial packaging, construction and household decorations materials, electrical appliance, and telecommunications wires and cables industries. If our customers which operate in these industries experience a downturn in their business or if they utilize substitutes for our products in their manufacturing operations, demand for our products and our business results will suffer.

5

Environmental compliance and remediation could result in substantially increased capital requirements and operating costs.

Steel manufacturing and processing operations are subject to numerous Chinese provincial and local laws and regulations relating to the protection of the environment. We are subject to regulations regarding emissions and waste disposal and management. These laws continue to evolve and are becoming increasingly stringent. The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. Our business and operating results could suffer if we were required to increase our expenditures to comply with any new environmental regulations affecting our operations.

Our level of indebtedness may make it more difficult for us to fulfill all of our debt obligations and may reduce the amount of cash available for maintaining and growing our operations, which could have an adverse effect on our revenues.

Our total debt under existing bank loans and lines of credit as of December 31, 2012 was approximately $317.0 million. Our obligations under certain of our short term bank loans are guaranteed by Zhengzhou Company, which owns the land use rights and buildings in which we conduct our operations. Zhengzhou Company has pledged the land use rights and buildings under this guarantee. We had $393.9 million in total cash (including certificate of deposit) of which $228.9 million was unrestricted cash as of December 31, 2012. We have elected to reserve the use of such cash for our capital expansion program and have recently renewed certain existing bank loans and lines of credit. This indebtedness and the incurrence of any new indebtedness could (i) make it more difficult for us to satisfy and pay our existing liabilities and obligations, which could in turn result in an event of default, (ii) require us to dedicate a substantial portion of our cash flow from operations to debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iii) impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iv) diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally, (v) limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, or (vi) place us at a competitive disadvantage compared to competitors that have proportionately less debt. If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations, be subject to foreclosure on such loans, and lose possession of the land and buildings in which we conduct our operations. Additionally, we could incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify.

During 2012, we were not in compliance with the financial covenants. The terms of the loans prohibit making advances or providing guarantees to other unrelated parties without prior consent of the bank. Although the banks have not called the loans or assessed a penalty on us for these violations, there is no assurance that the banks will not call the loans because there is no standstill agreement reached between us and the banks. We do not believe that any penalty will be assessed by the banks for these violations. In addition, as of December 31, 2012, we provided guarantees for certain non-related parties. We believe that Zhengzhou Aluminum Industry Co., Ltd., one of the non-related companies to which we provided a loan guarantee, experienced financial difficulties in 2012 and may not be able to perform on its payments under its loans and guarantees. If Zhengzhou Aluminum Industry Co., Ltd. is unable to repay its debt or guarantees, we may be required to pay up to $6.4 million related to its debt and guarantees. No provision has been made in our financial statements for this obligation as we have not been called upon to date to perform under our guarantee.

We face significant competition from competitors with greater resources, and we may not have the resources necessary to successfully compete with them.

The steel manufacturing and processing business is highly fragmented and competitive. We compete with a large number of other steel manufacturers and processors in China, on a region-by-region basis, and with foreign steel manufacturers, such as POSCO Steel, on a worldwide basis. Our competitors are of various sizes, some of which have more established brand names and relationships in certain markets than we do. We generally are not in direct competition with China’s large state-owned steel companies in the high-end precision cold-rolled steel sector because those companies concentrate on the production of hot-rolled steel and relatively commoditized cold-rolled steel. As such, they are more often a raw material supplier to us, rather than a competitor. We are one of a limited number of specialty precision cold-rolled steel producers in China. However, part of our newer production capacity has not yet reached optimum customization, including strip thickness, and to an extent has been competing with commodity cold-rolled steel produced by large state-owned steel companies while we optimize this capacity to produce fully specialized products. In addition, differences in the type and nature of the specialty precision steel products in China’s steel industry are relatively small and, coupled with intense competition from international and local suppliers and customer price sensitivity, competition can be fierce. Our competitors may increase their market share through pricing strategies that damage our business. Since our industry is capital-intensive, our competitors may be able to successfully compete with us if their financial resources, staff and facilities are substantially greater than ours, placing us at a competitive disadvantage to these larger companies.

6

Any decrease in the availability, or increase in the cost, of raw materials could materially reduce our earnings.

Our business operations depend heavily on the availability of various raw materials and energy resources, primarily hot-rolled steel coil, but also chromium, tin, zinc, oil paint and electricity. Steel coil has historically accounted for approximately 92% of our total cost of sales. The availability of raw materials and energy resources may decrease and their prices may fluctuate greatly. We purchase a large portion of our raw materials from a selected number of suppliers, but we currently do not have long-term supply contracts with any particular supplier to assure a continued supply of raw materials. While we maintain good relationships with these suppliers, the supply of raw materials may nevertheless be interrupted on account of events outside our control, which will negatively impact our operations. If these or any other important suppliers are unable or unwilling to provide us with raw materials on terms favorable to us, we may be unable to produce certain products. This could result in a decrease in profit and damage to our reputation in our industry. So far we have been able to pass most raw material cost increases on to our customers. However, if our raw material and energy costs increase to such an extent that we cannot pass these higher costs on to our customers in full or at all, our margins will suffer. Although we currently benefit from favorable pricing in some of these supply contracts, if market prices for these raw materials decline, we may not be able to take advantage of decreasing market prices, and our profit margins may suffer.

Starting 2012, we began to offer our customers an increased number of products, including precision cold-rolled steel, chromium-plated and laminated cold-rolled steel of both narrow- and wide- strip. Our raw material may evolved from just narrow-strip to both narrow- and wide-strip hot-rolled coils and finished cold-rolled steel (for chromium-plating and laminating processing), thus posing changed demand on our suppliers for flexibility of type and timeliness of delivery. Any failure of our suppliers to meet our afore-mentioned demand may adversely impact our operation and ability to fulfill sales contracts in a timely manner.

We produce a limited number of products and may not be able to respond quickly to significant changes in the market or new market entrants.

Cold-rolled specialty precision steel manufacturing is a relatively new industry in China. Previously, our customers which manufacture durable goods have relied solely on imports from Japan, Korea, the European Union and the United States. We believe the average quality and standards of products of China’s high precision steel industry lags behind international standards. While we offer five series and over 20 types of high-precision steel products and believe we have developed a nationally recognizable brand, there are many other specialty precision steel products of similar nature in the market. While we began to export products to Turkey and India in 2012, we have not yet developed an internationally recognizable brand for specialty steel products. If there are significant changes in market demand and/or competitive forces, we may not be able to change our product mix or adapt our production equipment quickly enough to meet customers’ needs. Under such circumstances, our narrow band of precision steel products and/or new market entrants may negatively impact our financial performance.

Increased imports of steel products into China could negatively affect domestic steel demand and prices and reduce our profitability.

While China’s steel production has increased rapidly in recent years, we believe that domestic production continues to be insufficient to meet demand for high-end steel products. As a result, China is expected to continue to import a significant portion of its steel products. Foreign competitors may have lower raw material costs, and are often owned, controlled or subsidized by their governments, which allows their production and pricing decisions to be influenced by political and economic policy considerations as well as prevailing market conditions. Import levels may also be impacted by decisions of government agencies, under trade laws. Increases in future levels of imported steel could negatively impact future market prices and demand levels for our precision steel products.

7

While virtually all of our operations, customers and sales are in China, some limited administrative matters are geographically dispersed so any deterioration of general business conditions in China may make it difficult or prohibitive to continue to operate or expand our business.

Our manufacturing operations are located in China and some of our administrative matters are handled in Hong Kong and the BVI. We have regulatory filing obligations in the United States. The geographical distances between our facilities create a number of logistical and communications challenges, including time differences and differences in the cultures in each location, which makes communication and effective cooperation more difficult. In addition, because of the location of the manufacturing facilities in China, our operations could be affected by, among other things:

· economic and political instability in China, including problems related to labor unrest;

· lack of developed infrastructure;

· variances in payment cycles;

· currency fluctuations;

· overlapping taxes and multiple taxation issues;

· employment and severance taxes;

· compliance with local laws and regulatory requirements;

· greater difficulty in collecting accounts receivable; and

· the burdens of cost and compliance with a variety of foreign laws.

Moreover, inadequate development or maintenance of infrastructure in China, including adequate power and water supplies, transportation, raw materials availability or the deterioration in the general political, economic or social environment could make it difficult, more expensive and possibly prohibitive to continue to operate or expand our facilities in China.

Our rapid expansion could significantly strain our resources, management and operational infrastructure which could impair our ability to meet increased demand for our products and hurt our business results.

To accommodate our anticipated growth, we will need to expend capital resources and dedicate personnel to implement and upgrade our accounting, operational and internal management systems and enhance our record keeping and contract tracking system. Such measures will require us to dedicate additional financial resources and personnel to optimize our operational infrastructure and to recruit more personnel to train and manage our growing employee base. If we cannot successfully implement these measures efficiently and cost-effectively, we will be unable to satisfy the demand for our products, which will impair our revenue growth and hurt our overall financial performance.

Our production facilities are subject to risks of power shortages which may impair our ability to meet our customers’ needs.

Our manufacturing processes are extremely specialized and depend on critical pieces of equipment and a constant availability of energy to power them. Many cities and provinces in China have suffered serious power shortages in recent times, largely as a result of the growth and commercialization of formerly rural regions of China. Many of the regional grids do not have sufficient power generating capacity to fully satisfy the increased demand for electricity driven by continual economic growth and persistent hot weather.

In 2011, China announced new guidelines aiming to reduce energy use and carbon emissions per unit of industrial value added output by 4 percent in 2011 compared to 2010 levels. The target levels are slightly higher than those pledged by China in its recently released 12th Five Year Plan and are part of China's plan to cut energy consumption and carbon emissions per unit of gross domestic product by 18 percent over the next five years. In 2011 and 2012, electricity supplies were cut back to many industrial producers around China. Local governments have also occasionally required local factories to temporarily shut down their operations or reduce their daily operational hours in order to reduce local power consumption levels.

While we have not experienced any severe or lengthy power outages in the past as a result of power outages or administrative measures, we do not have any back up power generation systems. If we are affected by administrative measures or power outages in the future, we may experience material production disruption and delays in our delivery schedule. In such event, our business, results of operation and financial conditions could be damaged.

Unexpected equipment failures may damage our business due to production curtailments or shutdowns.

Highly specialized machinery is used in our manufacturing processes which cannot be repaired or replaced without significant expense and time delay. On occasion, our equipment may be out of service as a result of unanticipated failures which may result in plant shutdowns or periods of materially reduced production. Interruptions in production capabilities will inevitably increase production costs and reduce our sales and earnings. In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or adverse weather conditions. Furthermore, any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative effect on our profitability and cash flows. We do not have business interruption insurance to cover losses as a result of equipment failures. In addition, longer-term business disruption could result in a loss of customers. If this were to occur, our future sales levels, and therefore our profitability, could decline.

8

We might fail to adequately protect our intellectual property and third parties may claim that our products infringe upon their intellectual property.

As part of our business strategy, we intend to accelerate our investment in new technologies in an effort to strengthen and differentiate our product portfolio and make our manufacturing processes more efficient. Our primary focus will be to develop new and better technologies to allow us to manufacture higher valued-added products, such as chrome finished, zinc-plated and galvanized products. As a result, we believe that the protection of our intellectual property will become increasingly important to our business. We expect to rely on a combination of trade secrets, trademarks and copyrights to provide protection in this regard, but this protection might be inadequate. For example, our future patent applications might not be approved or, if allowed, they might not be of sufficient strength or scope. Conversely, third parties might assert that our technologies infringe their proprietary rights. In either case, litigation could result in substantial costs and diversion of our resources, and whether or not we are ultimately successful, the litigation could hurt our business and financial condition.

We face risks associated with future investments or acquisitions.

A component of our growth strategy is to invest in or acquire businesses complementary to ours that will enable us, among other things, to expand the products we offer to our existing target customer base, and that will provide opportunities to expand into new markets. We may be unable to identify suitable investment or acquisition candidates or to make these investments or acquisitions on a commercially reasonable basis, if at all. If we complete an investment or acquisition, we may not realize the anticipated benefits from the transaction. Integrating an acquired company or technology is complex, distracting and time consuming, as well as a potentially expensive process. The successful integration of an acquisition would require us to:

· integrate and retain key management, sales, research and development, and other personnel;

· incorporate the acquired products or capabilities into our offerings both from an engineering and sales and marketing perspective;

· coordinate research and development efforts;

· integrate and support pre-existing supplier, distribution and customer relationships; and

· consolidate duplicate facilities and functions and combine back office accounting, order processing and support functions.

The geographic distance between the companies, the complexity of the technologies and operations being integrated and the disparate corporate cultures being combined may increase the difficulties of combining an acquired company or technology. Acquired businesses are likely to have different standards, controls, contracts, procedures and policies, making it more difficult to implement and harmonize company-wide financial, accounting, billing, information and other systems. Management’s focus on integrating operations may distract attention from our day-to-day business and may disrupt key research and development, marketing or sales efforts.

Our acquisition strategy also depends on our ability to obtain necessary government approvals that may be required. We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations implemented in China.

We do not carry any business interruption insurance, product liability or recall insurance or third-party liability insurance.

Operation of our business and facilities involves many risks, including equipment failures, natural disasters, industrial accidents, power outages, labor disturbances, business interruptions, property damage, product liability, personal injury and death. We do not carry any business interruption insurance or third-party liability insurance for our business to cover claims in respect of product liability, personal injury or property or environmental damage arising from accidents on our property or relating to our operations. Therefore, our existing insurance coverage may not be sufficient to cover all risks associated with our business. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

9

Our business will suffer if we lose our land use rights. Should our expenditures and efforts to strengthen our land use rights by acquiring Zhengzhou Company , a related party, be perceived as a waste of resources or non-arms’-length transaction, we may be subject to greater regulatory scrutiny or shareholder litigation risks.

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. Our subsidiaries, Henan Green and Zhengzhou Company hold land use rights for their occupied properties. Although we reasonably believe both subsidiaries have proper land use rights, but no assurance can be given that our land use rights will be renewed or maintained. We have received land use certificates for certain parcels of land on which our properties 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 certificates 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 costs of production, which would negatively impact our financial results.

On February 26, 2013, we entered into an equity/asset transfer agreement to acquire 100% ownership of Zhengzhou Company, which is the owner of a land use right with respect to 24.94 acres (151.4 Chinese mu), on which our existing production lines and warehouses are located. We agreed to pay a total cash purchase price of RMB 268 million (approximately $42.6 million) to the shareholders of Zhengzhou Company, of which we paid RMB 150.0 million (approximately $24.1 million) as of December 31, 2012. We expect to pay the balance of the purchase price within the next six months. The purchase price was determined based on the appraisal report prepared by an independent appraisal firm, Henan Minsheng Asset Appraisal Office. The purpose of this transaction is to ultimately reduce our overall risk position by reducing our dependence on third parties for our land use rights, and that the terms of the transaction are substantially equivalent to those that would be paid to an unrelated third party. However, if a regulator or shareholder disagrees with this view and seeks to invalidate this transaction or sue for damages, we may need to engage in expensive litigation or other measures to defend our actions, which we may lose, and our efforts to bolster our land use rights may be frustrated. Even if this transaction is not invalidated or otherwise challenged, substantial additional funds may need to be paid in order to transfer the land use rights, which may have a material adverse effect on our financial condition.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have the operating effectiveness of our internal controls attested to by our independent auditors.

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K or Form 20-F filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated or accelerated filers must include in their annual reports on Form 10-K or Form 20-F an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies are not required to include an attestation report of their auditors in annual reports.

A report of our management and an attestation report of our auditor is included under Item 15 “Controls and Procedures” of this report. Although our management believes that our internal control over financial reporting was effective as of December 31, 2012, we can provide no assurance that we will comply with all of the requirements imposed by SOX 404 and we will receive a positive attestation from our independent auditors in the future. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner or we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.

Failure to comply with the U.S. Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

Our executive officers, employees and other agents may violate applicable law in connection with the marketing or sale of our products, including China’s anti-corruption laws and the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive advantage over us. The PRC also strictly prohibits bribery of government officials. However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. We have adopted a general FCPA policy in our Code of Ethics and intend to implement measures to ensure compliance with the FCPA and Chinese anti-corruption laws by all individuals involved with our company. However, our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our ordinary shares could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.

10

We rely heavily on our key management personnel and the loss of their services could adversely affect our business.

Our executive management team has a specialized knowledge of steel markets and works closely with our customers to provide products to exact specifications. Our Chairman and founder, Mr. Lu, has twenty-five years’ experience in the steel industry in China. In addition, the executive management team has an average of fifteen years of industry experience. Their long tenure with the company and the industry has enabled the management team to build close relationships with suppliers and customers. The expertise of management and technical innovation of the company give it a strong competitive advantage. We do not currently have employment agreements with our management team and we do not maintain key person insurance on these individuals. The loss of Mr. Lu’s services or any of our other management poses a risk to our business. We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry and as a result, our business could be adversely affected.

Risks Related to Doing Business in China

Substantially all of our operating assets are located in China and substantially all of our revenue is derived from our operations in China, so our business, results of operations and prospects are subject to the economic, political and legal policies, developments and conditions in China.

The PRC’s economic, political and social conditions, as well as government policies, could impair our business. The PRC economy differs from the economies of most developed countries in many respects. China’s gross domestic product has grown consistently since 1978. However, we cannot assure you that such growth will be sustained in the future. If, in the future, China’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could impair our ability to remain profitable. The PRC’s economic growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may be hindered by PRC government control over capital investments or changes in tax regulations.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the use of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over PRC economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

If the PRC imposes restrictions designed to reduce inflation, future economic growth in the PRC could be severely curtailed which could hurt our business and profitability.

While the economy of the PRC has experienced rapid growth, this growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth often can lead to growth in the supply of money and rising inflation. In order to control inflation in the past, the PRC has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. Imposition of similar restrictions may lead to a slowing of economic growth, a decrease in demand for our steel products and generally damage our business and profitability.

11

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

The value of our securities will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be denominated. Because substantially all of our earnings and cash assets are denominated in RMB and our financial results are reported in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and RMB will affect our balance sheet and our earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future. Since July 2005, RMB 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, RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in RMB 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. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Exchange controls that exist in the PRC may limit our ability to utilize our cash flow effectively.

We are subject to the PRC’s rules and regulations on currency conversion. In the PRC, the State Administration for Foreign Exchange, or SAFE, regulates the conversion between RMB and foreign currencies. Currently, foreign investment enterprises, or FIEs, are required to apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs.” With such registration certificates, which need to be renewed annually, FIEs are allowed to open foreign currency accounts including a “current account” and “capital account.” Currency conversion within the scope of the “current account,” such as remittance of foreign currencies for payment of dividends, can be effected without requiring the approval of SAFE. However, conversion of currency in the “capital account,” including capital items such as direct foreign investment, loans and securities, still require approval of SAFE. Further, any capital contributions to Henan Green by its offshore shareholder must be approved by MOFCOM or its local counterpart. We cannot assure you that the PRC regulatory authorities will not impose further restrictions on the convertibility of RMB. Any future restrictions on currency exchanges may limit our ability to use our cash flow for the distribution of dividends to our shareholders or to fund operations it may have outside of the PRC.

In August 2008, SAFE promulgated Circular 142, a notice regulating the conversion by FIEs of foreign currency into RMB by restricting how the converted RMB may be used. Circular 142 requires that RMB converted from the foreign currency-dominated capital of a FIE may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. In addition, SAFE strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-dominated capital of a FIE. The use of such RMB may not be changed without approval from SAFE, and may not be used to repay RMB loans if the proceeds of such loans have not yet been used. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the SAFE rules.

Because Chinese law governs many of our material agreements, we may not be able to enforce our rights within the PRC or elsewhere, which could result in a significant loss of business, business opportunities or capital.

Chinese law governs many of our material agreements, some of which may be with Chinese governmental agencies. We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of the PRC. The system of laws and the enforcement of existing laws and contracts in the PRC may not be as certain in implementation and interpretation as in the United States. The Chinese judiciary is relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.

12

The ability of our Chinese operating subsidiaries to pay certain foreign currency obligations, including dividends, is subject to restrictions.

Our ability to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances. Since substantially all of our operations are conducted in China and a majority of our revenues are generated in China, a significant portion of our revenue earned and currency received are denominated in RMB. The Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. RMB is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, if any, on our ordinary shares or otherwise satisfy foreign currency denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The Chinese government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due. In addition, current regulations in China would permit our PRC operating subsidiaries to pay dividends to us only out of their accumulated distributable profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, they will be required to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of their accumulated profits each year. Such reserve account may not be distributed as cash dividends.

Our business could be severely harmed if the Chinese government changes its policies, laws, regulations, tax structure or its current interpretations of its laws, rules and regulations relating to our operations in China.

Our manufacturing facility is located in Henan, China and virtually all of our assets are located in China. We currently generate our sales revenue only from customers located in China. Our results of operations, financial state of affairs and future growth are, to a significant degree, subject to China’s economic, political and legal development and related uncertainties. Our operations and results could be materially affected by a number of factors, including, but not limited to:

· changes in policies by the Chinese government resulting in changes in laws or regulations or the interpretation of laws or regulations;

· changes in taxation;

· changes in employment restrictions;

· restrictions on imports and sources of supply;

· import duties; and

· currency revaluation.

Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activities and greater economic decentralization. If the Chinese government does not continue to pursue its present policies that encourage foreign investment and operations in China, or if these policies are either not successful or are significantly altered, then our business could be harmed. Following the Chinese government’s policy of privatizing many state-owned enterprises, the Chinese government has attempted to augment its revenues through increased tax collection. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Continued efforts to increase tax revenues could result in increased taxation expenses being incurred by us. Economic development may be limited as well by the imposition of austerity measures intended to reduce inflation, the inadequate development of infrastructure and the potential unavailability of adequate power and water supplies, transportation and communications. In addition, the Chinese government continues to play a significant role in regulating industry by imposing industrial policies.

The Chinese laws and regulations which govern our current business operations are sometimes vague and uncertain and may be changed in a way that hurts our business.

China’s legal system is a civil law system based on written statutes, in which system decided legal cases have little value as precedents, unlike the common law system prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We are considered an FIE under Chinese laws, and as a result, we must comply with Chinese laws and regulations. We cannot predict what effect the interpretation of existing or new Chinese laws or regulations may have on our business. If the relevant authorities find us to be in violation of Chinese laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation: levying fines; revoking our business and other licenses; requiring that we restructure our ownership or operations; and requiring that we discontinue any portion or all of our business.

13

A slowdown or other adverse developments in the Chinese economy may materially and adversely affect our customers’ demand for our services and our business.

All of our operations are conducted in China and substantially all of our revenues are generated from sales to businesses operating in China. Although the Chinese economy has grown significantly in recent years, such growth may not continue. We do not know how sensitive we are to a slowdown in economic growth or other adverse changes in Chinese economy which may affect demand for precision steel products. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our products and in turn harm our results of operations.

Controversies affecting China’s trade with the United States could depress the price of our securities.

While China has been granted permanent most favored nation trade status in the United States through its entry into the World Trade Organization, controversies and trade disagreements between the United States and China may arise that depress the price of our securities. Political or trade friction between the United States and China, whether or not actually affecting our business, could also materially and adversely affect the prevailing market price of our securities.

Imposition of trade barriers and taxes may reduce our ability to do business internationally, and the resulting loss of revenue could harm our profitability.

We may experience barriers to conducting business and trade in our targeted emerging markets in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, substantial taxes of profits, revenues, assets and payroll, as well as value-added tax. The markets in which we operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products, and there can be no assurance that this will not reduce the level of sales that we achieve in such markets, which would reduce our revenues and profits.

If the Ministry of Commerce, China Securities Regulatory Commission, or another PRC regulatory agency, determines that approval of our recent merger was required or if other regulatory obligations are imposed upon us, we may incur sanctions, penalties or additional costs which would damage our business

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, or MOFCOM, and the China Securities Regulatory Commission, or CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, a new regulation with respect to the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006 and was revised on June 22, 2009. Article 11 of the M&A Rules requires PRC companies, enterprises or natural persons to obtain MOFCOM approval in order to effectuate mergers or acquisitions between PRC companies and foreign companies legally established or controlled by such PRC companies, enterprises or natural persons. Article 40 of the M&A Rules requires that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by PRC companies or individuals should obtain the approval of the CSRC prior to the listing and trading of such offshore special purpose vehicle’s securities on an overseas stock exchange, especially in the event that the offshore special purpose vehicle acquires shares of or equity interests in the PRC companies in exchange for the shares of offshore companies. On September 21, 2006, the CSRC published on its official website procedures and filing requirements for offshore special purpose vehicles seeking CSRC approval of their overseas listings.

14

On March 17, 2009, we completed a merger transaction with COAC, which resulted in our current ownership and corporate structure. We believe, based on the opinion of our PRC legal counsel, Jingtian & Gongcheng, Attorneys at Law, that MOFCOM and CSRC approvals were not required for our merger transaction or for the listing and trading of our securities on a trading market because we are not an offshore special purpose vehicle that is directly or indirectly controlled by PRC companies or individuals. Although the merger and acquisition regulations provide specific requirements and procedures, there are still many ambiguities in the meaning of many provisions. Further regulations are anticipated in the future, but until there has been clarification either by pronouncements, regulation or practice, there is some uncertainty in the scope of the regulations and the regulators have wide latitude in the enforcement of the regulations and approval of transactions. If the MOFCOM, CSRC or another PRC regulatory agency subsequently determines that MOFCOM and CSRC approvals were required, we may face sanctions by MOFCOM, CSRC or another PRC 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 the proceeds from this offering into China, restrict or prohibit payment or remittance of dividends paid by Henan Green, or take other actions that could damage our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities.

In 2008, Wealth Rainbow acquired 100% of the equity interest of Henan Green from 13 shareholders who are PRC nationals, following which Henan Green was changed from a domestic company into a FIE. The prior sole owner of Wealth Rainbow and former majority owner of China Gerui is the daughter of Mingwang Lu, one of the selling shareholders of Henan Green. The M&A Rules require that when a foreign investor which is established or controlled by a domestic natural person acquires the equity interest of a domestic company that is related with such foreign investor, such acquisition shall be approved by MOFCOM, and the parties to the acquisition shall have the obligation to disclose the existence of any interested party relationship. We believe, based on the opinion of our PRC legal counsel, Jingtian & Gongcheng, Attorneys at Law, that all the necessary approvals and registrations for Wealth Rainbow’s acquisition of the equity interest in Henan Green had been obtained. However, there remains some uncertainty as to the interpretation and implementation of M&A Rules with regard to the interested party relationship. If a PRC regulatory agency, such as MOFCOM, subsequently determines that the approval from MOFCOM was required for the acquisition, we may face sanctions by such PRC 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 the proceeds from offerings into China, restrict or prohibit payment or remittance of dividends by Henan Green 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 securities. The PRC regulatory agency may also take actions requiring us, or making it advisable for us, to cancel this previous acquisition.

The M&A Rules establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisition in China.

The M&A Rules establish additional procedures and requirements that could make some acquisitions of PRC companies by foreign investors, such as ours, more time-consuming and complex, including requirements in some instances that the approval of MOFCOM shall be required for transactions involving the shares of an offshore listed company being used as the acquisition consideration by foreign investors. In the future, we may grow our business in part by acquiring complementary businesses. Complying with the requirements of M&A Rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

The MOFCOM Security Review Rules may make it more difficult for us to make future acquisitions or dispositions of our business operations or assets in China.

In August 2011, MOFCOM promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular 6. The MOFCOM Security Review Rules became effective on September 1, 2011. Under the MOFCOM Security Review Rules, a national security review is required for certain mergers and acquisitions by foreign investors raising concerns regarding national defense and security. Foreign investors are prohibited from circumventing the national security review requirements by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls within the scope subject to national security review, we may not be able to successfully acquire such company by equity or asset acquisition, capital increase or even through any contractual arrangement.

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A failure by our shareholders or beneficial owners who are PRC citizens or residents in China to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws.

The Notice on Issues Relating to Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, was issued on October 21, 2005 by SAFE (that replaced two previously issued regulations on January 24, 2005 and April 8, 2005, respectively). Notice 75 requires PRC residents (including both corporate entities and natural persons) to register with SAFE or its competent local branch before establishing or controlling any company outside of China referred to as an “offshore special purpose company” for the purpose of raising funds from overseas to acquire assets of, or equity interests in, PRC companies. Under Notice 75, a “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC residents for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents in onshore companies. In addition, any PRC resident that is the shareholder of an offshore special purpose company is required to amend his or her SAFE registration with the SAFE or its competent local branch, with respect to that offshore special purpose company in connection with any of its increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. The SAFE regulations require retroactive approval and registration of direct or indirect investments previously made by PRC residents in offshore special purpose companies. To further clarify the implementation of Notice 75, SAFE issued Notice 106 in May, 2007. Under Notice 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders who are PRC residents in a timely manner. In the event that a PRC shareholder with a direct or indirect investment in an offshore parent company fails to obtain the required SAFE approval and make the required registration, the PRC subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries. Further, failure to comply with the various SAFE approval and registration requirements described above, as currently drafted, could result in liability under PRC law for foreign exchange evasion. In June 2009, Notice 106 was superseded by the Notice on Foreign Exchange Implementing Guidelines regarding Capital Account Management (known as Notice 77) which allows establishing or controlling a special purpose company before the SAFE registration is complete. After this, in May 2011, a SAFE Notice on Issuance of the Operating Procedures for PRC Residents Engaging in Financing and Roundtrip investments via Overseas Special Purpose Vehicles (known as Notice 19) was promulgated to simplify the SAFE registration process which further superseded Notice 77 and came into force on July 1 2011.

