UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F



(Mark one)

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2011.



OR

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



OR

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



for the transition period from __________ to ___________



Commission file number 001-34944



China Ceramics Co., Ltd.

(Exact name of the Registrant as specified
in its charter)



British Virgin Islands

(Jurisdiction of incorporation or organization)



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

(Address of principal executive offices)



Huang Jia Dong
c/o Jinjiang Hengda Ceramics Co., Ltd.
Junbing Industrial Zone
Anhai, Jinjiang City
Fujian Province, PRC
Telephone: +86 (595) 8576 5053Facsimile: +86 (595) 8576 5059

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



with a copy to:Stuart Management Company
830 Post Road East
Suite 205Westport, CT 06880

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



UNITS, EACH CONSISTING OF ONE SHARE
AND ONE WARRANT
SHARES, PAR VALUE $0.001
WARRANTS TO PURCHASE ONE SHARE



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



None.



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



None.



On December 31, 2011, the issuer had 18,254,002 shares outstanding.



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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

| | Yes   ̈ | No   ̈
| | ------ | -----



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act.

|£           Large Accelerated filer | £           Accelerated filer | S           Non-accelerated
filer
|----------------------------------- | ----------------------------- | ---------------------------------



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

|£           US GAAP | x           International
        Financial
        Reporting Standards as issued by
        the International Accounting
        Standards Board | £           Other
|------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------



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.

| | £  Item 17 | £  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   ̈ | No  x
| | ------ | -----











TABLE OF CONTENTS



|        |                                                                    |    |                                                          | Page
|------- | ------------------------------------------------------------------ | -- | -------------------------------------------------------- | ----
|        |                                                                    |    |                                                          |     
|PART I  |                                                                    |    |                                                          | 2   
|        | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      | 2 
|        | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                    | 2 
|        | ITEM 3. KEY INFORMATION                                            | 2 
|        |                                                                    | A. | Selected financial data                                  | 2   
|        |                                                                    | B. | Capitalization and Indebtedness                          | 4   
|        |                                                                    | C. | Reasons for the Offer and Use of Proceeds                | 4   
|        |                                                                    | D. | Risk factors                                             | 4   
|        | ITEM 4. INFORMATION ON THE COMPANY                                 | 19
|        |                                                                    | A. | History and Development of the Company                   | 19  
|        |                                                                    | B. | Business Overview                                        | 21  
|        |                                                                    | C. | Organizational Structure                                 | 39  
|        |                                                                    | D. | Property, plant and equipment                            | 40  
|        | ITEM 4A UNRESOLVED STAFF COMMENTS                                  | 41
|        | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS               | 41
|        | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                 | 60
|        |                                                                    | A. | Directors and senior management                          | 60  
|        |                                                                    | B. | Compensation                                             | 63  
|        |                                                                    | C. | Board Practices                                          | 70  
|        |                                                                    | D. | Employees                                                | 72  
|        |                                                                    | E. | Share Ownership                                          | 72  
|        | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          | 72
|        |                                                                    | A. | Major shareholders                                       | 72  
|        |                                                                    | B. | Related Party Transactions                               | 74  
|        |                                                                    | C. | Interests of Experts and Counsel                         | 75  
|        | ITEM 8. FINANCIAL INFORMATION                                      | 75
|        |                                                                    | A. | Consolidated Statements and Other Financial Information. | 75  
|        |                                                                    | B. | Significant Changes                                      | 75  
|        | ITEM 9. THE OFFER AND LISTING                                      | 75
|        |                                                                    | A. | Offer and Listing Details                                | 75  
|        |                                                                    | B. | Plan of Distribution                                     | 75  
|        |                                                                    | C. | Markets                                                  | 76  
|        |                                                                    | D. | Selling Shareholders                                     | 76  
|        |                                                                    | E. | Dilution                                                 | 76  
|        |                                                                    | F. | Expenses of the Issue                                    | 76  
|        | ITEM 10. ADDITIONAL INFORMATION                                    | 76
|        |                                                                    | A. | Share Capital                                            | 76  
|        |                                                                    | B. | Memorandum and Articles of Association                   | 76  
|        |                                                                    | C. | Material Contracts                                       | 76  
|        |                                                                    | D. | Exchange controls                                        | 77  
|        |                                                                    | E. | Taxation                                                 | 77  
|        |                                                                    | F. | Dividends and paying agents                              | 89  
|        |                                                                    | G. | Statement by experts                                     | 89  
|        |                                                                    | H. | Documents on display                                     | 89  
|        |                                                                    | I. | Subsidiary Information                                   | 89  
|        | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | 89
|        | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES    | 90
|PART II | 90                                                                
|        | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES           | 90





i









|         | ITEM 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 90
|-------- | --------- | ---------------------------------------------------------------------------- | --
|         | ITEM 15.  | CONTROLS AND PROCEDURES                                                      | 91
|         | ITEM 16.  | [RESERVED]                                                                   | 91
|         | ITEM 16A  | AUDIT COMMITTEE FINANCIAL EXPERT                                             | 91
|         | ITEM 16B. | CODE OF ETHICS                                                               | 92
|         | ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.                                      | 92
|         | ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.                  | 92
|         | ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.      | 93
|         | ITEM 16F. | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.                               | 93
|         | ITEM 16G. | CORPORATE GOVERNANCE                                                         | 93
|PART III |           | 93                                                                          
|         | ITEM 17.  | FINANCIAL STATEMENTS                                                         | 93
|         | ITEM 18.  | FINANCIAL STATEMENTS                                                         | 93
|         | ITEM 19.  | EXHIBITS                                                                     | 93





ii







CERTAIN INFORMATION



In this Annual Report on Form 20-F (the
“Annual Report”), unless otherwise indicated, “we,” “us,” “our,” and “China
Ceramics” refers to China Ceramics Co., Ltd., a British Virgin Islands company, and its subsidiaries, including Success Winner
Limited (“Success Winner”), a British Virgin Islands company and wholly owned subsidiary of China Ceramics, Stand Best
Creation Limited (“Stand Best”), a Hong Kong company and wholly owned subsidiary of Success Winner and the entity that
wholly owns Jinjiang Hengda Ceramics Co., Ltd. (“Hengda”), a PRC operating company that in turn wholly owns Jiangxi
Hengdali Ceramic Materials Co., Ltd. (“Hengdali”), another PRC operating company.



On November 20, 2009, China Holdings Acquisition
Corp. (“CHAC”), our predecessor, merged with and into China Ceramics, its wholly owned British Virgin Islands subsidiary,
resulting in the redomestication of CHAC to the British Virgin Islands as “China Ceramics Co., Ltd.” Immediately following
the merger and redomestication (the “Redomestication”), and as part of the same integrated transaction, China Ceramics
acquired all of the outstanding securities of Success Winner (the “Business Combination”). Unless the context
indicates otherwise, the “Company” refers to CHAC prior to the Business Combination and China Ceramics following the
Business Combination.



Unless the context indicates otherwise,
all references to “China” or “PRC” refer to the People’s Republic of China. All references to “provincial-level
regions” or “regions” include provinces as well as autonomous regions and directly controlled municipalities
in China, which have an administrative status equal to provinces, including Beijing.



All references to “Renminbi,”
“RMB” or “yuan” are to the legal currency of the People’s Republic of China, and all references to
“U.S. dollars,” “dollars,” “$” are to the legal currency of the United States. This Report
contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. We make
no representation that the Renminbi or U.S. dollar amounts referred to in this Report could have been or could be converted into
U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On March 23, 2012, the buying rate announced by
the Federal Reserve Statistical Release was RMB 6.3021 to $1.00.











FORWARD-LOOKING STATEMENTS



This Report contains “forward-looking
statements” that represent our beliefs, projections and predictions about future events. All statements other than statements
of historical fact are “forward-looking statements” including any projections of earnings, revenue or other financial
items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed
new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s
beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words
such as “may”, “will”, “should”, “could”, “would”, “predicts”,
“potential”, “continue”, “expects”, “anticipates”, “future”, “intends”,
“plans”, “believes”, “estimates” and similar expressions, as well as statements in the future
tense, identify forward-looking statements.



These statements are necessarily subjective
and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance
or achievements, or industry results, to differ materially from any future results, performance or achievements described in or
implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements,
including with respect to correct measurement and identification of factors affecting our business or the extent of their likely
impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business
strategy is based or the success of our business.



Forward-looking statements should not be
read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times
by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time
those statements are made and management’s belief as of that time with respect to future events, and are subject to risks
and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the
forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors
discussed under the headings “Risk Factors”, “Operating and Financial Review and Prospects,” “Information
on the Company” and elsewhere in this Annual Report.



This Annual Report should be read in conjunction
with our audited financial statements and the accompanying notes thereto, which are included in Item 18 of this Annual Report.



PART I



| | ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
| | ------- | -----------------------------------------------------



Not required.



| | ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
| | ------- | ---------------------------------------



Not required.



| | ITEM 3. | KEY INFORMATION
| | ------- | ---------------



| | A. | Selected financial data
| | -- | -----------------------



The following selected consolidated financial
data as of and for the years ended December 31, 2011, 2010, 2009, 2008, and 2007 have been derived from the audited consolidated
financial statements of China Ceramics included in this Annual Report. This information is only a summary and should be read
together with the consolidated financial statements, the related notes, the section entitled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations of China Ceramics” and other financial information included
in this Annual Report.



2







The consolidated financial statements are
prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by the International
Accounting Standards Board (“IASB”). The results of operations of China Ceramics in any period may not necessarily
be indicative of the results that may be expected for any future period. See “Risk Factors” included elsewhere in this
Annual Report.



CHINA CERAMICS CO., LTD. AND SUBSIDIARIES



Selected Consolidated Financial Data



(RMB in Thousands Except per Share and Operating
Data)



|                                                   |  | As of December 31 |          
|-------------------------------------------------- |  | ----------------- | ---------
|                                                   |  | 2011              |          
|Consolidated Statements of Financial Position Data |  |                   |          
|Cash and cash equivalents                          |  |                   | 42,149   
|Total current assets                               |  |                   | 833,516  
|Total assets                                       |  |                   | 1,711,947
|Total current liabilities                          |  |                   | 457,121  
|Long-term obligations                              |  |                   | 61,087   
|Total liabilities                                  |  |                   | 518,208  
|Total equity                                       |  |                   | 1,193,739



|                                                        |  | For the years ended December 31, |           
|------------------------------------------------------- |  | -------------------------------- | ----------
|                                                        |  | 2011                             |           
|Consolidated Statement of Comprehensive Income
    Data |  |                                  |           
|Revenues                                                |  |                                  | 1,491,574 
|                                                        |  |                                  |           
|Gross profit                                            |  |                                  | 467,238   
|                                                        |  |                                  |           
|Profit before taxation                                  |  |                                  | 400,504   
|                                                        |  |                                  |           
|Profit attributable to shareholders                     |  |                                  | 294,439   
|                                                        |  |                                  |           
|Earnings per share –                                    |  |                                  |           
|Basic                                                   |  |                                  | 14.41     
|Diluted                                                 |  |                                  | 14.41     
|                                                        |  |                                  |           
|Weighted average shares outstanding –                   |  |                                  |           
|Basic                                                   |  |                                  | 20,430,838
|Diluted                                                 |  |                                  | 20,430,838



The following table sets forth information
concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On March 23, 2012, the buying rate announced
by Federal Reserve Statistical Release was RMB 6.3021 to $1.00.



|                         |  | Spot Exchange Rate |       
|------------------------ |  | ------------------ | ------
|Period                   |  | Period Ended       |       
|                         |  | (RMB per US$1.00)  |       
|2007                     |  |                    | 7.2946
|2008                     |  |                    | 6.8225
|2009                     |  |                    | 6.8259
|2010                     |  |                    | 6.6000
|2011                     |  |                    | 6.2939
|September                |  |                    | 6.3780
|October                  |  |                    | 6.3547
|November                 |  |                    | 6.3765
|December                 |  |                    | 6.2939
|2012 (through March 23)  |  |                    | 6.3021
|January                  |  |                    | 6.308 
|February                 |  |                    | 6.2935
|March (through March 23) |  |                    | 6.3021



3







Source:	Federal Reserve Statistical
Release



| | (1) | Annual averages, lows, and highs are calculated from month-end rates. Monthly averages, lows, and highs are calculated using
the average of the daily rates during the relevant period.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | B. | Capitalization and Indebtedness
| | -- | -------------------------------



Not required.



| | C. | Reasons for the Offer and Use of Proceeds
| | -- | -----------------------------------------



Not required.



| | D. | Risk factors
| | -- | ------------



You should carefully consider the following
risk factors, together with all of the other information included in this annual report.



Risk Factors Relating to Our Business



We generate a large percentage
of our revenues from a limited number of customers and our business will suffer if sales to such customers decline.



Our five largest customers, namely Foshan
City Jundian Ceramics Co., Ltd., Xiamen Tongying Trading Co., Ltd., Liaoning Yatong Logistics Co. Ltd., Beijing Zhihe Construction
Industry Trading Co., Ltd., and Liuzhou City Shengquanda Trading Co., Ltd. accounted for an aggregate of 22.6%, 17.7%, and 14.3%
of our total revenue in fiscal years 2009, 2010 and 2011, respectively. We are particularly exposed to the credit risks of these
customers as defaults in payment by our major customers would have a significant impact on our cash flows and financial results.
Our agreements with our major customers do not specify minimum sales volume. There is no assurance that we will continue to retain
these customers or that they will continue to purchase our products at their current levels in the future. If there is any reduction
or cancellation of purchase orders by these customers for any reason, including a fall in demand from our customers’ downstream
developer clients, or a termination of relationship with these customers, our revenues will be negatively impacted.



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



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



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



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



4







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



In fiscal years 2009, 2010, and 2011 our
cost of raw materials, which consist of clay (comprising mainly of kaolin, flint and feldspar), coal (used to heat our kilns),
coloring materials and glazing materials, accounted for approximately 53.7%, 67.4%, and 71.5% of our total cost of sales, respectively.
The price of clay, coal, coloring materials and glazing materials may fluctuate due to factors such as global supply and demand
for such raw materials and changes in global economic conditions. Coal accounted for approximately 31.5%, 30.0% and 29.2% of our
total raw material costs in fiscal years 2009, 2010, and 2011 respectively. Any shortages or interruptions in the supply of clay,
coal, coloring materials or glazing materials will result in an increase in the cost of production, thus increasing our cost of
sales. If we are not able to pass on such an increase to our customers or are unable to find alternative sources of clay, coal,
coloring materials, or glazing materials or appropriate substitute raw materials at comparable prices, our operations and financial
performance will be adversely affected.



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



Our chief executive officer, Huang Jia Dong,
and our Sales Deputy General Manager, Su Pei Zhi, have worked with our company since founding it over eighteen years ago. Accordingly,
our success is dependent to a large extent on our ability to retain Messrs. Huang and Su, who are responsible for formulating and
implementing our growth, corporate development and overall business strategies. Mr. Huang currently owns 150,000 shares in us.
Mr. Su currently does not own any shares or any other equity investment in us. Our business is also dependent on our executive
officers who are responsible for implementing our business plans and driving growth. Please refer to “Directors, Senior Management
and Employees” herein for more information about our directors and officers.



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



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



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



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



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



5







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



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



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



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



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



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



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



In January 2010, we completed the acquisition
of Hengdali and are continuing to integrate our operations with the operations of Hengdali. In the future, we may expand our production
capacity through strategic acquisitions. Expansion through strategic acquisitions is subject to a number of risks:



| | · | We may fail to locate suitable acquisition candidates with business operations that are consistent with our growth strategy
and at prices and on terms that are satisfactory. Alternatively, we may have to compete with other Chinese ceramic tile producers
in bidding to acquire production facilities or companies in regions where we expect demand for production of our products to increase.
Some of these competitors may have greater capital resources than us.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | To finance part or all of our acquisition costs, we may need to issue shares, incur debt and assume contingent liabilities.
Such acquisitions may also create additional expenses related to amortizing intangible assets. Any of these factors might harm
our financial results and lead to volatility in the price of our shares. Further, any financing we might need for future acquisitions
may be available only on terms that restrict our business or impose costs that decrease our profits.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Any integration of acquisitions, including the continuing integration of Hengdali, may produce unforeseen operating difficulties
and expenditures and may absorb significant management attention that would otherwise be available for the ongoing development
of our business. Among others, we may be unable to discover during due diligence all contingent liabilities and adverse issues,
giving rise to unexpected delays or difficulties during integration.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6







| | · | Some acquisition targets, due to their limited operating history, may possess different technological standards and operational
models than ours. We may need to devote significant time and resources upon completion of an acquisition to amend and transform
the acquired target. We may, prior to the implementation of an acquisition, fail to predict the appropriate amount of time and
resources required to complete such transformation. It is even possible that we may not be able to rectify the situation at all.
Due to the foregoing uncertainties, we may be subject to substantial costs and unexpected delays arising out of an acquisition.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We plan to construct the manufacturing facilities
operated by Hengdali in Gaoan, Jiangxi Province (the “Hengdali facility”) in three phases.Phase I was completed in 2009 and was put into production in early 2010, bringing annual production capacity after completion
of phase I to 10 million square meters. We expect the annual production capacity to increase by an additional 20 million square
meters after the completion of phase II. We anticipate completing phase III in 2013, and expect the annual production
capacity to increase by an additional 14 million square meters with the completion of phase III. We expect the total annual production
capacity of the Hengdali facility to provide 44 million square meters of ceramic tiles in 2013.  Currently, we are in the
process of applying for acceptance permits from relevant local governmental authorities including, without limitation, the environmental
protection authority and the fire administration, for the first phase. However, as the timing and procedures for issuing such permits
is under the control of the local governmental authorities, we cannot assure you that we will successfully obtain such permits,
or that our operation will not be affected if we fail to obtain such permits for the continuation of the operations of Hengdali.
Our applications for such permits are currently being processed. As we are currently operating without the permits, the relevant
authorities may suspend our Hengdali operations and may impose fines, though they have not done so to date. We believe our
future success depends on our ability to increase our production capacity by expanding our existing facilities and acquiring or
developing new production facilities. If we are unable to grow our operations by expanding our facilities or through strategic
acquisitions or realize anticipated benefits from past and future acquisitions, we may not be able to achieve the growth we anticipate
and our overall business results may be negatively affected.



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



We believe our intellectual property rights
are important to our success and competitive position. A portion of our products are manufactured and marketed under our “HD”
or “Hengda,” “HDL” or “Hengdeli,” “Pottery Capital of Tang Dynasty”, “TOERTO”
and “WULIQIAO” labels. We have filed our labels as trademarks in the PRC. Before 13 April, 2011, WULIQIAO was a trademark
owned by Fujian Province Jinjiang City Hengda Construction Materials Co., Ltd. Hengda signed a Trademark Licensing Contract with
Fujian Province Jinjiang City Hengda Construction Materials Co., Ltd. and has been was licensed the exclusive right to use WULIQIAO
during the terms of that trademark. Since 13 April, 2011, WULIQIAO has been transferred to Hengdali, according to Certificate of
Approved Transference of Trademark issued on 13 April 2011 by Trademark Office of the State Administration for Industry & Commerce
of the P.R. China. In addition, we own four utility model patents, have exclusive licenses to use 11 design patents owned by our
CEO, Huang Jia Dong, and have certain trade secrets and unpatented proprietary technology. We cannot assure you that there will
not be any unauthorized usage or misuse of our trademarks and patent rights or that our intellectual property rights will be adequately
protected as it may be difficult and costly to monitor any infringements of our intellectual property rights in the PRC. If we
cannot adequately protect our intellectual property, we may lose revenue.



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



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



7







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



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



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



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



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



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



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



| | · | third party manufacturers may not manufacture products to our standards, which could cause delays in the shipment of our products
or our shipping defective products if we do not catch the defects in a timely fashion;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;
| | - | ----------------------------------------------------------------------------------------------------



| | · | we may have difficulty locating and qualifying alternative manufacturers;
| | - | -------------------------------------------------------------------------



| | · | our third party manufacturers manufacture products for a range of customers, and fluctuations in demand may affect their ability
to deliver products to us in a timely manner; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our third party manufacturers may encounter financial hardships unrelated to our orders, which could inhibit their ability
to fulfill our orders and meet our requirements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8







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



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



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



The PRC government has committed to taking
steps to regulate real estate development, promote the healthy development of the real estate industry in China, and strengthen
the supervision over land for real estate development purposes. For example, in his 2010 annual report to the National People’s
Congress, as part of the 12th Five-Year Plan, Chinese Premier Wen Jiabao pledged to curb the rise of housing prices
in certain cities to increase the availability of affordable housing. The program targets 36 million units of new housing by 2015
at a cost of nearly $800 million. The full effect of such policies on the real estate industry and our business will depend in
large part on the implementation and interpretation of the circulars by governmental agencies, local governments, and banks involved
in the real estate industry. We cannot be certain that the PRC government will not issue additional and more stringent regulations
or measures or that agencies and banks will not adopt restrictive measures or practices in response to PRC governmental policies
and regulations, which could negatively affect the main industries we serve in the PRC, and thereby harm our sales.



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



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



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



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



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



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



9







Risk Factors Relating to Operations
In China



We are dependent on political, economic,
regulatory and social conditions in the PRC.



Approximately 93.2% of our revenue in each
of the last three fiscal years was derived from the PRC market and we anticipate that the PRC market will continue to be the major
source of revenue for the foreseeable future. Accordingly, any significant slowdown in the PRC economy or decline in demand for
our products from our customers in the PRC will have an adverse effect on our business and financial performance. Furthermore,
as our operations and production facilities are located in the PRC, any unfavorable changes in the social and/or political conditions
may also adversely affect our business and operations.



While the current policy of the PRC government
seems to be one of economic reform to encourage foreign investments and greater economic decentralization, there is no assurance
that such a policy will continue to prevail in the future. There is no assurance that our operations will not be adversely affected
should there be any policy changes.



We are subject to risks related to
the laws and regulations of the PRC and the interpretation and implementation thereof.



Our business and operations, as well as
those of our customers and suppliers in the PRC, are subject to the laws and regulations promulgated by relevant PRC governmental
authorities. The PRC government is still in the process of developing a comprehensive set of laws and regulations in the course
of the PRC’s transformation from a centrally planned economy to a more free market oriented economy. As the legal system
in the PRC is still in flux, laws and regulations or their interpretation may be subject to change. Furthermore, any change in
the political and economic policy of the PRC government may also result in similar changes in the laws and regulations or the interpretation
thereof. Such changes may adversely affect our operations and business in the PRC.



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



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



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



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



10







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



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



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



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



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



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



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



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



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



11







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



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



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



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



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



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



12







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



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





If we become directly subject to the
recent scrutiny involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and/or defend
the matter, which could harm our business operations, stock price and reputation and could result in a complete loss of your investment
in us.



Recently, U.S. public companies that have
substantially all of their operations in China have been the subject of intense scrutiny by investors, financial commentators and
regulatory agencies. Much of the scrutiny has centered around financial and accounting irregularities and mistakes, a lack of effective
internal controls over financial reporting and, in many cases, allegations of fraud. As a result of the scrutiny, the publicly
traded stock of many U.S. listed China-based companies that have been the subject of such scrutiny has sharply decreased in value.
Many of these companies are now subject to shareholder lawsuits and/or SEC enforcement actions that are conducting internal and/or
external investigations into the allegations. If we become the subject of any such scrutiny, whether any allegations are true or
not, we may have to expend significant resources to investigate such allegations and/or defend our company. Such investigations
or allegations will be costly and time-consuming and distract our management from our business plan and could result in our reputation
being harmed and our stock price could decline as a result of such allegations, regardless of the truthfulness of the allegations.





Risks to China Ceramics’ Shareholders



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



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



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



Our shares are not actively traded and
the price of our shares is volatile, and this volatility may continue. For instance, since the completion of the business combination
through March 26, 2012, the closing price of our shares ranged between $9.95 and $2.52. Although our shares began trading
on the NASDAQ Capital Market on November 3, 2010 under the symbol “CCCL,” and began trading on the NASDAQ Global Market
on January 18, 2011, we cannot assure you that such listing will improve volume, reduce volatility and stabilize our share price.



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



Our shares are listed on the NASDAQ Global
Market, a national securities exchange. However, we cannot assure you that our securities will continue to be listed on the NASDAQ
Global Market in the future. In order to continue listing our securities on the NASDAQ Global Market, we must maintain certain
financial, distribution and share price levels. Generally, we must (i) maintain a minimum amount in shareholders’ equity
(generally above $10,000,000), maintain a minimum market value of listed securities (generally above $50,000,000) or have minimum
total assets and total revenue for the prior year of for two of the three preceding years (generally above $50,000,000); and (ii)
a minimum number of publicly held shares (generally greater than 750,000) and a minimum number of public shareholders (generally
greater than 400 shareholders). Our shares also cannot have a bid price of less than $1.00. Moreover, we must comply with certain
listing standards regarding the independence of our board of directors and members of our audit committee. We currently meet these
requirements, but there can be no assurance that we will continue to be able to meet these requirements in the future.



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



13







| | · | limited availability of market quotations for our securities;
| | - | -------------------------------------------------------------



| | · | reduced liquidity with respect to our securities;
| | - | -------------------------------------------------



| | · | a determination that our shares are “penny stocks,” which will require brokers trading in our shares to adhere
to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our shares;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | limited amount of news and analyst coverage for our company; and
| | - | ----------------------------------------------------------------



| | · | a decreased ability to issue additional securities or obtain additional financing in the future.
| | - | ------------------------------------------------------------------------------------------------



There is a risk that China Ceramics
could be treated as a U.S. domestic corporation for U.S. federal income tax purposes after the Redomestication and the Business
Combination, which, among other things, could result in significantly greater U.S. federal income tax liability to China Ceramics.



Section 7874(b) of the Internal
Revenue Code of 1986, as amended (the “Code”) generally provides that a corporation organized outside the United States
that acquires, directly or indirectly, pursuant to a plan or series of related transactions substantially all of the assets
of a corporation organized in the United States will be treated as a domestic corporation for U.S. federal income tax
purposes if shareholders of the acquired corporation, by reason of owning shares of the acquired corporation, own at least
80% (of either the voting power or the value) of the stock of the acquiring corporation after the acquisition. Under
temporary regulations promulgated under Section 7874, a warrant holder of either the acquired corporation or the
acquiring corporation generally is treated for this purpose as owning stock of the acquired corporation or the acquiring
corporation, as the case may be, with a value equal to the excess of the value of the shares underlying the warrant over the
exercise price of the warrant. If Section 7874(b) were to apply to the Redomestication, then, among other things, China
Ceramics, as the surviving entity, would be subject to U.S. federal income tax on its worldwide taxable income following
the Redomestication and the Business Combination as if China Ceramics were a domestic corporation.



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



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



In general, China Ceramics will be
treated as a PFIC for any taxable year in which either (1) at least 75% of its gross income (including its pro forma share of
the gross income of its 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value
of its assets (including its pro forma share of the assets of its 25% or more-owned corporate subsidiaries) produce, or are
held for the production of, passive income. Passive income generally includes dividends, interest, rents, royalties, and
gains from the disposition of passive assets. If China Ceramics is determined to be a PFIC for any taxable year (or portion
thereof) that is included in the holding period of a U.S. Holder (as defined in the section entitled
“Taxation—United States Federal Income Taxation—General”) of its securities, the U.S. Holder may be
subject to increased U.S. federal income tax liability upon a sale or other disposition of securities of China Ceramics or
the receipt of certain excess distributions from China Ceramics and may be subject to additional reporting requirements.
Based on the composition (and estimated values) of the assets and the nature of the income of China Ceramics and its
subsidiaries during its 2011 taxable year, China Ceramics does not believe that it was treated as a PFIC for such year.
However, because China Ceramics has not performed a definitive analysis as to its PFIC status for its 2011 taxable year, there
can be no assurance in respect to its PFIC status in such year. There also can be no assurance with respect to China
Ceramics’ status as a PFIC for its current (2012) taxable year or any future taxable year. U.S. Holders of securities
of China Ceramics are urged to consult their own tax advisors regarding the possible application of the PFIC rules. See the
discussion in the section entitled “Taxation—United States Federal Income Taxation—U.S.
Holders—Passive Foreign Investment Company Rules.”



14







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



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



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



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



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



Finally, if China Ceramics is determined
to be a “resident enterprise” under the EIT Law, this could result in a situation in which a 10% PRC tax is imposed
on dividends China Ceramics pays to its investors that are not tax residents of the PRC, or “non-resident investors,”
and that are enterprises but not individuals, and gains derived by them from transferring China Ceramics’ securities, if
such income is considered PRC-sourced income by the relevant PRC tax authorities. In such event, China Ceramics may be required
to withhold a 10% PRC tax on any dividends paid to such non-resident investors. Such non-resident investors also may be responsible
for paying PRC tax at a rate of 10% on any gain derived by such investors from the sale or transfer of China Ceramics’ securities
in certain circumstances. China Ceramics would not, however, have an obligation to withhold PRC tax with respect to such gain under
the PRC tax laws. Also, if China Ceramics is determined to be a “resident enterprise,” its non-resident investors who
are individuals may also be subject to potential PRC individual income tax at a rate of 20% with respect to dividends received
from China Ceramics and/or gains derived by them from the sale or transfer of China Ceramics’ securities.