There still remain uncertainties as to how certain procedures and requirements under the aforesaid SAFE regulations will be enforced, and it remains unclear how these existing regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot assure that any of our shareholders or beneficial owners that are PRC citizens or residents have always complied with and will in the future make or obtain any applicable registrations or approvals required by Notice 75 or other related regulations. Failure by such shareholders or beneficial owners to comply with SAFE Notice 75 and Notice 106, Notice 77 and Notice 19 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiary’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents and registration requirements for employee stock ownership plans or share option plans may subject our PRC resident beneficial owners or the plan participants to personal liability, limit our ability to inject capital into our PRC subsidiaries, limit our subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

Regulations promulgated by the SAFE require PRC residents and PRC corporate entities to register with local branches of the SAFE in connection with their direct or indirect offshore investment activities. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

On February 15, 2012, the SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic Individuals Participating in an Employee Share Incentive Plan of an Overseas-Listed Company (which replaced the old Circular 78, “Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in an Employee Stock Holding Plan or Stock Option Plan of an Overseas-Listed Company” promulgated on March 28, 2007), or the New Share Incentive Rule. Under the New Share Incentive Rule, PRC citizens who participate in a share incentive plan of an overseas publicly listed company are required to register with SAFE and complete certain other procedures. All such participants need to retain a PRC agent through a PRC subsidiary to register with SAFE and handle foreign exchange matters such as opening accounts, transferring and settlement of the relevant proceeds. The New Share Incentive Rule further requires that an offshore agent should also be designated to handle matters in connection with the exercise or sale of share options and transferring proceeds for the share incentive plan participants. We and our PRC employees who have been or in the future are granted stock options are subject to the New Share Incentive Rule. If we or our PRC employees fail to comply with the New Share Incentive Rule, we and/or our PRC employees may face sanctions imposed by the foreign exchange authority or any other PRC government authorities.

In addition, the State Administration of Taxation has issued a few circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities.

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Under the SAFE regulations, PRC residents who make, or have previously made, direct or indirect investments in offshore companies, will be required to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is required to file or update the registration with the local branch of the SAFE, with respect to that offshore company, any material change involving its round-trip investment and capital variation. The PRC subsidiaries of that offshore company are required to urge the PRC resident shareholders to make such updates. If any PRC shareholder fails to make the required SAFE registration or file or update the registration, the PRC subsidiaries of that offshore parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into their PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions, such as restrictions on distributing dividends to our offshore entities or monetary penalties against us. We cannot assure you that all of our shareholders who are PRC residents will make or obtain any applicable registrations or approvals required by these SAFE regulations. The failure or inability of our PRC resident shareholders to comply with these SAFE registration procedures may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to or obtain foreign-exchange-dominated loans from our company.

As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

Certain measures promulgated by the People’s Bank of China on foreign exchange for individuals set forth the respective requirements for foreign exchange transactions by PRC individuals under either the current account or the capital account. Implementing rules for these measures were promulgated by the SAFE which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. The SAFE also promulgated rules under which PRC citizens who are granted stock options by an overseas publicly-listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly-listed company, to register with the SAFE and complete certain other procedures. We and our PRC employees who have been granted stock options are subject to these rules. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions.

Because we failed to make the payment of the transfer price of the acquisition of Henan Green’s equity interests on a timely basis pursuant to relevant PRC regulations, there is no guarantee that the PRC government will not challenge the validity of the acquisition in the future.

On August 10, 2008, Wealth Rainbow entered into an equity transfer agreement with the then shareholders of Henan Green to acquire all of their equity interests in Henan Green for RMB 65.6 million (approximately $9.6 million). On October 21, 2008, Henan Green obtained the Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People’s Republic of China issued by Henan Provincial Government and a new business license was issued to Henan Green on October 30, 2008. Article 16 of the M&A Rules requires that the equity interest transfer price be paid in full within three months commencing from the issuance of the new business license to Henan Green. If the transfer price is not paid by this date, we may apply to the relevant PRC regulatory agency for an extension of up to one year from the date of the issuance of the license; provided, however, that 60% of the transfer price will be required to be paid within six months from such date, which was April 30, 2009. On January 4, 2009, we obtained the approval from the relevant PRC regulatory agency allowing us to make the full payment of the transfer price by October 30, 2009. Wealth Rainbow has fully paid the transfer price, making payments between July 2009 and September 16, 2009. However, because it did not comply with the requirement to pay 60% of the transfer price by April 30, 2009, the relevant PRC regulatory agency may challenge the validity of the acquisition in the future.

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The implementation of the new PRC employment contract law and increases in the labor costs in China may hurt our business and profitability.

A new employment contract law became effective on January 1, 2008 in China. It imposes more stringent requirements on employers in relation to entry into fixed-term employment contracts, recruitment of temporary employees and dismissal of employees. In addition, under the Regulations on Paid Annual Leave for Employees, which also became effective on January 1, 2008, employees who have worked continuously for more than one year are entitled to paid vacation ranging from 5 to 15 days, depending on the length of the employee’s service. Employees who waive such vacation entitlements at the request of the employer will be compensated for three times their normal daily salaries for each vacation day so waived. As a result of the new law and regulations, our labor costs may increase. There is no assurance that disputes, work stoppages or strikes will not arise in the future. Increases in the labor costs or future disputes with our employees could damage our business, financial condition or operating results.

The Chinese government has been adopting increasingly stringent environmental, health and safety protection requirements, which could hurt our business.

The continuation of our operations depends upon compliance with the applicable environmental, health and safety, fire prevention and other regulations. Any change in the scope or application of these laws and regulations may limit our production capacity or increase our cost of operation and could therefore have an adverse effect on our business operations, financial condition and operating results. Our failure to comply with these laws and regulations could result in fines, penalties or legal proceedings. There can be no assurance that the Chinese government will not impose additional or stricter laws or regulations, compliance with which may cause us to incur significant capital expenditures, which it may not be able to pass on to our customers.

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

China passed a new Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, 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. The implementing rules define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. In addition, a circular issued by the State Administration of Taxation on April 22, 2009 regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese group enterprises and established outside of China as “resident enterprises” clarified that dividends and other income paid by such “resident enterprises” will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC enterprise shareholders. This circular also subjects such “resident enterprises” to various reporting requirements with the PRC tax authorities.

In addition, the circular mentioned above sets out criteria for determining whether “de facto management bodies” are located in China or overseas incorporated, domestically controlled enterprises. However, as this circular only applies to enterprises established outside of China that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas incorporated enterprises that are controlled by individual PRC residents like us and some of our subsidiaries.

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Therefore, although substantially all of our management is currently located in the PRC, it remains unclear whether the PRC tax authorities would require or permit our overseas registered entities to be treated as PRC resident enterprises. We do not currently consider our company to be a PRC resident enterprise. However, if the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on offering proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares.

In addition, under the EIT law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008, the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, which became effective on December 8, 2006, and the Notice of the State Administration of Taxation Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, which became effective on October 27, 2009, dividends from our PRC operating subsidiaries paid to us through our Hong Kong subsidiary may be subject to a withholding tax at a rate of 10%, or at a rate of 5% if our Hong Kong subsidiary is considered a “beneficial owner” that is generally engaged in substantial business activities and entitled to treaty benefits. Furthermore, the ultimate tax rate will be determined by treaty between the PRC and the tax residence of the holder of the PRC subsidiaries. We are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact.

Dividends declared and paid from pre-January 1, 2008 distributable profits are grandfathered under the EIT Law and are not subject to withholding tax.

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

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

Risks Related to the Market for our Ordinary Shares Generally

The market price for our ordinary shares may be volatile.

The market price for our ordinary shares could be subject to wide fluctuations in response to a variety of factors, some of which may be beyond our control. During the fiscal year ended December 31, 2012, the high and low reported sales prices of our ordinary shares were $4.17 and $1.22, respectively. Factors affecting the trading price of our ordinary shares include:

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

· changes in financial estimates by us or by any securities analysts who might cover our shares;

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

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

· stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the steel industry;

· customer demand for our products;

· investor perceptions of the steel industry in general and our company in particular;

· the operating and stock performance of comparable companies;

· general economic conditions and trends;

· major catastrophic events;

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

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

· loss of external funding sources;

· sales of our stock, including sales by our directors, officers or significant shareholders; and

· additions or departures of key personnel.

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

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, from October 2008 until June 2009, securities markets in the United States, China and throughout the world experienced an historically large decline in share price. These market fluctuations may adversely affect the price of our ordinary shares and other interests in our company at a time when you want to sell your interest in us.

Our ordinary shares may be delisted from the NASDAQ Global Select Market, which could negatively impact the price of our ordinary shares and our ability to access capital markets.

Our ordinary shares are listed on the NASDAQ Global Select Market. Should we fail to satisfy the continued listing requirements of the NASDAQ Global Select Market, our ordinary shares could be delisted. Among others, we are required by NASDAQ to maintain a minimum bid price of $1.00 per share. Our stock price is currently above $1.00. However, in the event that our stock did close below the minimum bid price of $1.00 per share for any 30 consecutive business days, we would regain compliance if our ordinary shares closed at or above $1.00 per share for 10 consecutive days during the 180 days immediately following failure to maintain the minimum bid price. If we are unable to do so, our stock could be delisted from the NASDAQ Global Select Market, transferred to a listing on the NASDAQ Capital Market, or delisted from the NASDAQ markets altogether. The delisting of our ordinary shares would significantly affect the ability of investors to trade our securities and would significantly negatively affect the value and liquidity of our ordinary shares. In addition, the delisting of our ordinary shares could materially adversely affect our ability to raise capital on terms acceptable to us or at all. Delisting from the NASDAQ Global Select Market could also have other negative results, including the potential loss of confidence by our suppliers, customers and employees, the loss of institutional investor interest, and fewer business development opportunities.

Future sales or perceived sales of our ordinary shares could depress our stock price.

Most of our ordinary shares held by our current shareholders are freely tradable.  If the holders of these shares were to attempt to sell a substantial amount of their holdings at once, the market price of our ordinary shares could decline. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short the ordinary shares, a practice in which an investor sells shares that he or she does not own at prevailing market prices, hoping to purchase shares later at a lower price to cover the sale. As each of these events would cause the number of our ordinary shares for sale to increase, our ordinary shares market price would likely further decline.

We do not intend to pay dividends on our ordinary shares for the foreseeable future.

Prior to our March 2009 merger with COAC, our operating subsidiary, Henan Green, declared and paid dividends of $51.9 million and $42.3 million in 2008, respectively, and declared and paid dividends of $16.1 million in 2007.  We paid no dividends during the fiscal year ended December 31, 2012.  Notwithstanding Henan Green’s past history of making dividend payments, we intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on our ordinary shares in the foreseeable future.

We are a “foreign private issuer,” and have disclosure obligations that are different than those of U.S. domestic reporting companies, so you should not expect to receive the same information about us as a U.S. domestic reporting company may provide.

We are a foreign private issuer and, as a result, we are not subject to certain of the requirements imposed upon U.S. domestic issuers by the SEC. For example, we are not required by the SEC or the federal securities laws to issue quarterly reports or file proxy statements with the SEC. We are also allowed to file our annual report with the SEC within four months of our fiscal year end.  We are also not required to disclose certain detailed information regarding executive compensation that is required from U.S. domestic issuers.  Further, our directors and executive officers are not required to report equity holdings under Section 16 of the Securities Act.  As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5.  Since many of the disclosure obligations required of us as a foreign private issuer are different than those required by U.S. domestic reporting companies, our shareholders should not expect to receive all of the same types of information about us and at the same time as information is received from, or provided by, U.S. domestic reporting companies.  We are liable for violations of the rules and regulations of the SEC which do apply to us as a foreign private issuer.  Violations of these rules could affect our business, results of operations and financial condition.

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You may have difficulty enforcing judgments obtained against us.

We are a BVI company and substantially all of our assets are located outside of the United States. Virtually all of our assets and a substantial portion of our current business operations are conducted in the PRC.  In addition, almost all of our directors and officers are nationals and residents of countries other than the United States.  A substantial portion of the assets of these persons are located outside the United States.  As a result, it may be difficult for you to effect service of process within the United States upon these persons.  It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents in the United States and whose assets are located in significant part outside of the United States.  The courts of the BVI would recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States against the Company under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the BVI, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the BVI, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the BVI and (f) there is due compliance with the correct procedures under the laws of the BVI.  In addition, there is uncertainty as to whether the courts of the BVI or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.  In addition, it is uncertain whether such BVI or PRC courts would entertain original actions brought in the courts of the BVI or the PRC, against us or such persons predicated upon the securities laws of the United States or any state.

Because we are incorporated under the laws of the BVI, it may be more difficult for our shareholders to protect their rights than it would be for a shareholder of a corporation incorporated in another jurisdiction.

Our corporate affairs are governed by our Memorandum and Articles of Association, by the BVI Business Companies Act, 2004 and by the common law of the BVI.  Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management and the rights of our shareholders differ from those that would apply if we were incorporated in the United States or another jurisdiction.  The rights of shareholders under BVI law may not be as clearly established as are the rights of shareholders in the United States or other jurisdictions.  Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders.  Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously unreasonable may be declared null and void. BVI law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in US jurisdictions.  In addition, the circumstances in which a shareholder of a BVI company may sue the company derivatively, and the procedures and defenses that may be available to the company, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the US.  Furthermore, our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the laws of most US jurisdictions.  The directors of a BVI corporation, subject in certain cases to court approval but without shareholder approval, may implement a reorganization, merger or consolidation, the sale of any assets, property, part of the business, or securities of the corporation, subject to a limit of up to 50% of such assets.  The ability of our board of directors to create new classes or series of shares and the rights attached by amending our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our ordinary shares at a premium over then current market prices. Thus, our shareholders may have more difficulty protecting their interests in the face of actions by our board of directors or our controlling shareholders than they would have as shareholders of a corporation incorporated in another jurisdiction.

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Our share repurchase program did not succeed in reassuring the markets of our confidence in our financial condition and growth potential.

In April 2011, we announced that our board of directors had approved a six-month share repurchase program to repurchase up to an aggregate of $10 million of our ordinary shares. Our board of directors subsequently extended the program from six months to an indefinite period or until the program is completed. As of December 31, 2012, consistent with the program, we had repurchased ordinary shares from to time in an aggregate amount of approximately $6.1 million. Since the commencement of our program, the closing stock price of our ordinary shares has generally declined from a high of $5.20 a few days following the announcement of the program to a low of $1.22 as of April 12, 2013. Many factors may cause our stock price to decline and our share repurchase program was unable to prevent or reverse such a decline. To the extent that our share repurchase program is unsuccessful in reversing the downward trend of our stock price, we may have expended capital without achieving a concrete increase in our share value.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

General Information

The current legal and commercial name of the Company is China Gerui Advanced Materials Group Limited. The Company was incorporated in the BVI under the BVI Business Companies Act, 2004 on March 11, 2008. The address of our principal place of business is 1 Shuanghu Development Zone, Xinzheng City, Zhengzhou, Henan Province 451191, People’s Republic of China, and our telephone number is (+86) 371 62568634.

Corporate History

We are a holding company and all of our active business operations are conducted by our indirect, operating subsidiaries, Henan Green and Zhengzhou Company.

China Gerui was incorporated solely for the purpose of acquiring the issued share capital of Wealth Rainbow, which was organized for the sole purpose of acquiring and holding all of the outstanding equity capital in Henan Green.  Neither China Gerui nor Wealth Rainbow has any active business operations other than their ownership of Henan Green.

Henan Green was formed in China in December 2000 by Zhengzhou Company and six individuals including Mr. Mingwang Lu, our Chairman and CEO, and Mr. Baiwang Lu, the brother of Mr. Mingwang Lu.  In December 2006, Zhengzhou Company transferred all its equity interest in Henan Green to 11 individuals including Mr. Mingwang Lu.  On October 21, 2008, the then shareholders of Henan Green transferred all their equity interest in Henan Green to Wealth Rainbow. The acquisition was accounted for as a reorganization under common control with the purchase of a minority interest.

Wealth Rainbow was organized in 2008 for the sole purpose of acquiring and holding all of the outstanding equity capital in Henan Green. Wealth Rainbow was acquired by China Gerui on November 28, 2008. At the time of the acquisition, the sole shareholder of Wealth Rainbow was Ms. Yuying Lu, the daughter of Mr. Lu, and the majority shareholder of China Gerui was Oasis, whose sole shareholder was Ms. Lu.  Therefore, under U.S. GAAP reporting rules, the control group’s 55.02% interest of Henan Green that was acquired constitutes an exchange of equity interests between entities under common control, and the remaining 44.98% interest of Henan Green was accounted for as a minority interest prior to the date of acquisition. As of March 17, 2009, the minority interest ceased to exist.

On March 17, 2009, we completed a business combination transaction with COAC.  COAC was incorporated in Delaware on August 7, 2006 as a blank check company whose objective was to acquire an operating business with its principal operations located in China.  COAC completed its initial public offering in which it raised approximately $41.4 million on March 26, 2007.  All business activity conducted by COAC from its inception until our merger on March 17, 2009 related to its initial public offering and search for a business combination partner.  Upon completion of the merger transaction with COAC, we succeeded to foreign private issuer status under applicable securities laws.

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On February 26, 2013, Henan Green acquired 100% ownership of Zhengzhou Company for a total cash purchase price of RMB 268 million (approximately $42.6 million), of which RMB 150.0 million (approximately $24.1 million) has been paid. If Henan Green fails to pay the full purchase price by the negotiated deadline, it will be liable for a penalty fee at a daily rate of 0.03% of the outstanding purchase price. In addition, if any party breaches its representations and warranties provided in the equity transfer agreement, the breaching party is required to pay the other parties for damages in an amount of RMB 1 million (approximately $0.16 million). Zhengzhou Company was formed in China on May 14,1993 and owns land use rights with respect to 24.94 acres of land, among which 6.69 acres of land had been leased to Henan Green pursuant to a lease agreement in December 2008. The term of the lease is from January 1, 2008 to December 31, 2027. Our existing production lines and warehouses are located on such land. In addition, three Company directors, Mr. Mingwang Lu, Mr. Yi Lu and Mr. Maotong Xu, were shareholders of Zhengzhou Company and owned 39.7%, 0.27% and 0.5% of Zhengzhou Company, respectively.

The following diagram illustrates our corporate structure as of the date of this annual report.  

Principal Capital Expenditures and Divestitures

In fiscal years 2012, 2011 and 2010, our total capital expenditures were $30.6 million, $49.1 million and $69.1 million, respectively. Capital expenditures in 2012 were primarily related to our capacity expansion program, which involved the construction of three new cold-rolled steel production lines with 250,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum. The first phase of our production capacity expansion program, the construction of two new cold-rolled production lines with total annual capacity of 150,000 tons, was completed during 2011, and launched normal production operations in July 2011. The second phase of our capacity expansion program, the construction of an additional 100,000 tons of cold-rolled production capacity, was completed in the first quarter of 2012 and launched production operations in the third quarter of 2012.

B. Business Overview

General

We are a leading China-based, non-state-owned contract manufacturer of high precision cold-rolled narrow strip steel products. We convert steel manufactured by third parties into thin steel sheets and strips according to our customers’ specifications. We produce precision ultra-thin, high-strength cold-rolled steel products, with thicknesses starting from 0.05 mm width up to 600 mm and tolerance +/- 0.003mm. We sell our products to domestic Chinese customers who primarily operate in the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables industries. The cold-rolled precision steel industry is relatively new in China. Manufacturers of products that use specialty precision steel products, including our customers, traditionally imported raw materials from Japan, South Korea, the European Union and the United States.

Prior to 2009, we produced and sold unplated steel sheets to manufacturers or distributors which then further treated or outsourced our products for tin or zinc plating to produce tinplate or zinc-plated steel, or for electrolytic chromic acid treatments to produce chromium plated steel, according to customer specifications. We added chromium plating facilities in December 2008 and launched mass production of chromium plated steel products in February 2009.

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Our PRC manufacturing facility is located in Zhengzhou, Henan Province. We currently operate eleven sets of cold-rolled steel production lines with a current annual steel processing capacity of approximately 500,000 metric tons and two chromium-plating production lines with total annual processing capacity of approximately 250,000 metric tons. We recently completed our capacity expansion program, which involved the construction of three new cold-rolled steel production lines with 250,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum. The first phase of our production capacity expansion program, with total annual capacity of 150,000 tons, was completed during 2011, and normal production operations in July 2011. The second phase of our capacity expansion program, the construction of an additional 100,000 tons of cold-rolled production capacity, was completed in the first quarter of 2012 and the production operation was launched in the third quarter of 2012. This recent expansion will increase our product offerings, which we believe will increase our profit margin. Newly-added capacity to produce these types of high-end plated steel products will enable us to enhance our higher-margin product offering to meet the increasing demand in the China market for high-end cold-rolled steel products.

Our revenue has increased from $253.9 million in 2010 to $341.8 million in 2011 and then decreased to $265.5 million in 2012, representing a compounded annual growth rate, or CAGR, of approximately 2.3% from 2010 to 2012. Our net income increased from $47.1 million in 2010 to $57.6 million in 2011 and decreased to $26.1 million in 2012, representing a CAGR of (25.6)% from 2010 to 2012.

As a net importer of high-end precision products, China currently still lacks the capability to produce high-end precision steel products. Our success in the past mainly came from being able to expand into products which replace expensive imported products and being able to manufacture these types of products at a cost-efficient level compared to other domestic Chinese manufacturers. We believe our technology and product development capability has been a key factor in our success.

Our Products

We are a leading niche and high value-added steel processing company in China. We produces high-end, high-precision, ultra-thin, high- strength, cold-rolled steel products, with thicknesses starting from 0.05 mm width up to 1,200 mm and tolerance +/- 0.003 mm, that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. Our products are not standardized commodity products. Instead, they are tailored to customers' requirements and subsequently incorporated into products manufactured for various applications. We sell our products to domestic Chinese customers in a diverse range of industries, including the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables.

Prior to 2011, we produced and sold narrow-strip cold-rolled steel with width up to 600mm. Our annual production capacity was 250,000 metric tons. We started to build a chromium plating facilities in December 2008, and launched mass production of chromium plated steel products in October 2009 with annual chromium plating capacity of 50,000 metric tons. With the capacity expansion program recently completed in 2012, we now have total production capacity of 500,000 metric tons of both narrow- and wide-strip cold-rolled steel, of which up to 50% can be further chromium-plated as value-add service to customers.

We have five series and over 20 types of high precision strip steel products. Our products are manufactured from steel substrate of cold-rolled or hot-rolled pickled coils. We have the flexibility to adjust our production specifications to meet changes in market demand.

Our Pricing Strategy

We price our products after reflecting raw material and production costs, selling expenses and profit margin. Our product price is largely affected by the price of raw steel as well as the supply and demand dynamics of our products in the marketplace.

The price of precision steel products varies depending on thickness, precision, and hardness. Product quality is also a pricing factor, reflecting the technological leadership, engineering and operating efficiency of the manufacturers.

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The market for our principal raw material, hot rolled steel, is price sensitive. We work with long-term suppliers, which are the large and mid-scale steel mills in China, as well as our customers to ensure quick reaction to the change of pricing directions in the market. As steel prices drop, we endeavor to obtain price concessions from suppliers, and pass the cost-savings to our customers. As steel prices rise, we negotiate with customers to pass on cost increases, and negotiate with suppliers to lock in lower steel costs. We believe our ability to manage the price of raw materials and the price of final products, as well as our long-term relationships with our suppliers and customers, are important factors in our success in this business.

Raw Materials and Suppliers

The principal raw material used in producing our products is hot rolled steel coil, which accounts for approximately 92% of our total production cost. Our raw material procurement policy is to use only long-term suppliers who have demonstrated quality control and reliability. We maintain multiple supply sources so that supply problems with any one supplier will not materially disrupt our operations. We also believe that we have sufficient suppliers to meet our present and anticipated future needs.

The prices of steel rolls can fluctuate and can be quite volatile. To provide some protection from the pressure and volatility of the market, we make bulk purchases only when all purchases are supported by customers’ orders. When executing sales orders with customers, we set pricing based on the currently prevailing price of steel coil thereby allowing us to pass incremental cost increases in raw materials to our customers. In a market environment when the steel price declines, it is a general industry practice that steel mills will provide concessions for price protection and we generally will pass on the price concessions to our customers.

However, our principal suppliers usually dedicate portions of their inventories as reserves to meet our manufacturing requirements. Suppliers are generally provided a prepayment and are paid in full when the products are delivered.

Since 2012, we began to offer cold-rolled wide-strip steel in addition to our traditional cold-rolled narrow-strip steel products with total capacity of 500,000 metric tons. Our chromium-plating capacity was increased from 50,000 metric tons (for narrow-strip only) to 250,000 metric tons (for both narrow- and wide-strip). Also, we are in the process of building a laminated steel production line that is expected to be launched for production in the second quarter of 2013. The afore-mentioned improvement of our product mix posed changed demand for raw materials, requiring our suppliers to meet our raw material need in a cost-effective, flexible, and timely manner.

For the years ended December 31, 2012, 2011 and 2010, our three largest suppliers accounted for over 80%, 79% and 66%, respectively, of our total purchases. For the years ended December 31, 2012, 2011 and 2010, our single largest supplier accounted for 37.4%, 42.8% and 29.7% of our total purchases, respectively.

Customers, Sales and Marketing

We sell our products primarily in China either directly to manufacturers or through distributors. We use our own sales staff and network which cover many Chinese provinces and regions, especially in the eastern coastal regions in China. We have developed and strive to maintain a diversified sales network that allows us to effectively market products and services to our customers.

Members of our sales team generate sales leads by contacting customers and customer prospects directly and by attending industry trade shows and exhibitions. Given our established status as one of China’s leading suppliers of cold-rolled precision steel products, our customers often contact us directly regarding new projects. Although most of our business is developed by direct personal contact and referrals from our customers, we have been marketing and promoting our products through the following means:

· hosting annual product promotion meeting with current and potential customers, in which we introduce our products and new improvements to the market;

· attending various exhibitions to improve our name recognition; and

· visiting our customers and collecting information regarding their needs.

Sales to customers in China account for virtually all of our revenue. We target our sales efforts primarily in the coastal provinces of Guangdong, Fujian, Zhejiang, Jiangsu and Shanghai areas, where the majority of our customers are located. We have a sales staff of approximately 30 employees. We maintain nine sales offices in China, including three in Guangdong, three in Zhejiang, one in Fujian, one in Shandong, and one in Anhui. We participate in industry expositions in which we showcase our products and services and from which we obtain new customers.

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Generally, an initial deposit (approximately 30% of the aggregate contracted sales amount) is pre-paid by a customer when the customer contract is signed. The remainder of the customer’s payment is generally received in cash on delivery. Management reviews its accounts receivable on a regular basis to determine if the allowance for doubtful accounts is adequate at each quarter-end.

We produce on a contract basis for our customers and develop, process and manufacture steel products tailored to customers’ specifications. We sell our products to domestic Chinese customers primarily operating in the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables industries. Our high precision steel products are sold directly to the end users in various parts of China and our production was based on confirmed sales orders.

The following table sets forth the percentages of sales of our products by industry applications during each of the three years of 2012, 2011 and 2010:

			Year Ended December 31,
Revenue by Industry Application	Thickness	Precision	2012			2011			2010
Food and industrial packaging	0.1 - 1.3 mm	±0.0025 - 0.005		50.6	%		49.2	%		51.8	%
Construction and household decorations materials	0.2 - 1.1 mm	±0.0025 - 0.005		22.6	%		19.2	%		33.7	%
Electrical appliances	0.09-1.1 mm	±0.002 - 0.005		17.5	%		23.5	%		6.0	%
Telecommunication wires and cables	0.1-0.24 mm	±0.0025 - 0.005		9.4	%		8.1	%		8.5	%

During the last three fiscal years, we have sold our products to more than 200 customers that were located in Shanghai, Zhejiang, Jiangsu, Shandong, Guangdong, Hebei, Tianjin, Guangxi, Fujian and Liaoning. Our major customers for the year ended December 31, 2012 included:

Customer Name	Quantity Sold (Metric Tons)		% of Total Sales
Dongying Bohai Metals Co. Ltd.		19,964		6.8	%
Luoyang Lixin Commerce and Trade Co., Ltd.		15,332		5.2	%
Henan Shun Kay Colored Steel Co., Ltd.		10,574		2.6	%
Zhongyuan Shengqi Co. Ltd.		10,545		3.6	%
Hangzhou Xinye Bottle Cap Co. Ltd.		8,618		2.8	%

For each of the years ended December 31, 2012, 2011 and 2010, our five largest customers accounted for 21.0%, 16.2% and 22.9% of total sales, respectively. For the years ended December 31, 2012, 2011 and 2010, the single largest customer accounted for 6.8%, 5.5% and 8.5% of our total sales, respectively.

Intellectual Property

We protect our intellectual property primarily by maintaining strict control over the use of production processes. All our employees, including key employees and engineers, have signed our standard form of labor contracts, pursuant to which they are obligated to hold in confidence all of our trade secrets, know-how or other confidential information and not to compete with us, both during the employment term and within five years after the termination of employment. In addition, for each project, only the personnel associated with the project have access to the related intellectual property. Access to proprietary data is limited to authorized personnel to prevent unintended disclosure or otherwise using our intellectual property without proper authorization. We will continue to take steps to protect our intellectual property rights.

In May, 2010, our utility model patent application was approved by the PRC government (application number: 200920089897.4), related to our production process technology, in particular, hydraulic pressured automatic thickness control system for four-roll reversible cold mill. The application was made on April 28, 2009.

We have registered the trademark for the logo with the Trademark Office of the State Administration for Industry and Commerce of China.  We use our trademark for the sales and marketing of our products.  Our trademark expires on December 27, 2014 and may be continually renewed thereafter.

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Competition and Our Market Position

Competition within the steel industry, both in China and worldwide, is intense. There are many large state-owned enterprises and smaller private steel companies in China. In addition, Chinese steel makers also face competition from international steel manufacturers. In the absence of publicly available official statistics or independent third-party market research, we believe from our own competitive analysis that we are one of the leading precision cold-rolled steel producers in China.

The recent slowdown in China’s domestic economy and a slowdown in exports of steel also led to a somewhat depressed steel market in China which has forced large state-owned steel mills to rely on the domestic market to absorb their otherwise export-oriented output; this has resulted in an increase in supply and induced some short-term price cuts throughout the domestic steel sector. This phenomenon generated greater competition, particularly from large state-owned commoditized cold-rolled steel producers, and especially for our newer production capacity, which tends to produce products at a greater degree of commoditization, including with respect to strip thickness, than our more established production lines. However, as we further optimize the production process and fully realize our design specifications, including strip thickness, we expect to further replace imports of high-end steel products and face less competition from domestic producers. This dynamic was evident in 2011 when we launched new wide-strip steel production lines.

In the cold-rolled steel strip market in China, competitive advantages generally result from a number of factors, including the following:

· a producer’s flexibility to control cost and pricing of products and the ability to use economies of scale to secure advantages in procurement, production and distribution;

· a producer’s capacity to meet all current and potential demand;

· a producer’s ability to manufacture products efficiently, maximize raw material yield, and to achieve better production quality; and

· a producer’s technical knowledge, access to capital, local market knowledge and established relationships with suppliers and customers to support the development of commercially viable production facilities.

Particularly with respect to domestic cold-rolled narrow steel strip manufacturers, we believe that we differentiate ourselves by being an early mover in the industry, and by offering high product quality, timely delivery and better value. The following are attributes that we believe are important to our industry and we believe that we demonstrate each of them:

· performance and cost effectiveness of products;

· ability to manufacture and deliver products in required volumes, on a timely basis, and at competitive prices;

· high quality and reliability of products;

· flexibility to customize products to match customers’ end-use specifications;

· in-house production process;

· after-sale support capabilities, from both an engineering and an operational perspective;

· flexibility in operations;

· cost-effective supply chain management and production;

· access to financing for capital expenditures and working capital;

· effectiveness of customer service and ability to send experienced operators and engineers as well as a seasoned sales force to assist customers; and

· overall management capability.

We believe that we are positioned to address competition with international manufacturers of cold-rolled narrow steel strip, which primarily relates to the following attributes:

· ability to offer both a high quantity and a wide variety of customized, value-added products;

· technical expertise to match or exceed the quality of foreign-made products; and

· maintenance of lower transportation, labor, and other significant costs.

Our capacity expansion program is one of the primary ways that we believe that we are maintaining or increasing our competitiveness as to all competitors with respect to many of the above factors. As previously disclosed, our expansion plan was implemented in two phases. The first phase has involved the construction of 150,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum, which started normal operations in July 2011. The second phase of our expansion plan involved the construction of another 100,000 metric tons of capacity and the production operation was launched in the third quarter of 2012.

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Regulation

We are subject to numerous central, provincial and local laws and regulations, which may be changed from time to time in response to economic or political conditions and have a significant impact upon overall operations. Changes in these regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on our company.

Included among these laws and regulations are numerous central, provincial and local laws and regulations relating to the protection of the environment. These laws continue to evolve and are becoming increasingly stringent. The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision. The State Environmental Protection Administration Bureau is responsible for the supervision of environmental protection in, implementation of national standards for environmental quality and discharge of pollutants for and supervision of the environmental management system of the PRC. Environmental protection bureaus at the county level or above are responsible for environmental protection within their jurisdictions.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations.  This pattern may change, however, as a result of new market opportunities or new product introductions.

C. Organizational Structure

See “—A. History and Development of the Company—Corporate History” above for details of our current organizational structure.

D. Property, Plants and Equipment

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 transferred upon approval by the land administrative authorities of China (State Land Administration Bureau) upon payment of the required land transfer fee.

Our manufacturing facilities are located in Zhengzhou, Henan Province, China. The total land area is approximately 1,194,000 square feet, which is owned by Zhengzhou Company. Our facilities have a total area of approximately 264,000 square feet, of which 226,000 square feet is devoted to production facilities, 9,000 square feet is raw material warehouse space, 6,300 square feet is finished product warehouse space and 22,700 square feet is an office building. Prior to our acquisition of Zhengzhou Company in February 2013, we leased this space from Zhengzhou Company. The lease was for a 20-year term, beginning on January 1, 2008. The rent under the lease was approximately $12,867, $11,428 and $9,909 for 2012, 2011 and 2010, respectively. Zhengzhou Company pledged the land and buildings to guarantee our obligations under certain of our short-term bank loans.

As of December 31, 2012, our facilities had an annual cold rolling steel processing capacity of approximately 500,000 metric tons and an annual chromium coating capacity of approximately 250,000 metric tons.

We also have obtained land use rights and permission to construct facilities on additional land of approximately 2,152,780 square feet, adjacent to our present facilities, from the Zhengzhou local government. We have pledged the land use rights for this property to the lenders of certain of our short-term bank loans to secure our obligations under these loans.

Our manufacturing facilities are subject to various pollution control regulations with respect to noise and air pollution and the disposal of waste and hazardous materials. We are also subject to periodic inspections by local environmental protection authorities. Our operating subsidiaries have received certifications from the relevant PRC government agencies indicating that their business operations are in material compliance with the relevant PRC environmental laws and regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements because of various factors, including those set forth under Item 3 “Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F. See also “Introductory Notes—Forward-looking Information.”

A. Operating Results

Overview

We are a leading China-based, non-state-owned contract manufacturer of high precision cold-rolled narrow strip steel products. We convert steel manufactured by third parties into thin steel sheets and strips according to our customers’ specifications. We produce precision ultra-thin, high-strength cold-rolled steel products, with thicknesses starting from 0.05mm width up to 600 mm and tolerance +/- 0.003mm. We sell our products to domestic Chinese customers who primarily operate in the food and industrial packaging, construction and household decorations materials, electrical appliances, and telecommunications wires and cables industries.

Our PRC manufacturing facility is located in Zhengzhou, Henan Province. We currently operate eleven sets of cold-rolled steel production lines with a current annual steel processing capacity of approximately 500,000 metric tons and two chromium-plating production lines with total annual processing capacity of approximately 250,000 metric tons. We recently completed our capacity expansion program, which involved the construction of =250,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum. The first phase of our production capacity expansion program, the construction of total annual capacity of 150,000 tons, was completed during 2011, and launched normal production operations in July 2011. The second phase of our capacity expansion program, the construction of an additional 100,000 tons of cold-rolled production capacity, was completed in the first quarter of 2012 and the production operation was launched in the third quarter of 2012. This recent expansion will increase our product offerings, which we believe will increase our profit margin.

Our revenue has increased from $253.9 million in 2010 to $341.8 million in 2011 and decreased to $265.5 million in 2012, representing a CAGR of approximately 2.3% from 2010 to 2012. Our net income increased from $47.1 million in 2010 to $57.6 million in 2011 and decreased to $26.1 million in 2012, representing a CAGR of (25.6)% from 2010 to 2012.

As a net importer of high-end precision products, China currently still lacks the capability to produce high-end precision steel products. Our success in the past mainly came from being able to expand into products which replace expensive imported products and being able to manufacture these types of products at a cost-efficient level compared to other domestic Chinese manufacturers. We believe our technology and product development capability has been a key factor in our success.

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Principal Factors Affecting Our Financial Performance

The most significant factors that affect our financial condition and results of operations are:

Factors Specific to Our Business

· Expansion of our production capacity and product mix. We anticipate that our future growth will be further supported by the expected expanded production capacity and optimization of product mix for high-end higher-margin cold-rolled steel. In August 2008, we accelerated our expansion plan by installing a new processing line producing chromium-plated steel products, which are higher-end, value-added products with a higher selling price and higher profit margin. We completed pilot production of the chromium-plated steel products, and commenced mass production during the fourth quarter of 2009. We recently completed our capacity expansion program. The first phase involved the construction of two new cold-rolled, wide-strip steel production lines with 150,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum. As part of the second phase, we completed construction of 100,000 metric tons of cold-rolled steel production capacity and launched production operations in the third quarter of 2012. This increased our total annual steel processing operations to 500,000 metric tons making us capable of plating up to 50% of our steel products with chromium, tin, or zinc in accordance with customer specifications. We believe that we will need to continue to monitor the market we service for changes in customer demand, and commit to technical upgrades to existing capacity or addition of new capacity where we believe necessary in order to continue to grow.

· Growth in the Chinese Economy.  We operate our manufacturing facilities in China and derive almost all of our revenues from sales to customers in China. Economic conditions in China, therefore, affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our raw materials and our other expenses.

· Supply and Demand for High-End Precision Cold-Rolled Steel.  While the overall Chinese crude steel industry has recently experienced a period of excess supply, there is an increasing shortage of high-end precision cold-rolled steel products, which has been primarily driven by the limited number of producers of precision thin steel products in China. We expect that the shortage of supply in this steel market will continue. In addition, due to the continuing improvement of the standard of living in China and the growth of China’s middle class, the demand for telecommunications cable and equipment, electrical household appliances and construction materials in which our products serve as components has risen in recent years, thereby increasing the demand for the high-end steel products that we produce. We expect this demand trend will continue for the foreseeable future.

· Recent Economic Events. Although some uncertainty can be expected in demand for 2013 due to the general slowdown in China’s economy, we believe that we will see continued recovery of the steel industry in China and improved operating results over the next 12 months if we continue to produce innovative, high quality products that meet our customers’ demands.

Factors Specific to Our Industry

· Cyclicality.  The steel industry is highly cyclical and significantly affected by general economic conditions and other factors, such as worldwide production capacity, fluctuations in imports and exports, fluctuations in metal purchase prices and tariffs. Recently, the global steel markets have been experiencing larger and more pronounced cyclical fluctuations, primarily driven by slower global economic growth and the increase in Chinese production but relatively weak consumption. This trend, combined with the upward pressure on costs of key inputs, comprising mainly metals, energy and transportation and logistics costs, presents increasing uncertainty and challenge for steel producers on a worldwide basis. However, processed steel demand and prices for the precision steel products, like those we manufacture, are driven by and sensitive to other factors, such as product differentiation, customer service and cost reductions through improved efficiencies and economies of scale. Therefore we are comparatively less affected by cyclicality than other companies within our industry.

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· Raw Materials Prices.  The market for our principal raw material, hot-rolled steel, is price sensitive and has experienced significant volatility since 2008 as a result of worldwide economic recession, an increase of iron ore cost, excess inventory build-up by Chinese crude steel producers, consolidation in the hot-rolled steel industry, and other factors. Since 2010, due in part to the gradual recovery of the world economy, prices for this material have increased. Consequently, our cost of sales has also increased but we have passed the increase, for the most part, onto our customers. While we frequently prepay suppliers for our raw materials in order to ensure an ample supply of raw materials, pricing of our orders is not established until the order and physical delivery are confirmed, at which time the price is confirmed at the then-current market price. We account for inventory at cost and any adjustment required to value inventory at the lower of cost or market is made at the year-end and not at interim periods. Because of the relatively short periods during which inventory is kept on hand, we believe that differences between cost and market are not significant. Other than hot-rolled steel, no other raw materials are significantly used in our manufacturing processes.

· Steel prices.  Demand for steel in China has played a major role in the movement of international steel prices. The price of steel rose on a global basis from 2004 to June 2008 before declining sharply in the second half of 2008 in response to the global economic crisis. Any fluctuations in the cost of hot-rolled steel affect our operating costs and the prices that we charge our customers. We generally pass onto our customers most of the cost increase of raw material hot-rolled steel. For this reason, our revenue and cost of sales are directly related to the market price, demand and supply of steel.

· Product mix and effect on gross margin.  Our gross margin is primarily affected by our product mix. For the years ended December 31, 2012, 2011 and 2010, our gross margins were 21.4%, 29.7% and 29.9%, respectively. Fluctuations in our gross margin were primarily driven by changes in our product mix. Our production costs are generally higher in early phases of product introduction due to higher start-up costs and low production yield rate. Over time we typically improve our manufacturing efficiency. Furthermore, we have been able to price our finished products by using a cost-plus pricing strategy. Our value-add chromium plated products have a higher gross margin than that of our unplated products and constituted about 36.5% of total output in 2012. By increasing our operational plating capacity to 50% of total output in 2013, we expect to generate higher overall gross margin in the future.

· Inventory Revaluation.  Inventory revaluation arises from a de-valuation of our inventory and results in (1) a write-down of the inventory as inventory is valued at lower of actual cost or market value; and (2) a charge to net income as a result of the write-down. Under our procurement policy, we do not carry material amounts of raw material inventory without confirmed purchase orders with a predetermined sales price and delivery schedule. Thus, we were not negatively affected by the inventory revaluation as a result of the general decline in steel prices from late 2008 to 2011. However, an impairment provision of $0.48 million has been made in 2012 owing to the decline in steel market price.

· Consolidation in the Steel Industry.  There has been significant consolidation in the global steel industry and consolidation is also taking place in China. The government of China has publicly stated that it expects consolidation of the Chinese steel industry and the top several producers in China to account for the majority of national production. Cross border consolidation has also occurred with the aim of achieving greater efficiency and economies of scale, particularly in response to the effective consolidation undertaken by raw material suppliers and consumers of steel products. Notwithstanding the general trend towards consolidation in the industry, China’s specialty steel sector, the sector in which we operate, is dominated by privately-owned enterprises and is still highly fragmented. This fragmentation presents an opportunity for companies like ours to gain market share through acquisitions and internal expansion.

Taxation

China Gerui is incorporated in the BVI. Under the current law of the BVI, China Gerui is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the BVI.

We did not have any assessable profits subject to the Hong Kong profits tax from 2010 to 2012. We do not anticipate having any income subject to income taxes in Hong Kong in the foreseeable future.

In 2007, the PRC government promulgated the EIT Law and the relevant implementing rules, which became effective on January 1, 2008.  Under the EIT Law and its implementing rules, all domestic and foreign investment companies became subject to a uniform enterprise income tax at the rate of 25%, effective January 1, 2008.  As a result, our PRC subsidiaries, Henan Green and Zhengzhou Company, were subject to an enterprise income tax at the rate of 25% in 2010, 2011 and 2012.  

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Under the EIT Law, dividends from PRC subsidiaries to their non-PRC shareholders became subject to a withholding tax at a rate of 20%, which is further reduced to 10% by the implementing rules, if the non-PRC shareholder is considered to be a non-PRC tax resident enterprise without any establishment or place within China or if the dividends payable has no connection with the non-PRC shareholder’s establishment or place within China, unless any such non-PRC shareholder’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. In addition, pursuant to the EIT Law, enterprises established under the laws of non-PRC jurisdictions, but whose “de facto management body” is located in the PRC, should be treated as resident enterprises for PRC tax purposes. However, it is currently uncertain whether we may be deemed a resident enterprise, or how to interpret whether any income or gain is derived from sources within China. See Item 3 “Key information—D. Risk Factors—Risks Related to Doing Business in China—Under the Enterprise Income Tax Law, we may be classified as a ‘resident enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.” If we, as a BVI company with substantially all of our management located in China, were treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which would have an impact on our effective tax rate.

Results of Operations

The following table sets forth key components of our results of operations for the periods indicated, in dollars and as a percentage of revenue.

(All amounts in thousands of U.S. dollars, except for the percentages)

	Year Ended December 31,
	2012						2011						2010
	USD			% of Revenue			USD			% of Revenue			USD			% of Revenue
Revenue	$	265,,486			100.0	%	$	341,778			100.0	%	$	253,866			100.0	%
Cost of revenue		(208,541	)		(78.6	)%		(240,200	)		(70.3	)%		(177,870	)		(70.1	)%
Gross profit		56,945			21.4	%		101,578			29.7	%		75,997			29.9	%
Operating expenses:
General and administrative expenses		(13,168	)		(5.0	)%		(10,707	)		(3.1	)%		(7,796	)		(3.1	)%
Selling and marketing expenses		(1,446	)		(0.5	)%		(1,634	)		(0.5	)%		(1,251	)		(0.5	)%
Warrant compensation expenses		-						(5,700	)		(1.7	)%		-			-
Total operating expenses		(14,614	)		(5.5	)%		(18,041	)		(5.3	)%		(9,047	)		(3.6	)%
Operating income		42,331			15.9	%		83,537			24.4	%		66,950			26.4	%
Other income and (expense):
Interest income		3,577			1.3	%		1,913			0.6	%		1,087			0.4	%
Interest expenses		(8,229	)		(3.1	)%		(6,470	)		(1.9	)%		(5,287	)		(2.1	)%
Sundry income		351			0.1	%		602			0.2	%		270			0.1	%
Income before income taxes		38,030			14.3	%		79,582			23.3	%		63,020			24.8	%
Income tax expense		(11,897	)		(4.5	)%		(21,961	)		(6.4	)%		(15,937	)		(6.3	)%
Net Income	$	26,133			9.8	%	$	57,621			16.9	%	$	47,083			18.5	%

Comparison of Fiscal Years Ended December 31, 2012 and 2011

Revenue. Our revenue is generated from sales of our cold-rolled steel products. Our revenue decreased 22.3% to $265.5 million in 2012 from $341.8 million in 2011. The decrease in revenue was primarily due to a 18.6% decrease in our average selling price of $801 per ton for 2012 as compared to an average selling price of $984 for 2011, as well as a 4.5% decrease in sales volume to approximately 331,500 tons for 2012 as compared to approximately 347,200 tons for 2011.

As is widely known, China’s steel sector has been operating at a loss with problems of oversupply amid a general domestic economic slowdown where major China steel makers have cut prices due to low demand. Plans for and investment in capital-intensive infrastructure projects have been cut back significantly at both national and provincial levels, which negatively impacted demand for steel products from key industries including real estate, steel-making, railway construction, and ship-building, among others.

Since the second quarter of 2012, raw material prices have been rapidly decreasing, which has contributed to an intensified pricing environment and increased competitive pressures. This substantial fall-off of pricing in the steel industry has been compounded by generally weaker customer demand due to a contraction in general domestic business activity in certain key sectors in which our customers operate, such as the construction industry. In addition, the difficult pricing environment was exacerbated by sustained price cuts enacted by large Chinese steel companies as a means to maintain their own viability albeit at reduced production levels.

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These factors combined with our cost-plus pricing methodology compelled us to lower the average selling price of our cold-rolled steel products so as to remain competitive and maintain a reasonably sound level of business activity. We made a strategic decision in the third quarter of 2012 to cut back on the output of some of our products so as to avoid a head-to-head pricing war with lower-grade cold-rolled steel producers. We believe that once made, pricing concessions are often difficult to rollback, with the additional concern that deep pricing cuts might degrade our highly favorable reputation as a high-end cold-rolled steel strip producer. We believe that our decision not to engage in a price war with such competitors will enable us to revert back to our former pricing strategy where we can charge a premium for our products relative to our competitors when market conditions improve.

The Chinese government has recently introduced an RMB 4 trillion stimulus plan, which we believe will help stem the price erosion that resulted in a severe cut back in the aggregate productive capacity of the steel sector and a collapse in its profitability. Despite our 2012 results, we believe that the fundamentals of our business remain sound and we are cautiously optimistic about a significant rebound in pricing and resultant turnaround in our specialized steel segment starting from the second quarter of 2013 that will enable us to leverage our strong productive capabilities and product synergies.

Cost of revenue. Our cost of revenue includes the direct costs of our raw materials, primarily hot-rolled steel coil, as well as the cost of labor and overhead. Our cost of revenue decreased 13.2% to $208.5 million in 2012 from $240.2 million in 2011. The decrease in cost of revenue was primarily due to the afore-mentioned decreased sales volume that lead to less raw materials utilized in our production process.

Gross profit. Our gross profit is equal to the difference between our revenue and our cost of revenue. Our gross profit decreased 43.9%, to $56.9 million in 2012 from $101.6 million in 2011. Gross profit as a percentage of revenue (gross margin) was 21.4% in 2012, compared to 29.7% in 2011. The decrease in gross margin was due to significant market driven price declines of our raw materials, a slowdown in China’s economic growth and demand for our products and intensified competition in our segment of the steel sector. Further, there was additional testing of both the chromium plating line that was temporarily taken offline during August of 2012 as well as the added 100,000-ton wide-strip production line to ensure its improved precision and successful ramp-up.

Our direct costs of manufacturing are generally high when we first introduce a new product due to higher start-up costs and higher raw material consumption rate. As production volumes increase, we typically improve our manufacturing efficiency and are able to strengthen our purchasing power by buying raw materials in greater quantities. In addition, our recently-launched wide-strip cold-rolled steel production actual output will tend to be relatively thick during its initial stage of production, thus generating a relatively lower average selling price and margin. As utilization of this production capacity continues to increase, the average thickness of finished products is expected to more closely reflect the designed average thickness of the new capacity; at that point we expect an increase in gross margin due to greater cost efficiencies.

General and administrative expenses. General and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional service fees, bad debts reserve and other expenses incurred in connection with general operations. Our general and administrative expenses increased 23.0%, to $13.2 million in 2012 from $10.7 million in 2011. As a percentage of revenue, general and administrative expenses were 5.0% of revenue in 2012, as compared to 3.1% in 2011. The increase was primarily attributable to normal end of year adjustments including a share-based compensation expense of $3.7 million. On October 1, 2012, we granted an aggregate of 2.1 million of restricted shares to certain officers and directors under the 2010 Plan.

Selling expenses. Our selling expenses consist primarily of compensation and benefits to our sales and marketing staff, sales commission, cost of advertising, promotion, business travel, after-sale support, transportation costs and other sales related costs. Our selling expenses decreased by 11.5%, to $1.4 million in 2012 from $1.6 million in 2011. As a percentage of revenue, our selling expenses were 0.5% in 2012, approximately the same as in 2011. The decrease was mostly attributable to decreased selling activities in connection with our decreased sales volume.

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Interest and other income. Interest and other income is mainly interest income generated from the restricted cash balance. Our interest and other income increased 56.2% to $3.9 million in 2012 from $2.5 million in 2011. The increase was attributable to interest earned on a higher average balance of restricted cash, which was deposited with local banks as a cash guarantee for the notes payable that these banks issued to our raw material suppliers, as well as higher average bank account balances in 2012 as compared to 2011.

Interest expense. Interest expense is primarily interest expense on notes payable and short term loans related to our daily business operations. Our interest expense increased 27.2%, to $8.2 million in 2012 from $6.5 million in 2011. The increase was attributable to the increased bank facilities we secured in 2012 in anticipation of our increased working capital needs relating to planned new product mix from our expanded production line capacity.

Income taxes. We incurred income tax expense of $11.9 million and $22.0 million in 2012 and 2011, respectively. The effective corporate income tax rates were 31.3% and 27.6% in 2012 and 2011, respectively.

Net income. As a result of the cumulative effect of the factors described above, our net income decreased 54.6%, to $26.1 million in 2012 from $57.6 million in 2011.

Comparison of Fiscal Years Ended December 31, 2011 and 2010

Revenue. Our revenue increased by $87.9 million, or 34.6%, to $341.8 million in 2011 from $253.9 million in 2010. The increase in revenue was primarily due to both a 16.2% increase in average selling price to $984 per ton for 2011, compared to $847 per ton for 2010, and a 15.8% increase in sales volume to approximately 347,200 tons for 2011, as compared to approximately 299,800 tons for 2010.

Cost of revenue. Our cost of revenue increased by $62.3 million, or 35.0%, to $240.1 million in 2011 from $177.9 million in 2010. The increases were primarily due to increased sales volume as well as increased raw material costs from the testing of our new chromium-plating line during the first quarter of 2011 and our new 150,000-ton wide strip product lines during the second quarter of 2011, as well as added costs due to higher average thickness of the newly introduced wide-strip capacity than the designed finished product thickness, which we believe requires greater testing and production to achieve.

Gross profit. Our gross profit increased by $25.6 million, or 33.7%, to $101.6 million in 2011 from $76.0 million in 2010. Gross profit as a percentage of revenue (gross margin) was 29.7% in 2011, compared to 29.9% in 2010. The slight decrease in gross margin was due to increased raw material costs noted above.

General and administrative expenses. Our general and administrative expenses increased by $2.9 million, or 37.3%, to $10.7 million in 2011 from $7.8 million in 2010. As a percentage of revenue, general and administrative expenses were 3.1% of revenue in 2011, the same as in 2010. The increase was primarily attributable to additional salary and training expenses from employee hiring in anticipation of the opening of our new production facility and additional expenses incurred in 2011 related to being a public company, such as legal and other professional service fees.

Selling expenses. Our selling expenses increased by $0.4 million, or 30.6%, to $1.6 million in 2011 from $1.3 million in 2010. As a percentage of revenue, our selling expenses were 0.5% in 2011, the same as for 2010. The increase was mostly attributable to increased sales staff traveling expenses and other costs relating to selling activities.

Warrant compensation expenses. In year 2011, we incurred $5.7 million of one-time non-recurring warrant exercise expenses associated with the exercise of our public warrants before their expiration in March 2011. These expenses included payments of warrant compensation expenses of $1.5 million to Oasis, whose sole shareholder is the daughter of Mr. Mingwang Lu, and $3.5 million to Plumpton. These companies were not warrant holders. They had received these payments pursuant to our merger agreement. The remaining $0.7 million was paid as professional fees to unrelated parties on handling the warrant exercise.

Interest and other income. Our interest and other income increased by $1.2 million, or 85.3%, to $2.5 million in 2011 from $1.4 million in 2010. The increase was attributable to interest earned on a higher average balance of restricted cash, which was deposited with local banks as a cash guarantee for the notes payable that these banks issued to our raw material suppliers, as well as higher average bank account balances in 2011 as compared to 2010.

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Interest expense. Our interest expense increased by $1.2 million, or 22.4%, to $6.5 million in 2011 from $5.3 million in 2010. The increase was attributable to the increased bank facilities we secured in 2011 in anticipation of our increased working capital needs relating to our expected expansion of production line capacity.

Income taxes. We incurred income tax expense of $22.0 million and $15.9 million in 2011 and 2010, respectively. The effective corporate income tax rates were 27.6% and 25.3% in 2011 and 2010, respectively.

Net income. As a result of the cumulative effect of the factors described above, our net income increased by $10.5 million, or 22.4%, to $57.6 million in 2011 from $47.1 million in 2010.

Inflation

Inflation does not materially affect our business or the results of our operations.

Foreign Currency Fluctuations

See Item 11 “Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk.”

Critical Accounting Policies

We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the amounts reported in our combined and consolidated financial statements and related notes.  We periodically evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.  Some of our accounting policies require higher degrees of judgment than others in their application.  We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We primarily generate revenue from cold-rolled steel products or chrome-plated steel products sales to our customers. We consider revenue from the sale of our finished cold-rolled and chrome-plated steel products realized or realizable and earned upon meeting all of the following criteria: persuasive evidence of a sale arrangement exists, delivery has occurred, the price to the customer is fixed or determinable, and collectibility of payment is reasonably assured. These criteria are met at the time of shipment when the risk of loss passes to the distributor.

Revenue represents the invoiced value of sold goods, net of VAT. Our products, all of which are sold in China, are subject to a Chinese VAT at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by VAT we paid on raw materials and other materials included in the cost of producing the finished product. The VAT amounts paid and available for offset are maintained in our current liabilities.

Accounts Receivables

Most of our sales were conducted on pre-payment or COD basis. However, during the normal course of business, we extend to some of our customers interest-free unsecured credit for a term of 30 days depending on a customer’s credit history, as well as local market practices. We reviewed our accounts receivables quarterly and determined the amount of allowances, if any, necessary for doubtful accounts. Historically, we have not had any bad debt write-offs and, as such, we do not provide an arbitrary reserve amount for possible bad debts based upon a percentage of sales or accounts receivable balances. Rather, we review our accounts receivable balances to determine whether specific reserves are required due to such issues as disputed balances with distributors, declines in distributors’ credit worthiness, or unpaid balances exceeding agreed-upon terms. Based upon the results of these reviews, we determine whether a specific provision should be made to provide a reserve for possible bad debt write-offs. We have provided 10% allowances for specific doubtful accounts in 2012 and 2011. We communicate with our distributors each month to identify any potential issues and reassess our credit limits and terms with some of them based on their prior payment history and practice. We also plan to continue building upon our existing relationships and history with each of our customers to assist us in the full and timely collection of outstanding payments.

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As of December 31, 2012 and 2011, we had outstanding accounts receivable totaling $2.3 million and $6.4 million, respectively. We believe that these outstanding amounts will be collected pursuant to the terms, conditions, and within the time frames agreed upon with our customers. During the reported periods, we did not experience any material problems relating to distributor payments and had no bad debt write-offs. In terms of our liquidity, we reflect the extended interest-free unsecured credit in our cash flows for the reported periods. Therefore, we anticipate no changes from past cash flow patterns.

Inventories

We value inventories, consisting of work in process and raw materials, at the lower of cost or market. Cost of material is determined on the weighted average cost method. Cost of work in progress includes direct materials, direct production cost and an allocated portion of production overhead. We evaluate inventory periodically for possible obsolescence of our raw materials to determine if a provision for obsolescence is necessary. Due to the durable nature of our raw materials which primarily consist of hot-rolled steel sheet, we had no reserve obsolescence at December 31, 2012. Our estimates for determining the provision for obsolescence may be affected by technological changes and developments to our product offerings and changes in governmental regulations.

As of December 31, 2012 and 2011, we had an inventory balance of $22.8 million and $24.5 million, respectively.