15







Moreover, the State Administration of Taxation,
or “SAT,” released Circular Guoshuihan No. 698, or Circular 698, on December 10, 2009 that reinforces the taxation
of certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 addresses indirect equity
transfers as well as other issues. Circular 698 is retroactively effective from January 1, 2008. According to Circular 698, where
a non-resident investor who indirectly holds an equity interest in a PRC resident enterprise through a non-PRC offshore holding
company indirectly transfers an equity interest in the PRC resident enterprise by selling an equity interest in the offshore holding
company, and the latter is located in a country or jurisdiction where the actual tax burden is less than 12.5% or where the offshore
income of its residents is not taxable, the non-resident investor is required to provide the PRC tax authority in charge of that
PRC resident enterprise with certain relevant information within 30 days of the execution of the equity transfer agreement. The
tax authorities in charge will evaluate the offshore transaction for tax purposes. In the event that the tax authorities determine
that such transfer is abusing forms of business organization and a reasonable commercial purpose for the offshore holding company
other than the avoidance of PRC income tax liability is lacking, the PRC tax authorities will have the power to re-assess the nature
of the equity transfer under the doctrine of substance over form. A reasonable commercial purpose may be established when the overall
international (including U.S.) offshore structure is set up to comply with the requirements of supervising authorities of international
(including U.S.) capital markets. If the SAT’s challenge of a transfer is successful, it may deny the existence of the offshore
holding company that is used for tax planning purposes and subject the non-resident investor to PRC tax on the capital gain from
such transfer. Since Circular 698 has a short history, there is uncertainty as to its application. We (or a non-resident investor)
may become at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698
or to establish that we(or such non-resident investor) should not be taxed under Circular 698, which could have a material adverse
effect on our financial condition and results of operations (or such non-resident investor’s investment in us).



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



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



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



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



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



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



16







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



Our corporate affairs will be governed by
our memorandum and articles of association, the BVI Business Companies Act, 2004 (as amended), or the BVI Act,
and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions
by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a large extent
governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin Islands is derived
in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has
persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes
or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed
body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially
interpreted bodies of corporate law.



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



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



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



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



Under the laws of the British
Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the
BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an
action to enforce the constitutional documents of the   company memorandum and articles of association as shareholders are
entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of
association of the company. A shareholder may also bring an action under statute if he feels that the affairs of the company
have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to him.



There are also common law rights for
the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the
British Virgin Islands for business companies is limited.



17







The market price for our shares and
warrants may be volatile.



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



| | · | actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | changes in financial estimates by securities research analysts;
| | - | ---------------------------------------------------------------



| | · | changes in the economic performance or market valuations of companies specializing in the ceramics business in China;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | announcements by us and our affiliates or our competitors of new products, acquisitions, strategic relationships, joint ventures
or capital commitments;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | addition or departure of our senior management and key personnel; and
| | - | ---------------------------------------------------------------------



| | · | fluctuations of exchange rates between the RMB and the U.S. dollar.
| | - | -------------------------------------------------------------------



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



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



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



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



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



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



18







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



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



| | ITEM 4. | INFORMATION ON THE COMPANY
| | ------- | --------------------------



| | A. | History and Development of the Company
| | -- | --------------------------------------



Our principal PRC-based operating subsidiary,
Hengda, was established on September 30, 1993 under the laws of the PRC. All of the equity interests in Hengda are 100% owned by
Stand Best as of December 31, 2010. Hengda is a wholly foreign-owned enterprise in China.



Our other PRC-based operating subsidiary,
Hengdali, was established on June 27, 2008 under the laws of the PRC. All of the equity interests in Hengdali are 100% owned by
Hengda as of December 31, 2011.



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



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



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



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



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



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



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



19







Currently, Hengdali has three production
lines in operation (phase I of our expansion plan for Hengdali), and we anticipate completing phase II by the end of the second
quarter of 2012 which will provide an additional 20 million square meters of annual production capacity of ceramic tiles. It is
expected that phase III of Hengdali will provide an additional 14 million square meters of annual production capacity of ceramic
tiles in 2013. In 2011, we had approximately RMB 220.0 million ($34.1 million) of capital expenditures which related to phase II
of the Hengdali facility and RMB 66.3 million ($10.5 million) which related to phase III of the Hengdali facility. We expect that
capital expenditures for 2012 will be RMB 243.9 million ($38 million), which will mostly be attributable to phase III of the Hengdali
facility. Once completed, the Hengdali facility is expected to have an annual production capacity of approximately 30 million square
meters by the end of the second quarter of 2012 and an annual production capacity of 44 million square meters in 2013.



We also enhanced our Hengda facility in
2011 to replace manufacturing production line equipment. Our capital expenditures for the Hengda facility enhancement were RMB
155.3 million ($23.9 million) in 2011. The Hengda facility currently has an annual production capacity of 42.0 million square meters
of ceramic tiles. We do not expect to add any additional production capacity to our Hengda facility in 2012 and expect capital
expenditures relating to the Hengda facility to be minimal.



Combining the two facilities, our total
annual production capacity was 52.0 million square meters of ceramic tiles as of December 31, 2011 and is expected to be 72.0 million
square meters of ceramic tiles by the end of the second quarter of 2012.



The following chart reflects our organizational
structure as of December 31, 2011:









China Ceramics’ History



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



20







Pre-IPO Private Placement



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



The Initial Public Offering



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



The Business Combination



Pursuant to the terms of a merger and stock
purchase agreement dated August 19, 2009, on November 20, 2009, CHAC merged with and into China Ceramics, its wholly owned British
Virgin Islands subsidiary, and, immediately thereafter, and as part of the same integrated transaction, China Ceramics acquired
all of the issued and outstanding shares of Success Winner held by its former shareholder in exchange for $10.00 and 5,743,320
shares of China Ceramics shares. In addition, 8,185,763 shares of the China Ceramics shares were placed in escrow (the “Contingent
Shares”) to be released to the seller in the event certain earnings and stock price thresholds are achieved. Of the Contingent
Shares, up to 5,185,763 Contingent Shares will be released based on achieving growth in either net earnings before tax or net earnings
after tax, depending on the year, following the completion of an audit in accordance with IFRS. Additionally, 3,000,000 Contingent
Shares will be released if China Ceramics shares close at or above certain share price targets for any twenty trading days within
a thirty trading day period prior to April 30, 2012 (2,000,000 shares to be released if a $20 per share price target is reached
and an additional 1,000,000 shares to be released if a $25 per share price target is reached). On May 26, 2010 and April 11, 2011,
pursuant to the terms of the merger and stock purchase agreement, we issued 1,214,127 shares and 1,794,800 shares, respectively,
to Mr. Wong Kung Tok. Upon the filing of this Annual Report, we expect to issue 2,176,836 shares to Mr. Wong. After giving effect
to the 2,176,836 shares issued to Mr. Wong, we will have 20,430,838 issued and outstanding shares and 2,774,300 issued and outstanding
warrants.



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



China Ceramics’ registered
office is c/o Harneys Corporate Services Limited of Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin
Islands.



| | B. | Business Overview
| | -- | -----------------



History and Current Business



Overview



We are a leading Chinese manufacturer of
ceramic tiles used for exterior siding and for interior flooring and design in residential and commercial buildings. The ceramic
tiles, sold under the “HD” or “Hengda,” “HDL” or “Hengdeli”, “Pottery Capital
of Tang Dynasty”, “TOERTO” and  ”WULIQIAO” brands are available in over two thousand styles,
colors and size combinations. Currently, we have six principal product categories: (i) porcelain tiles, (ii) glazed tiles, (iii)
glazed porcelain tiles, (iv) rustic tiles, (v) ultra-thin tiles and (vi) polished glazed tiles. Porcelain tiles are our best-selling
products, accounting for over 68.4% of our total revenue in 2011. The market for our products has been growing rapidly, due to
the increasing demand for construction materials in the PRC attributable to population growth, population urbanization and an increasing
standard of living.



21







Ceramic tiles are widely used in the PRC
as a construction material for residential and commercial buildings. Ceramic tiles are used for flooring, interior walls for decorative
purposes and on exterior siding due to their resistance to temperature, extreme environments, erosion, abrasion and discoloration
for extended periods of time. The PRC government has enacted legislation to promote real-estate construction which has had a positive
impact on the demand for ceramic tiles. Specifically, the government introduced a RMB4.0 trillion ($585 billion) stimulus package
during late 2008 which was devoted to promoting large infrastructure and real-estate investment. Furthermore, according to the
master plan issued by the Ministry for Land and Resources on April 15, 2010, the total housing land supply will reach 184,700 hectares
in 2010, which according to Citigroup Global Markets is 108,239 more (or 141% more) hectares than the 76,461 hectares of actual
land supply reported in 2009. Citigroup Global Markets also reports that the PRC government has actively promoted the construction
of affordable housing by ensuring that 77% of the new land made available was allocated to those in the low-income bracket, especially
in Tier II and III cities. During the 11th National People’s Congress (NPC) relating to the central government’s draft
12th Five Year Plan (2011 -2015), Premier Wen Jiabao pledged that the government will curb excessive housing price growth and provide
enough affordable houses for needy residents. Premier Wen stated that, from 2011 to 2015, the country aims to build 36 million
units of affordable housing covering 20 percent of the country’s households.



Our manufacturing facilities operated as
Jinjiang Hengda Ceramics Co., Ltd. are located in Jinjiang, Fujian Province, and our manufacturing facilities operated as Jiangxi
Hengdali Ceramic Materials Co., Ltd. are located in Gaoan, Jiangxi Province. Combined, these facilities currently provide an aggregate
annual production capacity of approximately 52 million square meters. We anticipate expanding to approximately 72 million square
meters by the end of the second quarter of 2012 through improvements and new production line construction at these facilities.
We currently have twelve production lines, with each production line optimized to manufacture specific size ranges to maximize
efficiency and output.



We primarily sell our products through an
exclusive distributor network or directly to property developers. We have long-term relationships with our customers; our top ten
customers in 2011 have been purchasing from us for over ten years.We have been in discussions with some large property developers
in China to be their exclusive or primary provider of ceramic tiles and, although no arrangements or agreements have been entered
into, we expect to enter into arrangements of that type in the forseeable future.



We focus our research and development efforts
on developing innovative and environmentally-friendly products. We own four utility model patents. Through our chief executive
officer, Huang Jia Dong, we have the exclusive right to use 11 design patents. Our stringent tile management and marketing efforts
have created a strong business reputation and high brand awareness as demonstrated by us receiving the “Chinese Well-Known
Trademark” award from the Intermediate People’s Court of Xiangtan City and “Asia’s 500 Most Influential
Brands 2010” award from the World Brand Laboratory.



Our Industry



We operate in the Chinese ceramic tile industry
which is fragmented, highly competitive and closely tied to the PRC economy. Although there is little industry data available,
management believes from its knowledge of other manufactures that it is one of the largest PRC-based manufacturers of ceramic tiles.



In 2011, according to China Daily, China’s
gross domestic product (GDP) totaled approximately $7.3 trillion, making it the world’s second largest economy, second only
to the United States. Construction and real estate development continues to be a key driver behind China’s GDP growth with
property investment and related industries constituting a significant percentage of its GDP. Demand for ceramic tile product depends
upon and directly correlates to activity in the construction and real estate development industries. The ceramic tile industry’s
two primary markets in the PRC are residential construction applications and commercial construction applications.



22







The PRC ceramic tile industry (both interior
and exterior) manufactured keep growing every year. We believe that domestic demand in the PRC accounts for the majority of total
demand for ceramic tiles produced in the PRC. China is also the world’s largest exporter of ceramic tiles.



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



Key Factors Affecting the Chinese Ceramic Tile Industry



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



Urbanization



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



Potential of Tier II and III cities



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



Importance of distributors



The majority of the exterior ceramic tile
manufacturers do not have sufficient resources to provide their own sales coverage nationwide and rely heavily on local distributors
with roughly 73% of total sales pushed through such channels. As competition has intensified, many manufacturers have started to
bid directly to real-estate developers for large construction projects. Direct sales represented 12% of the total from 2010 to
2011 and market participants expect this share will continue to increase, placing a premium on a manufacturer’s internal
sales force while requiring product lines with greater flexibility to meet direct customer demands.



23







Low-income / social welfare housing



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



Industry Product Offerings



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



Exterior ceramic tiles



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



Interior ceramic tiles



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



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



Future Product Trends



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



China Ceramics’ Products



We sell 100% exterior wall ceramic tiles. 
We produce six types of ceramic tiles:



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



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



24







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



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



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



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



Our Competitive Strengths



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



Brand Recognition



We believe that the “Hengda,”
“HD,” “Hengdeli,” “HDL,”, “Pottery Capital of Tang Dynasty”, “TOERTO”
and “WULIQIAO” brands are well recognized and highly regarded in markets where our products are sold. Before 13 April,
2011, WULIQIAO was a trademark owned by Fujian Province Jinjiang City Hengda Construction Materials Co., Ltd.. Hengda signed a
Trademark Licensing Contract with Fujian Province Jinjiang City Hengda Construction Materials Co., Ltd. and was licensed the exclusive
right to use WULIQIAO during the terms of that trademark, which expires on January 27, 2020. Since 13 April, 2011, WULIQIAO has
been transferred to Hengdali. In 2005, the brands “Hengda” and “HD” were each certified as a Fujian Well-Known
Trademark by the Fujian Well-Known Trademark Award Commission and recognized as a “Chinese Well-known Trademark” in
2005 by the Intermediate People’s Court of Xiangtan City. In 2010, we were recognized with the “Asia’s 500 Most
Influential Brands 2010” award from the World Brand Laboratory. Our products are selected for inclusion in strategic and
high-profile projects such as the 16th Asian Games, the 11th National Chinese Games Village and the Chinese Academy of Sciences.



Focus on Tier II and Tier III Cities



Because of recent efforts by the PRC government
to tighten monetary policy and constrain real estate prices in the “Tier-I” cities such as Beijing, Shanghai, Shenzhen,
and Guangzhou, we believe the outlook for our business has improved, given our concentration in Tier-II and Tier-III cities. Approximately
10.91% of our revenue in the year ended December 31, 2011 was from sales of our products for use in projects in Tier-1 cities,
and we expect any weakness in the Tier-1 cities to be offset by continued demand growth in the Tier-2 and Tier-3 cities, driven
by urbanization trends as well as by the PRC government’s commitment to low-income housing.



Long-Term Sales Relationships



We have established an extensive distributor
network and long term customer relationships, where Hengda’s top ten customers in 2011 have been purchasing from the company
for over 10 years each.



25







Experienced Management Team



Our experienced, professional and dedicated
management team brings a wealth of knowledge to our day-to-day operations and provides us with strategic direction. Our Chief Executive
Officer and founder, Huang Jia Dong, has more than 20 years of experience in the ceramics industry and is Vice-Chairman of the
Fujian Province Ceramic Industry Association. The five other members of the senior management team have more than 80 combined years
of experience in the ceramic industry.



Modern, environmentally friendly, and
efficient manufacturing capabilities



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



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



Focus on Research and Development



We have devoted substantial resources to
establishing research and development capabilities in an effort to improve our products and diversify our product mix. Our R&D
team has also focused on environmentally friendly products like the ultra-thin tile, which in addition to using fewer raw materials
can reduce load-bearing stress and can provide enhanced insulating capabilities, and developed over 2000 types of different product
combinations. As of the date of this Annual Report, we own four utility model patents. We also exclusively license from our chief
executive officer, Huang Jia Dong 11 design patents for no consideration. “Utility model patents” means any new technical
solution relating to the shape, the structure, or their combination, of a product, which is fit for practical use. In addition,
we were awarded a “High-tech Enterprise Certificate” in 2007 from Fujian Provincial Department of Science and Technology,
affirming our innovations in the industry. As of December 31, 2011, our research and development team includes 86 employees and
focuses on new products as well as developing energy and resource efficient production methods.



Strategic Location within the PRC



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



Our Growth Strategy



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



Expanding Production Capacity



In January 2010, we acquired Hengdali, a
new facility in Gaoan, Jiangxi Province, which has three operating production lines with current annual production capacity of
10 million square meters. Our expansion of the Hengdali facility is to be conducted over three phases. Phase I was completed in
2009 and was put into production in early 2010, bringing annual production capacity after completion of phase I to 10 million
square meters. We expect the annual production capacity to increase by an additional 20 million square
meters after the completion of phase II. We anticipate completing phase III in 2013, and expect the annual production
capacity to increase by an additional 14 million square meters with the completion of phase III. We expect the total annual production
capacity of the Hengdali facility to provide 44 million square meters of ceramic tiles in 2013. In 2011, our capital expenditures
for phase II were RMB 220.0 million ($34.1 million) and were RMB 66.3 million ($10.5 million) for phase III. We expect that our
capital expenditures for 2012 will be approximately RMB 243.9 million ($38 million), which will mostly be attributed to phase III
of the Hengdali facility.



26







The Hengda facility currently has as annual
production capacity of 42.0 million square meters of ceramic tiles and it is expected that no additional production capacity will
be added to this facility in 2012. The capital expenditures associated with Hengda is expected to be minimal in 2012..



Combining the two facilities, we expect
to have annual production capacity of 72 million square meters by the end of the second quarter of 2012 (an increase of 34
million square meters since 2009). In addition to a more efficient manufacturing process at both facilities, labor and raw materials
costs are also expected to be lower following the capital investments due to the advanced equipment and manufacturing technologies
that are being implemented.



Broadening Our Distribution Network



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



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



Evaluating Opportunities to Increase
Exports



Currently, we export approximately 7% of
our products through PRC trading companies. We intend to increase the exported volume of our products with additional PRC trading
companies and by promoting our products in regional and international trade shows with a focus on direct selling efforts to property
developers in the PRC.



Pursuing Selective Acquisition Opportunities



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



Further Enhancing Our Brand Awareness



We plan to enhance awareness of the “Hengda”
or “HD,” “HDL” or “Hengdeli,” “TOERTO” and “WULIQIAO” brands in the
PRC exterior ceramic tile industry. Hengda produces our “Hengda” or “HD” brands, which are marketed toward
the high-end market. Hengdali produces our “HDL” or “Hengdeli” brands, which are marketed to the mid-level
market, “TOERTO” brand, which is a specialized brand for our large-sized rustic tiles and “WULIQIAO” brand,
which is a specialized brand for oriental pattern large-sized rustic tiles. WULIQIAO is a trademark owned by Fujian Province Jinjiang
City Hengda Construction Materials Co., Ltd. Hengda signed a Trademark Licensing Contract with Fujian Province Jinjiang City Hengda
Construction Materials Co., Ltd. and has been licensed the exclusive right to use WULIQIAO during the terms of that trademark.
Our branding strategy is to reach a larger customer base with a wide spectrum of product offerings. We plan on strengthening our
brands by marketing our products to property developers and the construction industry, partnering with local distributors, attending
national fairs and promoting our products through inclusion in strategic high-profile projects.



27







Developing Advanced Products That Meet
Evolving Building Construction Requirements



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



| | · | Reduce raw materials and energy consumption in the production process;
| | - | ----------------------------------------------------------------------



| | · | Have a density less than half of other tiles;
| | - | ---------------------------------------------



| | · | Reduce load bearing stress on exterior walls of buildings and tile shedding;
| | - | ----------------------------------------------------------------------------



| | · | Recycle our by-products and limit waste output in our production process;
| | - | -------------------------------------------------------------------------



| | · | Utilize a honeycomb structure which optimizes insulation performance for new products, such as our light-weight product lines;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | Have higher standards for water resistance; and
| | - | -----------------------------------------------



| | · | Are easier to attach to exterior walls.
| | - | ---------------------------------------



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



Production Process and Facilities



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



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



28











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



| | (i) | Inspecting
| | --- | ----------





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



| | (ii) | Mixing and Grinding
| | ---- | -------------------



After stringent checks on the quality of the clay and weighing,
the raw material department mixes the clay as determined during inspection. The mixture is then sent to a ball mill where water
is added to form a slurry for finer grinding. This process takes approximately 12 hours to complete. The slurry is then filtered
and metallic particles are removed magnetically. The slurry is inspected at this stage for density, flow speed and water ratio.
Compared with many competitors who use stone ball millers, we use aluminum ball millers to grind materials. Aluminum ball millers
have a higher initial cost, but have higher grinding speed and can better process stone chips existing in the slurry. The slurry
is then moved to a large slurry pool. Based on the production schedule, portions of the slurry may be moved to smaller slurry pools
where coloring materials can be added. The mixture in smaller slurry pools are churned for approximately 24 hours to keep quality
and color consistent in the end product.



| | (iii) | Spray Drying
| | ----- | ------------



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



29







| | (iv) | Molding
| | ---- | -------



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



| | (v) | Glazing
| | --- | -------



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



| | (vi) | Firing
| | ---- | ------



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



| | (vii) | Packaging
| | ----- | ---------



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



Quality Control & Assurance



The quality of our products is critical to our continued growth
and success. In July 2002, our Hengda facility received ISO 9001:2000 accreditation, an international certification certificate,
acknowledging our quality control process. Quality control procedures begin at the receipt of raw materials and continue throughout
the manufacturing process ending with a final quality check prior to packaging. Our employees are required to undergo internal
training regarding our quality control policies, targets and procedures, as well as production and processing techniques. As of
December 31, 2011, our quality assurance team consisted of 95 members.



Notable Awards & Certificates



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



30







|Year
        Initially
Received |  | Award & Certificate Name                                        |  | Issuer                                                                          
|------------------------------- |  | --------------------------------------------------------------- |  | --------------------------------------------------------------------------------
|2002                            |  | ISO 9001:2000 Quality Management System Certificate             |  | China Certification Center for Quality Mark                                     
|                                |  |                                                                 |  |                                                                                 
|2005                            |  | ISO 14001:2004 Environmental Management Standards Certificate   |  | Fujian Branch of Beijing World Standards Certification Centre                   
|                                |  |                                                                 |  |                                                                                 
|2005                            |  | Fujian Well-known Trademark                                     |  | Fujian Well-known Trademark Award Commission                                    
|                                |  |                                                                 |  |                                                                                 
|2005                            |  | Chinese Well-known Trademark                                    |  | Intermediate People’s Court of Xiangtan City                                    
|                                |  |                                                                 |  |                                                                                 
|2006                            |  | Inspection Exempted Products Certificate                        |  | National Bureau of Quality and Technical Supervision                            
|                                |  |                                                                 |  |                                                                                 
|2007                            |  | High-tech Enterprise Certificate                                |  | Fujian Provincial Department of Science and Technology                          
|                                |  |                                                                 |  |                                                                                 
|2008                            |  | Energy Conservation Advanced Enterprise                         |  | Jinjiang City Government                                                        
|                                |  |                                                                 |  |                                                                                 
|2009                            |  | Fujian 100 Important Industrial Enterprise                      |  | Fujian Economic and Trading Commission                                          
|                                |  |                                                                 |  |                                                                                 
|2010                            |  | Asia’s 500 Most Influential Brands 2010                         |  | World Brand Laboratory                                                          
|                                |  |                                                                 |  |                                                                                 
|2010                            |  | Fujian’s Top 300 Enterprises                                    |  | Fujian Enterprise Evaluation Center and Fujian Enterprise Evaluation Association
|2011                            |  | China’s 500 Most Valuable Brands                                |  | World Brand Laboratory                                                          
|                                |  |                                                                 |  |                                                                                 
|                                |  |                                                                 |  |                                                                                 
|2011                            |  | Top 100 Fastest Growing Enterprises for China Building Material |  | China Building Materials Enterprise Management Association                      
|2011                            |  | Top 500 Enterprise in China Building Material                   |  | China Building Materials Enterprise Management Association                      
|2011                            |  | Customer Preferred Top 10 Brand                                 |  | China International Nameplate Development Association                           





Customers, Sales & Marketing



We primarily sell our products through an
exclusive distributor network or directly to property developers. Distributors are located in major cities such as Shanghai, Beijing,
and Shenyang and second and third tier cities such as Chengdu, Haikou, Hefei, Tianjin, Wuhan and other rural areas in the PRC.
We have long-term relationships with many of our customers; our top ten customers in 2011 have been purchasing from us for over
ten years. We pay commissions to our distributors on the cash collected for us. The general commissions are calculated at a progressive
rate of sales, with the average commission rate for 2011 being approximately 4.7%.



The following table sets forth revenues
by geographic market and the related percentage for the years ended 2009, 2010, and 2011:



|                  |  | 2009    |         |  | 2010       |  |      | 2011    | 
|----------------- |  | ------- | ------- |  | ---------- |  | ---- | ------- | 
|Geographic Market |  | RMB’000 |         |  | Percentage |  |      | RMB’000 | 
|PRC               |  |         | 782,549 |  |            |  | 93.6 | %       | 
|Japan             |  |         | 6,224   |  |            |  | 0.7  | %       | 
|Burma             |  |         | 5,346   |  |            |  | 0.6  | %       | 
|India             |  |         | 5,251   |  |            |  | 0.6  | %       | 
|Korea             |  |         | 5,277   |  |            |  | 0.6  | %       | 
|Thailand          |  |         | 4,889   |  |            |  | 0.6  | %       | 
|Hong Kong         |  |         | 4,330   |  |            |  | 0.5  | %       | 
|Spain             |  |         | 3,538   |  |            |  | 0.4  | %       | 
|Turkey            |  |         | 3,793   |  |            |  | 0.5  | %       | 
|South Africa      |  |         | 3,362   |  |            |  | 0.4  | %       | 
|Sierra Leone      |  |         | 2,596   |  |            |  | 0.3  | %       | 
|Ghana             |  |         | 2,947   |  |            |  | 0.4  | %       | 
|Russia            |  |         | 2,660   |  |            |  | 0.3  | %       | 
|Morocco           |  |         | 1,410   |  |            |  | 0.2  | %       | 
|Great Britain     |  |         | 1,575   |  |            |  | 0.2  | %       | 
|Total             |  |         | 835,747 |  |            |  | 100  | %       | 



31







Our major customers that accounted for 2.6%
or more of our total revenue for the last three years are: Foshan City Jundian Ceramics Co., Ltd., Xiamen Tongying Trading Co.,
Ltd., Liaoning Yatong Logistics Co. Ltd., Beijing Zhihe Construction Industry Trading Co., Ltd., and Liuzhou City Shengquanda Trading
Co., Ltd. None of these customers individually accounted for more than 10% of our total revenue for the year ended December 31,
2011.



The following table sets forth revenue for
our major customers and the related percentage of our total revenue for the years ended 2009, 2010, and 2011.(1)





|                                                            |  | 2009    |        |  | 2010       |  |      | 2011    | 
|----------------------------------------------------------- |  | ------- | ------ |  | ---------- |  | ---- | ------- | 
|Customer Name                                               |  | RMB’000 |        |  | Percentage |  |      | RMB’000 | 
|Foshan City Jundian Ceramics Co., Ltd.                      |  |         | 50,718 |  |            |  | 5.76 | %       | 
|Xiamen Tongying Trading Co., Ltd.                           |  |         | 43,890 |  |            |  | 4.99 | %       | 
|Liaoning Yatong Logistics Co. Ltd.                          |  |         | 41,304 |  |            |  | 4.69 | %       | 
|Beijing Zhihe Construction Industry Trading Co., Ltd.       |  |         | 35,805 |  |            |  | 4.07 | %       | 
|Liuzhou City Shengquanda Trading Co., Ltd.                  |  |         | 27,119 |  |            |  | 3.08 | %       | 
|Jiangxi Zhongshi Industry Co., Ltd.                         |  |         | 20,511 |  |            |  | 2.33 | %       | 
|Jingdezhen Nanxing Materials Co., Ltd.                      |  |         | 19,437 |  |            |  | 2.21 | %       | 
|Chaozhou Chenqiao Jianxing Construction Materials Co., Ltd. |  |         | 30,112 |  |            |  | 3.42 | %       | 
|Chengdu City Dehui Construction Materials Co., Ltd.         |  |         | 48,200 |  |            |  | 5.48 | %       | 
|Jinzhou Honghan Real Estate Development Co., Ltd.           |  |         | 15,717 |  |            |  | 1.79 | %       | 





(1)The revenue generated was gross revenue,
excluding rebate and discount.



Our business and profitability is not materially
dependent on any industrial, commercial or financial contract with any of our customers. None of our directors or executive officers
or their respective affiliates has any interest, direct or indirect, in any of our customers.



32







Sales and Marketing



The sales and marketing department is responsible
for formulating sales policies and pricing based on market analysis, surveys and forecasts, developing and implementing our sales
and marketing campaigns, and promoting our products and brand. Additionally, our sales department is responsible for cultivating
new customers and business relationships, as well as servicing existing accounts.



We participate in a variety of sales and
marketing activities including trade shows, in-house sales and marketing seminars, factory tours, outdoor advertising, B2B catalogs
and customer calls. We believe that these techniques allow us to gather and better understand customers’ needs and requirements
and to obtain feedback on our products and services and intend to continue utilizing these techniques.



In the future, we intend to participate
in international trade fairs and seminars from time to time to promote our brand and products, and to establish a network with
industry professionals outside the PRC. To augment our plan to expand our markets internationally, our products will also be advertised
on and available to purchase on the Internet. As of December 31, 2011, our Sales and Marketing Department had 86 employees.



Backlog



We typically receive orders from customers
two months in advance of production on a rolling basis. We enter into a dealership agreement with customers, and a sales or purchase
contract each time a customer places an order. If a customer makes any changes to an order after we have used any raw materials
in fulfilling the order, the customer bears the losses. Once we have delivered the products to the customer and the customer has
examined and accepted the products, we provide no quality guarantees. We confirm amounts payable with each customer on a monthly
basis. The products typically must be delivered to customers within 90 days of receipt of the sales order, and the customers typically
must pay for the products within 90 days of delivery.



As of December 31, 2011, our backlog was
RMB 372.6 million ($59.2 million) which represents approximately the next three months of revenue at the time, compared to a backlog
of approximately RMB 307.9 million ($46.8 million) on December 31, 2010, a year over year increase of 21.0%. In the opinion of
our management, the amount of backlog is indicative of trends in our business.



Major Suppliers & Raw Materials



Our major suppliers will usually deliver
raw materials within 1-2 months after they have received our purchase order. The typical credit terms from our major suppliers
of clay is from 3 to 4 months and for coal is from 1 to 2 months after the raw materials have been delivered.