Recently Issued Accounting Standards

Management does not believe that any recently issued accounting standard would have material impact on the accompanying financial statements.

B. Liquidity and Capital Resources

During the three-year period from 2010 to 2012, our restricted cash, notes payable and term loans balances steadily increased. As discussed in further detail below, this increase was due to our expectations of our cash needs for each year. We accumulated increasing cash from operations, short-term loans and notes payable to ensure that we would have sufficient cash on hand for our projected cash needs relating to increased sales and corresponding raw material purchases, our capacity expansion program, potential strategic acquisitions, and as security for our notes payable.

As of December 31, 2012, 2011 and 2010, we maintained restricted cash of $145.4 million, $118.1 million and $66.5 million, respectively, non-restricted cash of $228.9 million, $246.6 million and $119.5 million, respectively, notes payable in the amount of $259.5 million, $204.9 million and $86.2 million, respectively, and short-term loans in the amount of $57.5 million, $44.2 million and $44.1 million, respectively. Our total cash balance and our short-term loans and notes payable balances increased each year as compared to the prior year. These changes were the result of the nature of our projected and actual cash needs and the limitations and requirements of our creditors.

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Further, the uncertainty and volatility of prices of our principal raw material, i.e., hot rolled steel coil, and our past expectation that our raw material purchases would generally increase to meet rising demand, caused us to maintain increasing cash balances in 2010 to 2012 to ensure that there would be sufficient cash to protect against increased prices.

Additionally, a component of our growth strategy is to invest in or acquire businesses complementary to ours or to form strategic partnerships with industry leaders that would enable us, among other things, to expand the products we offer to our existing target customer base, and that would provide opportunities to expand into new markets. As a result, we maintained our cash balance in part to enable us to capitalize on potential attractive growth opportunities in this respect that we believed would enhance shareholder value, which we anticipated would require up to $35 million, $90 million and $60 million of additional capital requirements in 2010, 2011 and 2012, respectively.

During 2010 to 2012, we expected that long-term loan facilities from Chinese banks would be generally unavailable to non-state-owned companies. We also expected the relatively weak state of the U.S. capital markets to limit our ability to raise capital. We likewise expected short-term bank loans to be available only in limited amounts for non-state-owned companies like ours, and that they could be used only for short-term working capital needs. In order to obtain sufficient cash to meet our cash requirements, we therefore used notes payable issued by banks to our raw materials suppliers, a commonly-used financing alternative for non-state-owned companies in China. The issuing banks in turn required that we maintain 50-100% of the principal amounts as restricted cash, which in turn necessitated that we maintain a substantial amount of restricted cash on hand and maintain notes payable balances that exceeded our actual cash needs in 2010, 2011 and 2012, respectively.

As a result of our cash management strategy, our actual interest expense cash payment increased 27.2% to $8.2 million in 2012 from $6.5 million in 2011.

We believe that our currently available working capital, including anticipated cash flow from operations and available credit facilities referred to below are adequate to finance our operations at current levels through at least the next twelve months. In this regard, we are not experiencing any difficulties in the acquisition and rollover of our short term credit facilities that fund our daily operations. We anticipate rollovers of all current facilities coming due in the 2013 operating year and do not foresee a squeeze on the availability of credit to fund our operations and meet our growth objectives.

The following table sets forth a summary of our net cash flow information for the periods indicated:

(All amounts in thousands of U.S. dollars)

	Year Ended December 31,
	2012			2011			2010
Net cash (used in) provided by operating activities	$	(2,102	)	$	56,248		$	36,478
Net cash used in investing activities		(80,774	)		(102,824	)		(84,119	)
Net cash provided by financing activities		63,138			165,974			84,004
Net cash (outflow) inflow		(19,738	)		119,398			36,363

Operating Activities

Net cash used in operating activities was $(2.1) million in 2012, as compared to $56.2 million net cash provided by operating activities in 2011. Such change resulted from decreased operation activity due to generally weakened market demand that impacted negatively both our top-line and bottom-line performance. In addition, we provided increased financial support in the form of prepaid purchases to selected suppliers in anticipation of our improved product mix which would pose new challenges to the latter for their ability to supply increasingly diversified raw materials in a flexible and timely manner.

Net cash provided by operating activities was $56.2 million in 2011, as compared to $36.5 million in 2010, an increase of 54.2%. The increase primarily resulted from increased net income, increased cash provided by customer deposits as prepayment for sales orders and increased accounts payable to raw material suppliers, which was partly offset by cash used in inventory buildup and settlement of accounts payable.

We strategically manage our cash resources as a means to optimize our available cash flows in the following manner:

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· We have not experienced any deterioration in the collection of our receivables and we are unaware of any trends that pose collections problems.  We intend to extend credit to certain customers prospectively as part of our growth strategy but will apply stringent and prudent criteria for determining qualification for such credit, including securing us with underlying assets and required cash minimums.

· We manage the year-end accounts payable and accrued liabilities to improve cash flow.

· Our operating cash flow can also be affected by timing of prepayments made to suppliers for raw materials procurement and the corresponding receipt of advances from customers.  There is no material effect on cash flow as a result of this practice over time but interim and annual period-end balances can be distributed unevenly.  On a rolling twelve-month basis, our prepayments and inventory growth are expected to be consistent with our backlog of customer orders and sales growth.

Investing Activities

Cash used in investing activities mainly consists of capital expenditures, shareholders’ borrowings, and increases in restricted cash.

Net cash used in investing activities was $80.8 million in 2012, as compared to $102.8 million in 2011. Such decrease mainly resulted from decrease in restricted cash which were required by local banks for notes payable issued to our raw material suppliers, as well as less payment for new land use rights as compared with prior year.

Net cash used in investing activities was $102.8 million in 2011, as compared to $84.1 million in 2010. Such increase mainly resulted from increased payment for current and future land use rights, as well as increase in restricted cash which were required by local PRC banks for notes payable issued to our raw material suppliers.

We paid $30.6 million in 2012, $29.8 million in 2011 and $65.1 million in 2010 to acquire capital equipment. Restricted cash increased by $25.8 million in 2012, increased by $47.2 million in 2011 and increased by $29.0 million in 2010.

Financing Activities

Cash used in financing activities mainly consists of dividends paid, distributions to shareholders, repayment of bank loans, withdrawal and repayment of borrowings from related parties. We did not pay any dividends in 2012, 2011 or 2010.

Net cash provided by financing activities was $63.1 million in 2012, as compared to $166.0 million in 2011. The decrease in cash provided by financing activities was primarily due to the fact that in March 2011 the Company received proceeds of $66.5 million from exercise of warrants.

Net cash provided by financing activities was $166.0 million in 2011, as compared to $84.0 million in 2010. The increase in cash provided by financing activities was primarily due to proceeds from notes payable, purchase of treasury stock and from exercise of our public warrants prior to their expiration in March 2011.

We repaid short-term loans of $50.5 million in 2012, $45.8 million in 2011 and $46.0 million in 2010, while incurring new short-term borrowings of $63.2 million in 2012, $43.8 million in 2011 and $56.1 million in 2010. We increased our notes payable financing by $52.0 million in 2012, $111.7 million in 2011 and $45.2 million in 2010.

Capital Expenditures

We believe that our future capital expenditures will be incurred primarily in connection with (i) purchases of property, plant and equipment and construction of our facilities, (ii) leasehold improvements, (iii) investment in equipment, technology and operating systems, (iv) capitalized interest, and (v) acquisition of land use rights. Our planned capital expenditures of approximately $45 million for 2013 are for (i) an upgrade of our existing cold-rolled steel production lines; (ii) construction of new value add production lines to further enhance our product offering; (iii) completion of the acquisition of Zhengzhou Company; and (iv) potential acquisitions or strategic partnership initiatives. We expect to finance these capital expenditures from cash on hand, future internal cash flows, short-term bank borrowings, and funds raised from capital markets.

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Loan Facilities

We believe that we currently maintain a good business relationship with many banks.  As of December 31, 2012, our outstanding bank loans were as follows:

(All Amounts in U.S. Dollars)

Bank	Amount
Bank of Zhengzhou	$	7,704,531
Shanghai Pu Dong Development Bank		16,051,107
China Merchants Bank		9,630,664
China Citic Bank		6,420,443
Bank of Xuchang		4,815,332
Commercial Bank of Kaifeng		3,210,221
Ping An Bank		8,025,553
China Everbright Bank		1,605,111
Total	$	57,462,962

As of December 31, 2012, our outstanding notes payable were as follows:

(All Amounts in U.S. Dollars)

Classified by financial institutions:	Amount
China Citic Bank	$	35,312,435
Bank of Zhengzhou		6,420,443
Minsheng Bank of China		19,261,328
Guangdong Development Bank		22,471,549
Shanghai Pudong Development Bank		25,681,771
China Merchants Bank		11,235,775
China Everbright Bank		27,286,881
Bank of Luoyang		43,337,988
Bank of Communications		22,792,572
Bank of Pingdingshan		32,102,213
Commercial Bank of Kaifeng		4,815,332
Huaxia Bank		1,605,111
Ping An Bank		4,815,331
Bank of Xuchang		2,407,666
Total	$	259,546,395

All of the above term loans are of fixed term with a period of 12 months or less. For those loan facilities obtained from banks, all these term loans are either guaranteed and secured by our fixed assets, including buildings, machinery and land use rights, or guaranteed by third parties. Zhengzhou Company has pledged its land use rights and buildings under its guarantee. As of December 31, 2012, all of our credit facilities were fully used.

As of December 31, 2012, we had contingencies and commitments as described in “E. Off-Balance Sheet Arrangements.”

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As of December 31, 2012 and 2011, we have evaluated all such proceedings and claims, and determined that we were not subject to any loss contingencies either for legal proceedings or claims. In addition, we have not become aware of any product liability claims arising during the years ended December 31, 2012 and 2011; therefore, we have not recognized a liability for product liability claims.

We believe that in the event that all of our creditors demanded immediate repayment, we would have sufficient cash on hand to repay the debt. However, some of the consequences of this occurrence would be that we may need to suspend most or all capital expenditures, which may cause our growth to slow or, possibly, reverse if we lose market share to a competitor due to an inability to expand.

We were not in compliance with certain financial covenants under loan agreements, due to making advances or providing guarantees to other unrelated parties without prior notices made to the bank during the year ended December 31, 2012 and as of the balance sheet date. No action or penalty has been taken by the local PRC banks during the year and subsequent to the year ended, all notes payable agreements and term loan agreements were still enforceable.

Intra-Company Transfers

We are subject to the PRC rules and regulations on foreign currency conversion. We may convert foreign currency held by our public holding company into RMB for use in our PRC subsidiaries’ business operations which fall within their business scope. The qualified banks responsible for conversion of the foreign currency will review the relevant transaction documents and process the payment in respect of such conversion for us directly. However, the RMB amount converted from foreign currency may not generally be used for any further onshore equity investment or real estate investment for non-self use purpose.

Our PRC subsidiaries may generally only obtain cash investments from their shareholders by way of a shareholder loan or increase of their registered capital. Our PRC subsidiaries may only obtain a shareholder loan up to the amount equal to the difference between their total investment amount and their registered capital. The total investment amount refers to the amount of funds required for operation of the company, which consists of initial investment, the working capital, and subsequent additions to inventory and equipment necessary for a fully operational and profitable company; and the registered capital refers to the capital contribution of the shareholders that is registered with the governmental agency. A shareholder loan must also be registered with the local SAFE office within 15 days after the signing of the relevant loan documents. The repayment and interest incurred on such loan may be legally remitted to the shareholder without additional PRC legal requirements. Our PRC subsidiaries may increase their registered capital during their operation period, but the increase must receive shareholder approval and the approval of the relevant PRC authorities.

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The annual income of our PRC subsidiaries, after the payment of PRC income taxes and before distributions of any dividends to shareholders, must be allocated to the statutory surplus reserve. The proportion of allocation for reserve funds must be at least 10% of the profit after tax until the accumulated amount of funds allocated to the statutory surplus reserve reaches 50% of the registered capital. Statutory surplus reserves are to be used to offset prior years’ losses, or to increase their registered capital. In case of conversion of the statutory surplus reserves to registered capital, the remaining amount of the reserve should be not less than 20% of the registered capital before the conversion.

According to the PRC EIT Law and its implementation rules, Henan Green must pay withholding taxes relating to dividends at a rate of 20% of its income, which would be reduced to 10% by the EIT law implementation rules if Wealth Rainbow is considered a non-PRC tax resident enterprise, which must be withheld by Henan Green before it may remit the dividend payments. As Wealth Rainbow is a Hong Kong company, under the tax treaty between mainland China and Hong Kong, Wealth Rainbow may enjoy a preferential withholding tax rate of 5% of the total dividends which may be lower than that requested by the PRC EIT Law and its implementation rules. However, whether such preferential tax rate will be granted will be decided by the relevant PRC tax authority.

The PRC foreign exchange control policy may have an impact on our ability to transfer cash from our offshore subsidiaries to our PRC subsidiaries. The SAFE sets high standards and strict requirements for settlement of foreign exchange gained from shareholder loans or increases in the registered capital of foreign-invested enterprises in the PRC. In addition, the RMB funds converted from capital settlement should not be used for any domestic equity investment or purchase of any domestic real estate for non-self use purpose.

The foregoing restrictions on the ability of our subsidiaries to transfer cash to other entities within our corporate structure are not expected to have a material impact on the net assets and liquidity of the Company and its subsidiaries.

As of December 31, 2012, the Company’s cash balance, including both unrestricted and restricted cash, in RMB or other currency, totaled $393.9 million, of which 98.0% (approximately $386.0 million) was held in RMB form by the banks in China whereas the remaining 2.0%, or $7.9 million, were held in U.S. dollars or Hong Kong dollars with banks or brokers located in Hong Kong or the United States.

C. Research and Development, Patents and Licenses, Etc.

We have not engaged in any significant research and development activities for the last three years.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

E. Off-Balance Sheet Arrangements

In the ordinary course of business practices in China, we enter into transactions with banks or other lenders where we guarantee the debt of other parties. These parties may be related to or unrelated to us. Conversely, our debt with lenders may also be guaranteed by other parties which may be related or unrelated to us.

Under U.S. GAAP, these transactions may not be recorded on our balance sheet or may be recorded in amounts different than the full contract or notional amount of the transaction. Our primary off-balance sheet arrangements would result from our loan guaranties in which Zhengzhou Company would provide contractual assurance of the debt, or guarantee the timely re-payment of principal and interest of the guaranteed party, and pledged its land and buildings in support of such guarantee. Zhengzhou Company has not received, nor is entitled to receive, any consideration for the above-referenced guarantees, and we are not independently obligated to indemnify it for any amounts paid by them pursuant to any guarantee.

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Typically, no fees are received for this service. Thus, in those transactions, Zhengzhou Company would have a contingent obligation related to the guarantee of payment in the event the underlying loan is in default.

On October 13, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Shaolin Auto Co., Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $32.1 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through December 3, 2015.

On October 9, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Liantong Aluminum Co. Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment of approximately of $16.1 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through August 28, 2013.

On November 4, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Xibao Metallurgy Materials Group Co. Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $48.2 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through December 31, 2013.

On November 4, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Zhengzhou Panhong Commerce & Trade Co Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $16.1 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through October 26, 2013.

On December 6, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Xinye Textile Co., Ltd. (Xinye), a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $9.6 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through December 5, 2013.

On October 31, 2011, the Company's subsidiary, Henan Green, entered into a financial guarantee agreement with Zhengzhou Aluminum Industry Co., Ltd arranged by China Citic Bank. Under the agreement, Henan Green acting as a guarantor for Zhengzhou Aluminum Industry Co., Ltd. a non-related company of the Group. Henan Green is contingent as guarantor with maximum aggregate potential amount of future payment approximately $2.4 million, plus interest accrued, legal fee, disbursement and any other compensation expense accrued. The guarantee is effective through September 7, 2014.

On November 4, 2011, the Company's subsidiary, Henan Green, entered into a financial guarantee agreement with Do-Fluoride Chemicals Co., Ltd, a non-related company. Under the agreement, Do-Fluoride Chemicals Co., Ltd is contingent as a guarantor for Zhengzhou Aluminum Industry Co., Ltd with a maximum aggregate potential amount of future payment approximately of $4.0 million and Henan Green also agreed to guarantee the future payment of Zhengzhou Aluminum Industry Co., Ltd for Do-Fluoride Chemicals Co., Ltd. The guarantee is effective through November 3, 2013.

The Company believes that Zhengzhou Aluminum Industry Co. Ltd. has experienced financial difficulties in 2012 and may not be able to perform on either its payments to the bank or its guarantees. If Zhengzhou Aluminum Industry Co. Ltd is unable to repay its debt or satisfy's it's guarantee, the Company may be required to pay up to $6.4 million related to those debts. No provision has been made in these financial statements for these potential obligations as the Company has not been called upon to date to perform under its guarantee.

Transactions described above require accounting treatment under Topic 460 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. Under that standard, we would be required to recognize the fair value of guarantees issued or modified after December 31, 2002, for non-contingent guarantee obligations, and also a liability for contingent guarantee obligations based on the probability that the guaranteed party will not perform under the contractual terms of the guaranty agreement.

We have assessed the contingent liabilities arising from the above-described guarantees and have considered them immaterial to the consolidated financial statements. Therefore, no liabilities in respect of the guarantees were recognized as of December 31, 2012.

Except as described above, we do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to an investment in our securities.

F. Tabular Disclosure of Contractual Obligations

The table below shows our contractual obligations as of December 31, 2012.

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	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations	$	337,071	$	16,051	$	32,102	$	32,102	$	256,816
Notes payable		259,546,395		259,546,395
Term loans		57,462,962		57,462,962
Plant		6,142,664		6,142,664
Staff quarter		6,484,153		6,484,153
Purchase of machinery and equipment		168,536		168,536
Acquisition of business (Zhengzhou Company)		18,523,340		18,523,340
Employment agreements with officers		1,020,000		1,020,000
Total	$	349,685,121	$	349,364,101	$	32,102	$	32,102	$	256,816

Our operating lease obligations result from the land use rights associated with the land, including a state-owned reservoir on the premises that the company acquired for planned capacity expansion.

G. Safe Harbor

See “Introductory Notes—Forward-Looking Information.”

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth certain information regarding our directors and senior management, as well as employees upon whose work we are dependent, as of the date of this annual report.

NAME	AGE	POSITION
Mingwang Lu	60	Chairman of the Board of Directors and Chief Executive Officer
Edward Meng	45	Chief Financial Officer
Yi Lu	37	Director, Chief Operating Officer
Harry Edelson	79	Director
J.P. Huang	52	Director
Kwok Keung Wong	64	Director
Yunlong Wang	50	Director
Maotong Xu	73	Director

Mr. Mingwang Lu. Mr. Lu became our Chairman of the Board and Chief Executive Officer on March 17, 2009 and has served as Henan Green’s General Manager since 2000. He was previously senior economist and engineer of Henan Green. Mr. Lu has been in the steel industry since 1985, with expertise in managing and marketing cold-rolled steel construction, technologies, production and marketing. Mr. Lu was elected as a member of the 9th, 10th and 11th National People’s Congress in Henan Province. He has been awarded numerous honors including the “Wuyi Labor Medal,” “Excellent Director/Manager in Henan Province,” “National Excellent Township Entrepreneur” and “Expert in Steel Industry of Henan Province.”

Mr. Edward Meng. Mr. Meng has been our Chief Financial Officer since October 19, 2009. Prior to that, Mr. Meng was our Director of Investor Relations since April 2009. From July 2007 to October 2008, Mr. Meng served as the part-time and then full-time Chief Financial Officer of A-Power Energy Generation Systems (Nasdaq GS: APWR), an alternative energy company. From 2007 to 2008, Mr. Meng served as an independent director and chairman of the audit committee of China Housing and Land Development Limited (Nasdaq CM: CHLN), a Chinese real estate development company and Huiheng Medical Inc. (OTCBB: HHGM), a Chinese company which, through its subsidiaries, designs, develops, and markets radiation therapy systems used for the treatment of cancer in the PRC. Mr. Meng also previously served as Vice President of Finance/Chief Financial Officer of Terex Corporation, Beijing Representative Office from 2007 to 2008, which is a diversified global manufacturer of a broad range of equipment for use in various industries, including the construction, infrastructure, quarrying, surface mining, shipping, transportation, refining and utility. In 2007, Mr. Meng served briefly as the part-time Chief Financial Officer and a director of Navstar Media Holdings, Inc., a public U.S. holding company with PRC operating subsidiaries specializing in media content production and distribution. Mr. Meng was a Senior Financial Consultant to Shell (China) Limited from 2006 to 2007 and was the Chief Financial Officer of Koch Materials (China) Co., from 2003 to 2006. Prior to that, he served in executive and senior managerial positions at Intelsat, Inc. from 1997 to 2003 and Schenker International AG (China) from 1992 to 1995. A Certified Public Accountant, Mr. Meng is experienced in both PRC and U.S. GAAP accounting. Mr. Meng received his MBA from Georgetown University and a Bachelor’s degree in English from Sichuan International Studies University in China. He is fluent in both Mandarin and English.

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Mr. Yi Lu. Mr. Lu became a member of our Board of Directors on March 17, 2009 and was nominated as the Chief Operating Officer of China Gerui in November, 2011.  Mr. Lu served as the Deputy General Manager of Henan Green since May 2008. From July 2003 to May 2008, he served as General Manager of Henan Green. While with Henan Green, Mr. Lu helped develop 5 series as well as over 20 types of high precision strip steel products. Prior to joining Henan Green, Mr. Lu served as the recording department director of Zhengzhou Television Station. He has been honored as one of the sixth top ten excellent youth of Xinzheng City in June 2005, and elected into the second Union of Youth Committee in April 2006. Mr. Lu graduated from Northwest College in business administration.

Mr. Harry Edelson. Mr. Edelson became a member of our Board of Directors on March 17, 2009 and served as COAC’s Chairman of the Board and Chief Executive Officer from its inception to its merger with us in March 2009. Since August 1984, he has been the managing partner of Edelson Technology Partners, which manages a series of four venture capital technology funds, or the Edelson Funds, for ten multinational corporations (AT&T, Viacom, Ford Motor, Cincinnati Bell, Colgate Palmolive, Reed Elsevier, Imation, Asea Brown Boveri and UPS) and two large pension funds. Mr. Edelson previously worked for Merrill Lynch, Drexel Burnham Lambert and CS First Boston. Mr. Edelson is a former president of the Analyst Club, the oldest club on Wall Street, founded in 1925, and is President and a founding member of the China Investment Group LLC, an organization formed to provide a forum to update and exchange its members’ knowledge of China. He has been a member of the Juilliard Council since 2001. Mr. Edelson was honored in the Knesset by receiving the Israel 50th Anniversary Award from the Prime Minister of Israel. Mr. Edelson is a member of The Chinese Business lawyers Association, the Asia Society and the China Cultural Foundation. He is also an advisor to the China Cultural Foundation. He has given numerous speeches in Hong Kong, China and the United States on investing in China. Mr. Edelson received a B.S. from Brooklyn College and an MBA from New York University Graduate School of Business.

Dr. J.P. Huang. Dr. Huang became a member of our Board of Directors on March 17, 2009 and has been Founder, Chairman Emeritus and Chief Strategic Adviser of Jpigroup Inc. since 1988. Under Dr. Huang’s advisory guidance, Jpigroup has been one of China’s major private investment and development companies that has invested and advised in the areas of regional development, land development, real estate, infrastructure, manufacturing, human capital development, technologies and financial services. From 1985 and prior to founding Jpigroup, Dr. Huang worked for the Government of China in the former Ministry of Foreign Economic Relations and Trade and during that time, he was very active and instrumental in helping formulating some of China’s first open door strategies and reform plans, especially in the area of international investment and trade. Dr. Huang holds a Ph.D. in economics from University of International Business and Economics in Beijing, where he now concurrently holds a Professorship in Finance. Dr. Huang acted as a consultant to COAC in connection with our merger with COAC.

Mr. Kwok Keung Wong. Mr. Wong became a member of our Board of Directors on March 17, 2009. He has in-depth and practical business working experience in dealing with Chinese companies and the Chinese government and assisting foreign investors in doing investments in China for more than twenty years. Since 2000, he has been the Senior Consultant of Thundercap Investments Consultant Limited, a consulting company that advises Chinese clients regarding the raising of funds through Sino-foreign joint ventures, private investment and overseas initial public offerings. Since 1986, Mr. Wong has been a private consultant providing services in the areas of marketing, manufacturing, production, financing and management to more than twenty Chinese enterprises. From 2000 to 2007, he provided consultation services and successfully assisted three Chinese companies in completing initial public offerings in Singapore.

Mr. Yunlong Wang. Mr. Wang became a member of our Board of Directors on March 17, 2009 and has been the Head and Chief Engineer of Biotech Research Center of Henan Province in China since 2000. Mr. Wang specializes in human cell research and has published over twenty theses in that and related fields. He has been admitted and recognized as a member Specialist in Bio-engineering by the State Council of China. He also served as a Professor at the Henan Vocational Institute since 2005.

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Mr. Maotong Xu. Mr. Xu became a member of our Board of Directors on March 17, 2009 and has been the secretary of the board of directors of Henan Green since 2000. Prior to joining Henan Green, Mr. Xu had served with Henan Luoyang Steel Group from 1966 to 1997 as technician, engineer, vice general engineer and vice factory director. Mr. Xu received a Bachelor’s degree from Beijing Steel College.

In connection with the business combination with COAC, the then shareholders of China Gerui – Oasis, Honest Joy, and Plumpton – and Mr. Edelson entered into a voting agreement with us, dated March 19, 2009, or the Voting Agreement, pursuant to which each of the shareholders of China Gerui and Mr. Edelson agreed to vote their ordinary shares in favor of the election of Mingwang Lu, Yi Lu, Wong Kwok Keung, Maotong Xu, Yunlong Wang, Harry Edelson, and J.P. Huang as directors in specified classes in all elections through our annual meeting held in 2012. Except as otherwise disclosed above, there is no arrangement or understanding with any major shareholders, customers, suppliers or others, pursuant to which any of our directors or executive officers was selected as a director or member of senior management.

No family relationship exists between any of our directors and executive officers, except that one of our directors, Mr. Yi Lu, is the son of our Chairman and CEO, Mr. Mingwang Lu.

B. Compensation

Non-Equity Compensation of Directors and Senior Management

In 2012, we paid an aggregate of $1.3 million in cash compensation to our directors and senior management as a group. We do not set aside or accrue any amounts for pension, retirement or other benefits for our directors and senior management. However, we reimburse our directors for out-of-pocket expenses incurred in connection with their services in such capacity.

Employment Agreements

As required by local Chinese labor law, our indirect subsidiary Henan Green has entered into employment agreements with each member of our senior management, which have substantially similar terms. Under these agreements, each of our executive officers is employed for a specified time period, but we may terminate his or her employment for cause, at any time, without notice or remuneration, for certain acts, including but not limited to, his or her conviction of crimes, his or her breach of material corporate policy and his or her failure to perform his or her duties to our material detriment. Furthermore, either we or an executive officer may terminate his or her employment at any time without cause upon advance written notice to the other party. If we terminate an executive officer’s employment without cause, we will pay the executive officer severance pay in accordance with applicable law. If an executive’s employment is terminated without cause or resigns for good reason prior to the expiration of the employment term, he shall be entitled to payment of (i) any earned but unpaid portion of base salary, (ii) any unpaid bonus that we have declared to be payable in respect of a fiscal year prior to the year in which the date of termination occurs, (iii) any amounts due and payable under our existing benefits plans, (iv) unreimbursed business expenses, in each case with respect to the period ending on the date of termination, and (v) severance payment in cash which is equal to six (6) months of base salary at the then current base salary rate. We do not have other arrangements with any executive officers for special termination benefits.

Each executive officer has agreed to hold, both during the employment term and after employment terminates, in confidence any of our trade secrets, know-how or financial, trading or other confidential information. In addition, each executive officer has agreed to be bound by non-competition restrictions set forth in his or her employment agreement and is prohibited from providing services to our competitors or operating businesses that compete against us for a period of five years following termination or expiration of his or her employment agreement.

Equity Incentive Plan

On November 16, 2010, our Board of Directors and Compensation Committee adopted the China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan, or the 2010 Plan. The 2010 Plan became effective on the date of its adoption, subject to approval by our shareholders within 12 months. At our annual shareholders meeting held on December 8, 2010, our shareholders approved the adoption of the 2010 Plan. Following is a summary of the material provisions of the 2010 Plan. Unless otherwise defined, capitalized terms in the following summary have the same meanings as provided in the 2010 Plan.

Purpose. The purpose of the 2010 Plan is promote the best interests of the Company and its shareholders by (i) assisting the Company and its Affiliates in the recruitment and retention of persons with ability and initiative, (ii) providing an incentive to such persons to contribute to the growth and success of our businesses by affording such persons equity participation in the Company and (iii) associating the interests of such persons with those of the Company and its affiliates and shareholders. The 2010 Plan permits the grant of Nonqualified Share Options and Restricted Share Awards to such Eligible Persons, and subject to such terms and conditions, not inconsistent with the terms of the 2010 Plan, as the 2010 Plan administrator may determine in its discretion.

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Administration. The Plan may be administered by our Board of Directors or a committee appointed by the Board of Directors to administer the Plan. The Plan is currently being administered by our Compensation Committee. The administrator has the authority to determine the Eligible Persons who shall receive grants of Awards under the 2010 Plan and the specific terms and conditions of all Awards granted under the 2010 Plan, including, without limitation, the number of Shares subject to each Award, the price to be paid for the Shares, the applicable vesting criteria, our repurchase rights in connection with the ordinary shares issued in connection with the exercise of an Award and any other restrictions or limitations applicable to Awards or the ordinary shares issued thereunder. The administrator has discretion to make all other determinations necessary or advisable for the administration of the 2010 Plan.