Clay and coal are the two main raw materials
required to manufacture ceramic tiles. We purchase these raw materials from at least two independent suppliers respectively. Other
major sourced materials include coloring and packaging. We are not dependent on any one of our PRC based suppliers as we are able
to source raw materials from alternative vendors should the need arise.



Our suppliers are selected by our purchasing
department and are assessed on criteria such as the quality of materials supplied, duration of their business relationship with
us, pricing, delivery reliability and response time to orders placed by us. We have sufficient raw materials on hand to support,
on average, three weeks of production at any point in time to minimize any potential production delays that could arise due to
a delay in raw material delivery.



We have not experienced significant production
disruptions due to a supply shortage from our suppliers, nor have we had a major dispute with a supplier.



Our major suppliers that accounted for more
than 3.0% of our total purchases in fiscal years 2009, 2010 and 2011 are:Foshan City Nanhai Zhongtai Glaze
Production Plant, Foshan City Sanshui Golden Eagle Inorganic Materials Co., Ltd., Foshan City Henglixin Diamond Products Co., Ltd.,
Jiangxi Tungsten Industry Group Co., Ltd., Fujian Province Dehua County Shangdi Guoshan Ceramic Mine, Jiangxi Province Jing’an
Yuntong Cargo Services Co., Ltd. and Jinjiang City Xinglida Paper Products Co., Ltd.. No major supplier individually accounted
for more than 15% of our total raw material purchases in 2011. Our business or profitability is not materially dependent on any
industrial, commercial or financial contract with any of our suppliers.



33







The following chart lists our major suppliers
and the % of total purchases in fiscal years 2009, 2010, and 2011:



|                                                               |  |           |  | 2009    |        |  | 2010       |  |      | 2011    | 
|-------------------------------------------------------------- |  | --------- |  | ------- | ------ |  | ---------- |  | ---- | ------- | 
|Supplier Name                                                  |  | Type      |  | RMB’000 |        |  | Percentage |  |      | RMB’000 | 
|Fengxin Huafeng Ceramic Co., Ltd.                              |  | Clay      |  |         | -      |  |            |  | -    |         | 
|Foshan City Nanhai Zhongtai Glaze Production Plant             |  | Color     |  |         | 22,062 |  |            |  | 5.36 |         | 
|Fujian Nanping Minning Mining Exploitation Co., Ltd.           |  | Clay      |  |         | 26,608 |  |            |  | 6.47 |         | 
|Foshan City Sanshui Golden Eagle Inorganic Materials Co., Ltd. |  | Color     |  |         | 18,727 |  |            |  | 4.55 |         | 
|Foshan City Henglixin Diamond Products Co., Ltd.               |  | Clay      |  |         | 13,610 |  |            |  | 3.27 |         | 
|Jiangxi Tungsten Industry Group Co., Ltd.                      |  | Clay      |  |         | 12,296 |  |            |  | 3.03 |         | 
|Yongchun Junjie Mining Co., Ltd.                               |  | Coal      |  |         | -      |  |            |  | -    |         | 
|Fujian Province Dehua County Shangdi Guoshan Ceramic Mine      |  | Clay      |  |         | 25,215 |  |            |  | 6.13 |         | 
|Jiangxi Province Jing’an Yuntong Cargo Services Co., Ltd.      |  | Coal      |  |         | 18,001 |  |            |  | 4.37 |         | 
|Jinjiang City Xinglida Paper Products Co., Ltd.                |  | Packaging |  |         | 19,896 |  |            |  | 4.84 |         | 



None of our officers or directors or their
respective affiliates has any interest, direct or indirect, in any of the above major suppliers. There are no arrangements or understanding
with any suppliers pursuant to which any of our directors and executive officers were appointed.



Research and Development



We have devoted substantial resources to
establishing research and development capabilities in an effort to improve our products and diversify our product mix. Our research
and development team focuses on new products as well as developing energy and resource efficient production methods.



We focus our research and development efforts
on the following:



| | · | Expanding and improving production capacity;
| | - | --------------------------------------------



| | · | Improving and developing new production and processing techniques;
| | - | ------------------------------------------------------------------



| | · | Improving the use and selection of raw materials to lower costs; and
| | - | --------------------------------------------------------------------



| | · | Developing new products and designs to address changing market demands.
| | - | -----------------------------------------------------------------------



Our research and development efforts resulted
in the recent launch of the polished glazed tiles. Our research and development expenses were approximately RMB 14.3 million ($2.1
million), RMB 16.4 million ($2.5 million) and RMB 18.2 ($2.9 million) for fiscal years 2009, 2010, and 2011. From time to time,
we may enter into collaboration with other research institutes to develop new products or improve our production process. As of
December 31, 2011, our R&D department had 86 employees.



Competition



We face intense competition from our existing
competitors and new market entrants. Our primary competitors are usually privately owned companies that are located mainly in the
PRC. Our principal competitors are Guangdong White Rabbit Ceramics, Foshan Shiwan Yulong Ceramics Co., Ltd Jinjiang Haoyuan Ceramics,
Co., Ltd, Jinjiang Wanli Ceramics Co., Ltd, Jinjiang Tengda Ceramics Co., Ltd and Jinjiang Haoshan Construction Materials Co.,
Ltd. We compete primarily based on product quality, brand recognition, and an extensive distributor network.



34







Intellectual Property



We protect our intellectual property primarily
through a mix of patent and trademark registrations.



Registered Trademarks



Our brand name distinguishes our products
and promotes consumer awareness of our products.



We have registered the following trademarks
in the PRC:



|Trademark |  | Class/Products                                                                                                                                                                                                                  |  | Validity Term                                                                                                           |  | Registration No.
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----------------
|          |  |                                                                                                                                                                                                                                 |  |                                                                                                                         |  |                 
|          |  | 19/ Red floor tile and ceramic tile                                                                                                                                                                                             |  | From December 14, 2003 to December 13, 2013                                                                             |  | 669884          
|          |  |                                                                                                                                                                                                                                 |  |                                                                                                                         |  |                 
|          |  | 19/ Tile, ceramic tile and wave pattern tile                                                                                                                                                                                    |  | From February 21, 2002 to February 20, 2012
        (The application for the registration renewal is under
        way) |  | 1716827         
|          |  |                                                                                                                                                                                                                                 |  |                                                                                                                         |  |                 
|          |  | 19/ Tile; non-metallic tile; ceramic tile; non-metallic wall tile for constructional use; wave pattern tile; glass mosaic; non-metallic floor tile                                                                              |  | From March 28, 2009 to March 27, 2019                                                                                   |  | 4971248         
|          |  |                                                                                                                                                                                                                                 |  |                                                                                                                         |  |                 
|          |  | 19/ Tile; ceramic tile; wave pattern tile; non-metallic tile for constructional use; marble; manual stone; terrazzo; glass mosaic                                                                                               |  | From September 14, 2006 to September 13, 2016                                                                           |  | 3893819         
|          |  |                                                                                                                                                                                                                                 |  |                                                                                                                         |  |                 
|          |  | 19/ Tile; non-metallic tile;  ceramic tile; glass mosaic;  non-metallic tile for constructional use; non-metallic construction material; marble; granite; manual stone.                                                         |  | From October 21, 2010 to October 20, 2020                                                                               |  | 7543650         
|          |  |                                                                                                                                                                                                                                 |  |                                                                                                                         |  |                 
|          |  | 19/ Tile; non-metallic tile; non-metallic tile for constructional use; non-metallic wall tile for constructional use; non-metallic floor tile; non-metallic ground tile; glass mosaic; plaster; cement; concrete building unit. |  | From May 14, 2011 to May 13, 2021                                                                                       |  | 8289754         



35







| |  | 19/ Tile; non-metallic tile; non-metallic tile for constructional use; non-metallic wall tile for constructional use; non-metallic floor tile; non-metallic ground tile; glass mosaic; plaster; cement; concrete building unit. |  | From May 14, 2011 to May 13, 2021       |  | 8289921
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- |  | -------
| |  |                                                                                                                                                                                                                                 |  |                                         |  |        
| |  | 19/ Tile, ceramic tile, asbestos cement tile, glass mosaic, non-metallic tile, non-metallic tile for constructional use, fireclay, firebrick, tile, ceramic kiln furniture.                                                     |  | From April 13, 2011 to January 27, 2020 |  | 1357830



Before April 13, 2011, WULIQIAO was
a trademark owned by Fujian Province Jinjiang City Hengda Construction Materials Co., Ltd. for Class 19 (Products:
tile, ceramic tile, asbestos cement tile, glass mosaic, non-metallic tile, non-metallic tile for constructional use,
fireclay, firebrick, tile, ceramic kiln furniture). Hengda signed a Trademark Licensing Contract with Fujian Province
Jinjiang City Hengda Construction Materials Co., Ltd. and was licensed the exclusive right to use WULIQIAO during the terms
of that trademark, which expires on January 27, 2020. Since April 13, 2011, WULIQIAO has been transferred to Hengdali,
according to Certificate of Approved Transference of Trademark issued on April 13, 2011 by Trademark Office of the State
Administration for Industry & Commerce of the P.R. China.



Patents



We currently own four utility model patents
in the PRC for exterior wall tiles, which were applied for in November of 2007. A “utility model patent” is a new technical
solution relating to the shape, the structure, or their combination, of a product, which is fit for practical use. Utility model
patents have a ten year term from the application date.



Pursuant to a Patent Licensing Contract
dated May 8, 2009 between us and our director and CEO Huang Jia Dong, Huang Jia Dong has licensed to us, for no consideration,
the exclusive right to use PRC design patents owned by Huang Jia Dong during the terms of each of the patents. There are a total
of 11 design patents for ceramic tiles which were applied for by Mr. Huang between August 2000 through November 2002. The terms
of such patents are for ten years from the application date.



Except as disclosed above, as of December
31, 2011, our business or profitability is not materially dependent on any other trademarks, copyrights, registered designs, patents,
grant of licenses from third parties, new manufacturing processes or other intellectual property rights.



Environmental



We are subject to various environmental
regulations with respect to noise and air pollution and discharge of hazardous materials. We are also subject to periodic inspection.
We have obtained a Temporary Pollution Discharge Permit for our Hengda production facility, which is subject to annual renewal,
and we are currently in the process of applying for a Pollution Discharge Permit for our Hengdali production facility. We are not
subject to any pending actions of alleged violations of applicable PRC environmental laws.



36







Legal Proceedings



There are currently no material lawsuits
currently pending against China Ceramics, Hengda, Hengdali, Success Winner or Stand Best.



Seasonality



The second and third calendar quarters have
been the peak season of the property developing industry, and, therefore, our quarterly sales are usually highest from May to September
compared to the rest of the year. We have lower sales between the months of January and March due to the effects of cold weather
and the PRC Spring Festival.



The seasonality information above is based
on our turnover trend in the last three years and may vary slightly from year to year depending on the demand by our customers
and end customers for our products. However, management believes that the seasonality information for the last three years is representative
of the seasonality trend going forward.



Governmental Regulations



Environmental Protection Regulations



In accordance with the PRC Environmental
Protection Law adopted on December 26, 1989, the Administration Supervisory Department of Environmental Protection of the State
Council sets the national guidelines for the discharge of pollutants. The People’s Governments of provinces, autonomous regions
and municipalities may also set their own guidelines for the discharge of pollutants within their own provinces or districts in
the event that the national guidelines are inadequate. A company which causes environmental pollution and discharges other polluting
materials which endanger the public should implement environmental protection methods and procedures into their business operations.
This may be achieved by setting up a system of accountability within the company’s business structure for environmental protection,
adopting effective procedures to prevent environmental hazards such as waste gases, water and residues, dust powder, radioactive
materials and noise arising from production, construction and other activities from polluting and endangering the environment.
The environmental protection system and procedures should be implemented simultaneously with the commencement of and during the
operation of construction, production and other activities undertaken by the company. Any company which discharges environmental
pollutants should report and register such discharge with the Administration Supervisory Department of Environmental Protection
and pay any fines imposed for the discharge. A fee may also be imposed on the company for the cost of any work required to restore
the environment to its original state. Companies which have caused severe pollution to the environment are required to restore
the environment or remedy the effects of the pollution within a prescribed time limit. If a company fails to report and/or register
the environmental pollution it caused, it will receive a warning or be penalized. Companies that fail to restore the environment
or remedy the effects of the pollution within the prescribed time will be penalized or have their business licenses terminated.
Companies that have polluted and endangered the environment must bear the responsibility for remedying the danger and effects of
the pollution, as well as to compensate any losses or damages suffered as a result of such environmental pollution.



Hengda has obtained Temporary Pollutant
Discharge Permit (JH(2010)ZZ No. 677) granted by Jinjiang City Environmental Protection Bureau on December 24, 2010. Hengdali is
currently in the process of applying for a Pollutant Discharge Permit, and the environmental protection agency in Gaoan has accepted
Hengdali’s application. If the Pollutant Discharge Permit is not issued and Hengdali discharges pollutants, Hengdali may
be warned, ordered to stop discharging pollutants, and/or fined by the environmental protection agency.



37







Government Regulations Relating to Foreign
Exchange Controls



The principal regulation governing foreign
exchange in the PRC is the Foreign Currency Administration Rules and a series of implementing rules and regulations, as amended.
Under these rules, the Renminbi, the PRC’s currency, is freely convertible for trade and service related foreign exchange
transactions (such as normal purchases and sales of goods and services from providers in foreign countries), but not for direct
investment, loan or investment in securities outside of China unless the prior approval of the State Administration for Foreign
Exchange, or SAFE, of the PRC is obtained. 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 basic account and capital account. Currency translation within the scope of the basic
account, such as remittance of foreign currencies for payment of dividends, can be effected without requiring the approval of the
SAFE. Such transactions are subject to the consent of PRC banks which are authorized by the SAFE to review basic account currency
transactions. However, conversion of currency in the capital account, including capital items such as direct investment, loans
and securities, still require approval of the SAFE. On November 21, 2005, the SAFE issued Circular No. 75 on Relevant Issues Concerning
Foreign Exchange Control on Domestic Residents Corporate Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles.
Circular No. 75 confirms that the use of offshore special purpose vehicles as holding companies for PRC investments are permitted,
but proper foreign exchange registration applications are required to be reviewed and accepted by the SAFE.



Regulation of Foreign Currency Exchange



Foreign currency exchange in the PRC is
governed by a series of regulations, including, without limitation, the Foreign Currency Administrative Rules (1996), as amended,
and the Administrative Regulations Regarding Settlement, Sale and Payment of Foreign Exchange (1996), as amended. Under these regulations,
the Renminbi is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment,
loans or investments in securities outside China without the prior approval of the SAFE. Pursuant to the Administrative Regulations
Regarding Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises in China may purchase foreign exchange
without the approval of the SAFE for trade and service-related foreign exchange transactions by providing commercial documents
evidencing these transactions. They may also retain foreign exchange, subject to a cap approved by SAFE, to satisfy foreign exchange
liabilities or to pay dividends. However, the relevant Chinese government authorities may limit or eliminate the ability of foreign-invested
enterprises to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment,
loan and investment in securities outside China are still subject to limitations and require approvals from the SAFE. On August
29, 2008, SAFE issued Circular No. 142 on Relevant Business Operations Issues Concerning Improving the Administration of the Payment
and Settlement of Foreign Exchange Capital of Foreign-Invested Enterprises, with respect to the administration of conversion of
foreign exchange capital contributions of FIEs into Renminbi, unless otherwise permitted by PRC laws or regulations, Renminbi converted
from foreign exchange capital contributions can only be applied to activities within the approved business scope of FIEs and cannot
be used for domestic equity investment or acquisitions.



Regulation of Dividend Distribution



The principal laws and regulations in China
governing distribution of dividends by foreign-invested companies include:



| | · | The Sino-foreign Equity Joint Venture Law (1979), as amended;
| | - | -------------------------------------------------------------



| | · | The Regulations for the Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended;
| | - | -------------------------------------------------------------------------------------------------------



| | · | The Sino-foreign Cooperative Enterprise Law (1988), as amended;
| | - | ---------------------------------------------------------------



| | · | The Detailed Rules for the Implementation of the Sino-foreign Cooperative Enterprise Law (1995), as amended;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | The Foreign Investment Enterprise Law (1986), as amended; and
| | - | -------------------------------------------------------------



| | · | The Regulations of Implementation of the Foreign Investment Enterprise Law (1990), as amended.
| | - | ----------------------------------------------------------------------------------------------



38







Under these regulations, foreign-invested
enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at least 10% of their
respective accumulated profits each year, if any, to fund certain reserve funds unless such reserve funds have reached 50% of their
respective registered capital. These reserves are not distributable as cash dividends.



Insurance



We have not purchased insurance coverage
for product liability or third party liability and are therefore not covered or compensated by insurance in respect of losses,
damages, claims and liabilities arising from or in connection with product liability or third party liability. In addition, we
currently do not maintain business interruption insurance. As a result, our business and prospects could be adversely affected
in the event of such problems in our operations and may suffer losses that could have a material adverse effect on our business,
financial condition, results of operations, or cash flows.



| | C. | Organizational Structure
| | -- | ------------------------



The following chart illustrates China Ceramics’
organizational structure as of December 31, 2011:









Corporate Structure and Background



Our principal PRC-based operating subsidiary,
Hengda, was established on September 30, 1993 under the laws of PRC. All of the equity interests in Hengda are 100% owned by Stand
Best as of December 31, 2010. Hengda is a wholly foreign-owned enterprise in China.



Our other PRC-based operating subsidiary,
Hengdali, was established on June 27, 2008 under the laws of PRC. All of the equity interests in Hengdali are 100% owned by Hengda
as of December 31, 2011.



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



39







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



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



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



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



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



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



| | D. | Property, plant and equipment
| | -- | -----------------------------



Together with three other companies, we
collectively own six buildings comprised of one office building and five workshops in Jinjiang, Fujian Province. We recorded the
related fixed assets in proportion to the amount we paid for our part of the buildings, which represents our interests in the buildings.
As co-owners of these six buildings under the relevant Building Ownership Certificate, all co-owners have collective rights and
obligations to the jointly-owned property under PRC law, and typically the disposal of such jointly owned property by one owner
without the consent of all other owners is prohibited.



We also own a workshop in another location
in Jinjiang, but have yet to obtain a Building Ownership Certificate for such property. We have pre-paid all amounts relating to
these properties. The land-use rights for these locations expires in 2055 and covers approximately 10,023 square meters. We also
own land-use rights at two locations and seven buildings in Gaoan for office buildings, workshops, warehouses, and raw material
yards and staff quarters. The land-use rights for these two facilities expire in 2058 and cover an aggregate of approximately 244,324
square meters.



We currently lease 18 properties in Jinjiang,
Fujian Province in the PRC for various uses including warehouses, office space, workshops, staff quarters and stock yards. The
lease terms range from three to five years.



As of December 31, 2011 our Hengda production
facility in Jinjiang City, Fujian Province in the PRC, had a total gross floor area of approximately 140,000 square meters and
employed 1,722 production personnel and our Hengdali production facility in Gaoan, Jiangxi Province in the PRC, has a total gross
floor area of approximately 244,324 square meters and employed 502 production personnel. The Hengda facility consists of nine production
lines with an annual production capacity of 42 million square meters. The Hengdali facility consists of three production lines
with an annual production capacity of 10 million square meters of ceramic tiles currently. Historically, we have not experienced
any form of disruption in our production facility. We are operating at approximately 96.15% of our full capacity and approximately
7.75% of our sales volume was outsourced to other manufacturers for the year ended December 31, 2011.



40







Currently, Hengdali has three production
lines in operation (phase I of our expansion plan for Hengdali), and after completing phase II which will provide an additional
20 million square meters of annual production capacity, and phase III in 2012 which will provide an additional 14 million square
meters of capacity. The capital expenditures in connection with the additional Hengdali production lines were RMB 220.0 million
($34.1 million) and RMB 66.3 million (US$ 10.5 million) related to Phase III of the Hengdali facility in 2011 and are expected
to be approximately an additional RMB 243.9 million ($38 million) in 2012. Once completed, the Hengdali facility is expected to
have an annual production capacity of approximately 44 million square meters of ceramic tiles in 2013.



We also enhanced our Hengda facility in
2011 to replace manufacturing production line equipment. Our capital expenditures for the Hengda facility enhancement were RMB
155.3 million ($23.9 million) in 2011. The Hengda facility currently has an annual production capacity of 42.0 million square meters
of ceramic tiles. We do not expect to add any additional production capacity to our Hengda facility in 2012 and expect capital
expenditures relating to the Hengda facility to be minimal.



Combining the two facilities, our total
annual production capacity was 52.0 million square meters of ceramic tiles as of December 31, 2011 and is expected to be 72.0 million
square meters of ceramic tiles by the end of the second quarter of 2012.



We believe that our current property rights
are sufficient for our current operations. However, to continue growth, we believe we need to expand our production capacity at
our new Hengdali facility in Gaoan, Jiangxi Province and at our existing Hengda facility in Jinjiang, Fujian province.



ITEM 4A UNRESOLVED STAFF COMMENTS



Not applicable.



| | ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
| | ------- | --------------------------------------------



Overview



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



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



China Ceramics, through our operating
subsidiaries, is a leading PRC-based manufacturer of ceramic tiles used for exterior siding and for interior flooring and
design in residential and commercial buildings. The ceramic tiles, sold under the “HD” or “Hengda”,
“HDL” or “Hengdeli”, “TOERTO” and “WULIQIAO” brands are available in over two
thousand styles, colors and size combinations. Currently, we have six  principal product categories: (i) porcelain tiles,
(ii) glazed tiles, (iii) glazed porcelain tiles, (iv) rustic tiles, (v) ultra-thin tiles and (vi) polished glazed tiles.
Porcelain tiles are our best-selling products, accounting for over 68.4% of our total revenue in 2011. The market for our
products has been growing rapidly, due to the increasing demand for construction materials in the PRC attributable to
population growth, population urbanization and an increasing standard of living.



41







We currently have an aggregate annual production
capacity of approximately 52 million square meters, and manufacture our six principal product categories using twelve production
lines. Each production line is optimized to manufacture specific size ranges to maximize efficiency and output.



Basis of Presentation



The following discussion and analysis of
our financial condition and results of operations is based on the selected financial information as of and for the years ended
December 31, 2009, 2010, and 2011 and has been prepared based on the consolidated financial statements of China Ceramics Co., Ltd.
and its subsidiaries. The consolidated financial statements of China Ceramics Co., Ltd. and its subsidiaries have been prepared
in accordance with IFRS which collective term includes all applicable individual International Financial Reporting Standards, International
Accounting Standards and Interpretations issued by the International Accounting Standards Board, or “IASB.” The consolidated
financial statements have been prepared on the historical cost basis.



The business combination on November 20,
2009 has been accounted for as a reverse recapitalization. The acquisition agreement resulted in the former owner of Success Winner
obtaining effective operating and financial control of the combined entity. Prior to the acquisition, we had no operating business.
Accordingly, the acquisition does not constitute a business combination for accounting purposes and is accounted for as a capital
transaction. That is, the transaction is in substance a reverse recapitalization, equivalent to the issuance of equity interests
by Success Winner for the net monetary assets of China Ceramics accompanied by a recapitalization. The consolidated financial statements
are a continuation of the financial statements of Success Winner. The assets and liabilities of China Ceramics are recognized at
their carrying amounts at the date of acquisition with a corresponding credit to the consolidated equity and no goodwill or other
intangible assets are recognized. The equity of the combined entity recognized at the date of acquisition represents the equity
balances of Success Winner together with the deemed proceeds from the reverse recapitalization determined as described above. However,
the equity structure presented in the consolidated financial statements (number and values of equity instruments issued) reflects
the equity structure of the legal parent, China Ceramics. Costs directly attributable to the transaction have been debited to equity
to the extent of net monetary assets received.



Results of Operations



The following table sets forth our financial
results for the years ended December 31, 2009, 2010 and 2011.



|                                    |  | Year Ended December 31, |         
|----------------------------------- |  | ----------------------- | --------
|RMB(‘000)                           |  | 2009                    |         
|Revenue                             |  |                         | 835,747 
|Cost of sales                       |  |                         | (582,530
|Gross profit                        |  |                         | 253,217 
|Other income                        |  |                         | 3,735   
|Other expenses                      |  |                         | -       
|Selling and distribution expenses   |  |                         | (6,912  
|Administrative expenses             |  |                         | (10,088 
|Merger costs                        |  |                         | (26,429 
|Finance costs                       |  |                         | (1,375  
|Profit before taxation              |  |                         | 212,148 
|Income tax expense                  |  |                         | (59,287 
|Profit attributable to shareholders |  |                         | 152,861 



Description of Selected Income Statement
Items



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



42







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



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



| | · | Availability and price of clay; and
| | - | -----------------------------------



| | · | Availability and price of coal.
| | - | -------------------------------



Clay is a key material for making ceramic
tiles, and accounted for approximately 27.5% of our cost of sales in 2011. The average price of clay increased 10.3% from approximately
RMB185.5 ($28.1) per ton in the year ended December 31, 2010 to approximately RMB204.6 ($32.5) per ton in the year ended December
31, 2011. Fujian and Jiangxi Provinces, where our production facilities are located, are the largest clay production areas in China
and clay supply is stable and sufficient for our production and planned production.



Coal is another key material for making
ceramic tiles on the natural gas conversion for the firing process. Coal accounted for approximately 20.9% of our cost of sales
in the year ended December 31, 2011. We have long-term relationships with our coal suppliers. Prices of coal have experienced fluctuations
in the past few years. The average price for coal was approximately RMB RMB 980.4 ($148.6) per ton in the year ended December 31,
2010, compared to approximately RMB 1,127.3 ($179.1) per ton in the year ended December 31, 2011.



Other income and other expenses.  Other
income consists of sales of waste parts such as the exhausted metals, gears and transportation belts from equipment and moldings
and foreign exchange gain/loss.



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



Administrative expenses.  Administrative
expenses consist primarily of employee remuneration, payroll taxes and benefits, general office expenses and depreciation. We expect
administrative expenses to continue to increase in absolute amounts. We also incur additional expenses related to costs of compliance
with securities laws and other regulations, including audit and legal fees and investor relations expenses.



Merger costs.  Merger costs
of RMB 26.4 million ($3.9 million) in November 2009 refer to the transaction costs incurred by Success Winner during the reverse
recapitalization transaction that exceeded the net monetary assets received. For accounting purposes, we treat these costs as the
costs Success Winner paid to obtain a public listing in the United States.



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



Income taxes.  Income taxes
for the years ended December 31, 2011 and 2010 were RMB 106.1 million ($16.5 million) and RMB 78.6 million ($11.7 million), respectively.
The increase in PRC taxes paid was primarily due to the increase in assessable profits of our subsidiaries in the PRC as a result
of business expansion and revenue growth.



According to the Income Tax Law of the PRC
for Foreign Investment Enterprises and Foreign Enterprises and as approved by relevant PRC tax authorities, Hengda, a foreign-invested
enterprise, was exempt from the PRC corporate income tax for its first two profitable years, which were 2004 and 2005. Thereafter,
it was entitled to a 50% reduction in the PRC corporate income tax for the subsequent three years. Pursuant to the PRC Enterprise
Income Tax Law and its Implementation Rules effective from January 1, 2008, and the Notice of the State Council on the Implementation
of the Transitional Preferential Policies in respect of Enterprise Income Tax and its implementation rules, in the fiscal year
of 2008, the applicable tax rate for us was 12.5%, and the effective tax rate became 25% from January 1, 2009. The effective tax
rate continued to be 25% in 2011.



43







Results of Operations



Year ended 2011 compared to the year
ended 2010



Revenue.  The following
table sets forth the breakdown of revenue, by product segment, for fiscal years 2010 and 2011:



|                  |  | December 31, |          
|----------------- |  | ------------ | ---------
|Revenue RMB (000) |  | 2010         |          
|Porcelain         |  |              | 795,241  
|Glazed Porcelain  |  |              | 53,113   
|Glazed            |  |              | 111,981  
|Rustic            |  |              | 69,759   
|Ultra-thin        |  |              | 38,457   
|Polished Glazed   |  |              | -        
|Total             |  |              | 1,068,551



Revenue grew by RMB 423.0 million ($72.2 million), or 39.6%, to RMB 1,491.6 million ($231.4 million) in
the year ended December 31, 2011, from RMB 1,068.6 million ($159.2 million) for the year ended December 31, 2010, which is mainly
due to the increase of sales volume. The sales volume increased by 11.3 million square meters to approximately 52.2 million square
meters for the year ended December 31, 2011 from approximately 40.9 million square meters for the same period in 2010. The growth
in volume led to the sales increase by RMB 294.3 million ($50.2 million) in the year ended December 31, 2011 compared with 2010.
In addition to the increase of sales volume, the 5% price increase of porcelain tiles since February 2011 also led to the sales
increase by RMB 38.8 million ($6.9 million).



Porcelain tiles.  Revenue
from porcelain tiles increased 28.2% from RMB 795.2 million ($118.5 million) for the year ended December 31, 2010 to RMB 1,019.7
million ($158.2 million) for the same period in 2011. The increase was primarily due to the high demand for porcelain tiles in
China and our increased capacity due to the acquisition of Hengdali. The average selling price increased by 3.8% to RMB 27.1 ($4.2)
per square meter for the year ended December 31, 2011 from an average selling price of RMB 26.1 ($3.9) per square meter for the
year ended December 31, 2010, the sales volume increased by 7.1 million square meters to approximately 37.6 million square meters
for the year ended December 31, 2011 from 30.5 million square meters for the same period in 2010. As a result, the increased volume
led to RMB 185.7 million ($32.9 million) of the increase, while increased selling price led to RMB 38.8 million ($6.9 million).
The market for our products has been growing rapidly, due to the increasing demand for construction materials in the PRC attributable
to population growth, population urbanization and an increasing standard of living in 2011. Porcelain tiles for exterior walls
are our most popular product and have the largest market potential of all of our tiles. We expect porcelain tiles to continue to
be our key product for the foreseeable future.



Glazed porcelain tiles.  Revenue
from glazed porcelain tiles increased 24.3% from approximately RMB 53.1 million ($7.9 million) for the year ended December 31,
2010 to RMB 66.0 million ($10.2 million) for the same period in 2011 mainly due to an increase in sales volume. The sales volume
increased by 0.6 million square meters to approximately 2.6 million square meters for the year ended December 31, 2011 from 2.0
million square meters for the same period in 2010. Glazed porcelain tiles are a relatively new product (introduced in 2006) and
the demand for this product has been strong. The company has increased the sales effort to promote the product in 2011 due to increase
in capacity. The product mix for glazed porcelain tiles were 4.4% for the year ended December 2011 compared to 5% for the year
ended December 2010.



44







Glazed tiles.  Revenue
from glazed tiles increased 0.3% from RMB 112.0 million ($16.7 million) for the year ended December 31, 2010 to RMB 112.3 million
($17.4 million) for the same period in 2011 mainly due to the increase in sales volume. Glazed tiles have a lower selling price
than our other products.



Rustic tiles.Revenue from rustic
tiles increased 198.3% from RMB 70.0 million ($10.4 million) for the year ended December 31, 2010 to RMB 208.8 million ($32.4 million)
for the same period in 2011which was mainly due to more sales came from higher priced new rustic series ceramic tiles which had
been produced from our new Hengdali facility. The sales of Rustic tiles in Hengdali was RMB 125.6 million ($19.5 million) in 2011,
compared to RMB 8.2 million ($1.3 million) in 2010. The product mix increased to 14.0% for the year ended December 31, 2011 from
6.5% for the year ended December 31, 2010. The company has been promoting the rustic tiles since it has been introduced from 2007
and also believes the rustic tile will become a larger portion of our product mix due to its variety of pattern and texture.



Ultra-thin tiles.Revenue
from ultra-thin tiles increased 48.3% from RMB 38.5 million ($5.7 million) for the year ended December 31, 2010 to RMB 57.1 million
($8.9 million) for the same period in 2011 mainly due to the increase in sales volume. The sales volume increased by 0.6 million
square meters to approximately 1.7 million square meters for the year ended December 31, 2011 from 1.1 million square meters for
the same period in 2010. Ultra-thin tiles are a new product and were commercialized in June 2008. The product mix is 3.8% for the
year ended December 31, 2011 compared to 3.6% for the year ended December 31, 2010. As the demand for this type of product is strong,
ultra-thin tiles are expected to become a larger portion of our product mix.



Polished glazed tile. Revenue from
polished glazed tiles was approximately RMB 27.7 million ($4.3 million) for the year ended December 31 2011. We introduced polished
glazed in March 2011 and began selling them in the second quarter of 2011. We believe that this new product represents both a functional
and cost-effective replacement for actual marble or stone materials. The polished glazed tiles are large size tile and we believe
the new series will have a demand for the fine decoration required housing in future.



Cost of sales.The following
table sets forth the breakdown of cost of sales, by product segment, for December 31, 2010 and 2011:



|                         |  | December 31, |        
|------------------------ |  | ------------ | -------
|Cost of sales RMB (‘000) |  | 2010         |        
|Porcelain                |  |              | 525,845
|Glazed Porcelain         |  |              | 41,324 
|Glazed                   |  |              | 97,606 
|Rustic                   |  |              | 44,470 
|Ultra-thin               |  |              | 20,331 
|Polished glazed          |  |              | -      
|Total                    |  |              | 729,576



Cost of sales was RMB 1,024.3 million ($158.9
million) for the year ended December 31, 2011 compared to RMB 729.6 million ($108.7 million) for the same period in 2010, representing
an increase of RMB 294.7 million ($50.2 million), or 40.4%. The increase in cost of sales was primarily due to the increased sales
volume by 11.3 million square meters and an increase in the price of raw materials related to the growing demand of the company
products. For example, the price of clay increased from approximately RMB 185.5 ($28.1) per ton in the year ended December 31,
2010 to approximately RMB 204.6 ($32.5) per ton in the year ended December 31, 2011, and the price of coal increased from approximately
RMB 980.4 ($148.6) per ton in the year ended December 31, 2010 to approximately RMB 1,127.3 ($179.1) per ton in the year ended
December 31, 2011.



Gross profit.The following
table sets forth the breakdown of our gross profit and gross profit margin, by product segment, for December 31, 2010 and 2011:



45







|                 |  | December 31,  |        
|---------------- |  | ------------- | -------
|                 |  | 2010          |        
|RMB(‘000)        |  | Gross  Profit |        
|Porcelain        |  |               | 269,396
|Glazed Porcelain |  |               | 11,789 
|Glazed           |  |               | 14,375 
|Rustic           |  |               | 25,289 
|Ultra-thin       |  |               | 18,126 
|Polished glazed  |  |               | -      
|All products     |  |               | 338,975



Our gross profit increased 37.8% from RMB
339.0 million ($50.5 million) for the year ended December 31, 2010 to RMB 467.2 million ($74.5 million) for the same period in
2011. Our gross profit margin decreased 1.3% from 31.7% for the year ended December 31, 2010 to 31.3% for the same period in 2011.
The year-over-year decrease in gross profit margin was driven by an increase in material cost and labor cost.



Porcelain tiles.  Gross
profit for porcelain tiles increased 23.5% from RMB 269.4 million ($40.1 million) for the year ended December 31, 2010 to RMB 332.6
million ($51.6 million) for the same period in 2011. Our gross profit margin was 32.6% for the year ended December 31, 2011 compared
to 33.9% for the same period in 2010. The slight decrease in gross margin was due to the increase in material cost and labor cost.
For example, the price of clay increased 10.3% in the year ended December 31, 2011 compared to 2010, and the price of coal increased
15%. Although, Hengda had raised the selling prices by 5% in February 2011.



Glazed porcelain tiles.  Gross
profit for glazed porcelain tiles decreased 24.6% from approximately RMB 11.8 million ($1.8 million) for the year ended December
31, 2010 to RMB 8.9 million ($1.4 million) for the same period in 2011. Our gross profit margin was 13.44% for the year ended December
31, 2011 compared to 22.2% for the same period in 2010. The decrease in gross margin was due to the change in the sales mix and
increase in costs resulting from the increase in raw material prices. In addition to price increase of clay and coal mentioned
above, the price of glaze increased 7% in 2011 compared to 2010.



Glazed tiles.Gross profit
for glazed tiles decreased 52.8% from RMB 14.4 million ($2.1 million) for the year ended December 31, 2010 to RMB 6.8 million ($1.1
million) for the same period in 2011. Our gross profit margin was 6.1% for the year ended December 31, 2011 compared to 12.8% for
the same period in 2010. The decrease in gross margin was mostly driven by the change in sales mix and increase in costs resulting
from the increase in raw material prices.



Rustic tiles.Gross profit
for rustic tiles increased 220.9% from RMB 25.3 million ($3.8 million) for the year ended December 31, 2010 to RMB 81.2 million
($12.6 million) for the same period in 2011. Our gross profit margin increased 7.2% from 36.3% for the year ended December 31,
2010 to 38.9% for the same period in 2011. The increase in gross margin was due to the higher gross margin of products manufactured
and sold by Hengdali. The gross margins of Hengda and Hengdali were 30.0% and 44.3%, respectively, in fiscal year 2011. Rustic
tiles were Hengdali’s best-selling product during the year ended December 31, 2011, contributing 31.2% of the total revenue.
The higher margin in Hengdali was primarily due to higher selling price, and higher automation of equipment, less maintenance cost
and expendable supplies as a new factory.



Ultra-thin tiles.Gross
profit for ultra-thin increased 45.3% from RMB 18.1 million ($2.7 million) for the year ended December 31, 2010 to RMB 26.3 million
($4.1 million) for the year ended December 31, 2011. Ultra-thin tiles were a new product line which began production in June 2008.
The year-over-year increase in gross profit was primarily driven by the increase in volume from 1.1 million square meters to 1.7
million square meters for the year ended December 31, 2011 compared with the same period in 2010.





46









Polished Glazed tiles. Gross profit
for polished glazed tiles was RMB 11.4 million ($1.8 million) for the year ended December 31, 2011 and gross margin was 41.5%,
higher than 31.3%, the average gross margin of all products. This is because the Polished Glazed tiles are the new product that
can replace the stone or marble materials and are more technological to produce with more specific raw material and colors.



Other income and other expenses.Other
income increased 35% from RMB 4.0 million ($0.6 million) for the year ended December 31, 2010 to RMB 5.4 million ($0.8 million)
for the same period in 2011. Other expenses was RMB 3.2 million ($0.5 million) for the year ended December 31, 2011. Other income
mainly consist of foreign exchange gain/loss, interest income and gains on waste parts sales and disposal of fixed assets. Other
expenses represent losses on disposal of fixed assets and business tax for interest income from intercompany loan.



Selling and distribution expenses.Selling
and distribution expenses were RMB 11.8 million ($1.8 million) for the year ended December 31, 2011 compared to RMB 7.2 million
($1.1 million) for the same period in 2010, representing an increase of RMB 4.6 million ($0.7 million) or 63.9%. The year-over-year
increase in selling expenses was primarily due to increased travel expenses of RMB 1.6 million ($ 0.3 million) and advertising
expenses of RMB 1.7 million ($0.3 million) for promotion of our products.



Administrative expenses.Administrative
expenses were RMB 46.1 million ($7.1 million) for the year ended December 31, 2011, compared to RMB 25.5 million ($3.8 million)
for the same period in 2010, representing an increase of RMB 20.6 million ($3.3 million), or 80.8%. The year-over-year increase
in administrative expenses was primarily due to the additional expenses of RMB 17.3 million ($2.7 million) of non-cash share-based
compensation expenses related to the 2010 Incentive Compensation Plan designed to retain directors and senior management. Furthermore,
the year-over-year increase resulted from the increased salary expense of RMB 1.4 million ($0.2 million) and other expenses related
to China Ceramics’ status as a public company.



Finance costs.Finance
costs increased 79.0% from RMB 6.2 million ($0.9 million) for the year ended December 31, 2010 to RMB 11.1 million ($1.7 million)
for the same period in 2011. The year-over-year increase in finance costs resulted from an increase in bank loans.



Profit before taxation.Profit
before taxation increased 31.7% from RMB 304.1 million ($45.3 million) for the year ended December 31, 2010 to RMB 400.5 million
($62.1 million) for the same period in 2011. The increase of the profit before taxation was mainly due to the higher gross profit,
partially offset by higher operating costs.



Income taxes.We incurred
an income tax expense of RMB 106.1 million ($16.5 million) for the year ended December 31, 2011 compared to RMB 78.6 million ($11.7
million) for the same period in 2010, representing an increase of RMB 27.5 million ($4.8 million) or 35.0%, due to higher profit
before taxation. Our effective enterprise income tax rate was 25.0% for the years ended December 31, 2011 and 2010.



Profit attributable to shareholders.Profit
attributable to shareholders increased by 30.6% from RMB 225.5 million ($33.6 million) for the year ended December 31, 2010 to
the RMB 294.4 million ($45.7 million) for the same period in 2011. The year-over-year increase in net profit was primarily driven
by higher gross profit, partially offset by higher operating costs and income taxes.



Year ended 2010 compared to the year
ended 2009



Revenue.  The following
table sets forth the breakdown of revenue, by product segment, for fiscal years 2009 and 2010.



|                   |  | December 31, |        
|------------------ |  | ------------ | -------
|Revenue RMB (‘000) |  | 2009         |        
|Porcelain          |  |              | 663,794
|Glazed Porcelain   |  |              | 32,387 
|Glazed             |  |              | 83,294 
|Rustic             |  |              | 41,993 
|Ultra-thin         |  |              | 14,279 
|Total              |  |              | 835,747



47







Revenue grew by RMB 232.8 million ($37.0
million), or 27.9%, to RMB 1,068.6 million ($159.2 million) in the year ended December 31, 2010, from RMB 835.7 million ($122.2
million) for the year ended December 31, 2009. The average selling price for ceramic tiles increased by 4.8% to RMB 26.1 ($3.9)
per square meter for the year ended December 31, 2010 from an average selling price of RMB 24.9 ($3.6) per square meter for the
year ended December 31, 2009, the sales volume increased by 7.3 million square meters to approximately 40.9 million square meters
for the year ended December 31, 2010 from 33.6 million square meters for the same period in 2009. The growth in volume was primarily
due to the production capacity of Hengdali, which we acquired in January 2010. Hengdali contributed RMB 243.5 million ($36.3 million)
of total revenue in the year ended December 31, 2010. Revenue contributed by Hengda in the same period in 2010 totaled RMB 825.1
million ($122.9 million).



Porcelain tiles.  Revenue
from porcelain tiles increased 19.8% from RMB 663.8 million ($97.0 million) for the year ended December 31, 2009 to RMB 795.2 million
($118.5 million) for the same period in 2010. The increase was primarily due to the high demand for porcelain tiles in China and
our increased capacity due to the acquisition of Hengdali. The average selling price increased by 4.4% to RMB 26.1 ($3.9) per square
meter for the year ended December 31, 2010 from an average selling price of RMB 25.0 ($3.7) per square meter for the year ended
December 31, 2009, the sales volume increased by 3.9 million square meters to approximately 30.5 million square meters for the
year ended December 31, 2010 from 26.6 million square meters for the same period in 2009. As a result, the increased volume led
to RMB 98.3 million ($16.0) of the increase, while increased selling price led to RMB 33.2 million ($5.4 million).



Glazed porcelain tiles.  Revenue
from glazed porcelain tiles increased 63.9% from approximately RMB 32.4 million ($4.7 million) for the year ended December 31,
2009 to RMB 53.1 million ($7.9 million) for the same period in 2010 mainly due to an increase in sales volume. The sales volume
increased by 0.8 million square meters to approximately 2.0 million square meters for the year ended December 31, 2010 from 1.2
million square meters for the same period in 2009. As a result, the increased volume led to RMB 20.2 million ($3.1) of the increase,
while increased selling price by RMB 0.3 ($0.04) per square meter led to RMB 0.5 million ($0.08 million). Glazed porcelain tiles
are a relatively new product (introduced in 2006) and the demand for this product has been strong. The company has increased the
sales effort to promote the product in 2010 due to increase in capacity. The product mix for glazed porcelain tiles were 5% for
the year ended December 2010 compared to 3.9% for the year ended December 2009.



Glazed tiles.  Revenue
from glazed tiles increased 34.5% from RMB 83.3 million ($12.2 million) for the year ended December 31, 2009 to RMB 112.0 million
($16.7 million) for the same period in 2010 due to the increase in selling price and sales volume. The average selling price increased
by 4.1% to RMB 20.4 ($3.0) per square meter for the year ended December 31, 2010 from an average selling price of RMB 19.6 ($2.9)
per square meter for the year ended December 31, 2009, the sales volume increased by 1.2 million square meters to approximately
5.5 million square meters for the year ended December 31, 2010 from 4.3 million square meters for the same period in 2009. As a
result, the increased volume led to RMB 24.4 million ($3.8) of the increase, while increased selling price led to RMB 4.3 million
($0.7 million). Glazed tiles have a lower selling price than our other products.



Rustic tiles.Revenue from rustic
tiles increased 66.7% from RMB 42.0 million ($6.1 million) for the year ended December 31, 2009 to RMB 70.0 million ($10.4 million)
for the same period in 2010 due to the increase in selling prices and sales volume. The average selling price increased by 5.5%
to RMB 40.0 ($5.9) per square meter for the year ended December 31, 2010 from an average selling price of RMB 37.9 ($5.5) per square
meter for the year ended December 31, 2009, the sales volume increased by 0.7 million square meters to approximately 1.8 million
square meters for the year ended December 31, 2010 from 1.1 million square meters for the same period in 2009. As a result, the
increased volume led to RMB 24.8 million ($3.8) of the increase, while increased selling price led to RMB 2.9 million ($0.4 million).
The product mix increased to 6.5% for the year ended December 2010 from 5% for the year ended December 2009.



48







Ultra-thin tiles.Revenue
from ultra-thin tiles increased 169.3% from RMB 14.3 million ($2.1 million) for the year ended December 31, 2009 to RMB 38.5 million
($5.7 million) for the same period in 2010 due to the increase in selling prices and sales volume. The average selling price increased
by 3.7% to RMB 33.9 ($5.0) per square meter for the year ended December 31, 2010 from an average selling price of RMB 32.7 ($4.8)
per square meter for the year ended December 31, 2009, the sales volume increased by 0.7 million square meters to approximately
1.1 million square meters for the year ended December 31, 2010 from 0.4 million square meters for the same period in 2009. As a
result, the increased volume led to RMB 22.8 million ($3.4) of the increase, while increased selling price led to RMB 1.3 million
($0.2 million). Ultra-thin tiles are a new product and were commercialized in June 2008. The product mix is 3.6% for the year ended
December 2010 compared to 1.7% for the year ended December 2009. As the demand for this type of product is strong, ultra-thin tiles
are expected to become a larger portion of our product mix.



Cost of sales.The following
table sets forth the breakdown of cost of sales, by product segment, for December 31, 2009 and 2010:



|                         |  | December 31, |        
|------------------------ |  | ------------ | -------
|Cost of sales RMB (‘000) |  | 2009         |        
|Porcelain                |  |              | 454,153
|Glazed Porcelain         |  |              | 23,654 
|Glazed                   |  |              | 71,185 
|Rustic                   |  |              | 26,246 
|Ultra-thin               |  |              | 7,292  
|Total                    |  |              | 582,530



Cost of sales was RMB 729.6 million ($108.7
million) for the year ended December 31, 2010 compared to RMB 582.5 million ($85.2 million) for the same period in 2009, representing
an increase of RMB 147.1 million ($23.5 million), or 25.3%. The increase in cost of sales was primarily due to the increased sales
volume by 7.3 million square meters and an increase in the price of raw materials related to the growing demand of the company
products. For example, the price of clay increased from approximately RMB 171.9 ($25.1) per ton in the year ended December 31,
2009 to approximately RMB 185.5 ($28.1) per ton in the year ended December 31, 2010, and the price of coal increased from approximately
RMB 951.4 ($139.2) per ton in the year ended December 31, 2009 to approximately RMB 980.4 ($148.6) per ton in the year ended December
31, 2010.



Gross profit.The following
table sets forth the breakdown of our gross profit and gross profit margin, by product segment, for December 31, 2009 and 2010:



|                 |  | December 31,  |        
|---------------- |  | ------------- | -------
|                 |  | 2009          |        
|RMB(‘000)        |  | Gross  Profit |        
|Porcelain        |  |               | 209,641
|Glazed Porcelain |  |               | 8,733  
|Glazed           |  |               | 12,109 
|Rustic           |  |               | 15,747 
|Ultra-thin       |  |               | 6,987  
|All products     |  |               | 253,217



Our gross profit increased 33.9% from RMB
253.2 million ($37.0 million) for the year ended December 31, 2009 to RMB 339.0 million ($50.5 million) for the same period in
2010. Our gross profit margin increased 4.6% from 30.3% for the year ended December 31, 2009 to 31.7% for the same period in 2010.
The year-over-year increase in gross profit margin was driven by higher gross margin of products manufactured and sold by Hengdali.



Porcelain tiles.  Gross
profit for porcelain tiles increased 28.5% from RMB 209.6 million ($30.6 million) for the year ended December 31, 2009 to RMB 269.4
million ($40.1 million) for the same period in 2010. Our gross profit margin was 33.9% for the year ended December 31, 2010 compared
to 31.6% for the same period in 2009. The increase in gross margin was due to the higher gross margin of products manufactured
and sold by Hengdali. The gross margins of Hengda and Hengdali were 32.4% and 38.2%, respectively, in fiscal year 2010. Porcelain
titles was the best-selling product of Hengdali, its revenue, contributing 97% of the total revenue of Hengdali for the year ended
December 31, 2010. The higher margin in Hengdali was primarily due to higher automation of equipment, less maintenance cost and
expendable supplies as a new factory.



49







Glazed porcelain tiles.  Gross
profit for glazed porcelain tiles increased 35.6% from approximately RMB 8.7 million ($1.3 million) for the year ended December
31, 2009 to RMB 11.8 million ($1.8 million) for the same period in 2010. Our gross profit margin was 22.2% for the year ended December
31, 2010 compared to 27.0% for the same period in 2009. The decrease in gross margin was due to the increase in costs resulting
from the increase in raw material prices.



Glazed tiles.Gross profit
for glazed tiles increased 19.0% from RMB 12.1 million ($1.8 million) for the year ended December 31, 2009 to RMB 14.4 million
($2.1 million) for the same period in 2010. Our gross profit margin was 12.8% for the year ended December 31, 2010 compared to
14.5% for the same period in 2009. The decrease in gross margin was mostly driven by the increase in costs resulting from the increase
in raw material prices.



Rustic tiles.Gross profit
for rustic tiles increased 61.1% from RMB 15.7 million ($2.3 million) for the year ended December 31, 2009 to RMB 25.3 million
($3.8 million) for the same period in 2010. Our gross profit margin decreased 3.2% from 37.5% for the year ended December 31, 2009
to 36.3% for the same period in 2010. The decrease in gross margin was mostly driven by the increase in costs resulting from the
increase in raw material prices.



Ultra-thin tiles.Gross
profit for ultra-thin increased 158.6% from RMB 7.0 million ($1.0 million) for the year ended December 31, 2009 to RMB 18.1 million
($2.7 million) for the year ended December 31, 2010. Ultra-thin tiles were a new product line which began production in June 2008.
The year-over-year increase in gross profit was primarily driven by the increase in volume from 0.4 million square meters to 1.1
million square meters for the year ended December 31, 2010 compared with the same period in 2009.



Other income.Other income
increased 6.2% from RMB 3.7 million ($0.5 million) for the year ended December 31, 2009 to RMB 4.0 million ($0.6 million) for the
same period in 2010. Other income primarily consists of the sale of waste parts such as the exhausted metals, gears and transportation
belts from equipment and moldings, and foreign exchange gain/loss. Waste parts sales amounted to RMB 4.5 million ($0.7 million)
in 2010, and the foreign exchange loss amounted to RMB 0.9 million ($0.1 million).



Selling and distribution expenses.Selling
and distribution expenses were RMB 7.2 million ($1.1 million) for the year ended December 31, 2010 compared to RMB 6.9 million
($1.0 million) for the same period in 2009, representing an increase of RMB 0.3 million ($0.1 million) or 4.3%. The year-over-year
increase in selling expenses was due to the higher payroll and advertising expenses at the newly acquired Hengdali facility. Compared
with 2009, the shipping costs was reduced as customers now collect their goods directly from the Company’s warehouse.



Administrative expenses.Administrative
expenses were RMB 25.5 million ($3.8 million) for the year ended December 31, 2010, compared to RMB 10.1 million ($1.5 million)
for the same period in 2009, representing an increase of RMB 15.4 million ($2.3 million), or 152.5%. The year-over-year increase
in administrative expenses was primarily due to the additional depreciation and amortization expenses of RMB 2.9 million ($0.4
million) incurred from the acquisition of property, plant and equipment, increased salary expense of RMB 1.2 million ($0.2 million)
due to the newly acquired Hengdali, and RMB 8.5 million ($1.3 million) of legal and other expenses related to China Ceramics’
status as a public company.



Merger costs. The merger costs in
2009 of RMB 26.4 million ($3.9 million) were incremental transaction costs directly attributable to the reverse recapitalization
transaction which exceeded the net monetary assets received in 2009. We treat these costs as the costs Success Winner incurred
to obtain a public listing in the United States of America.



Finance costs.Finance
costs increased 342.9% from RMB 1.4 million ($0.2 million) for the year ended December 31, 2009 to RMB 6.2 million ($0.9 million)
for the same period in 2010. The year-over-year increase in finance costs resulted from an increase in bank loans.



50







Profit before taxation.Profit
before taxation increased 43.4% from RMB 212.1 million ($31.0 million) for the year ended December 31, 2009 to RMB 304.1 million
($45.3 million) for the same period in 2010. The increase of the profit before taxation was mainly due to the higher revenue, partially
offset by higher operating costs.



Income taxes.We incurred
an income tax expense of RMB 78.6 million ($11.7 million) for the year ended December 31, 2010 compared to RMB 59.3 million ($8.7
million) for the same period in 2009, representing an increase of RMB 19.3 million ($3.0 million) or 32.5%, due to higher profit
before taxation. Our effective enterprise income tax rate was 25.0% for the years ended December 31, 2010 and 2009.



Profit attributable to shareholders.Profit
attributable to shareholders increased by 47.5% from RMB 152.9 million ($22.3 million) for the year ended December 31, 2009 to
the RMB 225.5 million ($33.6 million) for the same period in 2010. The year-over-year increase in net profit was primarily driven
by strong growth in revenue of Hengdali in 2010 and the absence of one-time merger costs of RMB 26.4 million ($3.9 million) incurred
in November 2009 which reduced the net profit for the year ended December 31, 2009.



Liquidity and Capital Resources



The following table presents a summary of
our cash flows and beginning and ending cash balances for the years ended December 31 2009, 2010, and 2011:



|                                               |  | Year Ended December 31, |         
|---------------------------------------------- |  | ----------------------- | --------
|RMB(‘000)                                      |  | 2009                    |         
|Net cash provided by operating activities      |  |                         | 159,620 
|Net cash used in investing activities          |  |                         | (152,294
|Net cash provided by financing activities      |  |                         | 91,100  
|Net cash flow                                  |  |                         | 98,426  
|Cash and cash equivalents at beginning of year |  |                         | 51,606  
|Effect of foreign exchange rate differences    |  |                         | 89      
|Cash and cash equivalents at end of year       |  |                         | 150,121 



We have historically financed our liquidity
requirements mainly through operating cash flow, bank loans and issuance of new shares.



Cash flows from operating activities.



Cash flows from operating activities. Our
net cash inflow provided by operating activities was RMB 124.2 million ($19.3 million) for the year ended December 31, 2011, a
decrease of RMB 80.0 million ($11.1 million), or 39.2% from the RMB 204.2 million ($30.4 million) net cash provided by operating
activities for the same period in 2010. The year-over-year decrease was mainly due to the increase in sales rebates, the change
in our method of settling sales rebates (as described below) with our distributors, increased income taxes and the increase in
inventory purchases. We settled sales rebates from 2010 with our distributor in 2011 with an amount of RMB 55.9 million ($8.7 million),
compared to RMB 44.4 million ($6.6 million) of 2009 sales rebates settled in the comparable period of 2010, resulting in a decrease
in cash flow of approximately RMB 18.1 million ($2.8 million). Furthermore, the cash from operations was further reduced due to
a change in settling rebates with our distributors. We now issue rebates at the time of sale. This change of deducting the sales
rebates directly from the accounts receivable as opposed to collecting the full amount and later remitting the sales rebates caused
a decrease in cash flow of approximately RMB 65.4 million ($10.1 million) in the year ended December 31, 2011 compared to the same
period in 2010. The increase in income tax caused a decrease in cash flow of approximately RMB 20.9 million ($3.7 million) in the
year ended December 31, 2011 compared to the same period in 2010. Since the prices of raw materials have been increasing, we stored
raw materials for production in the year ended of 2011, resulting in additional cash outflow of RMB 29.8 million ($4.7 million)
in the year ended December 31, 2011.



51







Our net cash inflow provided by operating
activities was RMB 204.2 million ($30.4 million) for the year ended December 31, 2010, an increase of RMB 44.6 million ($7.1 million),
or 27.9% from the RMB 159.6 million ($23.3 million) net cash provided by operating activities for the same period in 2009. The
year-over-year increase was primarily due to the increase in revenue and a decrease in the change in trade receivables of RMB 62.9
million ($9.2 million), primarily offset by an increase in the change in inventories of RMB 68.0 million ($10.1 million) and a
decrease in changes in accrued liabilities and other payables of RMB 22.2 million ($3.3 million).



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



Net cash used in investing activities in
the year ended December 31, 2011 was RMB 433.3 million ($67.2 million), compared to RMB 254.1 million ($37.8 million) of net cash
outflow used in investing activities in the same period of 2010. The increase was primarily due to an increase in acquisition of
property, plant and equipment for the construction of the Hengdali facility and for improvements at the Hengda facility, which
led to capital expenditures of RMB 441.6 million ($68.5 million) during the year ended December 31, 2011. Of this amount, approximately
RMB 155.3 million (US$ 23.9 million) related to the Hengda facility, RMB 220.0 million (US$ 34.1 million) related to Phase II of
the Hengdali facility and RMB 66.3 million (US$ 10.5 million) related to Phase III of the Hengdali facility.



Net cash used in investing activities in
the year ended December 31, 2010 was RMB 254.1 million ($37.8 million), compared to RMB 152.3 million ($22.3 million) of net cash
outflow used in investing activities in the same period of 2009. The increase was primarily due to an increase in the acquisition
of property, plant and equipment for (i) the completion of phase I construction and expansion of Hengdali (RMB 30.2 million ($4.5
million)) (ii) the initial stage of phase II construction for Hengdali(RMB 91.6 million ($13.6 million)) and (iii) improvements
of RMB 100.4 million ($15.0 million) at our Hengda facility, which led to capital expenditures of an aggregate of RMB 222.2 million
($33.1 million) during 2010.



Cash flows from financing activities.  Net
cash generated in financing activities was RMB 88.0 million ($13.6 million) due to the repayment of bank borrowings for the year
ended December 31, 2011, as compared to approximately RMB 163.2 million ($24.5 million) cash generated from financing activities
in the same period of 2010, which was primarily attributable to RMB 159.6 million ($24.0 million) generated from the issuance of
new shares in 2010.