Eligibility. Nonqualified Share Options and Restricted Share Awards may be granted to employees, Directors or Consultants either alone or in combination with any other Awards.

Shares Available for Issuance Under the 2010 Plan. Subject to adjustment as described below, the maximum aggregate number of ordinary shares that may be issued under the 2010 Plan is 3,500,000 ordinary shares. Ordinary shares issued under the 2010 Plan may be either authorized and unissued ordinary shares or previously issued ordinary shares that have been reacquired by the Company and cancelled or maintained as treasury shares. The number and class of shares available under the 2010 Plan are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, share splits, share dividends, or other similar events which change the number or kind of shares outstanding.

Effect of Termination of Employment, Etc. Except for in connection with a termination on account of a participant’s death or Disability or a termination for Cause (or a voluntary termination at any time after an event which would be grounds for termination of the Participant’s Continuous Service for Cause), unless otherwise provided in the applicable Share Award Agreement or Share Option Agreement, if the Participant’s Continuous Service ends for any reason, (a) any outstanding Options of the Participant shall cease to be exercisable in any respect not later than three (3) months following that event and, for the period it remains exercisable following that event, shall be exercisable only to the extent exercisable at the date of that event, and (b) any Restricted Share Award of the Participant shall be forfeited or otherwise subject to return to or repurchase by the Company on the terms specified in the award agreement. If the Participant’s termination is on account of the Participant’s death or Disability, unless otherwise provided in the applicable Share Option Agreement, any outstanding Options of the Participant shall cease to be exercisable not later than twelve (12) months following that event and, for the period it remains exercisable following that event, and shall be exercisable by the Participant (or, in the event of the Participant’s death, by the Participant’s heirs, legatees or legal representatives) only to the extent exercisable at the date of such death or Disability. If the Participant’s termination of Continuous Service is for Cause or is a voluntary termination at any time after an event which would be grounds for termination of the Participant’s Continuous Service for Cause, the right to exercise the Option shall expire, unless otherwise specified in the Share Option Agreement, as of the date of the Participant’s termination of Continuous Service. The Committee shall determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by the Corporation, including sick leave, military leave or any other personal leave.

Vesting and Option Periods. The administrator, in its sole discretion, may impose vesting schedules, limitations on transferability and forfeiture conditions on any Award granted under the 2010 Plan as it may deem advisable or appropriate, on the basis of such conditions, including but not limited to, achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued status as an Eligible Person), or any other basis the 2010 Plan administrator may determine in its discretion. The administrator, in its discretion, may accelerate the time at which any such restrictions will lapse or be removed. The administrator may, in its discretion, also provide for such complete or partial exceptions to an employment or service restriction as it deems equitable. Unless terminated sooner in accordance with the 2010 Plan, each Option shall expire either ten (10) years after the grant date, or after a shorter term as may be fixed in the Share Option Agreement.

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Option Grants. An Option is the right to purchase our ordinary shares at a future date at a specified price. Options granted under the 2010 Plan may only be Nonqualified Share Options (i.e., options not intended to qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code of 1986, as amended). The administrator shall determine the terms of each Option at the time of grant, including the number of ordinary shares covered by, the exercise price of, and the conditions and limitations applicable to the exercise of each Option (including vesting criteria and maximum Option period, which may not be more than ten (10) years from the date of grant). The exercise price of an Option may not be less than the par value of an Ordinary Share on the grant date and it may also not be less than the Fair Market Value of an Ordinary Share, unless the 2010 Plan administrator determines that a grant with an exercise price less than Fair Market Value is either (i) awarded to a Participant who is not subject to Section 409A or 457A of the Code or (ii) if the Participant is subject to Section 409A or 457A of the Code, the terms of such Option will comply with Section 409A of the Code and will not result in taxation by reason of Section 457A(a) of the Code, and provided that the term of an Option may not exceed ten years.

The Plan permits the following forms of payment of the exercise price of Options, unless as provided for in the Share Option Agreement:

· cash or check;

· such other method as may be provided for in the Share Option Agreement; or

· with the consent of the 2010 Plan administrator, other ordinary shares that have been held for at least six (6) months prior to the date of exercise, or if the ordinary shares are traded on an established securities market, the 2010 Plan administrator may approve a “cashless exercise” by payment of the exercise price by a broker-dealer or by the Option holder with cash advanced by the broker-dealer if the exercise notice is accompanied by the Option holder's written irrevocable instructions to deliver the ordinary shares acquired upon exercise of the Option to the broker-dealer or by delivery of the ordinary shares to the broker-dealer with an irrevocable commitment by the broker-dealer to forward the exercise price to the Corporation, provided that if ordinary shares are used to pay all or part of the exercise price, the sum of the cash or cash equivalent and the Fair Market Value (determined as of the date of exercise) of the shares surrendered must not be less than the Option price of the ordinary shares for which the Option is being exercised.

Restricted Share Awards. The administrator may, in its discretion, grant Restricted Share Awards to Eligible Persons and may determine the number of ordinary shares underlying a Restricted Share Award and the terms and conditions (including vesting criteria) of, and the amount of payment (which may not be less than par value per Ordinary Share) to be made by the recipient for such Restricted Share Awards. During the period during which the Restricted Share Awards are subject to repurchase or reacquisition, or the period of restriction, Restricted Share Awards shall be subject to vesting or repurchase by the Company (including a right of the Company to repurchase ordinary shares under a Restricted Share Award at less than the then Fair Market Value per Share) arising on the basis of such conditions as the 2010 Plan administrator may determine in its sole discretion. Any such risk of repurchase by the Company may be waived or terminated, or the period of restriction shortened, at any time by the 2010 Plan administrator on such basis as it deems appropriate. During the period of restriction, Eligible Persons holding Restricted Share Awards may exercise full voting rights with respect to the ordinary shares underlying those Restricted Share Awards and will be entitled to receive all dividends and other distributions paid with respect to such ordinary shares. If any such dividends or distributions are paid in ordinary shares, the ordinary shares will be subject to the same restrictions on transferability and repurchase rights by the Company as the Restricted Share Awards with respect to which they were paid. Except as provided in the 2010 Plan, Restricted Share Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction.

Adjustments, Dissolution, Liquidation, Merger or Change in Control. In the event that any dividend or other distribution (whether in the form of cash, ordinary shares, other securities, or other property), recapitalization, share split, reverse share split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of ordinary shares or other securities of the Company, or other change in the corporate structure of the Company, affecting the ordinary shares occurs, the 2010 Plan administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended under the 2010 Plan, shall adjust the number and kind of ordinary shares that may be delivered under the 2010 Plan and/or the number, class, and price of ordinary shares covered by each outstanding Award. If we are merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while Options or Share Awards remain outstanding under the 2010 Plan, unless provisions are made in connection with such transaction for the continuance of the 2010 Plan and/or the assumption or substitution of such Options or Share Awards with new options or share awards covering the shares of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding Options and Share Awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the applicable Share Option Agreement or Share Award Agreement, terminate immediately as of the effective date of any such merger, consolidation or sale.

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Transferability. Unless otherwise provided in the applicable Share Option Agreement or Share Award Agreement, or otherwise determined by the 2010 Plan administrator in accordance with the 2010 Plan, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant.

Repricing; Exchange and Buyout of Awards. The repricing or termination and subsequent repricing of Options at a lower purchase price per Share than the original grant is not permitted without prior shareholder approval. The administrator may authorize the Company to issue new Options in exchange for the surrender and cancellation of any or all outstanding Awards, subject to the consent of the Participant whose rights would be impaired. The administrator may at any time repurchase Options with payment in cash, Shares or other consideration, based on such terms and conditions as the 2010 Plan administrator and the Participant shall agree.

Termination of, or Amendments to, the 2010 Plan. The Board may amend or terminate the 2010 Plan from time to time; provided, however, shareholder approval shall be required for any amendment that (i) increases the aggregate number of ordinary shares that may be issued under the 2010 Plan, except for adjustments described above, or (ii) shareholder approval is required by the terms of any applicable law, regulation or rule, including the rules of any market on which our shares are traded or exchanged on which the Company’s shares are listed. Except as specifically permitted by the 2010 Plan, Share Option Agreement or Share Award Agreement or as required to comply with applicable law, regulation or rule, no amendment shall, without a Participant’s consent, adversely affect any rights of such Participant under any Option or Share Award outstanding at the time such amendment is made. Any amendment requiring shareholder approval shall be approved by our shareholders within twelve (12) months of the date such amendment is adopted by the Board.

On October 1, 2012, the Compensation Committee of the Board approved grants of restricted ordinary shares to certain officers and directors of the Company under the 2010 Plan. The grants were as follows:

· Mingwang Lu was granted 1,200,000 restricted ordinary shares;

· Harry Edelson was granted 120,000 restricted ordinary shares;

· Yi Lu was granted 380,000 restricted ordinary shares; and

· Edward Meng was granted 400,000 restricted ordinary shares.

The shares granted to Mr. Meng vested immediately upon granting. For the shares granted to the other officers and directors, 91.7% of the shares vested immediately, and 8.3% of each grant vested on December 31, 2012 subject to the continuous service through December 31, 2012 and the other terms and conditions of the grant.

Share Options

As of December 31, 2012, no options to purchase our ordinary shares had been granted under the 2010 Plan.

C. Board Practices

Terms of Directors and Executive Officers

Our Board consists of seven members, who were elected as our directors in connection with the business combination with COAC on March 17, 2009.  Our Board is a classified Board consisting of three classes of directors.  The Class I directors were elected for a three-year term of office, the Class II directors were elected for a two-year term of office and the Class III directors were elected for a one-year term of office.  At a general meeting in each year, successors to the class of directors whose term expires in that year stand for election for a three-year term.  The current Board members are classified as follows:

· in the class to stand for reelection in 2013: Maotong Xu and J.P. Huang;

· in the class to stand for reelection in 2014: Harry Edelson and Kwok Keung Wong; and

· in the class to stand for reelection in 2015: Mingwang Lu, Yi Lu and Yunlong Wang.

A majority of votes cast at the relevant meeting shall be sufficient to elect directors.  The directors may appoint one or more directors to fill a vacancy on the Board. We do not have any agreements with our directors providing for benefits upon termination of employment.

Our executive officers are appointed by our Board.  The executive officers shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors.  Any vacancy occurring in any office may be filled by resolution of directors.

Board Composition and Committees

Our Board of Directors is currently composed of seven members: Mr. Mingwang Lu, Mr. Yi Lu, Mr. Harry Edelson, Dr. J.P. Huang, Mr. Kwok Keung Wong, Mr. Yunlong Wang and Mr. Maotong Xu. Our independent directors, within the meaning of the Marketplace Rules of the NASDAQ Stock Market LLC, or the NASDAQ Marketplace Rules, are Dr. Huang, Mr. Wong, Mr. Wang and Mr. Xu.

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Our Board of Directors has established three Committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each Committee is comprised entirely of independent directors. From time to time, our Board may establish other committees.

Audit Committee

Our Audit Committee is currently composed of three members, Dr. Huang, Mr. Wong and Mr. Xu. Mr. Xu serves as the Chair of the Audit Committee. Our Board of Directors determined that each member of the Audit Committee meets the independence criteria prescribed by applicable rules and regulations of the SEC for audit committee membership and is an “independent” director within the meaning of the NASDAQ Marketplace Rules. Each Audit Committee member also meets NASDAQ’s financial literacy requirements. Our Board of Directors has also determined that Mr. Huang is the “audit committee financial expert” as such term is defined in Item 407(d) of Regulation S-K under the Securities Act and also meets NASDAQ’s financial sophistication requirements.

The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of our Company. The Audit Committee is responsible for, among other things:

· selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;

· reviewing with our independent auditors any audit problems or difficulties and management’s response;

· reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

· discussing the annual audited financial statements with management and our independent auditors;

· monitoring the independence of the independent auditor;

· verifying the rotation of the audit partners having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

· inquiring and discussing with management our compliance with applicable laws and regulations;

· determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; and

· establishing procedures for the receipt, retention and treatment of complaints received by us regarding internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies.

Compensation Committee

Our Compensation Committee is currently composed of three members, Dr. Huang, Mr. Wong and Mr. Xu, each of whom is “independent” within the meaning of the NASDAQ Marketplace Rules. Mr. Xu serves as Chair of the Compensation Committee.

Our Compensation Committee reviews and approves compensation paid to our officers and directors and to administer the 2010 Plan and any other incentive compensation plans, should any such plans be adopted in the future, including authority to make and modify awards under such plans.

The Compensation Committee is mainly responsible for, among other things:

· approving and overseeing the compensation for our executive officers;

· reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; and

· reviewing periodically and making recommendations to the Board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans; and reviewing and making recommendations to the Board regarding succession plans for the chief executive officer and other senior officers.

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Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee is currently composed of three members, Dr. Huang, Mr. Wong and Mr. Xu, each of whom is “independent” within the meaning of the NASDAQ Marketplace Rules. Mr. Xu serves as Chair of the Nominating and Corporate Governance Committee.

The Nominating and Corporate Governance Committee assists the Board in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees.  The Nominating and Corporate Governance Committee is mainly responsible for, among other things:

· selecting or recommending to the Board the nominees for election as directors or for appointment to fill any vacancy;

· selecting or recommending to the Board the directors to be appointed to each committee of the Board;

· overseeing the Board in the Board’s annual review of its performance and making appropriate recommendations to improve performance; and

· performing any other duties or responsibilities expressly delegated to the committee by the Board from time to time relating to the nomination of Board and committee members.

D. Employees

As of December 31, 2012, we had approximately 1,070 full-time employees. The following table illustrates the allocation of these employees among the various job functions conducted at our company.

Category	Number of Employees
Manufacturing		890
Sales and Marketing		35
General Administration, Purchasing and Logistics		116
Technology and Research & Development		29
Total		1,070

From time to time, we also employ third-party consultants for research and development of our products.  We believe that we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

As required by applicable Chinese law, we have entered into employment contracts with all of our officers, managers and employees.  It is required by Chinese law to make several mandatory contributions for our employees, including social pension, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance.  As of the date of this report, we are in compliance with the applicable PRC employee law and regulations and have made the contributions required by the applicable laws.

E. Share Ownership

The following table sets forth information regarding beneficial ownership of each class of our voting securities as of April 26, 2013 (i) by each person who is known by us to beneficially own more than 5% of our voting securities; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group.

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Name of Beneficial Owner	Office, If Any	Title of Class	Amount and Nature of Beneficial Ownership(1)			Percent of Class(2)
Officers and Directors
Mingwang Lu	Chairman and CEO	Ordinary Shares		16,338,637	(3)		27.4	%
Edward Meng	Chief Financial Officer	Ordinary Shares		400,000	(4)			*
Yi Lu	Director	Ordinary Shares		3,402,200	(5)		5.7	%
Harry Edelson	Director	Ordinary Shares		6,861,221	(6)		11.5	%
J.P. Huang	Director	Ordinary Shares		0				*
Kwok Keung Wong	Director	Ordinary Shares		6,760,913	(7)		11.4	%
Yunlong Wang	Director	Ordinary Shares		0				*
Maotong Xu	Director	Ordinary Shares		0				*
All officers and directors as a group (8 persons named above)		Ordinary Shares		33,762,971			56.7	%
5% Security Holders
Mingwang Lu		Ordinary Shares		16,338,637	(3)		27.4	%
Meg Champ Limited		Ordinary Shares		12,088,800	(3)		20.3	%
Victor Trait Limited		Ordinary Shares		3,349,837	(3)		5.6	%
Yi Lu		Ordinary Shares		3,402,200	(5)		5.7	%
Lok Tai Limited		Ordinary Shares		3,022,200	(5)		5.1	%
Harry Edelson		Ordinary Shares		6,861,221	(6)		11.5	%
Kwok Keung Wong		Ordinary Shares		6,760,913	(7)		11.3	%
Honest Joy Group Limited		Ordinary Shares		6,741,221	(7)		11.4	%
Yuying Lu		Ordinary Shares		6,741,221	(8)		11.4	%
Oasis Green Investments Limited		Ordinary Shares		6,741,221	(8)		11.4	%
Plumpton Group Limited		Ordinary Shares		6,741,221	(9)		11.4	%
Wenxian Li		Ordinary Shares		4,212,523			7.1	%

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as otherwise indicated, each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to our ordinary shares.

(2) Based on 59,561,899 ordinary shares outstanding as of April 26, 2013. For each beneficial owner’s percent of class, any options exercisable within 60 days have been included in both the numerator and denominator.

(3) Includes 900,000 ordinary shares held by Mr. Mingwang Lu, 12,088,800 ordinary shares held by Meg Champ Limited, or Meg Champ, and 3,349,837 ordinary shares held by Victor Trait Limited, or Victor Trait, both of which are wholly-owned by Mr. Lu. Mr. Lu may be deemed to be a beneficial owner of the ordinary shares held by each of Meg Champ and Victor Trait. The shares held by Meg Champ and Victor Trait were transferred to them by Oasis in March 2011 and the shares held directly by Mr. Lu were issued to him pursuant to the 2010 Plan on October 1, 2012.

(4) The shares held by Mr. Edward Meng were issued to him pursuant to the 2010 Plan on October 1, 2012.

(5) Includes 380,000 ordinary shares held by Mr. Yi Lu and 3,022,200 ordinary shares held by Lok Tai Limited, or Lok Tai, which is wholly-owned by Mr. Lu. Mr. Lu may be deemed to be a beneficial owner of the ordinary shares held by Lok Tai. The shares held by Lok Tai were issued to it in March 2011 and the shares held directly by Mr. Lu were issued to him pursuant to the 2010 Plan on October 1, 2012. Mr. Yi Lu is the son of our Chairman and CEO, Mr. Mingwang Lu, but does not live in the same household.

(6) Includes 3,206,581 ordinary shares held by Mr. Edelson, 1,026,640 ordinary shares held by Oasis, 985,500 ordinary shares held by Honest Joy and 1,642,500 ordinary shares held by Plumpton, pursuant to the Voting Agreement.  As a result of Mr. Edelson’s entry into the Voting Agreement, Mr. Edelson may also be deemed to have acquired beneficial ownership of ordinary shares held by Oasis, Plumpton, and Honest Joy.  As of December 31, 2010, Mr. Edelson’s percentage of beneficial ownership of our outstanding ordinary shares was 78.3. In March 2011 and July 2011, Oasis transferred 26,595,360 and 2,600,000 ordinary shares, respectively, to certain persons that were not parties to the Voting Agreement.  In March 2011, Mr. Edelson exercised 1,476,960 warrants for the same number of ordinary shares and sold 189,707 warrants, and in on October 1, 2012, Mr. Edelson was issued 120,000 ordinary shares pursuant to the 2010 Plan, thereby increasing Mr. Edelson’s ownership to the percentage reflected in the above table.

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(7) Includes 19,692 ordinary shares held by Mr. Wong, 985,500 ordinary shares held by Honest Joy, 3,086,581 ordinary shares held by Mr. Edelson, 1,026,640 ordinary shares held by Oasis and 1,642,500 ordinary shares held by Plumpton. Mr. Wong may be deemed to be a beneficial owner of the ordinary shares beneficially held by Honest Joy, which is wholly-owned by Mr. Wong, including the ordinary shares held by each of Oasis, Plumpton and Mr. Edelson as a result of the Voting Agreement. As of December 31, 2010, Mr. Wong’s percentage of beneficial ownership of our outstanding ordinary shares was 78.3%. In March 2011 and July 2011, Oasis transferred 26,595,360 and 2,600,000 ordinary shares, respectively, to certain persons that were not parties to the Voting Agreement, and in March 2011, Mr. Wong purchased and sold securities for a net acquisition of 19,692 ordinary shares, thereby reducing Mr. Wong’s ownership to the percentage reflected in the above table.

(8) Includes 1,026,640 ordinary shares held by Oasis, 985,500 ordinary shares held by Honest Joy, 3,086,581 ordinary shares held by Mr. Edelson and 1,642,500 ordinary shares held by Plumpton. Ms. Lu may be deemed to be a beneficial owner of the ordinary shares beneficially held by Oasis, which is wholly-owned by Ms. Lu, including the ordinary shares held by each of Honest Joy, Plumpton and Mr. Edelson as a result of the Voting Agreement. Ms. Lu is the daughter of our Chairman and CEO, Mr. Mingwang Lu, but does not live in the same household. As of December 31, 2010, Ms. Lu’s percentage of beneficial ownership of our outstanding ordinary shares was 78.3%. In March 2011 and July 2011, Oasis transferred 26,595,360 and 2,600,000 ordinary shares, respectively, to certain persons that were not parties to the Voting Agreement, thereby reducing Ms. Lu’s ownership to the percentage reflected in the above table.

(9) Includes 1,642,500 ordinary shares held by Plumpton, 1,026,640 ordinary shares held by Oasis, 985,500 ordinary shares held by Honest Joy, and 3,086,581 ordinary shares held by Mr. Edelson. Plumpton’s three members own or control 47.5%, 47.5%, and 5% of the shares of Plumpton, respectively. Plumpton’s three members collectively control Plumpton in proportion to their share ownership. As of December 31, 2010, Plumpton’s percentage of beneficial ownership of our outstanding ordinary shares was 78.3%. In March 2011 and July 2011, Oasis transferred 26,595,360 and 2,600,000 ordinary shares, respectively, to certain persons that were not parties to the Voting, thereby reducing Plumpton’s ownership to the percentage reflected in the above table.

None of our major shareholders have different voting rights from other shareholders.  We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

Each of the foregoing beneficial owners of over five percent of our outstanding ordinary shares may be considered to own or control us.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.”

B. Related Party Transactions

The following includes a summary of transactions since the beginning of the 2012 fiscal year between us and certain related persons.  We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

· On February 26, 2013, Henan Green acquired 100% ownership of Zhengzhou Company for a total cash purchase price of RMB 268 million (approximately $42.6 million), of which RMB 150.0 million (approximately $24.1 million) has been paid. The balance of the purchase price is expected to be paid within the next six months. If Henan Green fails to pay the full purchase price by the negotiated deadline, it will be liable for a penalty fee at a daily rate of 0.03% of the outstanding purchase price. In addition, if any party breaches its representations and warranties provided in the equity transfer agreement, the breaching party is required to pay the other parties for damages in an amount of RMB 1 million (approximately $0.16 million). The purchase price was determined based on an appraisal report prepared by an independent appraisal firm. Three Company directors, Mr. Mingwang Lu, Mr. Yi Lu and Mr. Maotong Xu, were shareholders of Zhengzhou Company and owned 39.7%, 0.27% and 0.5% of Zhengzhou Company, respectively.

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· In December 2008, we entered into a new lease agreement with Zhengzhou Company. The lease term commenced on January 1, 2008 and terminates on December 31, 2027. Rent paid to Zhengzhou Company for the fiscal year ended December 31, 2012 was $12,867. Rent payable under the lease increases by 10% annually starting from 2010. Zhengzhou Company also guarantees our obligations under short term bank loans. We do not pay any consideration to this related guarantor for guaranteeing our obligations.

· Zhengzhou Company owns a land use right with respect to 24.94 acres. We leased a part of the land use right for 6.69 acres from Zhengzhou Company prior to the acquisition. Our existing production lines and warehouses are located on this parcel of land. For operation risk mitigation purpose, we started the process of title transfer of the land use right from Zhengzhou Company prior to the acquisition. To facilitate Zhengzhou Company’s negotiation with local regulatory authorities on the transfer and in anticipation of the upfront payments associated with the transaction, we prepaid $24,076,660 as of December 31, 2012 to acquire Zhengzhou Company.

· Since January 2010, we have paid Mr. Harry Edelson, a director, a monthly fee of $10,000 in return for his verbal agreement to perform certain services. These services have included or may include the following: (a) helping to promote awareness of the Company within the investment community through introductions to investors, investment banks, and research analysts; (b) participation in future deal or non-deal road shows and financing activities of the Company upon request and at the discretion of the Company and the Board of Directors; (c) assistance in investor conference presentations, whether or not management of the Company is able to be present; (d) providing occasional office use and communication facilities where required by the Company; (e) monitoring and providing capital market feedback on the Company; and (f) such other activities as may be requested of him, from time to time, by the Board or executive management team of the Company.

See also Item 6 “Directors, Senior Management and Employees—B. Compensation.”

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Statements

We have appended consolidated financial statements filed as part of this annual report. See Item 18 “Financial Statements.”

Legal Proceedings 

We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time.  We are currently not party to any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on our financial position or profitability.

Dividend Policy

Henan Green paid dividends of $42.3 million and $16.1 million in 2008 and 2007, respectively, prior to our 2009 merger with COAC.  For the foreseeable future, we intend to retain any future earnings to fund the operation and expansion of our business and do not anticipate paying cash dividends on our ordinary shares.  The payment of any dividends in the future will be within the discretion of our board of directors, subject to the relevant provision of BVI law.

B. Significant Changes

No significant change has occurred since the date of our consolidated financial statements filed as part of this annual report.

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ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Our ordinary shares are listed on the NASDAQ Global Select Market and trade under the symbol “CHOP.” The following table provides the high and low reported market prices of our ordinary shares as reported by Yahoo! Finance for the periods indicated.

	Closing Prices
	High		Low
Annual Market Prices
2008	$	5.86	$	5.30
2009		10.00		3.01
2010		8.20		4.55
2011		6.33		1.87
2012		4.17		1.22
Quarterly Market Prices
1st Quarter 2011	$	6.33	$	4.55
2nd Quarter 2011		5.29		2.82
3rd Quarter 2011		4.40		2.72
4th Quarter 2011		4.00		1.87
1st Quarter 2012		4.17		3.35
2nd Quarter 2012		3.70		2.00
3rd Quarter 2012		2.86		1.67
4th Quarter 2012		2.05		1.22
Monthly Market Prices
October 2012	$	1.78	$	1.46
November 2012		1.47		1.22
December 2012		1.27		2.05
January 2013		1.77		2.32
February 2013		3.01		2.20
March 2013		2.72		1.52
April 2013 (through April 26, 2013)		1.89		1.52

B. Plan of Distribution

Not applicable.

C. Markets

See our disclosures above under “A. Offer and Listing Details.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

The following represents a summary of certain key provisions of our memorandum and articles of association.  The summary does not purport to be a summary of all of the provisions of our memorandum and articles of association and of all relevant provisions of BVI law governing the management and regulation of BVI companies.

Register

We were incorporated in the BVI on March 11, 2008 under the BVI Business Companies Act, 2004, or the Act. The Registrar of Corporate Affairs of the British Virgin Islands issued a Certificate of Change of Name confirming the change of our name from Golden Green Enterprises Limited to China Gerui Advanced Materials Group Limited on December 14, 2009. Our amended and restated memorandum of association authorizes the issuance of up to 100,000,000 shares without par value.

Objects and Purposes

Our amended and restated memorandum of association grants us full power and capacity to carry on or undertake any business or activity and do any act or enter into any transaction not prohibited by the Act or any other BVI legislation.

Directors

We have a classified board of directors consisting of three classes of directors, Class I, Class II and Class III. At the first general meeting held after the date of the adoption of our amended and restated articles of association, the Class I directors shall be elected for a three year term of office, the Class II directors shall be elected for a two year term of office and the Class III directors shall be elected for a one year term of office. At a general meeting in each year, successors to the class of directors whose term expires in that year shall be elected for a three year term. A majority of votes cast at the relevant meeting shall be sufficient to elect directors. The directors may appoint one or more directors to fill a vacancy on the Board. A director shall not require a share qualification, and may be an individual or a company. Directors may serve at any age and may retire at any time.

Directors have the powers necessary for managing, and for directing and supervising our business and affairs, including general powers to borrow on behalf of the Company. Directors may engage in transactions with us and vote on such transactions, provided the nature of the interest is disclosed to the entire board of directors. With the prior or subsequent approval by an ordinary resolution of members (i.e., shareholders), the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to us. The board of directors shall obtain our approval in a general meeting before making any payment to any director or past director of us by way of compensation for loss of office, or as consideration for or in connection with his retirement from office (other than a payment to which the director is contractually entitled). The above requirements shall apply regardless of whether a quorum consisting solely of non-interested or independent directors is present at the meeting at which the pertinent resolution of directors is adopted.

Rights and Obligations of Shareholders

Dividends. Subject to the Act, the directors may, by resolution of directors, authorize a distribution (including a dividend) by us to members (i.e., shareholders) at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately after the distribution, the value of our assets exceeds our liabilities and we are able to pay our debts as they fall due. Any distribution payable in respect of a share which has remained unclaimed for three years from the date when it became due for payment shall, if the board of the directors so resolves, be forfeited and cease to remain owing by us. The directors may, before authorizing any distribution, set aside out of our profits such sum as they think proper as a reserve fund, and may invest the sum so set apart as a reserve fund upon such securities as they may select. The holder of each ordinary share has the right to an equal share in any distribution paid by us.

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Voting Rights. Each ordinary share confers on the shareholder the right to one vote at a meeting of the members or on any resolution of members on all matters before our shareholders.

Winding Up. The holder of each ordinary share is entitled to an equal share in the distribution of the surplus assets of us on a winding up.