Net cash generated in financing activities
was RMB 163.2 million ($24.5 million) for the year ended December 31, 2010, as compared to approximately RMB 91.1 million ($13.3
million) cash generated from financing activities in the same period of 2009 and was primarily attributable to RMB 159.6 million
($24.0 million) from the sale of newly issued shares, which was partially offset by the repayment of bank loans of RMB 62.2 million
($9.3 million).



Inventory and Accounts Receivable.  Our
inventory turnover rate grew from 4.73 times in 2009 to 4.99 times for the year ended December 31, 2010 and decreased to 4.35 times
for the year ended December 31, 2011. Based on our historical experience, we believe that the value of our current inventories
is realizable.



The average number of days in which we received
payment on our trade receivables was 102 days in 2009 and decreased to 95 days as of December 31, 2010 due to better cash collection
in the year ended December 31, 2010. Trade receivables turnover was 93 days as of December 31, 2011. Based on our historical experience,
we believe that our trade receivables are collectable.



The major sources of our liquidity for fiscal
year 2009, 2010 and 2011 were cash generated from operations, bank borrowings and issuance of new shares. The cash generated in
2011 was primarily due to the cash generated from operating activities of RMB 124.2 million ($19.3 million) and obtained from bank
borrowing of RMB 88.0 million ($13.6 million), primarily offset by the cash payment of RMB 441.6 million ($68.5 million) for the
acquisition of property, plant and equipment for the construction and expansion of Hengdali facility and Hengda facility. The cash
generated in 2010 was primary due to the cash generated from operating activities of RMB 204.2 million ($30.4 million) and the
net proceeds generated from the sale of shares in our November 2010 public offering, with an amount of RMB 159.6 million ($24.0
million), primarily offset by the cash payment of RMB 222.2 million ($33.1 million) for the acquisition of property, plant and
equipment for the construction and expansion of Hengdali facility and Hengda facility.



52







Cash and bank balances were RMB 42.1 million
($6.7 million) as of December 31, 2011, as compared to RMB 263.5 million ($39.9 million) at December 31, 2010, and RMB 150.1
million ($22.0 million) at December 31, 2009.



As of December 31, 2011, our total outstanding
bank loans (both short-terms loans and long-term loans) amounted to RMB 185.0 million ($29.4 million) with interest rates in the
range of 7.216% to 8.528% per annum and maturity dates in the range of April 19, 2012 to August 22, 2014.



Operating lease commitments totaled RMB
35.7 million ($5.7 million) as of December 31, 2011.



Capital commitments and purchase commitments
totaled RMB 1.4 million ($0.2 million) and RMB 3.3 ($0.5 million) as of December 31, 2011, respectively.



In our opinion, our working capital, including
our cash, income and cash flows from operations, and short-term borrowings, is sufficient for our present requirements.



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



Inventory Management



Our inventory is comprised of raw materials,
work in progress and finished goods. Raw materials were purchased from our suppliers located in Fujian, Guangdong and Jiangxi Provinces
and comprised mainly of clay, coal, colorings, and glazing materials.



We have sufficient raw materials to support,
on average, three weeks of production at any point in time. This helps to minimize any potential delays in our production process
which may arise due to insufficient raw materials. Our production of ceramic tiles is based on customers’ orders. In doing
so, we minimize storage space and maintain a relatively low inventory level of finished products. The increase in inventory turnover
was mainly due to the increased balance of finished goods in Hengdali as of December 31, 2011. The Hengdali facility Phase II expansion
had its preliminary production stage testing in November and December of 2011, which caused the increase in inventory. Our inventory
turnover based on the year-end closing inventory balances for the years ended 2009, 2010, and 2011 are as follows:



|                             |  | FY2009  |  | FY2010 |         |  | FY2011
|---------------------------- |  | ------- |  | ------ | ------- |  | ------
|Inventories (RMB’000)        |  | 114,658 |  |        | 177,217 |  |       
|Inventory turnover (days)(1) |  | 77      |  |        | 73      |  |       





---



| | (1) | The average inventory turnover is computed based on the formula: (simple average of the opening and closing inventories balance
in a financial year / cost of goods sold) × 365 days.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There was no provision for inventory obsolescence,
inventory written off or inventory written down to net realizable value in the last three years ended December 31, 2011.



53







Credit Management



Credit terms to our customers



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



Personnel from our sales and marketing department
typically conduct visits to new customers to evaluate their credit worthiness before entering into any arrangements with them.
In addition, as Hengda was awarded the top 500 brand, we increased the deposit required from new distributors from RMB 0.4 million
to RMB 1.0 million.



Our average trade receivables’ turnover
days in the last three years ended December 31, 2011 were as follows:



|                                     |  | FY2009  |  | FY2010 |         |  | FY2011
|------------------------------------ |  | ------- |  | ------ | ------- |  | ------
|Trade receivables (RMB’000)          |  | 270,840 |  |        | 282,976 |  |       
|Trade receivables turnover (days)(1) |  | 102     |  |        | 95      |  |       





---



| | (1) | The average trade receivables’ turnover is computed based on the formula: (simple average of the opening and closing
trade receivables balance in a financial year / revenue) × 365 days.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Credit terms from our suppliers



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



Our average trade and bills payables’
turnover days in the last three years ended December 31, 2011 were as follows:



|                                  |  | FY2009  |  | FY2010 |         |  | FY2011
|--------------------------------- |  | ------- |  | ------ | ------- |  | ------
|Trade payables (RMB’000)          |  | 126,251 |  |        | 178,382 |  |       
|Trade payables turnover (days)(1) |  | 97      |  |        | 101     |  |       





---





| | (1) | The average trade payables’ turnover is computed based on the formula: (simple average of the opening and closing trade
balances in a financial year / purchases of raw materials and outsourcing services) × 365 days.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Trade payables turnover was 101 days as
of December 31, 2010 compared with 97 days as of December 31, 2009. The year-over-year increase in trade payables turnover resulted
from the increased balance of raw materials as of December 31, 2010, since the Company built up inventory due to a backlog of orders.



In periods where raw material pricing is
favorable, we will pay our suppliers in advance. This happened when our trade payables turnover fell from 101 days in 2010 to 94
days in 2011 when the price of coal decreased and we started paying coal suppliers in advance.



Capital Expenditures



Our capital expenditures primarily consist
of expenditures on property, plant and equipment.



Capital expenditures on property, plant
and equipment was RMB 441.6 million ($68.5 million) for the year ended December 31, 2011 compared to RMB 222.2 million ($33.1 million)
for the same period in 2010. In the year ended December 31, 2011, we invested RMB 155.3 million ($23.9 million) to replace and
improve older manufacturing equipment at the Hengda facility, invested RMB 220.0 million ($34.1 million) to complete Phase II of
the Hengdali facility expansion and invested RMB 66.3 million ($10.5 million) to complete Phase III of the Hengdali facility expansion.



54







Capital expenditures on property, plant
and equipment was RMB 222.2 million ($33.1 million) for the year ended December 31, 2010 compared to RMB 8.0 million ($1.2 million)
for the same period in 2009. In the year ended December 31, 2010, we invested RMB 100.4 million ($15.0 million) to replace and
improve older manufacturing equipment at the Hengda facility. The enhancement of production lines is expected to increase annual
capacity at the Hengda facility to 32.2 million square meters of ceramic tiles by the end of 2010 from 28 million square meters
per year in 2009. In the year ended December 31, 2010, we invested RMB 30.3 million ($4.5 million) to complete Phase I of the Hengdali
facility expansion. The capital expenditures for phase II of the Hengdali facility expansion was RMB 91.6 million ($13.6 million)
in 2010. The phase II of the Hengdali facility will be completed in the second quarter of 2011. We had total capacity of 42.2 million
square meters by the end of 2010 and incurred total capital expenditure of approximately $33.1 million in 2010.



Contractual Obligations



Our contractual obligations consist mainly
of debt obligations, operating lease obligations, capital purchase obligations and other purchase obligations and commitments.
The following table sets forth a breakdown of our contractual obligations as of December 31, 2011:



|                                              |  | Payment Due by Period |        
|--------------------------------------------- |  | --------------------- | -------
|                                              |  | Total                 |        
|                                              |  | (RMB in Thousands)    |        
|Short-term debt obligations(1)                |  |                       | 129,719
|Long-term debt obligations(1)                 |  |                       | 71,242 
|Operating purchase obligations(2)             |  |                       | 35,709 
|Capital purchase obligations(3)               |  |                       | 1,392  
|Other purchase obligations and commitments(4) |  |                       | 3,270  
|Total                                         |  |                       | 241,332





---



| | (1) | Amounts represent principal and interest cash payments over the life of the bank loans, including anticipated interest payments
that are not recorded in the financial statements as of December 31, 2011.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | We lease plant buildings, production factories, warehouses and employees’ hostel from non-related parties under
non-cancellable operating lease arrangements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment.
They were not recorded as liabilities in the financial statements as of December 31, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Represents commitments for advertising services and insurance which are not reflected in our financial statements
| | --- | -----------------------------------------------------------------------------------------------------------------



The following table sets forth further details
regarding our loans outstanding as of December 31, 2011:



Company to update



|Short-term debt obligations:  |  | Amount of loans RMB’000  |        |  | Interest rates (p.a)
|----------------------------- |  | ------------------------ | ------ |  | --------------------
|Agricultural Bank of China    |  |                          | 75,000 |  |                     
|China Citic Bank              |  |                          | 50,000 |  |                     
|Long-term debt obligations:   |  | Amount of loans RMB’000) |        |  | Interest rates (p.a)
|Agricultural Bank of China(1) |  |                          | 10,000 |  |                     
|China Citic Bank(1)           |  |                          | 50,000 |  |                     





---



| | (1) | The terms of the long-term debt obligation are three years.
| | --- | -----------------------------------------------------------

55







Off-Balance Sheet Arrangements



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



Impact of Inflation



Inflation has not historically been a significant
factor impacting our results.



Critical Accounting Policies and Judgment



Our consolidated financial statements are
prepared in accordance with IFRS including related interpretations as issued by IASB, and have been consistently applied throughout
the years ended December 31, 2009, 2010, and 2011. The preparation of these consolidated financial statements requires us to make
estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates
and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. Actual results may materially differ from these estimates under
different assumptions or conditions.



Critical Accounting Estimates and Assumptions



Depreciation of Property, Plant and Equipment



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



Income Tax



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



Impairment of non-financial assets



We make the impairment testing on our property,
plant and equipment, land use rights and goodwill for possible impairment on an annual basis as of December 31 of each year and
at any other time if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting
unit below its carrying amount.



Impairment of trade receivables



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



Net realizable value of inventories



Net realization value of inventories is
the management’s estimation of future selling price in the ordinary course of business, less estimated costs of completion
and selling expenses. These estimates are based on the current market condition and the historical experience of selling products
of similar nature. It could change significantly as a result of various market factors.





56









Share-based employee remuneration



We operate equity-settled share-based remuneration
plans for our employees. None of the plans feature any options for a cash settlement.



Critical judgments in applying the
entity’s accounting policies



Accounting for the Success Winner Acquisition



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



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



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



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



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



Determining the date when China Ceramics
obtained control of Hengdali



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



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



Foreign Currency Fluctuations



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



Revenue recognition



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



| | · | Sales of goods are recognized upon transfer of the significant risks and rewards of ownership to the customer. This is usually
taken as the time when the goods are delivered and the customer has accepted the goods.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57







| | · | Interest income is recognized on a time-proportion basis using the effective interest method.
| | - | ---------------------------------------------------------------------------------------------



Inventories



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



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



Property, plant and equipment



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



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



|Buildings           |  |  | 10     | %
|------------------- |  |  | ------ | -
|Plant and machinery |  |  | 10%-20 | %
|Motor vehicles      |  |  | 10     | %
|Office equipment    |  |  | 10%-20 | %



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



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



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



Land use rights



Upfront payments made to acquire land held
under an operating lease are stated at cost less accumulated amortization and any accumulated impairment losses. Amortization is
calculated on a straight line basis over the leasing period of 50 years.



Goodwill



Goodwill represents the excess of the cost
of an acquisition over the fair value of our share of the net identifiable assets of the acquired subsidiary at the date of acquisition.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill
are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity
sold.



Goodwill is allocated to cash-generating
units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating
units that are expected to benefit from the business combination in which the goodwill arose identified according to operating
segment.



58







Financial assets



Our accounting policies for financial assets
are set out below.



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



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



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



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



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



Loans and receivables



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



Impairment of financial assets



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



| | · | Significant financial difficulty of the debtor;
| | - | -----------------------------------------------



| | · | A breach of contract, such as a default or delinquency in interest or principal payments;
| | - | -----------------------------------------------------------------------------------------



| | · | It becoming probable that the debtor will enter bankruptcy or other financial reorganization;
| | - | ---------------------------------------------------------------------------------------------



| | · | Significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor;
and
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
| | - | -------------------------------------------------------------------------------------------------------------



Management reviewed all
financial assets at reporting date and there is no objective evidence of impairment. If any such evidence exists, the
impairment loss is measured and recognized as follows:



(i) Financial assets carried at amortized
cost



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



59







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



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



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



Financial liabilities



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



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



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



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



| | ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
| | ------- | ------------------------------------------



| | A. | Directors and senior management
| | -- | -------------------------------



Our current directors and executive officers
are:



|Name                     |  | Age |  | Position                                 
|------------------------ |  | --- |  | -----------------------------------------
|Huang Jia Dong           |  | 54  |  | Director and Chief Executive Officer     
|Su Pei Zhi               |  | 58  |  | Director and Sales Deputy General Manager
|Hen Man Edmund           |  | 39  |  | Chief Financial Officer                  
|Ding Wei Dong (1)(2)(3)  |  | 72  |  | Director                                 
|Paul K. Kelly (2)(3)     |  | 72  |  | Director and Non-Executive Chairman      
|Cheng Yan Davis(1)(2)(3) |  | 70  |  | Director                                 
|William L. Stulginsky(1) |  | 61  |  | Director                                 
|Su Wei Feng              |  | 31  |  | Director and Corporate Secretary         



| | (1) | Member of audit committee
| | --- | -------------------------



| | (2) | Member of compensation committee
| | --- | --------------------------------



60







| | (3) | Member of nominations committee
| | --- | -------------------------------



Huang Jia Dong founded Hengda
in 1993 and has served as our director since November 20, 2009 and Chief Executive Officer since April 4, 2010. Mr. Huang was Chairman
of the Board from November 20, 2009 until April 4, 2010. Mr. Huang currently serves as Chairman of Hengda. Mr. Huang was previously
involved in the construction material distribution business. Mr. Huang has been appointed as the vice chairman of Fujian Province
Ceramic Industry Association since 2006 and the executive director of Jinjiang City Chamber of Import and Export Trade since 2007.
Mr. Huang has a diploma in corporate management from Xiamen University. Mr. Huang is a second cousin of Mr. Su Pei Zhi’s
wife. We have chosen Mr. Huang to serve as director because of his extensive experience in the ceramic tiles industry and his intimate
knowledge of our company.



Su Pei Zhi has served as our
director since November 20, 2009. Mr. Su joined Hengda in 1993 and served as the sales deputy general manager. He is the head of
our sales and marketing team. Under the leadership of Mr. Su, we have established a nationally covered sales network including
both distribution customers and property developer customers. Prior to joining Hengda, Mr. Su was in his family ceramic tile business.
Mr. Su Pei Zhi is the father of Mr. Su Wei Feng, our director and Secretary, and Mr. Su Pei Zhi’s wife is a second cousin
of Mr. Huang Jia Dong, our Chief Executive Officer. We have chosen Mr. Shu Pei Zhi to serve as director because of his extensive
experience in the ceramic tiles industry.



Hen Man Edmund has served
as our Chief Financial Officer since November 20, 2009. Mr. Hen joined Hengda in 2008 as the Chief Financial Officer. Mr. Hen is
responsible for the corporate finance function and oversees matters relating to compliance and reporting obligation of the company.
Prior to joining Hengda, Mr. Hen was a Financial Controller of a switchgear manufacturer in Sichuan PRC and was responsible for
the corporate finance function of the company. Prior to that, Mr. Hen was the accountant of Dickson Concepts (International) Ltd.,
a public listed company in Hong Kong and oversaw the accounting and financial administration of the company. He also worked at
a variety of international accountancy firms, including Deloitte Touche Tohmatsu, in assurance and advisory services during the
period from 1995 to 2001. Mr. Hen graduated from the University of East Anglia, United Kingdom, with a Bachelor Degree in Science
in 1995. He is an associate of the Institute of Chartered Accountants in England and Wales and an associate of the Hong Kong Institute
of Certified Public Accountants.



Ding Wei Dong has served as
our director since November 20, 2009. From 1997 to 2008, Mr. Ding served as the president of China Building Ceramics & Sanitaryware
Association (CBCSA), the largest industrial association of the building ceramics and sanitaryware industry in China. Mr. Ding is
now the honorary president of CBCSA. From 1991 to 2000, Mr. Ding served as the executive vice president of China Building Material
Industry Association, a national organization of the building material industry in China. From 1985 to 1991, Mr. Ding was the chief
of Manufacturing and Management Department of Building Material Bureau of China where he was responsible for the quality management
of building materials. Mr. Ding graduated from Nanjiing University of Science and Technology in 1965 with a Bachelor Degree, and
he has the professional title of Senior Engineer of Professor Scale in China. We have chosen Mr. Ding to serve as director because
of his expertise in the Chinese ceramics industry.



61







Paul K. Kelly has been our
director since August 18, 2009 and our Non-Executive Chairman since April 4, 2010. He was also Chairman of the Board and Chief
Executive Officer of our predecessor, CHAC, from its inception. Since February 1992, Mr. Kelly has been the President and Chief
Executive Officer of Knox & Co., an investment banking firm specializing in mergers and acquisitions, corporate restructuring
and international financial advisory services for clients in the U.S., Asia, and throughout the world. In 2004, Mr. Kelly formed
the Westgate Group, Inc., a strategic advisory firm focusing upon identifying and implementing cross-border business opportunities
for clients with an emphasis on Asia and the Pacific Basin, for which he acts as Chairman, CEO, and is the majority shareholder.
Mr. Kelly is also the President, Chief Executive Officer and sole shareholder of PH II, Inc., a privately held investment company
which has investments in the United States and New Zealand. He has held these positions with PH II since 1988. Mr. Kelly also serves
as Chairman and Chief Executive Officer of Knox Enterprises, Inc., successor to THT Inc., a privately held diversified manufacturing
company. In 1996, Mr. Kelly founded the Carrington Club, a golf resort and karikari estate and winery in New Zealand for which
he is the owner and Edgewater Developers, a real estate development company in New Zealand. From 1985 to 1990 Mr. Kelly served
as President and Chief Executive Officer of Peers & Co., an international investment banking firm. From 1984 to 1985 Mr. Kelly
was the President and a director of Quadrex Securities Corp. From 1982 to 1984 he was an Executive Vice President and Director
of Dean Witter Reynolds, Inc., responsible for all investment banking activities for financial institutions. Mr. Kelly also served
as Managing Director and a member of the Management Committee of Merrill Lynch White Weld Capital Markets Group from 1980 to 1982
where he was responsible for all investment banking activities for financial institutions on a worldwide basis, and was also senior
banker to Merrill Lynch & Co., the holding company for all Merrill Lynch interests. From 1978 to 1980 Mr. Kelly was Executive
Vice President, Director and member of the Executive Committee of Blyth Eastman Dillon, where he was co-head of the Corporate Finance
Department. He was responsible for all new business activities for the firm and headed the Financial Institutions Group. Among
the other positions held by Mr. Kelly prior to 1978 include his positions from 1968 to 1975 as Vice President of The First Boston
Corporation where he established the commercial paper department and was responsible for all corporate finance new business activities,
and as a partner, member of the management committee and head of investment banking for Prescott, Ball & Turbin from 1975 to
1978. Mr. Kelly is a member of the Board of Trustees of the University of Pennsylvania, a member of the Business School Advisory
Board of the University of Auckland (NZ), and a member of the New Zealand Business Roundtable. In addition, he is a member of the
Director’s Advisory Board of the Yale Cancer Center. He is a past director of American Life and Health Insurance Company
of New York, The Chicago Sun-Times Corporation, Hydrox Corporation, Ltd. (New Zealand), MCR Corporation, and Porta Systems Corporation
(ASE). He graduated from the University of Pennsylvania in 1962 and received an MBA in Finance from the Wharton School in 1964
and an LLD (Hon.) from the University of Auckland (NZ) in 2006. We have chosen Mr. Kelly to serve as a director because of his
experience in the US financial industry and he was also the founder of CHAC.



Cheng Yan Davis has been our
director since November 20, 2009 and was a board member of our predecessor, CHAC, since its inception. Since September 2010, Ms.
Davis has acted as a special advisor to the President of the Teacher’s College of Columbia University. From 1993 until September
2010, Ms. Davis served as the Vice Dean of International Programs and Development at the University of Pennsylvania Graduate School
of Education (GSE International). GSE International was established by Ms. Davis in 1993, and was the first international programs
office among Ivy League graduate schools of education in the U.S. Since 1993, Ms. Davis has served as a Special Advisor to the
President of the University of Pennsylvania on internationalization efforts. GSE International has developed many specialized training
programs for groups ranging from government officials and university presidents to finance executives and corporate CEOs. Among
these programs are training programs for Chief Executive Officers and leading executives in the Chinese securities and mutual fund
industries, created in conjunction with the Wharton School. Over the past three years, the Penn-Securities Association of China
Program and the Penn-China Mutual Fund CEO Leadership Program have trained over one hundred Chinese executives in the latest theories
and practices of the U.S. finance sector. Since 1998, Ms. Davis has worked with Morgan Stanley on the International Conference
on Higher Education Management in Shanghai, the establishment of the China Center, which focuses on management training for U.S.-China
joint ventures, and the China Pension Program, which works with the state council of China in designing the architecture and training
of a senior workforce in comprehensive pension management. Ms. Davis has also worked with CIGNA and Lucent Technologies on various
professional education projects since 1997, designing a variety of training and professional development programs. Ms. Davis also
serves as an advisor on quality workforce standards for the Shanghai Municipal Government and the Shanghai Foreign Trade Commission.
Since 1997, Ms. Davis has been invited to the Shanghai’s Mayor’s International Advisory Council as a special observer
and to offer suggestions on Shanghai human resource development and workforce training. Ms. Davis has also been invited to custom
design new programs for China Telecom and China Industrial Commercial Bank. These programs were designed in preparation of China’s
entry into the World Trade Organization. Ms. Davis initiated former President Jiang Zemin’s visit to the University of Pennsylvania
in 1997. Ms. Davis is a board member of the New York Film Academy, Senior Advisor to Motorola and Oracle on international government
relations, and Advisor Professor to East China Normal University. In addition, she has served as the Senior Observer for the Shanghai
International Business Leaders Advisory Council for the past fifteen years. She has received numerous recognitions for her many
contributions, including the first-ever PennGSE Alumni Pioneers Award. Ms. Davis has a degree in Russian and English from Shichuan
Foreign Language University in China and an Ed D in Education from the Graduate School of Education at the University of Pennsylvania.
We have chosen Ms. Davis to serve as director because of her history with the Company, as a founder of CHAC.



62







William L. Stulginsky has been
our director since April 1, 2010. Mr. Stulginsky retired as Partner from PricewaterhouseCoopers LLP in September 2009. He has over
thirty six years of public accounting experience and was a partner at PricewaterhouseCoopers and predecessor firms for twenty-four
years prior to his retirement. His background includes serving public and private clients in the higher education, healthcare,
electric and gas utilities, pharmaceutical and manufacturing industries. He has a Bachelor of Science degree in Accounting from
LaSalle University. Mr. Stulginsky is also on the Board of Directors of Fox Chase Cancer Center in Philadelphia and the Visiting
Nurse Association of Greater Philadelphia (Board Chairman), both of which are nonprofit organizations. We have chosen Mr. Stulginsky
to serve as director because of his financial sophistication. Mr. Stulginsky is also on the Board of Hayleysville Mutual Insurance
Company.



Su Wei Feng has been our director
since April 1, 2010. Mr. Su joined us in March 2007. He currently acts as our general legal counsel and Secretary. Prior to working
with us, Mr. Su worked as a lawyer at Fujian Minrong Law Firm from 2005 to 2007. He graduated from the School of Law of Xiamen
University in 2004. Mr. Su Wei Feng is the son of Mr. Su Pei Zhi, a director of the Company. We have chosen Mr. Feng to serve as
director because of his legal background.



Pursuant to the merger and stock purchase
agreement dated August 19, 2009, Huang Jia Dong, Sue Pei Zhi, and Ding Wei Dong were nominated as members of our board of directors
by the Seller (as defined in the merger and stock purchase agreement), and Paul K. Kelly and Cheng Yan Davis were nominated as
members of China Ceramics’ board of directors by the Purchaser (as defined in the merger and stock purchase agreement).



Mr. Huang and Mr. Wong, our majority shareholder,
are brothers-in-law. There are no other family relationships among our directors or officers.



The business address of each party described
above is c/o Jinjiang Hengda Ceramics Co., Ltd., Junbing Industrial Zone, Anhai, Jinjiang City, Fujian Province, People’s
Republic of China.



| | B. | Compensation
| | -- | ------------



Compensation Committee Interlocks and Insider Participation



No member of our compensation committee
has at any time been our officer or employee, or our subsidiaries. No interlocking relationship exists between our board of directors
or compensation committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship
existed in the past.



During the last fiscal year, none of our
officers and employees, and none of our former officers participated in deliberations of our Board of Directors concerning executive
officer compensation.



Director Compensation



Starting April 1, 2010, our Board of
Directors determined to provide its non-employee members annual compensation of $40,000. Mr. William L. Stulginsky, as the
Chairman of the Audit Committee, received $45,000. Prior to April 1, 2010, there was no compensation provided to any of our
directors.



The following table sets forth all of the
compensation paid by us or our significant subsidiaries in 2011 to each of our non-employee directors for such person’s service
as an director (including contingent or deferred compensation accrued during 2011):



|Name and Principal Position |  | Cash RMB |         |  | Value of Options(1) RMB |         | Total RMB |          
|--------------------------- |  | -------- | ------- |  | ----------------------- | ------- | --------- | ---------
|Ding Wei Dong               |  |          | 262,500 |  |                         | 612,200 |           | 874,700  
|Paul K. Kelly               |  |          | 251,756 |  |                         | 612,200 |           | 863,956  
|Cheng Yan Davis             |  |          | 251,756 |  |                         | 612,200 |           | 863,956  
|William L. Stulginsky       |  |          | 283,226 |  |                         | 918,300 |           | 1,201,526



63











| | (1) | The total fair value of the share options granted under the Plan is RMB 25,643,000 (US$3,978,000). On December 27, 2010,
                                                               the shareholders of the Company approved the 2010 Incentive Compensation Plan (“the 2010 Incentive Plan”) at the
                                                               annual meeting, which was designed to retain directors and senior management. In accordance with the Plan, the Company
                                                               granted an aggregate of 1,130,000 stock options to Huang Jia Dong, Su Pei Zhi, Su Wei Feng, Hen Man Edmund, Paul K. Kelly,
                                                               Cheng Yan Davis, Ding Wei Dong and William L. Stulginsky, upon the approval by the Board of Directors on January 27, 2011,
                                                               the grant date. Each option entitles the holder to purchase one ordinary share for an exercise price of  7.65 per share.The
                                                               share options are valid for a period of 5 years from January 27, 2011 to January 27, 2015. For the year ended December 31,
                                                               2011, RMB 17.3 million ($2.7 million) of employee remuneration expense (all of which related to equity-settled share-based
                                                               payment transactions) has been included in profit or loss and credited to share-based payment reserve.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Executive Officers



The following table sets forth all of the
compensation paid by us or our significant subsidiaries in 2011 to each of our officers for such person’s service as an officer
(including contingent or deferred compensation accrued during 2011 but not including any amounts paid to such persons for their
services as directors):



|Name and Principal Position              |  | Salary RMB |         |  | Bonus RMB |  |   | Value of Options(1) RMB |  |           | Total RMB | 
|---------------------------------------- |  | ---------- | ------- |  | --------- |  | - | ----------------------- |  | --------- | --------- | 
|Huang Jia Dong, Chief Executive Office   |  |            | 126,873 |  |           |  | - |                         |  | 4,591,501 |           | 
|Su Pei Zhi, Sales Deputy General Manager |  |            | 116,241 |  |           |  | - |                         |  | 1,530,500 |           | 
|Hen Man Edmund, Chief Financial Officer  |  |            | 293,196 |  |           |  | - |                         |  | 5,356,751 |           | 
|Su Wei Feng, Corporate Secretary         |  |            | 84,000  |  |           |  | - |                         |  | 3,061,001 |           | 










(1) The total fair value
of the share options granted under the Plan is RMB 25,643,000 (US$3,978,000). On December 27, 2010, the shareholders of the Company
approved the 2010 Incentive Plan at the annual meeting, which was designed to retain directors and senior management. In accordance
with the Plan, the Company granted an aggregate of 1,130,000 stock options to Huang Jia Dong, Su Pei Zhi, Su Wei Feng, Hen Man
Edmund, Paul K. Kelly, Cheng Yan Davis, Ding Wei Dong and William L. Stulginsky, upon the approval by the Board of Directors on
January 27, 2011, the grant date. Each option entitles the holder to purchase one ordinary share for an exercise price of 7.65
per share. The share options are valid for a period of 5 years from January 27, 2011 to January 27, 2016. For the year ended December
31, 2011, RMB 17.3 million ($2.7 million) of employee remuneration expense (all of which related to equity-settled share-based
payment transactions) has been included in profit or loss and credited to share-based payment reserve.



Retirement Benefits



As of December 31, 2010, China Ceramics
has contributed to the government-mandated employee welfare and retirement benefit plan and provided pension, retirement or similar
benefits to its employees. The PRC regulations require China Ceramics to pay the local labor administration bureau a monthly contribution
at a stated contribution rate based on the monthly basic compensation of qualified employees. The local labor administration bureau,
which manages various investment funds, will take care of employee retirement, medical and other fringe benefits. Success Winner
has no further commitments beyond its monthly contribution.



China Ceramics does not accrue pension,
retirement or similar benefits.



64







Employment Agreements



Upon consummation of the acquisition of
Success Winner, we entered into employment agreements with certain of our executive officers. The following discussion summarizes
the material terms of employment agreements entered into between us and our executive officers:



We entered into employment agreements with
the following officers: Huang Jia Dong, Chief Executive Officer, Su Pei Zhi, Sales Deputy General Manager, Hen Man Edmund, Chief
Financial Officer, and Su Wei Feng, Corporate Secretary.



| | · | The term of the employment agreements is three years (February 1, 2012 to January 31, 2013
for Su Peizhi, Huang Jia Dong and Su Wei Feng and August 1, 2011 to July 31, 2012 for Hen Man Edmund).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Huang Jia Dong will receive compensation of RMB 10,000 per month; Su Pei Zhi will receive
compensation of RMB 12,000 per month from January 1, 2010; Hen Man Edmund will receive compensation of RMB 30,000 per month from
January 1, 2010; and Su Wei Feng will receive compensation of RMB 7,000 per month.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We may dismiss any of the above officers if any of the following events occurs with respect
to the officer: (1) failure to show up for work, (2) failure to provide required documents, (3) falsification of documents, criminal
record, etc., (4) serious violation of such officers’ labor rules and of regulations, (5) serious lapse of duties and responsibilities,
(6) activities that violate regulations, resulting in loss of more than RMB 4,000, (7) operation of his own business during the
term of his employment, (8) criminal prosecution and labor punishment, (9) request by the officer to resign, (10) causing us to
sign or change any contract through fraud, coercion and other fraudulent means, or (11) other situations stipulated by law and
statutes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Each officer is subject to the non-compete provisions of the agreement for a period of three
years following termination of the employment agreement and non-solicitation provisions of the agreement for a period of two years
following termination of the employment agreement.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Employees



Compensation for our senior executives is
comprised of four elements: a base salary, an annual performance bonus, equity and benefits.



In developing salary ranges, potential bonus
payouts, equity awards and benefit plans, it is anticipated that our compensation committee takes into account: 1) competitive
compensation among comparable companies and for similar positions in the market, 2) relevant ways to incentivize and reward senior
management for improving shareholder value while building a successful company, 3) individual performance, 4) how best to retain
key executives, 5) the overall performance of us and our various key component entities, 6) our ability to pay and 7) other factors
deemed to be relevant at the time.



Our senior management have discussed our
above mentioned planned process for executive compensation and the four compensation components. Specific compensation plans for
our key executives are negotiated and established by our compensation committee.



None of our officers, directors or employees
are entitled to benefits upon termination of employment.



65







China Ceramics Co., Ltd. 2010 Incentive Compensation Plan



On December 27, 2010, our shareholders approved
the 2010 Incentive Plan. The purpose of the 2010 Incentive Plan is to assist us and our subsidiaries in
attracting, motivating, retaining and rewarding high-quality executives and other employees, officers, directors, and independent
contractors by enabling such persons to acquire or increase a proprietary interest in us in order to strengthen the mutuality of
interests between such persons and our shareholders, and providing such persons with annual and long-term performance incentives
to expand their maximum efforts in the creation of shareholder value.  Awards under the 2010 Incentive Plan will be limited
in the aggregate to 1,200,000 shares. The 2010 Incentive Plan shall terminate at such time as no shares remain available for issuance
under the 2010 Incentive Plan, when we have no further obligations with respect to outstanding awards under the 2010 Incentive
Plan. As of December 31, 2011, 1,130,000 shares underling grants under the 2010 Incentive Plan have been granted.



Administration. The 2010 Incentive
Plan is administered by a committee (the “Committee”) designated by our board of directors (the “Board”),
which shall consist of at least two directors, each of whom is (i) a “non-employee director” within the meaning of
Rule 16b-3 promulgated under the Exchange Act and (ii) an “outside director” within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and
regulations thereto (the “Code”); provided, however, that except as otherwise expressly provided in the 2010 Incentive
Plan or in order to comply with Code Section 162(m) or Rule 13b-3 under the Exchange Act, the Board may exercise any power or authority
granted to the Committee under the 2010 Incentive Plan. Among other things, the Committee has complete discretion, subject to the
express limits of the 2010 Incentive Plan, to determine the officers, directors, employees and independent contractors to be granted
an award, the type of award to be granted, the number of shares subject to each award, the terms and conditions of each award,
the exercise price of each award which is a stock option (“Option”) and the base price of each award which is a stock
appreciation right (“SAR”), the term of each award, the vesting schedule for an award, whether to accelerate award
vesting, the value of the Shares underlying an award, and the required withholdings, if any. The Committee is also authorized to
construe the award agreements, and may prescribe rules relating to the 2010 Incentive Plan. Notwithstanding the foregoing, neither
the Committee nor the Board has any authority to grant or modify an award under the 2010 Incentive Plan with terms or conditions
that would cause the award to be considered nonqualified “deferred compensation” subject to Code Section 409A.



Grant of Awards; Shares Available for
Awards. The 2010 Incentive Plan provides for the grant of Options (both incentive stock options and non-incentive stock options),
SARs (including limited SARs), restricted stock, deferred stock, stock granted as a bonus or in lieu of another award, dividend
equivalents, bonus stock, awards in lieu of obligations, and performance or annual incentive awards (each an “award”)
to our executive officers, directors and employees, and independent contractors (each a “participant”) (however, solely
employees are eligible for awards which are incentive stock options). We have reserved a total of 1,200,000 shares for issuance
as or under awards to be made under the 2010 Incentive Plan.  If any award lapses, expires, is cancelled, or terminates
unexercised or ceases to be exercisable for any reason, the number of shares subject thereto is again available for grant under
the 2010 Incentive Plan. The number of shares for which awards which are Options, SARs, performance awards or annual incentive
awards may be granted to a participant under the 2010 Incentive Plan in any fiscal year is limited to 350,000.



The number of awards to be granted to officers,
directors, employees and consultants cannot be determined at this time as the grant of awards is dependent upon various factors
such as hiring requirements and job performance.



Options. The exercise price per share
purchasable under an Option shall be determined by the Committee or the Board, provided that such per share exercise price shall
not be less than 100% of the fair market value of a share on the date of grant of the Option and shall not, in any event, be less
than the par value of a share on the date of grant of such option. The Committee or the Board shall determine the time or times
at which or the circumstances under which an Option may be exercised in whole or in part, the time or times at which Options shall
cease to be or become exercisable following termination of employment or upon other conditions, the methods by which such exercise
price may be paid or deemed to be paid, the form of such payment, and the methods by or forms in which shares will be delivered
or deemed to be delivered to participants who exercise Options.



Options which are incentive stock options
(“ISOs”) granted under the 2010 Incentive Plan shall comply in all respects with Code Section 422. In the case of ISOs,
if an employee owns or is deemed to own (by reason of the attribution rules applicable under Code Section 424(d)) more than 10%
of the combined voting power of all classes of our shares or the shares of any parent or subsidiary (a “ten percent shareholder”)
and an ISO is granted to such employee, the per share exercise price under such ISO (to the extent required by the Code at the
time of grant) shall be no less than 110% of the fair market value of a share on the date such ISO is granted. The term of an ISO
may not exceed 10 years (5 years in the case of an ISO granted to a ten percent shareholder). ISOs may be granted to solely employees.
In addition, the aggregate fair market value of the shares subject to an ISO (determined at the time of grant) which are exercisable
for the first time by an employee during any calendar year may not exceed $100,000.



66







Stock Appreciation Rights. A SAR
provides the participant to whom it is granted the right to receive, upon its exercise, the excess of (A) the fair market value
of the number of shares subject to the SAR on the date of exercise (or, in the case of a “Limited SAR” (as defined
in the 2010 Incentive Plan) which may be exercised only in the event of a “change in control” (as defined in the 2010
Incentive Plan), the fair market value determined by reference to the change in control price, as defined in the 2010 Incentive
Plan), over (B) the product of the number of shares subject to the SAR multiplied by the grant price under the SAR, as determined
by the Committee or the Board. The per share grant price of a SAR shall not be less than the fair market value of a share on the
date of grant.



Restricted Stock Awards. A restricted
stock award is a grant or sale of shares to the participant, subject to such restrictions on transferability, risk of forfeiture
and other restrictions, if any, as the Committee or the Board may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements),
in such installments or otherwise, as the Committee or the Board may determine at the date of grant or purchase or thereafter.
Except to the extent restricted under the terms of the 2010 Incentive Plan and any agreement relating to the restricted stock award,
a participant who is granted or has purchased restricted stock shall have all of the rights of a shareholder, including the right
to vote the restricted stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement
imposed by the Committee or the Board). During the restricted period applicable to the restricted stock, subject to certain exceptions,
the restricted stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the participant.



Deferred Stock. A deferred stock
award is a right to receive shares, cash, or a combination thereof at the end of a specified deferral period, subject to certain
terms and conditions, and in compliance with Code Section 409A. Payment under an award of deferred stock shall occur upon expiration
of the deferral period specified for such deferred stock award by the Committee or the Board (or, if permitted by the Committee
or the Board, as elected by the participant). In addition, deferred stock awards shall be subject to such restrictions (which may
include a risk of forfeiture) as the Committee or the Board may impose, if any, which restrictions may lapse at the expiration
of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service
requirements), separately or in combination, in installments or otherwise, as the Committee or the Board may determine. Payments
under deferred stock awards may be by delivery of Shares, cash equal to the fair market value of the specified number of shares
covered by the deferred stock award, or a combination thereof, as determined by the Committee or the Board at the date of grant
or thereafter. Prior to the end of the specified deferral period for a deferred stock award, the award carries no voting or dividend
or other rights associated with share ownership.



Bonus Shares and Awards in Lieu of Obligations.
The Committee and the Board are each authorized to grant shares as a bonus, or to grant shares or other awards in lieu of our obligations
to pay cash or deliver other property under the 2010 Incentive Plan or under other plans or compensatory arrangements, provided
that, in the case of participants subject to Section 16 of the Exchange Act, the amount of such grants remains within the discretion
of the Committee to the extent necessary to ensure that acquisitions of shares or other awards are exempt from liability under
Section 16(b) of the Exchange Act. These bonus shares or awards granted under the 2010 Incentive Plan shall be subject to such
other terms as shall be determined by the Committee or the Board.



Dividend Equivalents. The Committee
and the Board are each authorized to grant dividend equivalents to a participant, entitling the participant to receive cash, shares,
other awards, or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic
payments. Dividend equivalents may be awarded on a free-standing basis or in connection with another award. The Committee or the
Board may provide that dividend equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested
in additional shares, awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture,
as the Committee or the Board may specify.



67







Other Stock-Based Awards. The Committee
and the Board are each authorized, subject to limitations under applicable law, to grant to participants such other awards that
may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares, as
deemed by the Committee or the Board to be consistent with the purposes of the 2010 Incentive Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or exchangeable into shares, purchase rights for shares,
awards with value and payment contingent upon our performance or any other factors designated by the Committee or the Board, and
awards valued by reference to the book value of shares or the value of securities of or the performance of our specified subsidiaries
or business units.



Performance and Annual Incentive Awards.  The
Committee and the Board (except for such awards to be made to participants who are “covered employees” for purposes
of Code Section 162(m), which awards must be made by the Committee) are each authorized to grant (i) performance awards, under
which participants will receive cash payments, shares or other awards upon the satisfaction of pre-specified (generally, other
than annual) performance criteria, and (ii) annual incentive awards, under which participants will receive cash payments, shares
or other awards upon the satisfaction of pre-specified annual performance criteria.  The performance criteria which may
be used for performance awards or annual incentive awards made to participants who are “covered employees” for purposes
of Code Section 162(m) may solely include, for us, on a consolidated basis and/or our specified subsidiaries or business units
(except with respect to total shareholder return and earnings per share criteria) - total shareholder return; total shareholder
return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard
& Poor’s 500 Stock Index or the S&P Specialty Retailer Index; net income; pretax earnings; earnings before interest
expense, taxes, depreciation and amortization; pretax operating earnings after interest expense and before bonuses, service fees,
and extraordinary or special items; operating margin; earnings per share; return on equity; return on capital; return on investment;
operating earnings; working capital or inventory; and ratio of debt to shareholders’ equity.



Change in Control Provisions. In
the event of a change in control (as defined in the 2010 Incentive Plan), (i) any award subject to vesting and exercisability requirements
that was not previously vested and exercisable shall become fully vested and exercisable as of the occurrence of the change in
control, subject to certain restrictions; (ii) Limited SARs (and other SARs if so provided by their terms) shall become exercisable
for amounts, in cash, determined by reference to the change in control price; (iii) the restrictions, deferral of settlement, and
forfeiture conditions applicable to any other award shall lapse and such awards shall be deemed fully vested as of the occurrence
of the change in control, except to the extent of any waiver by the participant and subject to certain restrictions; (iv) with
respect to any outstanding award subject to achievement of performance goals and conditions under the 2010 Incentive Plan, such
performance goals and other conditions will be deemed to be met if and to the extent so provided by the Committee in the award
agreement relating to such award; (v) the Board may in its sole and absolute discretion, provide on a case by case basis that Options
shall terminate, provided however, that a participant holding a terminating Option shall have the right, immediately prior to the
occurrence of such change in control and during such period as the Board in its sole discretion shall determine and designate,
to exercise that Option, to the extent exercisable, in whole or in part; and (vi) the Board may in its sole and absolute discretion,
provide on a case by case basis that any award entitled to be settled in shares shall instead be entitled to be settled, during
such period as the Board in its sole discretion shall determine and designate, by means of a cash payment equal to the fair market
value of such award immediately prior to the occurrence of such change in control, as determined in good faith by the Board.



Amendment and Termination. The Board
may amend, alter, suspend, discontinue or terminate the 2010 Incentive Plan, or the Committee’s authority to grant awards
under the 2010 Incentive Plan, without the consent of shareholders or participants, except that any amendment or alteration to
the 2010 Incentive Plan shall be subject to the approval of the Company’s shareholders not later than the annual meeting
next following such Board action if such shareholder approval is required by any federal or state law or regulation (including,
without limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any stock exchange or automated quotation system on which
the Shares may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes
to the 2010 Incentive Plan to shareholders for approval; provided that, without the consent of an affected participant, no such
Board action may materially and adversely affect the rights of such participant under any previously granted and outstanding award.
The Committee or the Board may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any award
theretofore granted and any award agreement relating thereto, except as otherwise provided in the 2010 Incentive Plan; provided
that, without the consent of an affected participant, no such Committee or the Board action may materially and adversely affect
the rights of such participant under such award.



68







Compensation Committee.The shareholders
of the Company approved the 2010 Incentive Plan at the annual meeting held on December 27, 2010. In accordance with the 2010 Incentive
Plan, the Board of Directors of the Company has appointed the Compensation Committee (the “Committee”) to administer
the 2010 Incentive Plan. Subsequent to the balance sheet date, the Company granted an aggregate of 1,130,000 stock options to Huang
Jia Dong, Su Pei Zhi, Su Wei Feng, Hen Man Edmund, Paul K. Kelly, Cheng Yan Davis, Ding Wei Dong and William L. Stulginsky, upon
the approval by the Board of Directors on January 27, 2011, the grant date. The exercise price of the share options granted is
$7.65 per share and the share options are valid for a period of 5 years from January 27, 2011 to January 27, 2015. One-fourth of
options granted will vest in every year from the grant date. As at the grant date of January 27, 2011, the estimated total fair
value of the options granted is approximately $3,977,600.



Certain U.S. Federal Income Tax Consequences
of the 2010 Incentive Plan



The following is a general summary of the
U.S. federal income tax consequences under current tax law to China Ceramics, were it subject to U.S. federal income taxation,
and to participants under the 2010 Incentive Plan who are individual citizens or residents of the United States for U.S. federal
income tax purposes (“U.S. participants”) of Options, which include ISOs and Options that are not ISOs, SARs, restricted
stock, deferred stock, performance shares, performance units, restricted stock units, dividend equivalent rights and bonus stock.
It does not purport to cover all of the special rules that may apply, including special rules relating to limitations on the ability
of China Ceramics, were it subject to U.S. federal income taxation, to deduct certain compensation, special rules relating to deferred
compensation, golden parachutes, participants subject to Section 16(b) of the Exchange Act and the exercise of an Option with previously-acquired
shares. This summary assumes that U.S. participants will hold their shares as capital assets within the meaning of Section 1221
of the Code. This summary does not address the application of the passive foreign investment company rules of the Code to U.S.
participants. These rules are discussed generally under the section below entitled “Taxation–United States Federal
Income Taxation–U.S. Holders–Passive Foreign Investment Company Rules”. In addition, this summary does not address
the foreign, state or local income or other tax consequences, or any U.S. federal non-income tax consequences, inherent in the
acquisition, ownership, vesting, exercise, termination or disposition of an award under the 2010 Incentive Plan or shares issued
pursuant thereto. Participants are urged to consult their own tax advisors concerning the tax consequences to them of an award
under the 2010 Incentive Plan or shares issued pursuant thereto.



A U.S. participant generally does not recognize
taxable income upon the grant of an option. Upon the exercise of an Option that is not an ISO, the participant generally recognizes
ordinary income in an amount equal to the excess, if any, of the fair market value of the shares acquired on the date of exercise
over the exercise price therefor, and China Ceramics, were it subject to U.S. federal income taxation, would be entitled to a deduction
for such amount at that time. If the U.S. participant later disposes of the shares acquired under an Option that is not an ISO,
the U.S. participant generally recognizes a long-term or short-term gain or loss, depending upon the period for which the shares
were held thereby. A long-term capital gain generally is subject to more favorable tax treatment than ordinary income or a short-term
capital gain. The deductibility of capital losses is subject to certain limitations.



Upon the exercise of an ISO, a U.S. participant
generally does not recognize taxable income. If the U.S. participant disposes of the shares acquired pursuant to the exercise of
an ISO more than two years after the date of grant and more than one year after the transfer of the shares to the participant,
the U.S. participant generally recognizes a long-term capital gain or loss, and the Company would not be entitled to a deduction.
However, if the U.S. participant disposes of such shares prior to the end of the required holding period, all or a portion of the
gain is treated as ordinary income, and China Ceramics, were it subject to U.S. federal income taxation, generally would be entitled
to deduct such amount.



In addition to the U.S. federal income tax
consequences described above, the U.S. participant may be subject to the alternative minimum tax (“AMT”), which is
payable to the extent it exceeds the participant’s regular income tax. For this purpose, upon the exercise of an ISO, the
excess of the fair market value of the shares for which the ISO is exercised over the exercise price thereunder for such shares
is a preference item for purposes of the AMT. In addition, the U.S. participant’s basis in such shares is increased by such
excess for purposes of computing the gain or loss on the disposition of the shares for AMT purposes. If a U.S. participant is required
to pay any AMT, the amount of such tax which is attributable to deferral preferences (including any ISO adjustment) generally may
be allowed as a credit against the participant’s regular income tax liability (and, in certain cases, may be refunded to
the participant) in subsequent years. To the extent the credit is not used, it may be carried forward.



69







A U.S. participant who receives a bonus
of restricted stock award or who purchases shares of restricted shares, which shares, in either case, are subject to a substantial
risk of forfeiture and certain transfer restrictions, generally does not recognize income on the receipt of the award or the purchased
restricted shares and generally recognizes ordinary compensation income at the time the restrictions lapse in an amount equal to
the excess, if any, of the fair market value of the shares at such time over any amount paid by the U.S. participant for the shares.
Alternatively, the U.S. participant may elect to be taxed upon receipt of the restricted shares based on the value of the shares
at the time of receipt. China Ceramics, were it subject to U.S. federal income taxation, generally would be entitled to deduct
such amount at the same time as ordinary compensation income is required to be included by the U.S. participant and in the same
amount. Dividends received with respect to restricted shares generally are treated as compensation, unless the U.S. participant
elects to be taxed on the receipt (rather than the vesting) of the restricted shares.



A U.S. participant generally does not recognize
income upon the grant of an SAR. The U.S. participant recognizes ordinary compensation income upon the exercise of the SAR equal
to the increase in the value of the underlying shares, and China Ceramics, were it subject to U.S. federal income taxation, generally
would be entitled to a deduction for such amount.



A U.S. participant generally does not recognize
income on the receipt of a deferred stock award or a bonus stock award and generally recognizes income when the shares are received.
At such time, the U.S. participant recognizes ordinary compensation income equal to the excess, if any, of the fair market value
of the shares over any amount paid for the shares, and China Ceramics, were it subject to U.S. federal income taxation, generally
would be entitled to deduct such amount at such time.



A U.S. participant generally does not recognize
income on the receipt of a performance award, annual incentive award or dividend equivalent right award until a payment is received
under the award.  At such time, the U.S. participant recognizes ordinary compensation income equal to the amount of any
cash payments and the fair market value of any shares received, and the Company generally would be entitled to deduct such amount
at such time.



| | C. | Board Practices
| | -- | ---------------



The term of each director is until their
resignation or removal.



Our board of directors has established an
audit committee, a compensation committee and a governance and nominating committee.



Audit Committee.  The
audit committee consists of William L. Stulginsky, Ding Wei Dong and Cheng Yan Davis. Mr. Stulginsky is the chair of the
audit committee, and our board of directors believe that Mr. Stulginsky qualifies as an “audit committee financial
expert”, as such term is defined in the rules of the Securities and Exchange Commission.



The board of directors has adopted an audit
committee charter, providing for the following responsibilities of the audit committee:



| | · | appointing and replacing our independent auditors and pre-approving all auditing and permitted non-auditing services to be
performed by the independent auditors;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing and discussing the annual audited financial statements with management and the independent auditors;
| | - | --------------------------------------------------------------------------------------------------------------



| | · | annually reviewing and reassessing the adequacy of our audit committee charter;
| | - | -------------------------------------------------------------------------------



| | · | such other matters that are specifically delegated to our audit committee by our board of directors from time to time;
| | - | ----------------------------------------------------------------------------------------------------------------------



70







| | · | meeting separately and periodically with management, the internal auditors and the independent auditors; and
| | - | ------------------------------------------------------------------------------------------------------------



| | · | reporting regularly to the board of directors.
| | - | ----------------------------------------------



Compensation Committee.  Our
compensation committee consists of Ding Wei Dong, Paul K. Kelly and Cheng Yan Davis. Ding Wei Dong is the chair of our compensation
committee. Ding Wei Dong, Paul K. Kelly and Cheng Yan Davis do not have any direct or indirect material relationship with us other
than as a director.



Our board of directors adopted a compensation
committee charter, providing for the following responsibilities of the compensation committee:



| | · | reviewing and making recommendations to the board regarding our compensation policies and forms of compensation provided to
our directors and officers;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing and making recommendations to the board regarding bonuses for our officers and other employees;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | administering our incentive-compensation plans for our directors and officers;
| | - | ------------------------------------------------------------------------------



| | · | reviewing and assessing the adequacy of the charter annually;
| | - | -------------------------------------------------------------



| | · | administering our share option plans, if they are established in the future, in accordance with the terms thereof; and
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.
| | - | -----------------------------------------------------------------------------------------------------------------------------



Governance and Nominating Committee.  Our
governance and nominating committee consists of Ding Wei Dong, Paul K. Kelly and Cheng Yan Davis. Ding Wei Dong is the chair of
our governance and nominating committee. Ding Wei Dong, Paul K. Kelly and Cheng Yan Davis do not have any direct or indirect material
relationship with us other than as a director.



Our board of directors adopted a governance
and nominating committee charter, providing for the following responsibilities of the governance and nominating committee:



| | · | overseeing the process by which individuals may be nominated to our board of directors;
| | - | ---------------------------------------------------------------------------------------



| | · | identifying potential directors and making recommendations as to the size, functions and composition of our board of directors
and its committees;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing candidates proposed by our shareholders;
| | - | --------------------------------------------------



| | · | developing the criteria and qualifications for the selection of potential directors; and
| | - | ----------------------------------------------------------------------------------------



| | · | making recommendations to the board of directors on new candidates for board membership.
| | - | ----------------------------------------------------------------------------------------



In making nominations, the governance and
nominating committee is required to submit candidates who have the highest personal and professional integrity, who have demonstrated
exceptional ability and judgment and who shall be most effective, in conjunction with the other nominees to the board, in collectively
serving the long-term interests of the shareholders. In evaluating nominees, the governance and nominating committee is required
to take into consideration the following attributes, which are desirable for a member of the board: leadership, independence, interpersonal
skills, financial acumen, business experiences, industry knowledge, and diversity of viewpoints.



71







Code of Ethics



In May 2010, our board of directors adopted
a code of ethics that applies to our directors, officers and employees. Our code of ethics is available on our website at http://cceramics.com/Corporate-Governance.html.



Director Independence



Our board of directors has determined
that Messrs. William L. Stulginsky, Ding Wei Dong and Paul K. Kelly and Ms. Cheng Yan Davis qualify as independent directors
under the rules of the Nasdaq Marketplace Rules because they are not currently employed by us, and do not fall into any of
the enumerated categories of people who cannot be considered independent in the Nasdaq Marketplace Rules.



| | D. | Employees
| | -- | ---------



The table below provides information as
to the total number of employees at the end of the last three fiscal years. We have no contracts or collective bargaining agreements
with labor unions and have never experienced work stoppages due to labor dispute. We consider our relations with our employees
to be good.



|                    |  | 2009 |       |  | 2010 |  |       | 2011 | 
|------------------- |  | ---- | ----- |  | ---- |  | ----- | ---- | 
|Number of Employees |  |      | 1,715 |  |      |  | 2,041 |      | 



| | E. | Share Ownership
| | -- | ---------------



See Item 7, below.



| | ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| | ------- | -------------------------------------------------



| | A. | Major shareholders
| | -- | ------------------



The following table sets forth, as of
March 29, 2012, certain information regarding beneficial ownership of our shares by each person who is known by us to
beneficially own more than 5% of our shares. The table also identifies the share ownership of each of our directors, each of
our named executive officers, and all directors and officers as a group. Except as otherwise indicated, the shareholders
listed in the table have sole voting and investment powers with respect to the shares indicated. Our major shareholders do
not have different voting rights than any other holder of our shares.



Shares which an individual or group has
a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants or other similar convertible or derivative
securities are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.



Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally includes voting and investment power. Except as otherwise
indicated below, each beneficial owner holds voting and investment power directly. The percentage of ownership is based on 18,254,002
shares issued and outstanding as of March 29, 2012.





|Name(1)                                                         |  | Number of Shares Beneficially Owned |           |      | Percentage of Ownership |     
|--------------------------------------------------------------- |  | ----------------------------------- | --------- | ---- | ----------------------- | ----
|Paul K. Kelly(2)                                                |  |                                     | 727,676   | (3)  |                         | 4.0 
|Cheng Yan Davis(4)                                              |  |                                     | 109,750   | (5)  |                         | *   
|Huang Jia Dong(6)                                               |  |                                     | 450,000   | (7)  |                         | 2.4 
|Su Pei Zhi                                                      |  |                                     | 100,000   | (8)  |                         | *   
|Ding Wei Dong                                                   |  |                                     | 40,000    | (9)  |                         | *   
|William L. Stulginsky(10)                                       |  |                                     | 65,000    | (11) |                         | *   
|Su Wei Feng                                                     |  |                                     | 200,000   | (12) |                         | 1.1 
|Hen Man Edmund                                                  |  |                                     | 358,000   | (13) |                         | 1.9 
|All directors and executive officers as a group (8 individuals) |  |                                     | 2,050,426 |      |                         | 10.6
|James D. Dunning, Jr.                                           |  |                                     | 1,101,251 | (14) |                         | 6.0 
|Alan G. Hassenfeld                                              |  |                                     | 1,101,251 | (14) |                         | 6.0 
|Gregory E. Smith                                                |  |                                     | 1,101,251 | (14) |                         | 6.0 
|Wong Kung Tok(6)                                                |  |                                     | 7,083,142 | (15) |                         | 38.8
|Surmount Investments Group Limited                              |  |                                     | 1,074,020 | (16) |                         | 5.9 
|David Knott                                                     |  |                                     | 1,259,081 | (17) |                         | 6.9 
|Clean Harbor Asset Management, LLC                              |  |                                     | 1,088,797 | (18) |                         | 6.0 



72







| | * | Less than 1%
| | - | ------------



| | (1) | Unless otherwise indicated, the business address of each of the individuals is c/o Jinjiang Hengda Ceramics Co., Ltd.; Junbing
Industrial Zone; Anhai, Jinjiang City; Fujian Province, PRC.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Paul K. Kelly’s business address is c/o Knox & Co.; 830 Post Road East, Suite 205; Westport, CT 06880.
| | --- | ------------------------------------------------------------------------------------------------------





| | (3) | Includes 40,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Cheng Yan Davis’s business address is Teacher’s College, Columbia University; Office of the President; Box 45 525
West 120th Street, New York, NY 10027-6696.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (5) | Includes 40,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------





| | (6) | Mr. Huang and Mr. Wong are brothers-in-law.
| | --- | -------------------------------------------



| | (7) | Includes 300,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------





| | (8) | Includes 100,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------







| | (9) | Includes 40,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | William L. Stulginsky’s address is 209 Wisteria Lane; Media, PA 19063.
| | ---- | ----------------------------------------------------------------------





| | (11) | Includes 60,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------





| | (12) | Includes 200,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------





| | (13) | Includes 350,000 shares underlying options. The options are currently exercisable for $7.65 per ordinary
share and expire on January 27, 2016.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------







| | (14) | Based on a Schedule 13D/A filed with the Securities
and Exchange Commission on October 28, 2011 filed by James D. Dunning, Alan G. Hassenfeld, and Gregory E. Smith, who are parties
to a voting agreement dated November 20, 2009. Consists of 663,693 shares owned by Mr. Dunning, 348,656 shares owned by Mr. Hassenfeld,
and 88,902 shares owned by Mr. Smith. The business address of Mr. Dunning is 2 Sutton Place South, Apt. 17D, New York, NY 10022.
The business address of Mr. Hassenfeld is c/o Hassenfeld Family Initiatives; The Owen Building; 101 Dyer Street, Suite 401; Providence,
RI 02903. The business address of Mr. Smith is 1401 NE 70th Street; Oklahoma City, OK 73111
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | Mr. Wong is entitled to receive 5,176,836 of our shares in the future if certain conditions contained in the merger and stock
purchase agreement dated August 19, 2009 are met. Such securities are not beneficially owned because Mr. Wong does not have voting
or dispositive power over such shares and it is not yet known if he will be entitled to receive any such shares. Pursuant to the
terms of the agreement, the 5,176,836 shares held in escrow may be issued to Mr. Wong if the following events occur:
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|Event                                                                                                                                                                      |  | Number of Shares |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---------
|From escrow at the close of 2011 audit, if certain earnings thresholds are met                                                                                             |  |                  | 2,176,836
|From escrow if the closing price of China Ceramics’ shares are at or above $20.00 per share for twenty trading days in a thirty trading day period prior to April 30, 2012 |  |                  | 2,000,000
|From escrow if the closing price of China Ceramics’ shares are at or above $25.00 per share for twenty trading days in a thirty trading day period prior to April 30, 2012 |  |                  | 1,000,000











| | (16) | Includes (i) 537,010 shares held by Surmount Investments Group Limited, (ii) 268,505 shares held by Top Plenty International
Limited, and (iii) 268,505 shares held by Park Rise Holdings Limited.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (17) | Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 3, 2012. Includes (i) 1,259,081
                                                           shares beneficially owned by Dorset Management Corporation, (ii) 672,400 shares beneficially owned by Knott Partners, L.P.,
                                                           and (iii) 356,681 shares beneficially owned by Knott Partners Offshore Master Fund, L.P. Mr. Knott is the managing member of
                                                           Knott Partners Management, LLC, a New York limited liability company (“Knott Management”), that is the sole
                                                           General Partner of Shoshone Partners, L.P., a Delaware limited partnership (“Shoshone”), Mulsanne Partners,
                                                           L.P.,                                                            a Delaware limited partnership (“Mulsanne”), and
                                                           Knott Partners Offshore Master Fund, L.P., a Cayman Islands
                                                           Exempted Limited Partnership (“Knott Offshore”), and managing general partner of Knott Partners, L.P., a New
                                                           Jersey limited partnership (“Knott Partners” and together with Shoshone, Mulsanne and Offshore, the
                                                           “Partnerships”). The Partnerships invest in securities that are sold in public markets. The principal activity
                                                           of                                                            each Partnership is the acquisition of long and short positions
                                                           in equity securities of publicly traded U.S. and foreign
                                                           securities. Each Partnership has the authority to employ various trading and hedging techniques and strategies in connection
                                                           therewith. Mr. Knott is also the sole shareholder, Director and President of Dorset Management Corporation
                                                           (“DMC”), which provides investment management services to the Partnerships and a limited number of other foreign
                                                           and domestic individuals and entities. The business address of Mr. Knott, DMC and Knott Partners is 485 Underhill
                                                           Boulevard, Suite 205; Syosset, New York 11791. The business address of Knott Offshore is c/o Walkers SPV Limited, Walker
                                                           House; 87 Mary Street, Georgetown, Cayman KY1-9002; Cayman Islands.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (18) | Based on a Schedule 13G filed with the Securities and Exchange Commission on January 30, 2012. Consists
of 1,077,597 share and 11,200 warrants. The exercise price of the warrants is $7.50 per share. The warrants will expire at 5:00
p.m., New York City time on November 16, 2012. The principal business address of Clean Harbor Asset Management, LLC is 420 Lexington
Avenue, Suite 2006; New York, NY 10170.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



73







Mr. Knott is also the sole shareholder,
Director and President of Dorset Management Corporation, which provides investment management services to the
Partnerships and a limited number of other foreign and domestic individuals and entities



As of March 29, 2012, we believe that
9,841,628 shares held by 9 holders of record are held in the United States.



Our officers, directors, employees and independent
contractors are eligible to receive awards under the 2010 Incentive Plan, as described under the section titled “6.B Compensation–China
Ceramics Co., Ltd. 2010 Incentive Compensation Plan.”



| | B. | Related Party Transactions
| | -- | --------------------------



Related Party Transactions of CHAC



Pursuant to a registration rights agreement
between CHAC and CHAC’s founders and special advisors, CHAC’s founders and special advisors are entitled to certain
registration rights. Specifically, (i) the private placement warrants and the underlying shares, are entitled to certain registration
rights commencing 90 days after the consummation of a business combination; and (ii) the existing shareholders’ shares will
be entitled to certain registration rights six months after the consummation of a business combination. We are only required to
use our best efforts to cause a registration statement relating to the resale of such securities to be declared effective and,
once effective, only to use our best efforts to maintain the effectiveness of the registration statement. The holders of warrants
do not have the rights or privileges of holders of our shares or any voting rights until such holders exercise their respective
warrants and receive shares. Permitted transferees that receive any of the above described securities from our founders will, under
certain circumstances, be entitled to the registration rights described herein. We will bear the expenses incurred in connection
with the filing of any such registration statements.



Related Party Transactions of China Ceramics
and Operating predecessor



Mr. Huang Jia Dong, the founder and Chairman
of Hengda and the Chief Executive Officer and one of our directors, and Mr. Wong Kung Tok, a holder of approximately 39% of
our shares as of March 30, 2012, provide working capital loans to us from time to time during the normal course of our business.
These loans amounted to RMB 3,380,000 ($494,000), RMB 1,327,000 ($201,000), and RMB 1,327,000 ($211,000) in 2009, 2010, and 2011,
respectively. These loans are interest free, unsecured and repayable on demand. They remain outstanding as of December 31, 2011.
Mr. Huang and Mr. Wong are brothers-in-law.



Pursuant to an administrative services
agreement dated as of December 1, 2009 between China Ceramics and Stuart Management Co., an affiliate of Paul K. Kelly, Chairman
of the board of directors, China Ceramics will pay $7,000 a month plus out-of-pocket expenses to Stuart Management Co. for administrative
services beginning on December 1, 2009 for a term of one year, and the agreement shall automatically renew for successive one-year
terms unless either party notifies the other of its intent not to renew. During the term of the agreement, Stuart Management Co.
will provide us with general administrative services, including acting as an administrative agent for us in the United States
and the British Virgin Islands, and allow us to utilize certain of its office space for meetings.





As of December 31, 2011, we have the exclusive
right to use 11 design patents through our chief executive officer, Huang Jia Dong. Huang Jia Dong has licensed to us, for no consideration,
the exclusive right to use PRC design patents owned by him during the terms of each of the patents.



Mr. Huang Jia Dong, director and chief executive
officer and Su Pei Zhi, director and sales deputy general manager provide the guarantee to the Group for the loans. The guarantee
amounted to RMB 30,000,000 ($ 4,388,000), RMB 142,000,000 ($ 21,515,000) and RMB 180,000,000 (US$ 28,599,000) as of December 31,
2009, 2010 and 2011, respectively.



74







| | C. | Interests of Experts and Counsel
| | -- | --------------------------------



Not required.



| | ITEM 8. | FINANCIAL INFORMATION
| | ------- | ---------------------



| | A. | Consolidated Statements and Other Financial Information.
| | -- | --------------------------------------------------------



See Item 18.



| | B. | Significant Changes
| | -- | -------------------



None



| | ITEM 9. | THE OFFER AND LISTING
| | ------- | ---------------------



| | A. | Offer
                                                                                                                                                      and
                                                                                                                                                      Listing
                                                                                                                                                      Details
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following tables set forth, for the
calendar quarters indicated and through March 30, 2012, the quarterly high and low sale prices for our units, shares and warrants,
respectively, as reported on NASDAQ, the OTC Bulletin Board or the NYSE Amex, as applicable. The OTC Bulletin Board market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.



|                         |  | Units |       |  | Shares |  |      | Warrants | 
|------------------------ |  | ----- | ----- |  | ------ |  | ---- | -------- | 
|                         |  | High  |       |  | Low    |  |      | High     | 
|Annual Highs and Lows    |  |       |       |  |        |  |      |          | 
|2007                     |  |       | 10.10 |  |        |  | 9.65 |          | 
|2008                     |  |       | 11.65 |  |        |  | 6.00 |          | 
|2009                     |  |       | 11.50 |  |        |  | 7.80 |          | 
|2010                     |  |       | 29.89 |  |        |  | 1.00 |          | 
|2011                     |  |       | 24.00 |  |        |  | 2.82 |          | 
|Quarterly Highs and Lows |  |       |       |  |        |  |      |          | 
|2010                     |  |       |       |  |        |  |      |          | 
|First Quarter            |  |       | n/a   |  |        |  | n/a  |          | 
|Second Quarter           |  |       | 5.00  |  |        |  | 1.51 |          | 
|Third Quarter            |  |       | 6.55  |  |        |  | 3.11 |          | 
|Fourth Quarter           |  |       | 29.89 |  |        |  | 3.25 |          | 
|2011                     |  |       |       |  |        |  |      |          | 
|First Quarter            |  |       | 24.00 |  |        |  | 6.23 |          | 
|Second Quarter           |  |       | 7.04  |  |        |  | 4.00 |          | 
|Third Quarter            |  |       | 7.17  |  |        |  | 3.73 |          | 
|Fourth Quarter           |  |       | 3.74  |  |        |  | 2.82 |          | 
|2012                     |  |       |       |  |        |  |      |          | 
|First Quarter            |  |       | 4.90  |  |        |  | 2.82 |          | 
|Monthly Highs and Lows   |  |       |       |  |        |  |      |          | 
|September 2011           |  |       | 3.08  |  |        |  | 2.82 |          | 
|October 2011             |  |       | 3.60  |  |        |  | 3.20 |          | 
|November 2011            |  |       | 3.74  |  |        |  | 3.73 |          | 
|December 2011            |  |       | 2.82  |  |        |  | 2.82 |          | 
|January 2012             |  |       | 2.82  |  |        |  | 2.82 |          | 
|February 2012            |  |       | 4.90  |  |        |  | 3.20 |          | 
|March 2012               |  |       | 4.45  |  |        |  | 3.66 |          | 



| | B. | Plan of Distribution
| | -- | --------------------



Not Applicable.



75







| | C. | Markets
| | -- | -------



Our shares, warrants and units have been
listed on the NASDAQ Global Market under the symbols CCCL, CCCLW and CCCLU, respectively, since January 18, 2011. Our shares, warrants
and units were listed on the NASDAQ Capital Market from November 3, 2010 through January 17, 2011. The shares, warrants and units
were previously quoted on the OTC Bulletin Board from December 29, 2009 through November 2, 2010. Prior to December 29, 2009, our
shares, warrants and units were traded on NYSE Amex, under the symbols “HOL,” “HOL.WS” and “HOL.U,”
respectively. CHAC’s units commenced to trade on NYSE Amex on November 16, 2007. CHAC’s shares and warrants commenced
to trade separately from its units on December 17, 2007.



| | D. | Selling Shareholders
| | -- | --------------------



Not Applicable.



| | E. | Dilution
| | -- | --------



Not Applicable.



| | F. | Expenses of the Issue
| | -- | ---------------------



Not Applicable.



| | ITEM 10. | ADDITIONAL INFORMATION
| | -------- | ----------------------



| | A. | Share Capital
| | -- | -------------



Not Applicable.



| | B. | Memorandum and Articles of Association
| | -- | --------------------------------------



The information required by Item 10.B of
Form 20-F is included in the section titled “Description of Securities–Memorandum and Articles of Association”
in our Registration Statement on Form F-1 initially filed with the SEC on October 29, 2010 (File No.: 333-170237), which section
is incorporated herein by reference.



| | C. | Material Contracts
| | -- | ------------------



Pursuant to the terms of a merger and stock
purchase agreement dated August 19, 2009, China Ceramics acquired all of the issued and outstanding shares of Success Winner held
by its former shareholder in exchange for $10.00 and 5,743,320 shares of China Ceramics shares. In addition, 8,185,763 shares of
the China Ceramics shares were placed in escrow (the “Contingent Shares”) to be released to the seller in the event
certain earnings and stock price thresholds are achieved. Of the Contingent Shares, up to 5,185,763 Contingent Shares will be released
based on achieving growth in either net earnings before tax or net earnings after tax, depending on the year, following the completion
of an audit in accordance with IFRS. Additionally, 3,000,000 Contingent Shares will be released if China Ceramics shares close
at or above certain share price targets for any twenty trading days within a thirty trading day period prior to April 30, 2012
(2,000,000 shares to be released if a $20 per share price target is reached and an additional 1,000,000 shares to be released if
a $25 per share price target is reached). On May 26, 2010 and April 11, 2011, pursuant to the terms of the merger and stock purchase
agreement, we issued 1,214,127 shares and 1,794,800 shares, respectively, to Mr. Wong Kung Tok. Upon the filing of this Annual
Report, we expect to issue 2,176,836 shares to Mr. Wong. After giving effect to the 2,176,836 shares issued to Mr. Wong, we will
have 20,430,838 issued and outstanding shares and 2,774,300 issued and outstanding warrants.



Pursuant to a Patent Licensing Contract
dated May 8, 2009 between us and our director and CEO Huang Jia Dong, Huang Jia Dong has licensed to us, for no consideration,
the exclusive right to use PRC design patents owned by Huang Jia Dong during the terms of each of the patents. There are a total
of 11 design patents for ceramic tiles which were applied for by Mr. Huang between August 2000 through November 2002. The terms
of such patents are for ten years from the application date.



76







Pursuant to an administrative services agreement
dated as of December 1, 2009 between us and Stuart Management Co., an affiliate of Paul K. Kelly, Chairman of the board of directors,
China Ceramics will pay $7,000 a month plus out-of-pocket expenses to Stuart Management Co. for administrative services beginning
on December 1, 2009 for a term of one year, and the agreement shall automatically renew for successive one-year terms unless either
party notifies the other of its intent not to renew.



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



Except for the above, the Company did not
enter into any other material contracts during our fiscal years 2010 or 2011.



| | D. | Exchange controls
| | -- | -----------------



Under British Virgin Islands law, there
are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect
the remittance of dividends, interest or other payments to nonresident holders of our shares.



| | E. | Taxation
| | -- | --------



The following summary of the material PRC
and U.S. federal income tax consequences of the acquisition, ownership and disposition of China Ceramics’ units, shares and
warrants, sometimes referred to collectively, or individually, as “securities,” is based upon laws and relevant interpretations
thereof in effect as of the date of this Annual Report, all of which are subject to change. This summary does not deal with all
possible tax consequences relating to an investment in China Ceramics’ securities, such as the tax consequences under state,
local and other tax laws. For purposes of this discussion, references to “China Ceramics,” “we,” “us”
or “our” refer only to China Ceramics Co., Ltd.



PRC Taxation



The following discussion summarizes the
material PRC income tax considerations relating to the acquisition, ownership and disposition of China Ceramics’ securities.



You should consult with your own tax adviser
regarding the PRC tax consequences of the acquisition, ownership and disposition of China Ceramics’ securities.



Resident Enterprise Treatment



On March 16, 2007, the Fifth Session of
the Tenth National People’s Congress passed the Enterprise Income Tax Law of the PRC (“EIT Law”), which became
effective on January 1, 2008. Under the EIT Law, enterprises are classified as “resident enterprises” and “non-resident
enterprises.” Pursuant to the EIT Law and its implementing rules, enterprises established outside China whose “de facto
management bodies” are located in China are considered “resident enterprises” and subject to the uniform 25%
enterprise income tax rate on their worldwide taxable income. According to the implementing rules of the EIT Law, “de facto
management body” refers to a managing body that in practice exercises overall management control over the production and
business, personnel, accounting and assets of an enterprise.



77







On April 22, 2009, the State Administration
of Taxation issued the Notice on the Issues Regarding Recognition of Enterprises that are Domestically Controlled as PRC Resident
Enterprises Based on the De Facto Management Body Criteria, which was retroactively effective as of January 1, 2008. This notice
provides that an overseas incorporated enterprise that is controlled by PRC domestic companies will be recognized as a “tax-resident
enterprise” if it satisfies all of the following conditions: (i) the senior management responsible for daily production/business
operations are primarily located in the PRC, and the location(s) where such senior management execute their responsibilities are
primarily in the PRC; (ii) strategic financial and personnel decisions are made or approved by organizations or personnel located
in the PRC; (iii) major properties, accounting ledgers, company seals and minutes of board meetings and stockholder meetings, etc.,
are maintained in the PRC; and (iv) 50% or more of the board members with voting rights or senior management habitually reside
in the PRC.



Given the short history of the EIT Law and
lack of applicable legal precedent, it remains unclear how the PRC tax authorities will determine the resident enterprise status
of a company organized under the laws of a foreign (non-PRC) jurisdiction, such as China Ceramics, Success Winner and Stand Best.
If the PRC tax authorities determine that China Ceramics, Success Winner and/or Stand Best is a “resident enterprise”
under the EIT Law, a number of tax consequences could follow. First, China Ceramics, Success Winner and/or Stand Best could be
subject to the enterprise income tax at a rate of 25% on their worldwide taxable income, as well as PRC enterprise income tax reporting
obligations. Second, the EIT Law provides that dividend income between “qualified resident enterprises” is exempt from
income tax. As a result, if China Ceramics, Success Winner and Stand Best are each treated as a “qualified resident enterprise,”
all dividends paid from Hengda to China Ceramics, through Success Winner and Stand Best, should be exempt from the PRC enterprise
income tax.



As of the date of this Annual Report, there
has not been a definitive determination by China Ceramics, Success Winner, Stand Best or the PRC tax authorities as to the “resident
enterprise” or “non-resident enterprise” status of China Ceramics, Success Winner and Stand Best. However, since
it is not anticipated that China Ceramics, Success Winner and/or Stand Best would receive dividends or generate other income in
the near future, China Ceramics, Success Winner and Stand Best are not expected to have any income that would be subject to the
25% enterprise income tax on worldwide taxable income in the near future. China Ceramics, Success Winner and Stand Best will make
any necessary tax payment if China Ceramics, Success Winner or Stand Best (based on future clarifying guidance issued by the PRC),
or the PRC tax authorities, determine that China Ceramics, Success Winner or Stand Best is a resident enterprise under the EIT
Law, and if China Ceramics, Success Winner or Stand Best were to have income in the future.



Dividends From Hengda



If Stand Best is not treated as a resident
enterprise under the EIT Law, then dividends that Stand Best receives from Hengda may be subject to PRC withholding tax. The EIT
Law and the implementing rules of the EIT Law provide that (A) an income tax rate of 25% will normally be applicable to investors
that are “non-resident enterprises” which (i) have an establishment or place of business inside the PRC, and (ii) have
income in connection with their establishment or place of business that is sourced from the PRC or is earned outside the PRC but
has an actual connection with their establishment or place of business inside the PRC, and (B) a PRC withholding tax at a rate
of 10% will normally be applicable to dividends payable to non-resident enterprises that (i) do not have an establishment or place
of business in the PRC or (ii) have an establishment or place of business in the PRC, but the relevant income is not effectively
connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC.



As described above, the PRC tax authorities
may determine the resident enterprise status of entities organized under the laws of foreign jurisdictions on a case-by-case basis.
China Ceramics, Success Winner and Stand Best are holding companies and substantially all of China Ceramics’, Success Winner’s
and Stand Best’s income may be derived from dividends. Thus, if China Ceramics, Success Winner and/or Stand Best are considered
a “non-resident enterprise” under the EIT Law and the dividends paid to China Ceramics, Success Winner and/or Stand
Best are considered income sourced within the PRC, such dividends received may be subject to PRC withholding tax as described in
the foregoing paragraph.



The State Council of the PRC or a tax treaty
between China and the jurisdiction in which the non-resident enterprise resides may reduce such income or withholding tax, with
respect to a non-resident enterprise. Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative
Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “PRC-Hong
Kong Tax Treaty”), if the Hong Kong resident enterprise that is not deemed to be a conduit by the PRC tax authorities owns
more than 25% of the equity interest in a PRC resident enterprise, the 10% PRC withholding tax on the dividends the Hong Kong resident
enterprise receives from such PRC resident enterprise is reduced to 5%.



78







China Ceramics is a British Virgin Islands
holding company, and it has a British Virgin Islands subsidiary (Success Winner), which owns a 100% equity interest in a subsidiary
in Hong Kong (Stand Best), which in turns owns a 100% equity interest in Hengda, a PRC company. As a result, if Stand Best were
treated as a “non-resident enterprise” under the EIT Law, then dividends that Stand Best receives from Hengda (assuming
such dividends were considered sourced within the PRC) (i) may be subject to a 5% PRC withholding tax, if the PRC-Hong Kong Tax
Treaty were applicable, or (ii) if such treaty does not apply (i.e., because the PRC tax authorities may deem Stand Best to be
a conduit that is not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Similarly, if Success Winner were
treated as a PRC “non-resident enterprise” under the EIT Law and Stand Best were treated as a PRC “resident enterprise”
under the EIT Law, then dividends that Success Winner receives from Stand Best (assuming such dividends were considered sourced
within the PRC) may be subject to a 10% PRC withholding tax. A similar situation may arise if China Ceramics were treated as a
“non-resident enterprise” under the EIT Law, and Success Winner were treated as a “resident enterprise”
under EIT Law. Any such taxes on dividends could materially reduce the amount of dividends, if any, China Ceramics could pay to
its shareholders.



As of the date of this Annual Report, there
has not been a definitive determination by China Ceramics, Success Winner, Stand Best or the PRC tax authorities as to the “resident
enterprise” or “non-resident enterprise” status of China Ceramics, Success Winner and Stand Best. As described
above, however, Hengda, Stand Best and Success Winner are not expected to pay any dividends in the near future. Hengda, Stand Best
and Success Winner will make any necessary tax withholding if, in the future, Hengda, Stand Best or Success Winner were to pay
any dividends and Hengda, Stand Best or Success Winner (based on future clarifying guidance issued by the PRC), or the PRC tax
authorities, determine that Stand Best, Success Winner or China Ceramics is a non-resident enterprise under the EIT Law.



Dividends that Non-PRC Resident Investors
Receive From China Ceramics; Gain on the Sale or Transfer of China Ceramics’ Securities



If we are determined to be a resident enterprise
under the EIT Law and dividends payable to (or gains realized by) China Ceramics’ investors that are not tax residents of
the PRC (“non-resident investors”) are treated as income derived from sources within the PRC, then the dividends that
the non-resident investors receive from us and any such gain derived by such investors on the sale or transfer of China Ceramics’
securities may be subject to income tax under the PRC tax laws.



Under the PRC tax laws, PRC withholding
tax at the rate of 10% is applicable to dividends payable to non-resident investors that are enterprises, but not individuals,
and that (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in
the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent that such
dividends are deemed to be sourced within the PRC. Similarly, any gain realized on the transfer of China Ceramics’ securities
by such investors also is subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.



The dividends paid by us to such non-resident
investors with respect to China Ceramics’ securities, or gain such non-resident investors may realize from the sale or transfer
of China Ceramics’ securities, may be treated as PRC-sourced income and, as a result, may be subject to PRC tax at a rate
of 10%. In such event, China Ceramics may be required to withhold a 10% PRC tax on any dividends paid to such non-resident investors.
In addition, such non-resident investors in China Ceramics’ securities may be responsible for paying PRC tax at a rate of
10% on any gain realized from the sale or transfer of China Ceramics’ securities if such non-resident investors and the gain
satisfy the requirements under the PRC tax laws. However, under the PRC tax laws, China Ceramics would not have an obligation to
withhold PRC income tax in respect of the gains that such non-resident investors (including U.S. enterprise investors) may realize
from the sale or transfer of China Ceramics’ securities. Also, if China Ceramics is determined to be a “resident enterprise,”
its non-resident investors who are individuals may also be subject to potential PRC individual income tax at a rate of 20% with
respect to dividends received from China Ceramics and/or gains derived by them from the sale or transfer of China Ceramics’
securities.



79







If China Ceramics were to pay any dividends
in the future, and if China Ceramics (based on future clarifying guidance issued by the PRC), or the PRC tax authorities, determine
that China Ceramics must withhold PRC tax on any dividends payable by China Ceramics under the PRC tax laws, China Ceramics will
make any necessary tax withholding on dividends payable to its non-resident investors. If non-resident investors as described under
the PRC tax laws (including U.S. investors) realize any gain from the sale or transfer of China Ceramics’ securities and
if such gain were considered as PRC-sourced income, such non-resident investors would be responsible for paying the applicable
PRC income tax on the gain from the sale or transfer of China Ceramics’ securities. As indicated above, under the PRC tax
laws, China Ceramics would not have an obligation to withhold PRC income tax in respect of the gains that non-resident investors
(including U.S. investors) may realize from the sale or transfer of China Ceramics’ securities.



On December 10, 2009, the SAT released Circular
Guoshuihan No. 698 (“Circular 698”) that reinforces the taxation of certain equity transfers by non-resident investors
through overseas holding vehicles. Circular 698 addresses indirect equity transfers as well as other issues. Circular 698 is retroactively
effective from January 1, 2008. According to Circular 698, where a non-resident investor who indirectly holds an equity interest
in a PRC resident enterprise through a non-PRC offshore holding company indirectly transfers an equity interest in the PRC resident
enterprise by selling an equity interest in the offshore holding company, and the latter is located in a country or jurisdiction
where the actual tax burden is less than 12.5% or where the offshore income of its residents is not taxable, the non-resident investor
is required to provide the PRC tax authority in charge of that PRC resident enterprise with certain relevant information within
30 days of the execution of the equity transfer agreement. The tax authorities in charge will evaluate the offshore transaction
for tax purposes. In the event that the PRC tax authorities determine that such transfer is abusing forms of business organization
and a reasonable commercial purpose for the offshore holding company other than the avoidance of PRC income tax liability is lacking,
the PRC tax authorities will have the power to re-assess the nature of the equity transfer under the doctrine of substance over
form. A reasonable commercial purpose may be established when the overall international (including U.S.) offshore structure is
set up to comply with the requirements of supervising authorities of international (including U.S.) capital markets. If the SAT’s
challenge of a transfer is successful, it may deny the existence of the offshore holding company that is used for tax planning
purposes and subject the seller to PRC tax on the capital gain from such transfer. Since Circular 698 has a short history, there
is uncertainty as to its application. China Ceramics (or a non-resident investor) may become at risk of being taxed under Circular
698 and may be required to expend valuable resources to comply with Circular 698 or to establish that China Ceramics (or such non-resident
investor) should not be taxed under Circular 698, which could have a material adverse effect on China Ceramics’ financial
condition and results of operations (or such non-resident investor’s investment in China Ceramics).



Penalties for Failure to Pay Applicable
PRC Income Tax



A non-resident investor in us may be responsible
for paying PRC tax on any gain realized from the sale or transfer of China Ceramics’ securities if such non-resident investor
and the gain satisfy the requirements under the PRC tax laws, as described above.



According to the EIT Law and its implementing
rules, the PRC Individual Income Tax Law and its implementing rules, the PRC Tax Administration Law (the “Tax Administration
Law”) and its implementing rules, the Provisional Measures for the Administration of Withholding of Enterprise Income Tax
for Non-resident Enterprises (the “Administration Measures”) and other applicable PRC laws or regulations (collectively
the “Tax Related Laws”), where any gain derived by a non-resident investor from the sale or transfer of China Ceramics’
securities is subject to any income tax in the PRC, and such non-resident investor fails to file any tax return or pay tax in this
regard pursuant to the Tax Related Laws, such investor may be subject to certain fines, penalties or punishments, including without
limitation: (1) if the non-resident investor fails to file a tax return and present the relevant information in connection with
tax payments, the competent tax authorities shall order it to do so within the prescribed time limit and may impose a fine up to
RMB 2,000, and in egregious cases, may impose a fine ranging from RMB 2,000 to RMB 10,000; (2) if the non-resident investor fails
to file a tax return or fails to pay all or part of the amount of tax payable, the non-resident investor shall be required to pay
the unpaid tax amount payable, a surcharge on overdue tax payments (the daily surcharge is 0.05% of the overdue amount, beginning
from the day the deferral begins) and a fine ranging from 50% to 500% of the unpaid amount of the tax payable; (3) if the non-resident
investor fails to file a tax return and to pay the tax within the prescribed time limit according to the order by the PRC tax authorities,
the PRC tax authorities may collect and check information about the income receivable by the non-resident investor in the PRC from
other payers (the “Other Payers”) who will pay amounts to such non-resident investor, and send a “Notice of Tax
Issues” to the Other Payers to collect and recover the tax payable and overdue fines imposed on such non-resident investor
from the amounts otherwise payable to such non-resident investor by the Other Payers; (4) if the non-resident investor fails to
pay the tax payable within the prescribed time limit as ordered by the PRC tax authorities, a fine may be imposed on the non-resident
investor ranging from 50% to 500% of the unpaid tax payable, and the PRC tax authorities may, upon approval by the director of
the tax bureau (or sub-bureau) of, or higher than, the county level, take the following compulsory measures: (i) notify in writing
the non-resident investor’s bank or other financial institution to withhold from the account thereof for payment of the amount
of tax payable, and (ii) detain, seal off, or sell by auction or on the market the non-resident investor’s commodities, goods
or other property in a value equivalent to the amount of tax payable; or (5) if the non-resident investor fails to pay all or part
of the amount of tax payable or surcharge for overdue tax payment, and can not provide a guarantee to the PRC tax authorities,
the tax authorities may notify the frontier authorities to prevent the non-resident investor or its legal representative from leaving
the PRC.