Redemption. We may purchase, redeem or otherwise acquire and hold our own shares. We may not purchase, redeem or otherwise acquire shares without the consent of members whose shares are to be purchased, redeemed or otherwise acquired unless we are permitted by the Act or any provision of the amended and restated memorandum of association or the amended and restated articles of association to purchase, redeem or otherwise acquire the shares without their consent. We may only offer to acquire shares if at the relevant time the directors determine by resolution of directors that immediately after the acquisition the value of our assets exceeds our liabilities and we are able to pay our debts as they fall due. The directors may make an offer to purchase, redeem or otherwise acquire shares issued by us if the offer is (i) an offer to all members that would, if accepted, leave the relative voting and distribution rights of the members unaffected and affords each member a reasonable opportunity to accept the offer; or (ii) an offer to one or more members which either (1) all members have consented to in writing or (2) the directors have passed a resolution of directors stating that, in their opinion (a) the purchase, redemption or other acquisition is to the benefit of the remaining members and (b) that the terms of the offer and the consideration offered for the shares are fair and reasonable to us and to the remaining members, and setting out the reasons for their opinion. We may purchase, redeem or otherwise acquire our shares at a price lower than the fair value if permitted by, and then only in accordance with, the terms of the amended and restated memorandum and articles of association or a written agreement for the subscription for the shares to be purchased, redeemed or otherwise acquired.

Changes in Rights of Shareholders

The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not we are being wound-up, must be varied with the consent in writing of all the holders of the issued shares of that class or series or with the sanction of a resolution passed by a majority of the votes cast at a separate meeting of the holders of the shares of the class or series.

Meetings

An annual meeting of members must be held at least once in each calendar year at such date and time as may be determined by the directors. The directors shall call a meeting of the members if requested in writing to do so by members entitled to exercise at least 30% of the voting rights in respect of the matter for which the meeting is being held. No less than ten days and not more than sixty days notice of meetings is required to be given to members.

A meeting of members is properly constituted if at the commencement of the meeting there are two (2) members present in person or by proxy or (in the case of a member being a corporation) by its duly authorized representative representing not less than one third of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting.

A member shall be deemed to be present at the meeting if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other.

An ordinary resolution of members is a resolution approved at a duly constituted meeting of members by the affirmative vote of a simple majority of the votes cast by such members entitled to vote and voting on the resolution. A special resolution of members is a resolution passed by a majority of not less than two-thirds of votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their respective duly authorized representative or, where proxies are allowed, by proxy at a general meeting of which not less than ten (10) clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given, provided that, except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having the right to attend and vote at any such meeting, being a majority together holding not less than ninety-five (95) per cent in nominal value of the shares giving that right and in the case of an annual general meeting, if it is so agreed by all members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than ten (10) clear days’ notice has been given.

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The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting.

A member may be represented at a meeting of members by a proxy (who need not be a member) who may speak and vote on behalf of the member. A written instrument giving the proxy such authority must be produced at the place appointed for such purpose not less than 48 hours before the time for holding the meeting.

Limitations on Ownership of Securities

There are no limitations on the right of non-residents or foreign persons to own our securities imposed by BVI law or by our amended and restated memorandum and articles of association.

Change in Control of Company

A special resolution of members is required for us to issue our shares or securities convertible into our shares resulting in our change of control, unless the transaction is approved by the securities exchange on which our shares are then listed, the delay in obtaining a resolution of the members would seriously jeopardize our financial viability, our Audit Committee has approved not seeking a special resolution of members, and we have given to all members not later than ten days before issuance of our shares or securities convertible into our shares notice that we do not intend to seek the resolution of members that would otherwise be required and indicating that the Audit Committee has expressly approved proceeding without obtaining a resolution of members. Additionally, the board of directors is empowered to issue preferred shares with such rights attaching to them as they decide and such power could be used in a manner that would delay, defer or prevent a change of control of our company.

Ownership Threshold

There are no provisions governing the ownership threshold above which shareholder ownership must be disclosed imposed by BVI law or by our amended and restated memorandum and articles of association.

Changes in Capital

Subject to the provisions of the amended and restated memorandum and articles of association, the Act and the rules of the Designated Stock Exchange, our unissued shares shall be at the disposal of the directors who may, without prejudice to any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of the shares to such persons, at such times and upon such terms and conditions as we may by resolution of directors determine.

Subject to the provisions of the memorandum of association relating to changes in the rights of shareholders and the powers of directors in relation to preferred shareholders, we may, by a special resolution of members, amend our memorandum of association to increase or decrease the number of ordinary shares authorized to be issued.

Differences in Corporate Law

BVI law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of BVI law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Protection for Minority Shareholders

Under the laws of most U.S. jurisdictions, majority and controlling shareholders of a company generally have certain “fiduciary” responsibilities to the minority shareholders. Corporate actions taken by majority and controlling shareholders which are unreasonable and materially detrimental to the interests of minority shareholders may be declared null and void. Minority shareholders may have less protection for their rights under BVI law than they would have under U.S. law.

Powers of Directors

Unlike most U.S. jurisdictions, the directors of a BVI company, subject in certain cases to court approval but without shareholders’ approval, may implement the sale, transfer, exchange or disposition of any Company asset, property, part of the business, or securities, with the exception that shareholder approval is required for the disposition of over 50% in the value of our total assets.

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Conflict of Interests

Similar to the laws of most U.S. jurisdictions, when a director becomes aware of the fact that he has an interest in a transaction which we are to enter into, he must disclose it to our board. However, with sufficient disclosure of interest in relation to that transaction, the director who is interested in a transaction entered into or to be entered into by us may (i) vote on a matter relating to the transaction; (ii) attend a meeting of directors at which a matter relating to the transaction arises and be included in the quorum; and (iii) sign a document on behalf of us, or do any other thing in his capacity as a director, that relates to the transaction.

Written Consent and Cumulative Voting

Similar to the laws of most U.S. jurisdictions, under BVI law, shareholders are permitted to approve matters by way of written resolution in place of a formal meeting. BVI law does not make a specific reference to cumulative voting, and our current Memorandum and Articles of Association have no provisions authorizing cumulative voting.

Redemption

Our ordinary shares are not redeemable at a shareholder’s option. We may redeem our shares only with the consent of the shareholders whose shares are to be redeemed, except that the consent from the shareholders whose shares are being redeemed is not needed when (i) they are subject to compulsory redemption by us following our receipt of a written request by a shareholder or shareholders holding 90% of the votes of the outstanding ordinary shares entitled to vote that such shares be redeemed or (ii) if the directors make an offer to purchase, redeem or otherwise acquire shares that we have issued and such offer is an offer to one or more members which either (1) all members have consented to in writing or (2) the directors have passed a resolution of directors stating that, in their opinion (a) the purchase, redemption or other acquisition is to the benefit of the remaining members and (b) that the terms of the offer and the consideration offered for the shares are fair and reasonable to us and to the remaining members, and setting out the reasons for their opinion.

Takeover Provisions

Some provisions of our amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable. For instance, our directors are empowered to amend the relevant provisions of the memorandum of association for the purposes of creating new classes or series of shares and the rights attached thereto and may amend the articles of association to take into account any ancillary changes required, provided that the directors do not, however, have the power to amend the memorandum and articles of association to (a) restrict the rights or powers of the members to amend the memorandum or articles of association, (b) to change the percentage of members required to pass a resolution to amend the memorandum and articles of association, or (c) in circumstances where the memorandum or articles of association cannot be amended by the members.

Shareholder’s Access to Corporate Records

Pursuant to the Act, a shareholder is entitled, on giving written notice to us, to inspect our (i) memorandum and articles of association; (ii) register of members; (iii) register of directors; and (iv) minutes of meetings and resolutions of members and of those classes of members of which the shareholder is a member.

The directors may, if they are satisfied that it would be contrary to our interests to allow a member to inspect any document listed above (or any part thereof), deny or limit the inspection of the document.

Indemnification

We shall indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who (i) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidator of us; or (ii) is or was, at our request, serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise. To be entitled to indemnification, these persons must have acted honestly and in good faith and in what they believe to be our best interest, and in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful.

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Mergers and Similar Arrangements

Under the laws of the BVI, two or more companies may merge or consolidate in accordance with Section 170 of the Act. A merger means the merging of two or more constituent companies into one of the constituent companies, and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation which must be authorized by a resolution of shareholders.

While a director may vote on the plan even if he has a financial interest in the plan of merger of consolidation, in order for the resolution to be valid, the interest must have been disclosed to our board forthwith upon him becoming aware of such interest.

Shareholders not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum or articles of association, would entitle them to vote as a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation.

The shareholders of the constituent companies are not required to receive shares of the surviving or consolidated company, but may receive debt obligations or other securities of the surviving or consolidated company, or other assets, or a combination thereof. Furthermore, some or all of the shares of a class or series may be converted into a kind of asset while the other shares of the same class or series may receive a different kind of asset. As such, not all the shares of a class or series must receive the same kind of consideration.

After the plan of merger or consolidation has been approved by the directors and authorized by a resolution of the shareholders, articles of merger or consolidation are executed by each company and filed with the Registrar of Corporate Affairs in the BVI.

Dissenter Rights

A shareholder may dissent from a mandatory redemption of his shares, an arrangement (if permitted by the court), a merger (unless the shareholder was a shareholder of the surviving company prior to the merger and continues to hold the same or similar shares after the merger) and a consolidation. A shareholder properly exercising his dissent rights is entitled to payment of the fair value of their shares.

A shareholder dissenting from a merger or consolidation must object in writing to the merger or consolidation before the vote by the shareholders on the merger or consolidation, unless notice of the meeting was not given to the shareholder. If the merger or consolidation is approved by the shareholders, we must within 20 days give notice of this fact to each shareholder who gave written objection, and to each shareholder who did not receive notice of the meeting. Such shareholders then have 20 days to give us their written election in the form specified by the BVI Business Companies Act to dissent from the merger or consolidation, provided that in the case of a merger, the 20 days starts when the plan of merger is delivered to the shareholder.

Upon giving notice of his election to dissent, a shareholder ceases to have any rights of a shareholder except the right to be paid the fair value of his shares. As such, the merger or consolidation may proceed in the ordinary course notwithstanding the dissent.

Within seven days of the later of the delivery of the notice of election to dissent and the effective date of the merger or consolidation, we must make a written offer to each dissenting shareholder to purchase his shares at a specified price that the company determines to be their fair value. We and the shareholders then have 30 days to agree upon the price. If we and a shareholder fail to agree on the price within the 30 days, then we and the shareholder shall each designate an appraiser and these two appraisers shall designate a third appraiser. These three appraisers shall fix the fair value of the shares as of the close of business on the day before the shareholders approved the transaction without taking into account any change in value as a result of the transaction.

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Shareholders’ Suits

Similar to the laws of most U.S. jurisdictions, BVI law permits derivative actions against its directors. However, the circumstances under which such actions may be brought, and the procedures and defenses available may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company incorporated and/or existing in the United States.

The court of the BVI may, on the application of a shareholder of a company, grant leave to that shareholder to bring proceedings in the name and on behalf of that company, or intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company. In determining whether to grant leave, the High Court of the BVI must take into account (i) whether the shareholder is acting in good faith; (ii) whether the derivative action is in the interests of the company taking account of the views of the company’s directors on commercial matters; (iii) whether the proceedings are likely to succeed; (iv) the costs of the proceedings in relation to the relief likely to be obtained; and (v) whether an alternative remedy to the derivative claim is available.

Leave to bring or intervene in proceedings may be granted only if the High Court of the BVI is satisfied that (i) we do not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or (ii) it is in our interests that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4 “Information on the Company,” Item 5 “Operating and Financial Review and Prospects—F. Tabular Disclosure of Contractual Obligations,” Item 6 “Directors, Senior Management and Employees—B. Compensation—Employment Agreements,” Item 7 “Major Shareholders and Related Party Transactions,” or filed (or incorporated by reference) as exhibits to this annual report or otherwise described or referenced in this annual report.

D. Exchange Controls

BVI Exchange Controls

There are no material exchange controls restrictions on payment of dividends, interest or other payments to the holders of our ordinary shares or on the conduct of our operations in the BVI, where we were incorporated.  There are no material BVI laws that impose any material exchange controls on us or that affect the payment of dividends, interest or other payments to nonresident holders of our ordinary shares.  BVI law and our amended and restated memorandum and articles of association do not impose any material limitations on the right of non-residents or foreign owners to hold or vote our ordinary shares.

PRC Exchange Controls

Under the Foreign Currency Administration Rules promulgated in 1996 and revised in 1997, and various regulations issued by SAFE and other relevant PRC government authorities, RMB is convertible into other currencies without prior approval from SAFE only to the extent of current account items, such as trade related receipts and payments, interest and dividends and after complying with certain procedural requirements.  The conversion of RMB into other currencies and remittance of the converted foreign currency outside PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from SAFE or its local office.  Payments for transactions that take place within China must be made in RMB.  Unless otherwise approved, PRC companies must repatriate foreign currency payments received from abroad.  Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local office.  Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB.

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On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, which became effective as of November 1, 2005.  According to the notice, a special purpose company, or SPV, refers to an offshore company established or indirectly controlled by PRC residents for the special purpose of carrying out financing of their assets or equity interest in PRC domestic enterprises.  Prior to establishing or assuming control of an SPV, each PRC resident, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant local SAFE branch.  The notice applies retroactively.  As a result, PRC residents who have established or acquired control of these SPVs that previously made onshore investments in China were required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006.  These PRC residents must also amend the registration with the relevant SAFE branch in the following circumstances: (i) the PRC residents have completed the injection of equity investment or assets of a domestic company into the SPV; (ii) the overseas funding of the SPV has been completed; (iii) there is a material change in the capital of the SPV.  Under the rules, failure to comply with the foreign exchange registration procedures may result in restrictions being imposed on the foreign exchange activities of the violator, including restrictions on the payment of dividends and other distributions to its offshore parent company, and may also subject the violators to penalties under the PRC foreign exchange administration regulations.

On August 29, 2008, SAFE promulgated Notice 142 which regulates the conversion by a foreign-funded enterprise of foreign currency into RMB by restricting how the converted RMB may be used. Notice 142 requires that RMB funds converted from the foreign currency capital of a foreign-funded enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless specifically provided for otherwise. In addition, SAFE strengthened its supervision over the flow and use of RMB funds converted from the foreign currency capital of a foreign-funded enterprise. The use of such RMB capital may not be changed without SAFE’s approval, and may not, in any case, be used to repay or prepay RMB loans if such loans are outstanding. Violations of Notice 142 will result in severe penalties, such as heavy fines as set out in the relevant foreign exchange control regulations.

E. Taxation

The following is a general summary of certain material BVI and U.S. federal income tax considerations.  The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular shareholder or prospective shareholder.  The discussion is based on laws and relevant interpretations thereof in effect as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive effect.

BVI Taxation

The BVI does not impose a withholding tax on dividends paid to holders of our ordinary shares, nor does the BVI levy any capital gains or income taxes on us.  Further, a holder of our ordinary shares who is not a resident of the BVI is exempt from the BVI income tax on dividends paid with respect to the ordinary shares.  Holders of ordinary shares are not subject to the BVI income tax on gains realized on the sale or disposition of the ordinary shares.

Our ordinary shares are not subject to transfer taxes, stamp duties or similar charges in the BVI.  However, as a company incorporated under the BVI Act, we are required to pay the BVI government an annual license fee based on the number of shares we are authorized to issue.

There is no income tax treaty or convention currently in effect between the United States and the BVI.

PRC Taxation

We are a holding company incorporated in the BVI, which indirectly holds our equity interests in our PRC operating subsidiaries. The EIT Law and its implementation rules, both of which became effective as of January 1, 2008, provide that a PRC enterprise is subject to a standard income tax rate of 25% and China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its overseas parent, will normally be subject to PRC withholding tax at a rate of 10%, unless there are applicable treaties between the overseas parent’s jurisdiction of incorporation and China to reduce such rate.

Under the Arrangement between the Mainland 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 Double Taxation Arrangement, effective as of January 1, 2007, such dividend withholding tax rate is reduced to 5% if a Hong Kong resident enterprise owns over 25% of the PRC company distributing the dividends. Under the aforesaid arrangement, any dividends that Henan Green pays to Wealth Rainbow may be subject to a withholding tax at the rate of 5% if it is not considered to be a PRC “resident enterprise” as described below. However, if Wealth Rainbow is not considered to be the “beneficial owner” of such dividends under the Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties promulgated by the State Administration of Taxation on October 27, 2009 (and not a PRC “resident enterprise”), such dividends would be subject to the withholding tax rate of 10%. The withholding tax rate of 5% or 10% applicable will have a significant impact on the amount of dividends to be received by us and ultimately by shareholders.

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According to the Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, the term “beneficial owner” refers to a person who has the right to own and dispose of the income and the rights or properties generated from the said income. The “beneficial owner” may be an individual, a company or any other organization which is usually engaged in substantial business operations. A conduit company is not a “beneficial owner.” The term “conduit company” refers to a company which is usually established for purposes of dodging or reducing taxes, and transferring or accumulating profits. Such a company is only registered in the country of domicile to satisfy the organizational form as required by law, but it does not engage in such substantial business operations as manufacturing, distribution and management. As Wealth Rainbow is a controlling company and is not engaged in substantial business operations, it could be considered as a conduit company by tax authorities and we do not expect it to be a beneficial owner.

In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.”

It remains unclear whether the PRC tax authorities would require or permit our overseas registered entities to be treated as PRC resident enterprises. We do not currently consider our company to be a PRC resident enterprise. However, if the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on offering proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC shareholders from transferring our shares.

U.S. Federal Income Taxation

The following is a discussion of certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares by U.S. holders (as defined below).  It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s situation.  The discussion applies only to U.S. holders that hold their ordinary shares as capital assets (generally property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the Code, income tax regulations promulgated thereunder, judicial positions, published positions of the Internal Revenue Service, or the IRS, and other applicable authorities, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is general in nature and is not exhaustive of all possible tax considerations, nor does the discussion address any state, local or foreign tax considerations or any U.S. tax considerations (e.g., estate or gift tax) other than U.S. federal income tax considerations, that may be applicable to particular holders.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant in light of particular circumstances, nor does it address the U.S. federal income tax consequences to persons who are subject to special rules under U.S. federal income tax law, including:

· banks, insurance companies or other financial institutions;

· persons subject to the alternative minimum tax;

· tax-exempt organizations;

· controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax;

· certain former citizens or long-term residents of the United States;

· dealers in securities or currencies;

· traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

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· persons that own, or are deemed to own, more than five percent of our capital stock;

· holders who acquired our stock as compensation or pursuant to the exercise of a stock option;

· persons who hold our common stock as a position in a hedging transaction, “straddle,” or other risk reduction transaction; or

· persons who do not hold our common stock as a capital asset (within the meaning of Section 1221 of the Code).

For purposes of this discussion, a U.S. holder is (i) an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States (or treated as such under applicable U.S. tax laws), any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (iv) a trust if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) it has a valid election in effect under applicable law and regulations to be treated as a U.S. person for U.S. federal income tax purposes. A non-U.S. holder is a holder that is neither a U.S. holder nor a partnership or other entity classified as a partnership for U.S. federal income tax purposes.

In the case of a partnership or entity classified as a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. Partners of partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them of the merger or of the ownership and disposition of our ordinary shares.

Distributions

We do not currently anticipate paying distributions on our ordinary shares. In the event that distributions are paid, however, the gross amount of such distributions will be included in the gross income of the U.S. holder as dividend income on the date of receipt to the extent that the distribution is paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. Dividends received by non-corporate U.S. holders, including individuals, may be subject to reduced rates of taxation under current law. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on dividends paid by us. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC Tax Treaty, is not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

To the extent that dividends paid on our ordinary shares exceed current and accumulated earnings and profits, the distributions will be treated first as a tax-free return of tax basis on our ordinary shares, and to the extent that the amount of the distribution exceeds tax basis, the excess will be treated as gain from the disposition of those ordinary shares.

Sale or Other Disposition

U.S. holders our ordinary shares will recognize taxable gain or loss on any sale, exchange, or other taxable disposition of ordinary shares equal to the difference between the amount realized for the ordinary shares and the U.S. holder’s tax basis in the ordinary shares. This gain or loss generally will be capital gain or loss. Under current law, non-corporate U.S. holders, including individuals, are eligible for reduced tax rates if the ordinary shares have been held for more than one year. The deductibility of capital losses is subject to limitations. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on gain from the sale or other disposition of ordinary shares. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the U.S.-PRC Tax Treaty is not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

Unearned Income Medicare Contribution

Recent legislation requires certain U.S. holders who are individuals, trusts or estates to pay an additional 3.8% Medicare tax on, among other things, dividends on and capital gains from the sale or other disposition of shares of stock for taxable years beginning after December 31, 2012. U.S. holders should consult their own advisors regarding the effect, if any, of this legislation on their ownership and disposition of our ordinary shares.

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Information Reporting and Backup Withholding

Payments of dividends or of proceeds on the disposition of stock made to a holder of our ordinary shares may be subject to information reporting and backup withholding at a current rate of 28% unless such holder provides a correct taxpayer identification number on IRS Form W-9 (or other appropriate withholding form) or establishes an exemption from backup withholding, for example by properly certifying the holder’s non-U.S. status on a Form W-8BEN or another appropriate version of IRS Form W-8. Payments of dividends to holders must generally be reported annually to the IRS, along with the name and address of the holder and the amount of tax withheld, if any. A similar report is sent to the holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the holder’s country of residence.

Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Foreign Account Tax Compliance

The Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (generally referred to as “FATCA”), when applicable, will impose a U.S. federal withholding tax of 30% on certain “withholdable payments” (generally certain U.S.-source income, including dividends, and the gross proceeds from the sale or other disposition of assets producing such income) to foreign financial institutions and other non-U.S. entities that fail to comply with certain certification and information reporting requirements. The obligation to withhold under FATCA is currently expected to apply to, among other items, (i) U.S.-source dividend income that is paid on or after January 1, 2014 and (ii) to gross proceeds from the disposition of property that can produce U.S.-source dividends paid on or after January 1, 2015. Non-U.S. holders should consult their tax advisors concerning application of FATCA to our ordinary shares in their particular circumstances.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We have filed this annual report on Form 20-F with the SEC under the Exchange Act.  Statements made in this report as to the contents of any document referred to are not necessarily complete.  With respect to each such document filed as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act as a foreign private issuer and file reports and other information with the SEC.  Reports and other information filed by us with the SEC, including this report, may be inspected and copied at the public reference room of the SEC at 100 F Street, N.E., Washington D.C. 20549.  You can also obtain copies of this report by mail from the Public Reference Section of the SEC, 100 F. Street, N.E., Washington D.C. 20549, at prescribed rates.  Additionally, copies of this material may be obtained from the SEC’s Internet site at http://www.sec.gov.  The SEC’s telephone number is 1-800-SEC-0330.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

I. Subsidiary Information

Not applicable.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term bank loans. Although the interest rates, which are based on the banks’ prime rates with respect to our short-term loans are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank loans and interest rates are subject to change upon renewal. There were no material changes in interest rates for short-term bank loans renewed during the fiscal year ended December 31, 2012.

A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities under which we had outstanding borrowings as of December 31, 2012, would decrease net income before provision for income taxes by approximately $3.2 million for the fiscal year ended December 31, 2012. Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

While our reporting currency is the U.S. Dollar, substantially all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB except for cash. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB. If the RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of shareholders’ equity. An average appreciation (depreciation) of the RMB against the U.S. dollar of 5% would increase (decrease) our comprehensive income by $1.1 million based on our outstanding revenues, costs and expenses, assets, and liabilities denominated in RMB as of December 31, 2012. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

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 PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

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D. American Depositary Shares

We do not have any American Depositary Shares.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2012. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer determined that, as of December 31, 2012, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Exchange Act defines internal control over financial reporting as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

66

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment, we determined that, as of December 31, 2012, our internal control over financial reporting was effective based on those criteria.

Attestation Report of the Registered Public Accounting Firm

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

We have audited China Gerui Advanced Materials Group Limited’s and its subsidiaries’ (collectively the “Company”) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, appearing in Item 15. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary under the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, China Gerui Advanced Materials Group Limited and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in internal control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows of China Gerui Advanced Materials Group Limited and its subsidiaries and our report dated April 30, 2013 expressed an unqualified opinion.

/s/ UHY VOCATION HK CPA LIMITED

UHY VOCATION HK CPA LIMITED

Certified Public Accountants

Hong Kong, the People’s Republic of China,

April 30, 2013

67

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal year ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Dr. J.P. Huang is an “audit committee financial expert” and that he is an “independent director” as defined by the rules and regulations of the NASDAQ Stock Market LLC.

ITEM 16B. CODE OF ETHICS

On July 10, 2009, our Board of Directors adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions.  The code of ethics addresses, among other things, ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code.  A copy of the code of ethics has been attached as Exhibit 14.1 to our Annual Report on Form 20-F filed with the SEC on July 15, 2009.  We have also posted our code of ethics on our website at http://www.geruigroup.com. During the fiscal year ended December 31, 2012, there were no waivers of our code of ethics.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with services rendered by our principal external auditors for the periods indicated.

	Fiscal Year Ended December 31,
	2012		2011
Audit Fees	$	192,000	$	180,400
Audit-Related Fees				-
Tax Fees				-
All Other Fees				-
TOTAL	$	192,000	$	180,400

“Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

“Audit Related Fees” consisted of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our regulatory filings and were not otherwise included in Audit Fees.

“Tax Fees” consisted of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. Included in such Tax Fees were fees for preparation of our tax returns and consultancy and advice on other tax planning matters.

“All Other Fees” consisted of the aggregate fees billed for products and services provided and not otherwise included in Audit Fees, Audit Related Fees or Tax Fees.

Our Audit Committee pre-approves all auditing services and permitted non-audit services to be performed for us by our independent auditor, including the fees and terms thereof (subject to the de minimums exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act that are approved by our Audit Committee prior to the completion of the audit). The percentage of services provided for which we paid audit-related fees, tax fees, or other fees that were approved by our Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X promulgated by the SEC was 0%.

68

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

We have not asked for, nor have we been granted, an exemption from the applicable listing standards for our Audit Committee.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Below is a table containing information about purchases made by us or by affiliated purchasers.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2012 – January 31, 2012		-		-		1,176,898		5,483,256
February 1, 2012 – February 28, 2012		-		-		-		-
March 1, 2012 – March 31, 2012		-		-		-		-
April 1, 2012 – April 30, 2012		-		-		-		-
May 1, 2012 – May 31, 2012		48,238	$	2.64		1,225,136	$	5,355,801
June 1, 2012 – June 30, 2012		197,965	$	2.24		1,423,101	$	4,911,60
July 1, 2012 – July 31, 2012		-		-		-		-
August 1, 2012 – August 31, 2012		59,369	$	1.77		1,482,470	$	4,806,483
September 1, 2012 – September 30, 2012		227,628	$	2.04		1,710,098	$	4,342,645
October 1, 2012 – October 31, 2012		-		-		-		-
November 1, 2012 – November 30, 2012		-		-		-		-
December 1, 2012 – December 31, 2012		261,831	$	1.58		1,971,929	$	3,928,582

On April 7, 2011, we announced that our Board of Directors had approved the repurchase of up to an aggregate of $10 million of our ordinary shares. As announced, the repurchase program was expected to continue over a six-month period unless extended or shortened by our Board. The Board subsequently authorized an extension of the program for an indefinite period of time or until the program is completed. The Company intended to effect the share repurchase program in compliance with the conditions of Rule 10b-18 under the Exchange Act. All purchases reflected in this table were made pursuant to this repurchase program.

A total of 1,710,098 shares have been cancelled in the fourth quarter of 2012. There was a total 261,831 shares remained as treasury stock as of December 31, 2012.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

NASDAQ Marketplace Rule 5615(a)(3) permits foreign private issuers like us to follow “home country practice” with respect to certain corporate governance matters.  We have not elected to follow any “home country practice” in lieu of any requirement of the NASDAQ Marketplace Rules.  We intend to satisfy our requirement under NASDAQ Marketplace Rule 5250(d)(1) to distribute to shareholders copies of our annual report by posting our annual reports on Form 20-F on our company website at: http://www.geruigroup.com, providing a hard copy of our annual report free of charge to shareholders upon request with a reasonable period following such request, and posting a prominent undertaking to this effect on our Internet website.  Simultaneous with such posting, we intend to issue a press release containing this and certain other information required by NASDAQ to distribute annual reports to shareholders in this manner.  Domestic company issuers listed on NASDAQ may satisfy this requirement by furnishing a copy of their annual report to shareholders in the manner provided by Rule 14a-16 under the Exchange Act.  As a foreign private issuer, we are not subject to the requirements of Rule 14a-16.  We have determined that this requirement under the NASDAQ Marketplace Rules would be most efficiently addressed in the manner described above.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

69

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The full text of our audited consolidated financial statements begins on page F-1 of this annual report.

ITEM 19. EXHIBITS

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

70

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 30, 2013	CHINA GERUI ADVANCED MATERIALS GROUP LIMITED
	/s/ Mingwang Lu
	Mingwang Lu
	Chief Executive Officer

71

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

CONTENTS	Pages
Report of Independent Registered Public Accounting Firm	F-2 - F-3
Consolidated Balance Sheets	F-4
Consolidated Statements of Income	F-5
Consolidated Statements of Comprehensive Income	F-6
Consolidated Statements of Changes in Stockholders’ Equity	F-7
Consolidated Statements of Cash Flows	F-8
Notes to the Consolidated Financial Statements	F-9 - F-37

F-1

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

We have audited the accompanying consolidated balance sheets of China Gerui Advanced Materials Group Limited. and its subsidiaries (collectively the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Gerui Advance Materials Group Limited and its subsidiaries as of December 31, 2012 and 2011, and the results of its consolidated income and its cash flows for each of the years in the three-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

F-2

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 30, 2013, expressed an unqualified opinion.

UHY VOCATION HK CPA LIMITED

Certified Public Accountants

Hong Kong, the People’s Republic of China,

April 30, 2013.

F-3

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

	December 31, 2012			December 31, 2011
Assets
Current assets
Cash	$	228,861,009		$	246,600,917
Certificates of deposit		16,372,128			-
Restricted cash		145,413,726			118,130,253
Accounts receivable, net		2,276,153			6,382,630
Notes receivable		433,379			568,328
Inventories		22,762,545			24,463,142
Prepaid purchases		76,268,597			45,805,423
Prepaid expenses		382,569			385,131
Other receivables		2,270,073			2,850,601
Total current assets		495,040,179			445,186,425
Non-current assets
Property, plant and equipment, net		134,110,657			122,695,246
Land use right, net		13,625,738			13,807,056
Deposit on acquisition of future land use right		-			12,710,719
Deposit on acquisition of business		24,076,660			-
Deposit on acquisition of property, plant and equipment		266,312			-
Other receivable		3,039,835			3,499,083
Certificates of deposit		3,210,221			3,177,679
Total non-current assets		178,329,423			155,889,783
Total assets	$	673,369,602		$	601,076,208
Liabilities and stockholders' equity
Current Liabilities
Accounts payable	$	2,279,246		$	8,074,432
Notes payable		259,546,395			204,880,916
Term loans		57,462,962			44,169,751
Land use right payable		1,419,314			1,404,926
Income tax payable		5,140,306			5,458,482
Customers deposits		11,635,999			23,383,849
Accrued liabilities and other payables		5,818,060			15,276,016
Total current liabilities		343,302,282			302,648,372
Total liabilities		343,302,282			302,648,372
Stockholders' equity
Common stock, 100,000,000 shares authorized with no par value; 59,823,730 and 59,433,828 shares issued, 59,561,899 and 58,256,930 shares outstanding as of December 31, 2012 and December 31, 2011, respectively		140,418,118			140,418,118
Additional paid-in capital		4,978,698			6,930,944
Treasury stock, at cost, 261,831 and 1,176,898 shares,
as of December 31, 2012 and December 31, 2011, respectively		(414,063	)		(4,516,744	)
Retained earnings		163,276,046			137,142,958
Accumulated comprehensive income		21,808,521			18,452,560
Total stockholders' equity		330,067,320			298,427,836
Total liabilities and stockholders' equity	$	673,369,602		$	601,076,208

See notes to financial statements.

F-4

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED        

CONSOLIDATED STATEMENTS OF INCOME        

(IN US DOLLARS)            

	For the Years Ended
	December 31,
	2012			2011			2010
Revenue	$	265,486,082		$	341,778,295		$	253,866,337
Cost of revenue		(208,541,058	)		(240,199,678	)		(177,869,648	)
Gross Profit		56,945,024			101,578,617			75,996,689
Operating expenses:
General and administrative expenses		(13,168,132	)		(10,707,418	)		(7,795,722	)
Selling and marketing expenses		(1,446,383	)		(1,634,232	)		(1,251,091	)
Warrant compensation expenses		-			(5,700,000	)		-
Total operating expenses		(14,614,515	)		(18,041,650	)		(9,046,813	)
Operating income		42,330,509			83,536,967			66,949,876
Other income and (expense):
Interest income		3,576,741			1,913,091			1,087,178
Interest expenses		(8,228,472	)		(6,470,126	)		(5,286,727	)
Sundry income		351,483			602,247			270,240
Income before income taxes		38,030,261			79,582,179			63,020,567
Income tax expense		(11,897,173	)		(21,961,627	)		(15,937,143	)
Net income	$	26,133,088		$	57,620,552		$	47,083,424
Earnings per share
- Basic	$	0.45		$	1.02		$	1.07
- Diluted	$	0.45		$	1.02		$	1.01
Weighted average common shares outstanding
- Basic		58,543,076			56,297,652			43,891,670
- Diluted		58,543,076			56,297,652			46,655,721

See notes to financial statements.

F-5

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED    

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN US DOLLARS)        

	For the Years Ended
	December 31,
	2012		2011		2010
Net income	$	26,133,088	$	57,620,552	$	47,083,424
Other comprehensive income
Foreign currency translation gain		3,355,961		11,038,151		5,003,108
Total comprehensive income	$	29,489,049	$	68,658,703	$	52,086,532

See notes to financial statements.

F-6

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED        

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY    

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010    

(IN US DOLLARS)            

	Common Stock, with no Par Value					Treasury Stock, at cost						Additional			Accumulated				Total
	Number of					Number of						Paid-in			Comprehensive		Retained		Stockholders’
	Shares			Amount		Shares			Amount			Capital			Income		Earnings		Equity
Balance at December 31, 2009		40,692,323		$	45,261,630		-		$	-		$	6,930,944		$	2,411,301	$	32,438,982	$	87,042,857
Net income		-			-		-			-			-			-		47,083,424		47,083,424
Foreign currency translation gain		-			-		-			-			-			5,003,108		-		5,003,108
Shares issued for warrant conversion		2,142,959			10,714,795		-			-			-			-		-		10,714,795
Shares issued in private placement net of offering fees of $863,676		3,303,771			17,967,818		-			-			-			-		-		17,967,818
Balance at December 31, 2010		46,139,053		$	73,944,243		-		$	-		$	6,930,944		$	7,414,409	$	79,522,406	$	167,812,002
Net income		-			-		-			-			-			-		57,620,552		57,620,552
Foreign currency translation gain		-			-		-			-			-			11,038,151		-		11,038,151
Shares issued for warrant conversion		13,294,775			66,473,875		-			-			-			-		-		66,473,875
Purchase of treasury stock		-			-		(1,176,898	)		(4,516,744	)		-			-		-		(4,516,744	)
Balance at December 31, 2011		59,433,828		$	140,418,118		(1,176,898	)	$	(4,516,744	)	$	6,930,944		$	18,452,560	$	137,142,958	$	298,427,836
Net income		-			-		-			-			-			-		26,133,088		26,133,088
Foreign currency translation gain		-			-		-			-			-			3,355,961		-		3,355,961
Purchase of treasury stock		-			-		(795,031	)		(1,554,674	)		-			-		-		(1,554,674	)
Retirement of treasury stock		(1,710,098	)		-		1,710,098			5,657,355			(5,657,355	)		-		-		-
Grant of restricted common shares		2,100,000			-		-			-			-			-		-		-
Share-based compensation		-			-		-			-			3,705,109			-		-		3,705,109
Balance at December 31, 2012		59,823,730			140,418,118		(261,831	)	$	(414,063	)	$	4,978,698		$	21,808,521	$	163,276,046	$	330,067,320

See notes to financial statements.

F-7

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED        

CONSOLIDATED STATEMENTS OF CASH FLOWS        

(IN US DOLLARS)            

	For the years ended December 31
	2012			2011			2010
Cash flows from operating activities:
Net income	$	26,133,088		$	57,620,552		$	47,083,424
Adjustments to reconcile net income to net
cash (used in) / provided by operating activities:
Depreciation of property, plant and equipment		10,899,049			7,994,638			3,149,314
(Gain)/loss on disposal of property, plant and equipment		(56,107	)		12,726			-
Amortization of land use right		330,244			322,638			259,438
Stock-based compensation		3,705,109			-			-
Warrant compensation expense		-			5,700,000			-
Changes in assets and liabilities:
Accounts receivable, net		4,126,206			(2,046,819	)		721,098
Notes receivable, net		139,228			(554,789	)		-
Inventories		1,929,773			(16,712,453	)		(1,043,397	)
Prepaid expenses		6,435			621,611			(914,841	)
Prepaid purchases		(29,666,016	)		(16,284,440	)		(11,361,129	)
Other receivable		(142,305	)		(697,676	)		224,051
Accounts payable		(5,813,580	)		5,168,689			(4,967,264	)
Income tax payable		(369,983	)		1,078,582			334,361
Customers deposit		(11,856,194	)		12,911,217			1,539,833
Accrued liabilities and other payables		(1,466,919	)		1,113,651			1,452,762
Net cash (used in) / provided by operating activities		(2,101,972	)		56,248,127			36,477,650
Cash flows from investing activities:
Cash paid for property, plant and equipment		(30,561,916	)		(29,816,858	)		(65,063,864	)
Proceeds from disposal of property, plant and equipment		59,517			9,655			-
Payment of purchases of land use right		-			(9,073,284	)		(1,903,656	)
Payment of acquisition of future land use right		-			(10,213,261	)		(2,093,071	)
Cash deposit-potential business initiative program-related party		-			(5,000,000	)		-
Cash deposit refunded-related party		-			5,000,000			-
Advance to unrelated third parties		(4,017,304	)		(3,415,724	)		-
Advance from unrelated third party		1,587,554			-			-
Repayment of advance to unrelated third parties		5,252,326			-			-
Deposit payment to investing business		(11,112,875	)		-			-
Investment in certificates of deposit		(16,193,047	)		(3,101,978	)		-
Changes in restricted cash		(25,788,547	)		(47,212,098	)		(29,032,134	)
Changes in prepaid machinery deposits		-			-			13,973,966
Net cash used in investing activities		(80,774,292	)		(102,823,548	)		(84,118,759	)
Cash flows from financing activities:
Repayment of term loans		(50,484,204	)		(45,831,718	)		(45,984,848	)
Proceeds from term loans		63,184,632			43,815,432			56,093,042
Proceeds from notes payable, net		51,992,380			111,733,230			45,213,650
Proceeds received from common stock issued and
warrant conversion, net		-			-			28,682,613
Proceeds received from exercise of warrants		-			66,473,875			-
Warrant compensation expense		-			(5,700,000	)		-
Purchase of treasury stock		(1,554,674	)		(4,516,744	)		-
Net cash provided by financing activities		63,138,134			165,974,075			84,004,457
Net (decrease) / increase in cash		(19,738,130	)		119,398,654			36,363,348
Effect on change of exchange rates		1,998,222			7,724,965			3,506,581
Cash as of January 1		246,600,917			119,477,298			79,607,369
Cash as of December 31	$	228,861,009		$	246,600,917		$	119,477,298
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid	$	8,322,263		$	6,254,304		$	3,927,906
Income tax paid	$	12,267,157		$	20,883,046		$	15,738,892

See notes to financial statements.

F-8

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)          

1. DESCRIPTION OF BUSINESS AND ORGANIZATION

China Gerui Advanced Materials Group Limited ("the Company" or "China Gerui") holdings are comprised of Wealth Rainbow, also a holding company and Henan Green, an operating company and a leading China-based specialty precision cold-rolled steel producer. Through its investment in these entities, the Company manufactures and sells specialty, high-end, high precision, ultra thin, high strength, cold-rolled, narrow and wide strip steel products that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise, and are extensively used in the manufacturing industry throughout mainland China. The Company's products are not standardized commodity products, but are tailored to customers' requirements and then incorporated into products they and end-users make for various applications. The Company sells its products to its customers in the People's Republic of China (PRC) and to a limited extent to customers outside the PRC in a diverse range of industries, including the food packaging, telecommunication, electrical appliance, and construction materials industries.

The consolidated financial statements include the financial statements of China Gerui and its subsidiaries (together referred to as the "Group"). The Company owns 100% equity interests directly and indirectly, in two subsidiaries, namely Wealth Rainbow and Henan Green. The organization chart of the Group is as follows:

Details of the Company’s subsidiaries which are included in these consolidated financial statements are as follows:

		Percentage of
	Place and date of	ownership
Subsidiaries’ names	incorporation	by the Company	Principal activities
Wealth Rainbow Development Limited "Wealth Rainbow"	Hong Kong, People's Republic of China (“PRC”) March 1, 2007	100%	Intermediate holding company
Henan Green Complex Materials Co., Ltd. "Henan Green"	PRC December 31, 2000	100% (through Wealth Rainbow)	Operating entity

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

The accompanying audited consolidated financial statements and related notes have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP). The preparation of the consolidated financial statements in accordance with US GAAP requires management of the Group to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables, realizable values for inventories. Actual results could differ from those estimates.

The consolidated financial statements include all accounts of the Company and its wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated.

F-9

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(b)     Foreign currency translation

The Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The Company maintains its books and records in its respective functional currency, Chinese Renminbi (“RMB”) and Hong Kong dollars (“HK$”), being the lawful currency in the PRC and Hong Kong, respectively. Assets and liabilities of the subsidiaries are translated from RMB or HK$ into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income included in the stockholders’ equity section of the balance sheets. The exchange rates used to translate amounts in RMB and HK$ into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:

	2012	2011	2010
Balance sheet items, except for equity accounts	RMB6.2301=$1	RMB6.2939=$1	RMB6.6000=$1
	HK$7.7507=$1	HK$7.7663=$1	HK$7.7810=$1

	For the years ended
	2012	2011	2010
Items in statements of income and cash flows	RMB6.2990=$1	RMB6.4475=$1	RMB6.7604=$1
	HK$7.7556=$1	HK$7.7793=$1	HK$7.7700=$1

(c) Cash

Cash represents cash in banks and cash on hand.

The Group considers all highly liquid investments with original maturities of three months or less to be cash. The Group maintains bank accounts in HKSAR and Mainland China, PRC and the United States.

(d) Accounts receivable

Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts sales returns and trade discounts. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. Management determines the allowance based on historical write-off experience, customer specific facts and economic conditions. The Group has historically been able to collect all of its receivable balances, and accordingly, 10% allowance has been provided for specific doubtful accounts.

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure to its customers.

F-10

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(e) Notes receivable

As of December 31, 2012, the Company received $433,379 in notes receivable in full payment of outstanding accounts receivable. The notes mature in 6 months. All notes are non-interest bearing. In management's opinion, the remaining balance is fully collectible.

(f) Inventories

Inventories are stated at the lower of cost or market and consist primarily of flat rolled steel. Cost is determined using the weighted average cost method. In the case of work in process and finished goods, such costs comprise of direct materials, direct labor and an appropriate proportion of overheads.

(g) Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to general and administrative expenses as incurred. Depreciation of property, plant and equipment is computed by the straight-line method over the assets estimated useful lives ranging from five to fifty years. Building improvements, if any, are amortized on a straight-line basis over the estimated useful life.

Upon sale or retirement of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

Construction in progress represents the costs of property, plant and equipment under construction or installation. Depreciation commences when the asset is placed in service. The accumulated costs are reclassified as property, plant and equipment when installation or construction is completed. Government subsidies received reduce the cost of construction.

The estimated useful lives of the assets are as follows:

	Estimated Life (years)
Leasehold land improvement		46.5
Buildings		10 - 20
Machinery and equipment		5 - 20
Vehicles		5
Furniture fixtures and office equipment		5

Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.

(h) Land use right

Land use right is recorded at cost less accumulated amortization. Land use rights represent the prepayments for the use of the parcels of land in the PRC where the Company’s production facilities are located, and are charged to expense over their respective lease periods. According to the laws of the PRC, the government owns all of the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the PRC government. Land use right is amortized using the straight-line method over the lease term of 43 to 50 years.

F-11

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(i) Impairment of long-lived assets

In accordance with FASB ASC Topic 360, Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. If long-lived assets are to be disposed, depreciation is discontinued, if applicable, and the assets are reclassified as held for sale at the lower of their carrying amounts or fair values less costs to sell.

China Gerui has one and only operating entity, i.e., Henan Green, whose sole business is high-end cold-rolled steel processing. The company produces products by utilizing its facilities and equipment at one location in Zhengzhou, Henan Province, China. The company offers chromium-plating as value-add service to its customers but chromium-plating is an integral part of the whole production process of the Company rather than a stand-alone service. As a result, the Group determined that the impairment review is appropriately evaluated at the entity level. Based on the Group’s assessment, no impairment was recognized as of December 31, 2012 and 2011.

F-12

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(j) Fair value measurements

FASB ASC Topic 820, “Fair Value Measurement and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. FASB ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

Level 2 - Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The Group’s financial instruments consist principally of cash, accounts receivables, accounts payable, land use right payable, term loans, notes payables and accrued liabilities. None of which are held for trading purposes. Pursuant to ASC 820, the fair value of the Group's cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Group believes that the carrying amounts of all of the Group's other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

F-13

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(k) Revenue recognition

The Group generates revenue primarily from sales of steel mill flat-rolled products.

The Group recognizes its revenue upon the transfer of finished products to customers upon shipment from the Group's facilities. The Group sets the final price for a product based on the management's final measurement of the weight and dimensions of the product and confirmation that the product meets the customer's specifications as agreed in the original customer's order. The Group grants a three-week period for customers to dispute product quality. Based on the Group’s assessment and past experiences, the rate of customer disputes are considered immaterial.

In the PRC, value added tax (“VAT”) of 17% on the invoice amount is collected with respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Group; instead, the amount is recorded as a liability on the balance sheet until such VAT is paid to the tax authorities.

(l) Income taxes

The Group accounts for income taxes under FASB ASC Topic 740 "Income Taxes". Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.

The Group adopted FASB ASC Topic 740, "Income Taxes", which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The Group recognizes interest and penalty related to income tax matters as income tax expense. As of December 31, 2012 and 2011, there was no penalty or interest recognized as income tax expenses.

(m) Commitments and contingencies

In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, product liability. The Group records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. A determination of the amount of reserves and disclosures required, if any, for these contingencies are made after considerable analysis of each individual issue. The Group accrues for contingent liabilities when an assessment of the risk of loss is probable and can be reasonably estimated. The Group discloses contingent liabilities when the risk of loss is reasonably possible or probable. (See Note 22)

F-14

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(n) Share-based compensation expense

The Company accounts for share-based compensation issued to its directors and its officers using the fair value based methodology in accordance with relevant accounting guidance. Compensation cost related to restricted common shares issued to the Company's directors and officers are measured at its estimated fair value at the grant date, and is amortized and expensed over the vesting period on a straight-line basis.

(o) Earnings per share

Basic earnings per share are computed on the basis of the weighted-average number of shares of our common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted-average number of shares of our common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury method. As of December 31, 2012, the Company had a total of 144,000 warrants outstanding which were granted to its underwriter during November 2009 in connection with the sale of 4,800,000 ordinary shares. The warrants may be exercised on or after August 9, 2010 and until November 9, 2014. As of December 31, 2012, all such warrants are deemed to be anti-dilutive since their exercise price is higher than the fair value the Company's common stock.

The following table sets forth the computation of basic and diluted net income per common share:

	For the years ended
	2012		2011		2010
Net income	$	26,133,088	$	57,620,552	$	47,083,424
Weighted average outstanding shares of common stock		58,543,076		56,297,652		43,891,670
Dilutive effect of Warrants		-		-		2,584,713
Dilutive effect of Unit Purchase Option granted to underwriters		-		-		179,338
Diluted weighted average outstanding shares		58,543,076		56,297,652		46,655,721
Earnings per common stock:
Basic	$	0.45	$	1.02	$	1.07
Diluted	$	0.45	$	1.02	$	1.01

(p) Segment information

FASB ASC Topic 280 "Segment reporting" establishes standards for reporting information on operating segments in interim and annual financial statements. The Group has only one segment, all of the Group's operations and customers are in the PRC and all income are derived from the sales of steel mill flat-rolled products. Accordingly, no geographic information is presented.

F-15

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (…/Cont’d)

(q) Economic and political risks

The Group's operations are conducted in the PRC. Accordingly, the Group's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Group's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Group's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances aboard, and rates and methods of taxation, among other things.

(r) Recently issued accounting standards not yet adopted

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's financial condition, results of operations, or disclosures.

3. CASH

Cash represents cash in bank and cash on hand. Cash as of December 31, 2012 and 2011 consists of the following:

	2012			2011
Bank balances and cash (a)	$	390,646,863		$	364,731,170
Less: Restricted cash (b)		(145,413,726	)		(118,130,253	)
Less: Certificates of deposit (c )		(16,372,128	)		-
	$	228,861,009		$	246,600,917
Non-current portion
Certificates of deposit (c )	$	3,210,221		$	3,177,679

(a) Bank balances and cash

Unrestricted cash as of December 31, 2012 and 2011 was $228,861,009 and $246,600,917, respectively. As of December 31, 2012 and 2011, unrestricted cash of $221,014,759 and $234,778,502 was held respectively, in Renminbi and USD on deposit with banks located in the PRC. Renminbi is not a freely convertible currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.

(b) Restricted cash

As of December 31, 2012 and 2011 the Group's cash amounting to $145,413,726 and $118,130,253 respectively, were restricted and deposited in certain banks as security for notes payable to the banks.

F-16

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

3. CASH (…/Cont’d)

(c) Certificates of deposit

Current portion:

As of December 31, 2012, six of the Certificates of deposit were held in Renminbi on deposit with a bank located in the PRC. The annual interest rate is 2.8% and 3.08%. The Certificates of deposit mature from February, 2013 to May, 2013.

Non-current portion:

As of December 31, 2012, the Certificates of deposit were held in Renminbi on deposit with a bank located in the PRC. The annual interest rate is 5%. The Certificates of deposit matures on December 12, 2014.

As of December 31, 2012, cash is classified by geographical areas is set out as follows:

	Bank balances and cash		Restricted Cash		Certificates of deposit		2012
Hong Kong	$	5,917,837	$	-	$	-	$	5,917,837
United States		1,928,413		-		-		1,928,413
The PRC		221,014,759		145,413,726		19,582,349		386,010,834
	$	228,861,009	$	145,413,726	$	19,582,349	$	393,857,084

As of December 31, 2011, cash is classified by geographical areas is set out as follows:

	Bank balances and cash		Restricted Cash		Certificates of deposit		2011
Hong Kong	$	8,339,234	$	-	$	-	$	8,339,234
United States		3,483,181		-		-		3,483,181
The PRC		234,778,502		118,130,253		3,177,679		356,086,434
	$	246,600,917	$	118,130,253	$	3,177,679	$	367,908,849

Maximum exposure to credit risk:

As of December 31, 2012, cash is denominated in the following currencies:

	Bank balances and cash		Restricted Cash		Certificates of deposit		2012
USD	$	7,906,574	$	-	$	-	$	7,906,574
RMB (Current)		220,942,109		145,413,726		16,372,128		382,727,963
RMB (Non-current)		-		-		3,210,221		3,210,221
HKD		12,326		-		-		12,326
	$	228,861,009	$	145,413,726	$	19,582,349	$	393,857,084

F-17

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

3. CASH (…/Cont’d)

As of December 31, 2011, cash is denominated in the following currencies:

	Bank balances and cash		Restricted Cash		Certificates of deposit		2011
USD	$	11,821,253	$	-	$	-	$	11,821,253
RMB		234,778,502		118,130,253		3,177,679		356,086,434
HKD		1,162		-		-		1,162
	$	246,600,917	$	118,130,253	$	3,177,679	$	367,908,849

4. ACCOUNTS RECEIVABLE

The Group performs ongoing credit evaluations of its customers' financial conditions. The Group generally encourages its customers to use its products and settle the outstanding balance within credit terms. As of December 31, 2012 and 2011, the provision on accumulated allowance for doubtful accounts was $125,993 and $124,715 respectively.

5. INVENTORIES

Inventories as of December 31, 2012 and 2011 consist of the following:

	2012		2011
Raw materials	$	7,865,191	$	10,967,758
Work-in-process		3,491,181		3,007,200
Finished goods		11,406,173		10,488,184
	$	22,762,545	$	24,463,142

An impairment provision of $0.48 million has been made in 2012 owing to the decline in steel market price.

6. PREPAID PURCHASES

Prepaid purchases represent amounts prepaid to suppliers for the purchases of raw materials and accessories.

F-18

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

7. OTHER RECEIVABLES

Other receivables as of December 31, 2012 and 2011 consist of the following:

	2012		2011
Advances to staff	$	211,671	$	254,229
Loan advanced to unrelated third parties		796,818		2,198,359
Loan advanced to a related company		318,332		-
Standby guarantee fund		530,489		-
Others		412,763		398,013
	$	2,270,073	$	2,850,601
Non-current portion (a)	$	3,039,835	$	3,499,083

Other receivables represent advances to staff and petty cash to department staff for daily expenditures. These amounts are interest free and with no fixed repayment terms.

As of December 31, 2012, $318,332 represented loan to a related company, Zhengzhou No. 2 Iron and Steel Company Limited. There was no agreement signed with the related party and no interest income was received.

As of December 31, 2012, $796,818 represented loans to unrelated third parties. There were no agreement signed with the third parties and the funds are non-interest bearing. The directors of the Group believe the outstanding balance is recoverable and that no allowance is considered necessary.

Included in other receivables is $530,489 of fund held by a unrelated third party to provide a standby guarantee for Henan Green to obtain additional bank loans. There was no agreement signed with the third party and no interest income was received.

(a) As of December 31, 2012 and 2011, $3,039,835 and $3,499,083 respectively, represented fund held by a unrelated third party to provide a standby guarantee for Henan Green to obtain additional bank loans. There was no agreement signed with the third party and the fund is non-interest bearing.

F-19

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31, 2012 and 2011 consist of the following:

	2012			2011
Buildings	$	24,976,660		$	24,781,774
Leasehold land improvement		22,102			21,878
Machinery and equipment		106,179,264			104,318,990
Vehicles		3,216,660			3,261,984
Office equipment		419,456			387,815
Construction in progress		34,969,529			14,696,770
		169,783,671			147,469,211
Less: Accumulated depreciation		(35,673,014	)		(24,773,965	)
	$	134,110,657		$	122,695,246

During the year, none of the Company's plant was transferred to fixed assets from Construction in progress.

Depreciation expense for the years ended December 31, 2012, 2011 and 2010 was $10,899,049, $7,994,638 and $3,149,314 respectively.

Construction in progress consists of the construction of a plant and production lines on 300 acres of land and the improvement project on the 300,000 tons production lines and plant facilities and the staff quarters project. The total construction in progress as at December 31, 2012 and 2011 was $34,969,529 and $14,696,770 respectively.

			Estimated cost
			to complete as of
	Balance at 2012		December 31, 2013		Estimated time to complete
Production lines	$	15,080,014	$	168,536	June, 2013
Plant		6,983,931		6,142,664	April, 2013
Staff quarters		12,905,584		6,484,153	October, 2013
	$	34,969,529	$	12,795,353

The Company's subsidiary, Henan Green, signed an agreement to construct addition of the new laminated steel production line. The new production line is subject to further testing and technical upgrades until the second quarter of 2013 when official production will be launched. Plant includes the decoration expenses incurred for the new plant and electricity system installation. It is expected to be completed before April 2013. The Company improved the staffs' benefits and constructed a staff quarter for the experience staffs and their family to live, it is estimated to be completed before year-ended.

No depreciation has been provided for construction in progress.

F-20

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

9. LAND USE RIGHT

Land use right as of December 31, 2012 and 2011 consist of the following:

	2012		2011
Land use right, net	$	13,625,738	$	13,807,056

Land use right represents the value of land approved to the Company for industrial production purpose by the local government in Zhengzhou, People's Republic of China. The right will expire between June 30, 2053 to June 30, 2054 for the land with 58.6 acres and 50 acres respectively. Land use right payable for the 58.6 acres as of December 31, 2012 and 2011 was $1,419,314 and $1,404,926 respectively.

The Company acquired the land use right of 58.6 acres in February 2010. Although there is no payment schedule to settle the outstanding amount of $1,419,314 until the Company receives notification from the local government, the Company expects to fully settle the outstanding amount within 12 months.

Land use right is amortized using the straight-line method over the lease term of 43 to 50 years. The amortization expense for the years ended December 31, 2012, 2011 and 2010 were $330,244, $322,638 and $259,438 respectively. The total future amortization is as follows:

December 31,
2013	$	333,897
2014		333,897
2015		333,897
2016		333,897
2017		333,897
Over 5 years		11,956,253
	$	13,625,738

10. DEPOSIT ON ACQUISITION OF FUTURE LAND USE RIGHT

Deposit on acquisition of future land use right as of December 31, 2012 and December 31, 2011 amounted to $Nil and $12,710,719 respectively.

The Company’s related party, Zhengzhou No. 2 Iron and Steel Company Limited ("Zhengzhou Company") owns a land use right totaling 24.94 acres. The Company's subsidiary, Henan Green, currently leases a part of the land use rights for 6.69 acres from Zhengzhou Company which was the former owner of Henan Green. The Company's existing production lines and warehouses are located on this parcel of land. For operation risk mitigating purposes, the Company has started the process of transferring the title of the land use right for the 24.94 acres from Zhengzhou Company.

On February 26, 2013, Henan Green Complex Materials Co., Ltd. ("Henan Green"), the indirectly wholly owned subsidiary of the Company, entered into an equity/asset transfer agreement (“the "Equity Transfer Agreement") with the Zhengzhou Company pursuant to which Henan Green acquired 100% ownership of Zhengzhou Company. As of December 31, 2012, the deposit on acquisition of future land use right was utilized as the part of the deposit on acquisition of business.

F-21

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

11. DEPOSIT ON ACQUISITION OF BUSINESS

As of December 31, 2012, the Company has made a deposit amounting to $24,076,660 for the acquisition of Zhengzhou Company.

To facilitate Zhengzhou Company's acquisition, Henan Green prepaid $24,076,660 for the deposit on acquisition of business which included to pay $11,235,775 to two companies to settle the loans on behalf of Zhengzhou Company and $12,840,885 for the deposit on acquisition of future land use right as of December 31, 2012. The total consideration to be paid is $42.6 million. The transaction is expected to be consummated during 1st quarter of 2013.

12. NOTES PAYABLE

Notes payable as of December 31, 2012 and 2011 consist of the following:

	2012		2011
Classified by financial institutions:
China Citic Bank	$	35,312,435	$	42,580,912
Bank of Zhengzhou		6,420,443		9,533,040
Minsheng Bank of China		19,261,328		24,229,810
Guangdong Development Bank		22,471,549		14,299,560
Shanghai Pudong Development Bank		25,681,771		15,888,400
China Merchants Bank		11,235,775		16,523,936
China Everbright Bank		27,286,881		19,066,080
Bank of Luoyang		43,337,988		24,627,020
Bank of Communications		22,792,572		12,710,720
Bank of Pingdingshan		32,102,213		25,421,438
Bank of Xuchan		2,407,666		-
Commercial bank of Kaifeng		4,815,332		-
Huaxia Bank		1,605,111		-
Ping An Bank		4,815,331		-
	$	259,546,395	$	204,880,916
Additional information:
Maximum balance outstanding during the year	$	309,304,826	$	204,880,916
Interest expense	$	4,701,767	$	3,342,011
Finance charge per contract		0.05%-0.15%		0.05%-0.5%
Weighted average interest rate		0.69%		1.29%

F-22

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

12. NOTES PAYABLE (…/Cont’d)

All notes payable are secured by corresponding restricted cash. The range of collateral ranges from 10% to 100% of such notes. When the restricted cash is not sufficient to secure the note, inventories, Henan Green's assets or guarantees by Henan Green's director or other third parties are further requested. As of December 31, 2012 and 2011, the Group's cash of $145,413,726 and $118,130,253 respectively were restricted for such purpose. All the notes payable have terms of six months. Local PRC banks had certain covenants on the Company’s subsidiary, Henan Green, which required the Company to notify the banks if the Company was not in compliance. The Company was not in compliance with its financial covenants during 2012. The terms of the Notes prohibit making advances or providing guarantees to other unrelated parties without prior consent of the bank. The bank may call the Notes since the Company was not in compliance with its financial covenants. The Banks have not called the Notes or assessed a penalty on the Company for these violations. The Company does not believe that any penalty will be assessed by the Banks for these covenant violations.

13. TERM LOANS

In order to provide working capital for operations, the Group entered into the following short term loan agreements as of December 31, 2012 and 2011:

	2012			2011
Classified by financial institutions:
China Citic Bank	$	6,420,443		$	3,177,680
China Merchants Bank		9,630,664			7,944,200
Bank of Zhengzhou		7,704,531			7,626,431
Shanghai Pudong Development Bank		16,051,107			11,121,880
Bank of Luoyang		-			9,533,040
Bank of Xuchang		4,815,332			4,766,520
China Everbright Bank		1,605,111			-
Commercial Bank of Kaifeng		3,210,221			-
Ping An Bank		8,025,553			-
	$	57,462,962		$	44,169,751
Additional information:
Maximum balance outstanding during the year	$	62,278,294		$	44,884,729
Interest expense	$	3,525,936		$	2,912,292
Range of interest rate		0.465% - 1.205%			0.347% - 0.868%
Weighted average interest rate		3.29	%		3.27	%

All term loans are fixed term loans with a period of 12 months or less. Local PRC banks had imposed covenant on the Company’s subsidiary, Henan Green. For those loan facilities obtained from banks, all these terms loans are either guaranteed and secured by Henan Green's assets, including its machinery, land use right and inventories, or guaranteed and secured by a related party, Zhengzhou Company's land and plant properties, or guaranteed by Henan Green’s director or other third parties. The Company was not in compliance with its financial covenants during 2012. The terms of the bank loans prohibit making advances or providing guarantees to other unrelated parties without prior consent of the bank. The bank may call the loans since the Company was not in compliance with its financial covenants. The Banks have not called the loans or assessed a penalty on the Company for these violations. The Company does not believe that any penalty will be assessed by the Banks for these covenant violations.

F-23

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

13. TERM LOANS (…/Cont'd)

A summary of the principal payments for the outstanding term loans during the following fiscal year is as follows:

			Principal payment		Total outstanding
Name of bank	Collateral	Term of loans	due during 2012		loan amount
China Citic Bank	Secured by Henan Green's assets	August 21, 2012 to March 16, 2013	$	3,210,221	$	3,210,221
China Citic Bank	Secured by Henan Green's assets	December 7, 2012 to July 7, 2013		1,605,111		1,605,111
China Citic Bank	Secured by Henan Green's assets	December 19, 2012 to July 19, 2013		1,605,111		1,605,111
China Merchants Bank	Guaranteed by third party, Mingwang Lu and Yi Lu	August 31, 2012 to August 31, 2013		4,815,332		4,815,332
China Merchants Bank	Guaranteed by third party, Mingwang Lu and Yi Lu	September 10, 2012 to September 10, 2013		4,815,332		4,815,332
Bank of Zhengzhou	Guaranteed by third party	August 31, 2012 to August 31, 2013		4,815,332		4,815,332
Bank of Zhengzhou	Secured by Henan Green's bank deposit	December 12, 2012 to December 12, 2013		2,889,199		2,889,199
Shanghai Pudong Development Bank	Guaranteed by third party, Mingwang Lu	February 1, 2012 to January 31, 2013		2,247,155		2,247,155
Shanghai Pudong Development Bank	Guaranteed by third party, Mingwang Lu	February 24, 2012 to February 23, 2013		2,568,177		2,568,177
Shanghai Pudong Development Bank	Secured by Henan Green's land, Mingwang Lu	March 16, 2012 to March 15, 2013		1,605,111		1,605,111
Shanghai Pudong Development Bank	Secured by Henan Green's land, Mingwang Lu	November 28, 2012 to November 27, 2013		4,815,332		4,815,332
Shanghai Pudong Development Bank	Guaranteed by third party, Mingwang Lu	November 27, 2012 to November 26, 2013		4,815,332		4,815,332
Ping An Bank	Guaranteed by third party	December 03, 2012 to December 03, 2013		8,025,553		8,025,553
Bank of Xuchang	Guaranteed by third party	April 27, 2012 to April 25, 2013		4,815,332		4,815,332
China Everbright Bank	Guaranteed by third party & Mingwang Lu and Yi Lu	July 20, 2012 to July 19, 2013		1,605,111		1,605,111
Commercial Bank of Kaifeng	Guaranteed by third party & Mingwang Lu	August 23, 2012 to August 22, 2013		3,210,221		3,210,221
			$	57,462,962	$	57,462,962

F-24

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

14. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables as of December 31, 2012 and 2011 consist of the following:

	2012		2011
Accrued liabilities
Accrued expenses	$	3,185,415	$	4,019,395
Other tax payables		494,446		656,060
		3,679,861		4,675,455
Other payables
Loan advanced from unrelated third parties		1,685,366		79,442
Other payable for purchasing machinery and equipment		96,307		9,753,549
Temporary receipt for staff quarters		48,205		-
Others		308,321		767,570
		2,138,199		10,600,561
	$	5,818,060	$	15,276,016

Accrued expenses are mainly represent accrued staff benefits and accrued wages.

Other tax payables represent payables other than income tax which consist of value added tax and city maintenance and construction tax.

As of December 31, 2012 and 2011, $1,685,366 and $79,442 respectively, represented loans advanced from unrelated third parties. There were no agreement signed with the third parties and the loans are non-interest bearing.

Temporary receipt for staff quarters represent contribution of staff quarter installment in purchases of staff quarters by staffs. Management was considering to sell the staff quarters to individuals by changing the usage from industrial use to residential use.

15. STOCKHOLDERS’ EQUITY

(a) Restricted ordinary shares

On October 1, 2012, the Compensation Committee of the Board of Directors of the Company approved grants of restricted ordinary shares to certain officers and directors of the Company under the China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan. Except for shares granted to Mr. Meng, the Company’s Chief Finance Officer which vested immediately upon granting, all shares granted will be vested on January 3, 2013 subject to the continuous service of the recipient through December 31, 2012 and the other terms and conditions of the grant.

F-25

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

15. STOCKHOLDERS’ EQUITY (…/Cont’d)

(a) Restricted ordinary shares (…/Cont’d)

The following grant was made in accordance with the terms of 2010 Share Incentive Plan for the year indicated.

Grant Date	Restricted Shares		Grant Price
October 1, 2012		2,100,000	$	1.78

The shares were valued at the closing price of the Company's common stock on grant date.

The compensation expense recognized is based on the market value of the Company's common stock on the date the restricted stock award is granted and is not adjusted in subsequent periods. The amount recognized is amortized over the vesting period. Compensation expense is included in general administration expense in the accompanying consolidated statement of income. The amount of compensation expense recognized is reflected in the table below for the years indicated

	2012		2011
Compensation expense	$	3,705,109	$	-

A summary of restricted stock activity under the 2010 share incentive plan for the year ended December 31, 2012 is as follows:

	Number of Shares			Weighted Average Grant Price and Fair Value
Non-vested, December 31, 2011		-			-
Shares granted		2,100,000			1.78
Vested shares		(400,000	)		1.78
Non-vested, December 31, 2012		1,700,000			1.78

The remaining shares 1,700,000 vested on January 1, 2013.

(b) Treasury Stock

On April 1, 2011, the Company's Board of Directors approved a board resolution and announced that the Company would repurchase its ordinary shares in the open market up to an aggregate of $10 million. From June to December, 2012 and from May to December, 2011, the Company repurchased 795,031 shares at a cost of $1,554,674 and 1,176,898 shares at a cost of $4,516,744 respectively.

A total of 1,710,098 shares have been cancelled in the fourth quarter of 2012. There was a total 261,831 shares remained as Treasury Stock as of December 31, 2012.

F-26

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

15. STOCKHOLDERS’ EQUITY (…/Cont’d)

(b) Treasury Stock (…/Cont’d)

	Total number of shares purchased			Average price paid per share		Total number of shares purchased as part of publicly Announced Plans or Programs		Amount Paid		Approximately Dollar value of shares that may yet be purchased under the Plans or Programs
										$10,000,000
1 May 2011 - 31 May 2011		309,490			4.5990		309,490		1,423,340		8,576,660
1 June 2011 - 30 June 2011		470,783			3.3070		780,273		1,556,886		7,019,773
1 July 2011 - 31 July 2011		183,070			4.0321		963,343		738,154		6,281,619
1 August 2011 - 31 August 2011		117,280			3.8038		1,080,623		446,107		5,835,512
1 September 2011 - 31 September 2011		42,129			3.6860		1,122,752		155,289		5,680,223
1 December 2011 - 31 December 2011		54,146			3.6877		1,176,898		196,967		5,483,256
1 May 2012 - 31 May 2012		48,238			2.6422		1,225,136		127,455		5,355,801
1 June 2012 - 30 June 2012		197,965			2.2429		1,423,101		444,041		4,911,760
1 August 2012 - 31 August 2012		59,369			1.7733		1,482,470		105,277		4,806,483
1 September 2012 - 30 September 2012		227,628			2.0377		1,710,098		463,838		4,342,645
1 December 2012 - 31 December 2012		261,831			1.5814		1,971,929		414,063		3,928,582
		1,971,929							6,071,418
Less: Retirement of treasury stock		(1,710,098	)
		261,831

(c) Warrants

The Company also granted in connection with its November 2009 public offering the Underwriter Representative (and its designees) a warrant (the “Underwriter Representative Warrant”) for the purchase of an aggregate of 144,000 ordinary shares (the “Warrant Shares”) for an aggregate purchase price of $100.00. The Underwriter Representative Warrant may be exercised in full or part to purchase Warrant Shares at an initial exercise price of $6.00 per share.

A summary of all warrants outstanding as of December 31, 2012 and 2011 and actions relating thereto during the years then ended is presented below:

	2012			2011
Expected volatility		63.00	%		60.00	%
Expected term (in years)		1.9			2.9
Risk free rate		0.25	%		0.36	%

F-27

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

15. STOCKHOLDERS’ EQUITY (…/Cont’d

(c) Warrants (…/Cont’d)

A summary of all warrants outstanding as of December 31, 2012 is presented below:
	Warrants			Exercise Price	Terms
Balance as of December 31, 2010	15,191,108
Exercised	(13,294,775	)		5.00	-
Expired	(1,752,333	)
Balance as of December 31, 2011	144,000		$	6.00	2.9 years
Granted	-
Exercised	-
Expired	-
Outstanding as of December 31, 2012	144,000		$	6.00	1.9 years

(d) Retained Earnings

Retained earnings as of December 31, 2012 and 2011 consist of the following:

	2012		2011
Retained earnings	$	151,890,125	$	128,896,723
Statutory surplus reserves		11,385,921		8,246,235
	$	163,276,046	$	137,142,958

In accordance with PRC Company Law, the Group is required to allocate at least 10% profit to the statutory surplus reserve. Appropriation to the statutory surplus reserve by the Group is based on profit arrived under PRC accounting standards for business enterprises for each year.

The profit arrived at must be set off against any accumulated losses sustained by the Group in prior years, before allocation is made to the statutory surplus reserve. Appropriation to the statutory surplus reserve must be made before distribution of dividends to shareholders. The appropriation is required until the statutory surplus reserve reaches 50% of the registered capital. This statutory surplus reserve is not distributable in the form of cash dividends.

As of December 31, 2012, the Group's subsidiary, Henan Green, allocated $3,139,686 which was the 10% of net profits of the year ended December 31, 2012 to the statutory surplus reserves.

F-28

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

15. STOCKHOLDERS’ EQUITY (…/Cont’d)

A supplemental information of the movement of statutory surplus reserves and registered capital of Henan Green as of December 31, 2012 and 2011 are as follow:

	Statutory surplus		Registered		Percentage
	reserves		capital		reached
At December 31, 2011	$	8,246,235	$	83,603,944		10	%
Statutory surplus reserves transferred from net profits		3,139,686		-		14	%
At December 31, 2012	$	11,385,921	$	83,603,944

16. INCOME TAXES

All of the Company's income is generated in the PRC.

	For the years ended
	2012		2011		2010
Current income tax expense	$	11,897,173	$	21,961,627	$	15,937,143

The Group's income tax provision in respect of operations in PRC is calculated at the applicable tax rates on the estimated assessable profits for the year based on existing legislation, interpretations and practices in respect thereof. The standard tax rate applicable to the Group changed from 33% to 25%, effective on January 1, 2008.

A reconciliation of the expected income tax expense to the actual income tax expense for the years ended December 31, 2012, 2011 and 2010 are as follows:

	For the years ended
	2012		2011		2010
Income before tax	$	38,030,261	$	79,582,179	$	63,020,567
Expected PRC income tax expense
at statutory tax rate of 25%		9,507,565		19,895,544		15,755,141
Income not subject to PRC tax		-		-		56,949
Depreciation allowance
over-claimed in 2011		1,127,816		-		-
Non deductible tax expenses		1,261,792		2,066,083		125,053
Actual income tax expense	$	11,897,173	$	21,961,627	$	15,937,143

F-29

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

16. INCOME TAXES (…/Cont’d)

The PRC tax system is subject to substantial uncertainties and has been subject to recently enacted changes, the interpretation and enforcement of which are also uncertain. There can be no assurance that changes in PRC tax laws or their interpretation or their application will not subject the Group to substantial PRC taxes in future.

The new PRC income tax law imposes a 10% withholding income tax, subject to reduction based on tax treaty where applicable, for dividends distributed by a foreign invested enterprise to its immediate holding company outside China (5% withholding income tax for dividends paid to HK companies). Such dividends were exempted from PRC tax under the previous income tax law and regulations. The foreign investment enterprises are subject to the withholding tax beginning January 1, 2008. All of the Group’s income is generated in the PRC, through Henan Green. The Company considers undistributed earnings of Henan Green as of December 31, 2012, to be permanently reinvested in the PRC. As a result, no deferred tax expense and deferred liability recorded for dividend withholding tax.

No deferred tax liability has been provided as the amount involved is immaterial. The Group has analyzed the tax positions taken or expected to be taken in its tax filings and has concluded it has no material liability related to uncertain tax positions.

For the years ended December 31, 2012, 2011 and 2010, there was no unrecognized tax benefit. Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its financial tax position. As of December 31, 2012 and 2011, the Group did not accrue any interest and penalties.

17. SUNDRY INCOME

Sundry income for the years ended December 31, 2012, 2011 and 2010 consist of the following:

	For the years ended
	2012		2011		2010
Local government subsidies	$	158,755	$	449,786	$	227,797
Transferred from receipts in
advance, accounts payable and other receivables		57,571		11,835		542
Subcontracting income		-		19,565		-
Gain on disposal of motor vehicles		63,876		-		-
Others		71,281		121,061		41,901
	$	351,483	$	602,247	$	270,240

During the years ended December 31, 2012, 2011 and 2010, the Group received special one time subsidies from local government of Zhengzhou, China amounting to $158,755 and $449,786 and $227,797 respectively for its advance technology in manufacturing precision steel mill flat-rolled products. The subsidy is not a continuing nature and depends on the local government's policy announced within a valid period.

F-30

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

18. RELATED PARTY TRANSACTIONS

The Company’s subsidiary, Henan Green, entered into a rental agreement for land use right with Zhengzhou Company, the former owner of Henan Green, from January 1, 2008 to December 31, 2027. Rental paid to Zhengzhou Company for the years ended December 31, 2012, 2011 and 2010 were $12,867, $11,428 and $9,909 respectively.

On February 26, 2013, the Company's subsidiary, Henan Green, entered into an equity/asset transfer agreement to acquire Zhengzhou Company via Henan Green. Zhengzhou Company owns land use right totaling 24.94 acres, among which 6.69 acres of land has been leased to Henan Green. The Company has decided to effectuate the acquisition of 100% equity interest Zhengzhou Company in order to secure the land use rights. The total consideration price is $42.6 million.

To facilitate Zhengzhou Company's acquisition, Henan Green prepaid $24,076,660 for the deposit on acquisition of business which included to pay $11,235,775 to two companies to settle the loans on behalf of Zhengzhou Company and $12,840,885 for the deposit on acquisition of future land use right as of December 31, 2012.

19. SIGNIFICANT CONCENTRATIONS

Our credit risk is somewhat limited due to a relatively large customer base and its dispersion across geographic areas of the PRC. During the years ended December 31, 2012 ,2011 and 2010, the Company had no customer which accounted for 10% or more of total revenue. As of December 31, 2012, the Company had one customer which accounted for approximately 15% of total accounts receivable. As of December 31, 2011, the Company had one customer which accounted for approximately 12% of total accounts receivable. As of December 31, 2010, the Company had one customer which accounted for approximately 81% of total accounts receivable.

All of the Group's suppliers are located in the PRC. During the year ended December 31, 2012, the Company had three suppliers which each accounted for approximately 37%, 23% and 20% of total purchases, respectively. During the year ended December 31, 2011, the Company had three suppliers which each accounted for approximately 43%, 25% and 11% of total purchases, respectively. During the year ended December 31, 2010, the Company had three suppliers which each accounted for approximately 30%, 24% and 12% of total purchases, respectively. As of December 31, 2012, the Company had two suppliers which accounted for approximately 23% and 10%, respectively of total accounts payable. As of December 31, 2011, the Company had two suppliers which accounted for approximately 55% and 18%, respectively of total accounts payable. As of December 31, 2010, the Company had two suppliers which accounted for approximately 19% and 16%, respectively of total accounts payable.

F-31

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

20. FOREIGN OPERATIONS

Operations

All of the Group’s operations are carried out and all of its assets are located in the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC. The Group’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

Dividends and reserves

Under laws of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) cumulative prior years' losses, if any; (ii) allocations to the "Statutory Surplus Reserve" of at least 10% of net income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the registered capital of the Company’s subsidiary, Henan Green; (iii) allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to Henan Green's "Statutory Common Welfare Fund", which is established for the purpose of providing employee facilities and other collective benefits to employees in China; and (iv) allocations to any discretionary surplus reserve, if approved by equity stockholders.

21. OPERATING LEASE COMMITMENTS

Rental expense for obligations under operating leases (Leasehold and Reservoir rental) was $28,744, $26,938 and $24,701for the years ended December 31, 2012, 2011 and 2010 respectively. As the leasehold agreement will be terminated in 1st quarter of 2013 after the acquisition of the business, Zhengzhou Company, no operating lease payment was required for leasehold. The total future minimum lease payments under non-cancellable operating leases as of December 31, 2012 are payable as follows:

Years Ended
December 31,	Reservoir rental
2013	$	16,051
2014		16,051
2015		16,051
2016		16,051
2017		16,051
Over five years		256,816
	$	337,071

F-32

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

22. CONTINGENCIES AND COMMITMENTS

The Group had the following contingencies and commitments as of December 31, 2012:

Guarantee

On October 13, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Shaolin Auto Co., Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $32.1 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through December 3, 2015.

On October 9, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Liantong Aluminum Co. Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment of approximately of $16.1 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through August 28, 2013.

On November 4, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Xibao Metallurgy Materials Group Co. Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $48.2 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through December 31, 2013.

On November 4, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Zhengzhou Panhong Commerce & Trade Co Ltd, a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $16.1 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through October 26, 2013.

On December 6, 2012, the Company's subsidiary, Henan Green, entered into a co-financial guarantee agreement with Henan Xinye Textile Co., Ltd. (Xinye), a non-related company. Under the agreement, both companies are contingent as guarantor with maximum aggregate potential amount of future payment approximately of $9.6 million. Guarantor can request debtor to guarantee not less than 120% of the amount being guaranteed. The guarantee is effective through December 5, 2013.

On October 31, 2011, the Company's subsidiary, Henan Green, entered into a financial guarantee agreement with Zhengzhou Aluminum Industry Co., Ltd arranged by China Citic Bank. Under the agreement, Henan Green acting as a guarantor for Zhengzhou Aluminum Industry Co., Ltd. a non-related company. Henan Green is contingent as guarantor with maximum aggregate potential amount of future payment approximately $2.4 million, plus interest accrued, legal fee, disbursement and any other compensation expense accrued. The guarantee is effective through September 7, 2014.

On November 4, 2011, the Company's subsidiary, Henan Green, entered into a financial guarantee agreement with Do-Fluoride Chemicals Co., Ltd, a non-related company. Under the agreement, Do-Fluoride Chemicals Co., Ltd is contingent as a guarantor for Zhengzhou Aluminum Industry Co., Ltd with a maximum aggregate potential amount of future payment approximately of $4.0 million and Henan Green also agreed to guarantee the future payment of Zhengzhou Aluminum Industry Co., Ltd for Do-Fluoride Chemicals Co., Ltd. The guarantee is effective through November 3, 2013.

The Company believes that Zhengzhou Aluminum Industry Co. Ltd. has experienced financial difficulties in 2012 and may not be able to perform on either its payments to the bank or its guarantees. If Zhengzhou Aluminum Industry Co. Ltd is unable to repay its debt or satisfy's it's guarantee, the Company may be required to pay up to $6.4 million related to those debts. No provision has been made in these financial statements for these potential obligations as the Company has not been called upon to date to perform under its guarantee.

Legal proceedings or claims

As of December 31, 2012 the Group’s management has evaluated all such proceedings and claims, and determined that the Group was not subject to any loss contingencies either for legal proceedings or claims that would significantly affect the Company's financial condition. In addition, the management has not aware of any product liability claims arising as of December 31, 2012, and therefore, the Group has not recognized any product liability claims accrual.

F-33

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

23. SUBSEQUENT EVENT

Acquisition of business

On February 26, 2013, the Company's subsidiary, Henan Green, entered into an equity/asset transfer agreement to acquire Zhengzhou Company via Henan Green. Zhengzhou Company owns a land use right totaling 24.94 acres, among which 6.69 acres of land has been leased to Henan Green. The Company has decided to effectuate the acquisition of 100% equity interest Zhengzhou Company in order to secure the land use rights. The total consideration price is $42.6 million.

The purchase price was determined based on the appraisal report prepared by an independent appraisal. According to the Equity Transfer Agreement, if Henan Green fails to pay the full purchase price timely, it will be liable for a penalty fee at a daily rate of 0.03% of the outstanding purchase price. In addition, if any party breaches its representations and warranties provided in the Equity Transfer Agreement, the breaching party is required to pay the other parties for damages in an amount of approximately $157,480. Based on the independent report, the value of Zhengzhou Company as at November 30, 2012 was $49.7 million and was allocated as follows:

Current assets	$	10,082,277
Property, plant and equipment, net		10,622,003
Land use right, net		29,009,733
Total asset acquired		49,714,013
Total liabilities assumed		-
Net asset acquired	$	49,714,013

Acquisition of assets at cost values which was translated at closing rate of November 30, 2012. Based on the independent appraisal report, no impairment was recognized as of December 31, 2012.

The Equity Transfer Agreement and the transactions contemplated thereby were approved by both the Company's Board of Directors and the Audit Committee of the Board, which consists of three independent directors.

F-34

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

24. CONDENSED PARENT COMPANY FINANCIAL INFORMATION

The Company records its investment in subsidiaries under the equity method of accounting as prescribed in FASB ASC Topic 323, “Investments - Equity Method and Joint Ventures”. Such investment and long-term loans to subsidiaries are presented on the balance sheet as “Investments in subsidiaries” and the income of the subsidiaries is presented as “Equity in income of subsidiaries” on the statement of income.

These supplemental condensed parent company financial statements should be read in conjunction with the notes to the Company’s Consolidated Financial Statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

As of December 31, 2012, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately disclosed in the Company’s Consolidated Financial Statements, if any.

CONDENSED BALANCE SHEETS
	2012			2011
Assets
Cash	$	7,645,949		$	11,621,907
Investments in subsidiaries		322,526,371			286,912,377
Total assets	$	330,172,320		$	298,534,284
Liabilities and Stockholders'' Equity
Current liabilities
Accrued liabilities and other payables	$	105,000		$	106,448
Total liabilities		105,000			106,448
Stockholders' Equity
Common stock		140,418,118			140,418,118
Additional paid in capital		4,978,698			6,930,944
Treasury stock		(414,063	)		(4,516,744	)
Retained earnings		163,276,046			137,142,958
Accumulated other comprehensive income		21,808,521			18,452,560
Total stockholders' equity		330,067,320			298,427,836
Total liabilities and stockholders' equity	$	330,172,320		$	298,534,284

F-35

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

24. CONDENSED PARENT COMPANY FINANCIAL INFORMATION (…/Cont’d)

CONDENSED STATEMENT OF INCOME
	For the years ended
	2012			2011			2010
General and administrative expenses	$	(2,419,836	)	$	(9,439,791	)	$	(2,059,737	)
Equity income of subsidiaries		28,552,924			67,060,343			49,143,161
Net income	$	26,133,088		$	57,620,552		$	47,083,424
CONDENSED STATEMENT OF CASH FLOWS
		For the years ended
		2012			2011			2010
Net cash used in operating activities	$	(2,421,284	)	$	(7,887,611	)	$	(3,511,915	)
Net cash used in investing activities		-			(48,000,000	)		(25,500,000	)
Net cash (used in)/provided by financing activities		(1,554,674	)		61,957,131			28,682,613
Cash as of January 1		11,621,907			5,552,387			5,881,689
Cash as of December 31	$	7,645,949		$	11,621,907		$	5,552,387

F-36

CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)  

25. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

	2012
	March 31			June 30			September 30			December 31
Revenue:
Steel mill flat-rolled products	$	68,689,567		$	76,783,963		$	56,123,028		$	63,889,524
Cost of revenue		(47,196,745	)		(56,975,825	)		(47,331,341	)		(57,037,147	)
Gross Profit		21,492,822			19,808,138			8,791,687			6,852,377
Operating expenses:
General and administrative expenses		(2,369,361	)		(2,511,170	)		(2,548,672	)		(5,738,929	)
Selling and marketing expenses		(107,086	)		(506,711	)		(374,818	)		(457,768	)
Warrant compensation expenses		-			-			-			-
Total operating expenses		(2,476,447	)		(3,017,881	)		(2,923,490	)		(6,196,697	)
Operating income		19,016,375			16,790,257			5,868,197			655,680
Other income (expenses)
Interest income		626,251			624,578			1,233,910			1,092,002
Interest expenses		(1,030,917	)		(2,028,459	)		(3,105,412	)		(2,063,684	)
Sundry income		158,737			24,911			21,310			146,525
		18,770,446			15,411,287			4,018,005			(169,477	)
Income tax expense		(4,759,838	)		(5,136,010	)		(1,636,419	)		(364,906	)
Net income attributable to common
stockholders	$	14,010,608		$	10,275,277		$	2,381,586		$	(534,383	)
Net income per share
- Basic	$	0.24		$	0.18		$	0.04		$	(0.01	)
- Diluted	$	0.24		$	0.18		$	0.04		$	(0.01	)
Weighted average common shares outstanding
- Basic		58,251,680			58,203,179			57,935,604			59,769,786
- Diluted		58,251,680			58,203,179			57,935,604			59,769,786

F-37

EXHIBIT INDEX

Exhibit No.	Description
1.1	Amended and Restated Memorandum and Articles of Association, adopted on March 17, 2009 [incorporated by reference to Exhibit 3.1 to the registrant’s Amendment No. 1 to Form 20-F filed on March 23, 2009]
4.1*	Summary of English Translation of Equity/Asset Transfer Agreement, dated February 26, 2013, by and among Henan Green Complex Materials Co., Ltd., Zhengzhou No. 2 Iron and Steel Company Limited and its shareholders (English Translation)
4.2	Form of Securities Purchase Agreement, by and among the registrant and the purchasers named therein, dated June 4, 2010 [incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K filed on June 7, 2010]
4.3	Form of Registration Rights Agreement, by and among the registrant and the purchasers named therein, dated June 4, 2010 [incorporated by reference to Exhibit 4.1 to the registrant’s Report on Form 6-K filed on June 7, 2010]
4.4	China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K filed on November 16, 2010]
4.5	Form of Share Option Agreement for Employees relating to China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.2 to the registrant’s Report on Form 6-K filed on November 16, 2010]
4.6	Form of Share Option Agreement for Directors relating to China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.3 to the registrant’s Report on Form 6-K filed on November 16, 2010]
4.7	Form of Restricted Share Award Agreement relating to China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.4 to the registrant’s Report on Form 6-K filed on November 16, 2010]
8.1*	List of the registrant’s subsidiaries
11.1	Code of Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Annual Report on Form 20-F filed on July 15, 2009]
12.1*	Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)
12.2*	Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)
13.1*	Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2*	Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*	Consent of Independent Registered Public Accounting Firm
101*	Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith)

*Filed herewith.