80







United States Federal Income Taxation



General



The following is a summary of the material
U.S. federal income tax consequences of the acquisition, ownership and disposition of China Ceramics’ securities. Because
the components of a unit of China Ceramics are separable at the option of the holder, the holder of a unit should be treated, for
U.S. federal income tax purposes, as the owner of the underlying share and warrant components of the unit. As a result, the discussion
below of the U.S. federal income tax consequences with respect to actual holders of shares and warrants should also apply to holders
of units (as the deemed owners of the shares and warrants underlying the units).



The discussion below of the U.S. federal
income tax consequences to “U.S. Holders” will apply to a beneficial owner of China Ceramics’ securities that
is for U.S. federal income tax purposes:



| | · | an individual citizen or resident of the United States;
| | - | -------------------------------------------------------



| | · | a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized)
in or under the laws of the United States, any state thereof or the District of Columbia;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons
are authorized to control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A beneficial owner of our securities that
is described above is referred to herein as a “U.S. Holder.” If a beneficial owner of China Ceramics’ securities
is not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through entity for U.S. federal income
tax purposes, such owner will be considered a “Non-U.S. Holder.” The material U.S. federal income tax consequences
applicable specifically to Non-U.S. Holders are described below under the heading “Non-U.S. Holders.”



This summary is based on the Internal Revenue
Code of 1986, as amended, or the “Code,” its legislative history, Treasury regulations promulgated thereunder, published
rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations,
possibly on a retroactive basis.



This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to any particular holder of China Ceramics’ securities based on such
holder’s individual circumstances. In particular, this discussion considers only holders that own and hold China Ceramics’
securities as capital assets within the meaning of Section 1221 of the Code. This discussion also does not address the alternative
minimum tax. In addition, this discussion does not address the U.S. federal income tax consequences to holders that are subject
to special rules, including:



81







| | · | financial institutions or financial services entities;
| | - | ------------------------------------------------------



| | · | broker-dealers;
| | - | ---------------



| | · | persons that are subject to the mark-to-market accounting rules under Section 475 of the Code;
| | - | ----------------------------------------------------------------------------------------------



| | · | tax-exempt entities;
| | - | --------------------



| | · | governments or agencies or instrumentalities thereof;
| | - | -----------------------------------------------------



| | · | insurance companies;
| | - | --------------------



| | · | regulated investment companies;
| | - | -------------------------------



| | · | real estate investment trusts;
| | - | ------------------------------



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



| | · | persons that actually or constructively own 5% or more of China Ceramics’ voting shares;
| | - | ----------------------------------------------------------------------------------------



| | · | persons that acquired China Ceramics’ securities pursuant to an exercise of employee share options, in connection with
employee share incentive plans or otherwise as compensation;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons that hold China Ceramics’ securities as part of a straddle, constructive sale, hedging, conversion or other integrated
transaction; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons whose functional currency is not the U.S. dollar.
| | - | ---------------------------------------------------------



This discussion does not address any aspect
of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws, or, except as discussed
herein, any tax reporting obligations of a holder of China Ceramics’ securities. Additionally, this discussion does not consider
the tax treatment of partnerships or other pass-through entities or persons who hold China Ceramics’ securities through such
entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial
owner of China Ceramics’ securities, the U.S. federal income tax treatment of a partner in the partnership will generally
depend on the status of the partner and the activities of the partnership. This discussion also assumes that any distribution made
(or deemed made) in respect to the China Ceramics’ securities and any consideration received (or deemed received) by a holder
in connection with the sale or other disposition of such securities will be in U.S. dollars.



China Ceramics has not sought, and will
not seek, a ruling from the Internal Revenue Service, or “IRS,” or an opinion of counsel, as to any U.S. federal income
tax consequence described herein. The IRS may disagree with the description herein, and its determination may be upheld by a court.
Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely
affect the accuracy of the statements in this discussion.



THIS DISCUSSION IS ONLY A SUMMARY
OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CHINA
CERAMICS’ SECURITIES. EACH HOLDER OF CHINA CERAMICS’ SECURITIES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH
RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF CHINA
CERAMICS’ SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S.
FEDERAL TAX LAWS AND APPLICABLE TAX TREATIES.



82







Tax Treatment of China Ceramics After
the Redomestication and the Business Combination



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



After the completion of the Business Combination,
which occurred immediately after and as part of the same integrated transaction as the Redomestication, the former stockholders
of CHAC (including warrant holders treated as owning stock of CHAC pursuant to the temporary regulations under Section 7874) should
be considered as owning, by reason of owning (or being treated as owning) stock of CHAC, less than 80% of the voting power and
the value of the shares of China Ceramics (including any warrants treated as shares of China Ceramics pursuant to the temporary
regulations promulgated under Section 7874). Accordingly, Section 7874(b) should not apply to treat China Ceramics as a domestic
corporation for U.S. federal income tax purposes. However, due to the absence of full guidance on how the rules of Section 7874(b)
apply to the transactions completed pursuant to the Redomestication and the Business Combination, this result is not entirely free
from doubt. If, for example, the Redomestication were ultimately determined for purposes of Section 7874(b) as having occurred
prior to, and separate from, the Business Combination for U.S. federal income tax purposes, the share ownership threshold for applicability
of Section 7874(b) generally would be satisfied (and China Ceramics would be treated as a domestic corporation for U.S. federal
income tax purposes) because the former stockholders of CHAC (including warrant holders treated as owning stock of CHAC), by reason
of owning (or being treated as owning) stock of CHAC, would own all of the shares (including any warrants treated as shares) of
China Ceramics immediately after the Redomestication. Although normal “step transaction” tax principles support the
view that the Redomestication and the Business Combination should be viewed together for purposes of determining whether Section
7874(b) is applicable, because of the absence of guidance under Section 7874(b) directly on point, this result is not entirely
free from doubt. The balance of this discussion assumes that China Ceramics will be treated as a foreign corporation for U.S. federal
income tax purposes.



U.S. Holders



Taxation of Cash Distributions
Paid on Shares



Subject to the passive foreign
investment company, or “PFIC,” rules discussed below, a U.S. Holder generally will be required to include in
gross income as ordinary income the amount of any cash dividend paid on the shares of China Ceramics. A cash distribution on
such shares generally will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is
paid out of current or accumulated earnings and profits of China Ceramics (as determined for U.S. federal income tax
purposes). Such dividend generally will not be eligible for the dividends received deduction generally allowed to U.S.
corporations in respect of dividends received from other U.S. corporations. The portion of such cash distribution, if any, in
excess of such earnings and profits will be applied against and reduce (but not below zero) the U.S. Holder’s
adjusted basis in its shares in China Ceramics. Any  remaining excess generally will be treated as gain from the
sale or other taxable disposition of such shares.



83







With respect to non-corporate U.S.
Holders for taxable years beginning before January 1, 2013, such dividends may be subject to U.S. federal income tax at the
lower applicable regular long-term capital gains tax rate (see “—Taxation on the Disposition of Shares and
Warrants” below) provided that (1) the shares of China Ceramics are readily tradable on an established securities
market in the United States or, in the event China Ceramics is deemed to be a Chinese “resident enterprise” under
the EIT Law, China Ceramics is eligible for the benefits of 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,” (2) China Ceramics is not a PFIC, as
discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (3) certain
holding period requirements are met. Under published IRS authority, shares are considered for purposes of clause (1) above to
be readily tradable on an established securities market in the United States only if they are listed on certain exchanges,
which presently include the NASDAQ Global Market. Although China Ceramics’ shares are currently listed on the NASDAQ
Global Market, it cannot guarantee that its shares will continue to be listed on the NASDAQ Global Market. U.S. Holders
should consult their own tax advisors regarding the availability of the lower rate for any dividends paid with respect to the
shares of China Ceramics. For taxable years beginning on or after January 1, 2013, the regular U.S. federal income tax rate
applicable to such dividends currently is scheduled to return to the regular U.S. federal income tax rate
generally applicable to ordinary income.



If a PRC income tax applies to any
cash dividends paid to a U.S. Holder on the shares of China Ceramics, such tax may be treated as a foreign tax eligible for
a deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such holder’s U.S. federal
income tax liability (subject to applicable conditions and limitations). In addition, if such PRC tax applies to such dividends,
such U.S. Holder may be entitled to certain benefits under the U.S.-PRC Tax Treaty if such holder is considered a resident of the
United States for purposes of, and otherwise meets the requirements of, the U.S.-PRC Tax Treaty. U.S. Holders should consult their
own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility for the benefits of the U.S.-PRC
Tax Treaty.



Possible Constructive Distributions



The terms of a warrant provide for an adjustment
to the number of shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. If an
adjustment is made to the number of shares for which a warrant may be exercised or to the exercise price of a warrant, the adjustment
may, under certain circumstances, result in a constructive distribution that could be taxable as a dividend to the U.S. Holder
of the warrant. Conversely, the absence of an appropriate anti-dilution adjustment (e.g., not adjusting the exercise price and
number of shares issuable on exercise of the warrant for issuances of shares at a price below the warrant exercise price and below
market) may result in a constructive distribution that could be taxable as a dividend to the U.S. Holders of the shares of China
Ceramics.



Taxation on the Disposition of Securities



Upon a sale or other taxable disposition
of the securities in China Ceramics, and subject to the PFIC rules discussed below, a U.S. Holder generally will recognize capital
gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in
the securities. See “— Exercise or Lapse of a Warrant” below for a discussion regarding a U.S. Holder’s
basis in shares acquired pursuant to the exercise of a warrant.



The regular U.S. federal income tax rate
on capital gains recognized by U.S. Holders generally is the same as the regular U.S. federal income tax rate on ordinary income,
except that long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at
a maximum regular rate of 15% for taxable years beginning before January 1, 2013 (but currently scheduled to increase to 20% for
taxable years beginning on or after January 1, 2013). Capital gain or loss will constitute long-term capital gain or loss if the
U.S. Holder’s holding period for the securities exceeds one year. The deductibility of capital losses is subject to various
limitations.



If a PRC income tax applies to any gain
from the disposition of the securities in China Ceramics by a U.S. Holder, such tax should be treated as a foreign tax eligible
for a deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such holder’s U.S. federal
income tax liability (subject to applicable conditions and limitations). In addition, if such PRC tax applies to any gain, such
U.S. Holder should be entitled to certain benefits under the U.S.-PRC Tax Treaty if such holder is considered a resident of the
United States for purposes of, and otherwise meets the requirements of, the U.S.-PRC Tax Treaty. U.S. Holders should consult their
own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility for the benefits of the U.S.-PRC
Tax Treaty.



84







Additional Taxes After 2012



For taxable years beginning after December
31, 2012, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject
to a 3.8% Medicare contribution tax on unearned income, including, among other things, dividends on, and capital gains from the
sale or other taxable disposition of, China Ceramics’ securities, subject to certain limitations and exceptions. U.S. Holders
should consult their own tax advisors regarding the effect, if any, of such tax on their ownership and disposition of China Ceramics’
securities.



Exercise or Lapse of Warrants



Subject to the PFIC rules discussed below,
a U.S. Holder generally will not recognize gain or loss upon the acquisition of shares on the exercise of warrants for cash.
Shares acquired pursuant to the exercise of warrants for cash generally will have a tax basis equal to the U.S. Holder’s
tax basis in the warrants, increased by the amount paid to exercise the warrants. The holding period of such shares generally would
begin on the day after the date of exercise of the warrants. If a warrant is allowed to lapse unexercised, a U.S. Holder generally
will recognize a capital loss equal to such holder’s tax basis in the warrant.



Passive Foreign Investment Company
Rules



A foreign (i.e., non-U.S.) corporation will
be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the
gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively,
a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined
based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation
in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income.
Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from
the active conduct of a trade or business) and gains from the disposition of passive assets.



Based on the expected composition of the
assets and income of China Ceramics and its subsidiaries for China Ceramics’ current taxable year, China Ceramics does not
anticipate that it will be treated as a PFIC for such year. The actual PFIC status of China Ceramics for its current taxable year
or any subsequent taxable year, however, will not be determinable until after the end of such taxable year. Accordingly there can
be no assurance with respect to the status of China Ceramics as a PFIC for its current taxable year or any future taxable year.



If China Ceramics is determined to be a
PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of China Ceramics’
shares or warrants and, in the case of China Ceramics’ shares, the U.S. Holder did not make either a timely qualified electing
fund (“QEF”) election for China Ceramics’ first taxable year as a PFIC in which the U.S. Holder held (or was
deemed to hold) shares, or a mark-to-market election, as described below, such holder generally will be subject to special rules
with respect to:



| | · | any gain recognized by the U.S. Holder on the sale or other disposition of its shares or warrants; and
| | - | ------------------------------------------------------------------------------------------------------



| | · | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable
year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect
of the shares of China Ceramics during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s
holding period for the shares).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under these rules:



85







| | · | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for
the shares or warrants;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess
distribution or to the period in the U.S. Holder’s holding period before the first day of the first taxable year of China
Ceramics in which China Ceramics qualified as a PFIC will be taxed as ordinary income;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will
be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each
such other taxable year of the U.S. Holder.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



In general, if we are determined to be a
PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to its shares in China Ceramics by making a
timely QEF election to include in income its pro rata share of China Ceramics’ net capital gains (as long-term capital gain)
and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable
year of the U.S. Holder in which or with which China Ceramics’ taxable year ends. A U.S. Holder may make a separate election
to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject
to an interest charge.



A U.S. Holder may not make a QEF election
with respect to its warrants. As a result, if a U.S. Holder sells or otherwise disposes of a warrant to purchase shares of China
Ceramics (other than upon exercise of a warrant), any gain recognized generally will be subject to the special tax and interest
charge rules treating the gain as an excess distribution, as described above, if China Ceramics were a PFIC at any time during
the period the U.S. Holder held the warrants. If a U.S. Holder that exercises such warrants properly makes a QEF election with
respect to the newly acquired shares in China Ceramics (or has previously made a QEF election with respect to its shares in China
Ceramics), the QEF election will apply to the newly acquired shares, but the adverse tax consequences relating to PFIC shares,
adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect
to such newly acquired shares (which generally will be deemed to have a holding period for the purposes of the PFIC rules that
includes the period the U.S. Holder held the warrants), unless the U.S. Holder makes a purging election. The purging election creates
a deemed sale of such shares at their fair market value. The gain recognized by the purging election will be subject to the special
tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election,
the U.S. Holder will increase the adjusted tax basis in its shares acquired upon exercise of the warrants by the gain recognized
and also will have a new holding period in such shares for purposes of the PFIC rules.



The QEF election is made on a shareholder-by-shareholder
basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching
a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including
the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the taxable
year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with
such return and if certain other conditions are met or with the consent of the IRS.



In order to comply with the requirements
of a QEF election, a U.S. Holder must receive certain information from China Ceramics. Upon request from a U.S. Holder, China Ceramics
will endeavor to provide to the U.S. Holder, no later than 90 days after the request, such information as the IRS may require,
including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However,
there is no assurance that China Ceramics will have timely knowledge of its status as a PFIC in the future or of the required information
to be provided.



86







If a U.S. Holder has made a QEF election
with respect to its shares in China Ceramics, and the special tax and interest charge rules do not apply to such shares (because
of a timely QEF election for China Ceramics’ first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to
hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the
sale or other taxable disposition of such shares generally will be taxable as capital gain and no interest charge will be imposed.
As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of the QEF’s earnings and profits,
whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included
in income generally should not be taxable as a dividend to those U.S. Holders who made a QEF election. The adjusted tax basis of
a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed
but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property
the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.



Although a determination as to China Ceramics’
PFIC status will be made annually, an initial determination that it is a PFIC generally will apply for subsequent years to a U.S.
Holder who held shares or warrants of China Ceramics while it was a PFIC, whether or not it met the test for PFIC status in those
subsequent years. A U.S. Holder who makes the QEF election discussed above for China Ceramics’ first taxable year as a PFIC
in which the U.S. Holder holds (or is deemed to hold) shares in China Ceramics, however, will not be subject to the PFIC tax and
interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion
regime with respect to such shares for any taxable year of China Ceramics that ends within or with a taxable year of the U.S. Holder
and in which China Ceramics is not a PFIC. On the other hand, if the QEF election is not effective for each of the taxable years
of China Ceramics in which China Ceramics is a PFIC and during which the U.S. Holder holds (or is deemed to hold) shares in China
Ceramics, the PFIC rules discussed above will continue to apply to such shares unless such holder makes a purging election, as
described above, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF
election period.



Alternatively, if a U.S. Holder, at the
close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market
election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first
taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in China Ceramics and for which China
Ceramics is determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to
its shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market
value of its shares at the end of its taxable year over the adjusted tax basis in its shares. The U.S. Holder also will be allowed
to take an ordinary loss in respect of the excess, if any, of the adjusted tax basis of its shares over the fair market value of
its shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of
the mark-to-market election). The U.S. Holder’s adjusted tax basis in its shares will be adjusted to reflect any such income
or loss amounts, and any further gain recognized on a sale or other taxable disposition of the shares will be treated as ordinary
income. Currently, a mark-to-market election may not be made with respect to warrants.



The mark-to-market election is available
only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission,
including the NASDAQ Global Market, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that
the market price represents a legitimate and sound fair market value. Although China Ceramics’ shares are currently listed
on the NASDAQ Global Market, it cannot guarantee that its shares will continue to be listed on the NASDAQ Global Market.
U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election
in respect to the shares of China Ceramics under their particular circumstances.



If China Ceramics is a PFIC and, at
any time, has a foreign subsidiary that is classified as a PFIC, a U.S. Holder of China Ceramics’ shares generally
should be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred
tax and interest charge described above if China Ceramics receives a distribution from, or disposes of all or part of its
interest in, or the U.S. Holder were otherwise deemed to have disposed of an interest in, the lower-tier PFIC. Upon request,
China Ceramics will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the
request the information that may be required to make or maintain a QEF election with respect to the lower- tier PFIC.
However, there is no assurance that China Ceramics will have timely knowledge of the status of any such lower-tier PFIC or
will be able to cause the lower-tier PFIC to provide the required information. A mark-to-market election generally would not
be available with respect to such a lower-tier PFIC. U.S. Holders are urged to consult their own tax advisors regarding the
tax issues raised by lower-tier PFICs.



87







A U.S. Holder that owns (or is deemed
to own) shares in a PFIC during any taxable year of the U.S. Holder may have to file an IRS Form 8621 (whether
or not a QEF election or mark-to-market election is or has been made) with such U.S. federal income tax return
and provide such other information as may be required by the U.S. Treasury Department.



The rules dealing with PFICs and with the
QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly,
U.S. Holders of shares and warrants in China Ceramics should consult their own tax advisors concerning the application of the PFIC
rules to such shares and warrants under their particular circumstances.



Non-U.S. Holders



Dividends (including constructive dividends)
paid or deemed paid to a Non-U.S. Holder in respect to its securities in China Ceramics generally will not be subject to U.S. federal
income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within
the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed
base that such holder maintains or maintained in the United States).



In addition, a Non-U.S.
Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other taxable
disposition of securities in China Ceramics unless such gain is effectively connected with its conduct of a trade or business
in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or
fixed base that such holder maintains or maintained in the United States) or the Non-U.S. Holder is an individual who is
present in the United States for 183 days or more in the taxable year of such sale or other taxable disposition and certain
other conditions are met (in which case, such gain from United States sources generally is subject to U.S. federal income tax
at a 30% rate or a lower applicable tax treaty rate).



Dividends and gains that
are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder
maintains or maintained in the United States) generally will be subject to U.S. federal income tax (but not the Medicare
contribution tax) at the same regular U.S. federal income tax rates as applicable to a comparable U.S. Holder and, in the
case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional
branch profits tax at a 30% rate or a lower applicable tax treaty rate.



The U.S. federal income tax treatment of
a Non-U.S. Holder’s exercise of a warrant, or the lapse of a warrant held by a Non-U.S. Holder, generally will correspond
to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. Holder, as described under “U.S.
Holders—Exercise or Lapse of Warrants,” above.



Backup Withholding and Information Reporting



In general, information reporting for U.S.
federal income tax purposes should apply to distributions made on the securities of China Ceramics within the United States to
a U.S. Holder (other than an exempt recipient) and to the proceeds from sales and other dispositions of securities of China Ceramics
by a U.S. Holder (other than an exempt recipient) to or through a U.S. office of a broker. Payments made (and sales and other dispositions
effected at an office) outside the United States will be subject to information reporting in limited circumstances. In addition,
pursuant to recently enacted legislation, certain information concerning a U.S. Holder’s adjusted tax basis in its securities
and adjustments to that tax basis and whether any gain or loss with respect to such securities is long-term or short-term also
may be required to be reported to the IRS.



Moreover, backup withholding of U.S. federal
income tax, at a rate of 28% for taxable years beginning before January 1, 2013 (but currently scheduled to increase to 31% for
taxable years beginning on or after January 1, 2013), generally will apply to dividends paid on the securities of China Ceramics
to a U.S. Holder (other than an exempt recipient) and the proceeds from sales and other dispositions of securities of China Ceramics
by a U.S. Holder (other than an exempt recipient), in each case who (a) fails to provide an accurate taxpayer identification number;
(b) is notified by the IRS that backup withholding is required; or (c) in certain circumstances, fails to comply with applicable
certification requirements.



88







A Non-U.S. Holder generally may eliminate
the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties
of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.



Backup withholding is not an additional
tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s
U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely
furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the
availability of and procedures for obtaining an exemption from backup withholding in their particular circumstances.



| | F. | Dividends and paying agents
| | -- | ---------------------------



Not required.



| | G. | Statement by experts
| | -- | --------------------



Not required.



| | H. | Documents on display
| | -- | --------------------



Documents concerning us that are referred
to in this document may be inspected at Junbing Industrial Zone, Anhai, Jinjiang City, Fujian Province, PRC.



In addition, we file annual reports and
other information with the Securities and Exchange Commission. We file annual reports on Form 20-F and submit other information
under cover of Form 6-K. As a foreign private issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Act
and our officers, directors and principal shareholders are exempt from the insider short-swing disclosure and profit recovery rules
of Section 16 of the Exchange Act. Annual reports and other information we file with the Commission may be inspected at the public
reference facilities maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all
or any part thereof may be obtained from such offices upon payment of the prescribed fees. You may call the Commission at 1-800-SEC-0330
for further information on the operation of the public reference rooms and you can request copies of the documents upon payment
of a duplicating fee, by writing to the Commission. In addition, the Commission maintains a web site that contains reports and
other information regarding registrants (including us) that file electronically with the Commission which can be assessed at http://www.sec.gov.



| | I. | Subsidiary Information
| | -- | ----------------------



Not required.



| | ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
| | -------- | ---------------------------------------------------------



Interest Rate Risk



Our exposure to interest rate risk primarily
relates to our outstanding debts and interest income generated by excess cash, which is mostly held in interest-bearing bank deposits.
We have not used derivative financial instruments in our investment portfolio. Interest-earning instruments carry a degree of interest
rate risk. As of December 31, 2011, our total outstanding loans for the continuing operations amounted to RMB 185.0 million ($29.4
million) with interest rates in the range of 7.216% to 8.528% per annum. We have not been exposed, nor do we anticipate being exposed,
to material risks due to changes in market interest rates.



89







Foreign Currency Risk



We do not currently have any foreign exchange
exposure as our sales and purchases are predominantly denominated in RMB. However, in the future, a proportion of our sales may
be denominated in other currencies as we expand into overseas markets. In such circumstances, we anticipate our primary market
risk, if any, to be related to fluctuations in exchange rates.  Exchange rate risk may arise if the we are required to
use different currencies for various aspects of its operations.



The Renminbi’s exchange rate with
the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions.
The exchange rate for conversion of Renminbi into foreign currencies is heavily influenced by intervention in the foreign exchange
market by the People’s Bank of China. From 1995 until July 2005, the People’s Bank of China intervened in the foreign
exchange market to maintain an exchange rate of approximately 8.3 Renminbi per U.S. dollar. On July 21, 2005, the PRC government
changed this policy and began allowing modest appreciation of the Renminbi versus the U.S. dollar. However, the Renminbi is restricted
to a rise or fall of no more than 0.5% per day versus the U.S. dollar, and the People’s Bank of China continues to intervene
in the foreign exchange market to prevent significant short-term fluctuations in the Renminbi exchange rate. Nevertheless, under
China’s current exchange rate regime, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar
in the medium to long term. There remains significant international pressure on the PRC government to adopt a substantial liberalization
of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against
the U.S. dollar.



Very limited hedging transactions are available
in China to reduce our exposure to exchange rate fluctuations. While we may decide to enter into hedging transactions in the future
if we are exposed to foreign currency risk, the availability and effectiveness of these hedging transactions may be limited and
we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC
exchange control regulations that restrict our ability to convert Renminbi into foreign currency.



| | ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
| | -------- | ------------------------------------------------------



Not required.



PART II



| | ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
| | -------- | -----------------------------------------------



There has been no default of any indebtedness
nor is there any arrearage in the payment of dividends.



| | ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
| | -------- | ----------------------------------------------------------------------------



On November 20, 2009, pursuant to the terms
of a merger and stock purchase agreement dated August 19, 2009, CHAC merged with and into China Ceramics, resulting in the Redomestication
of CHAC to the British Virgin Islands as China Ceramics. At the time of the merger, each outstanding ordinary share of CHAC converted
automatically into one share of China Ceramics, and each right to purchase ordinary shares in CHAC automatically converted into
an equivalent right to purchase shares in China Ceramics. Accordingly, the shares and warrants became governed by China Ceramics’
Amended and Restated Memorandum and Articles of Association. The rights and duties attaching to each share remained substantially
equivalent. Immediately following the merger and Redomestication, and as part of the same integrated transaction, China Ceramics
acquired all of the outstanding securities of Success Winner.



There are no restrictions on working capital
and no removal or substitution of assets securing any class of our registered securities.



90







| | ITEM 15. | CONTROLS AND PROCEDURES
| | -------- | -----------------------



Disclosure Controls and Procedures



Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, has performed an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures as of December 31, 2011. Based on that evaluation, management, including our Chief Executive
Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures as of December 31, 2011 were effective.



Disclosure controls and procedures are designed
to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act i) is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and
ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.



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 Securities
and Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of,
our Chief Executive Officer and Chief Financial Officer and effected by our management and other personnel to provide reasonable
assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting
purposes in accordance with IFRS. Internal control over financial reporting includes policies and procedures that pertain to the
maintenance of records that in reasonable detail accurately reflect the transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization
of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial statements.



Because of inherent limitations, internal
control over financial reporting may not prevent or detect misstatement. 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 our policies and procedures may deteriorate.



Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management has concluded that our internal
control over financial reporting was effective as of December 31, 2011.



Changes in Internal Controls over
Financial Reporting



During the year ended December 31, 2011,
there were no changes in the company’s internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect our company’s internal control over financial reporting.



It should be noted that while our management
believes that our disclosure controls and procedures provide a reasonable level of assurance; our management does not expect that
our disclosure controls and procedures or internal financial controls will prevent all errors or fraud. A control system, no matter
how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met.



| | ITEM 16. | [RESERVED]
| | -------- | ----------



| | ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT.
| | --------- | ---------------------------------



The Company’s Board of Directors has
determined that Mr. William Stulginsky is an audit committee financial expert, and “independent” as that term is defined
in Item 16A(b) of Form 20-F and the NASDAQ listing standards.

91







| | ITEM 16B. | CODE OF ETHICS.
| | --------- | ---------------



We have adopted a Code of Business Conduct
and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial
officer, and principal accounting officer. A copy of the Code of Business Conduct and Ethics is available on our website,
http://www.cceramics.com.



| | ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
| | --------- | ---------------------------------------







The following table represents the approximate
aggregate fees for services rendered by Grant Thornton for fiscal years ended December 31, 2010 and 2011:



|                   |  | December 31, 2010 |  | December 31, 2011 |          
|------------------ |  | ----------------- |  | ----------------- | ---------
|                   |  | RMB               |  | RMB               |          
|Audit Fees         |  | 2,409,990         |  |                   | 3,283,602
|Audit Related Fees |  | -                 |  |                   | -        
|Tax Fees           |  | -                 |  |                   | -        
|All Other Fees     |  | -                 |  |                   | -        
|Total Fees         |  | 2,409,990         |  |                   | 3,283,602



Audit Fees



Audit fees paid to Grant Thornton, PRC comprise
fees for professional services necessary to perform an audit or review in accordance with the standards of the Public Company Accounting
Oversight Board, including services rendered for the audit of the Company’s annual financial statements and review of the
condensed quarterly financial statements. Also includes fees for services that are normally incurred in connection with statutory
and regulatory filings or engagements, such as comfort letters,  consents, and review of documents filed with the SEC.



Audit Related Fees



There were no audit related fees.



Tax Fees



There were no tax fees.



All Other Fees



There were no fees billed by Grant Thornton
for other professional services rendered during our fiscal years ended December 31, 2010 and 2011.



Pre-Approval of Services



Our audit committee evaluated and approved
in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.



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



None.



92







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



The following purchases of our securities
were made by our affiliates in 2011:



|Period     |  | (a) Total Number of Shares(or Units) Purchased |  |   | (b) Average Price Paid per Share (or Units) |  | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Program |   |  | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | 
|---------- |  | ---------------------------------------------- |  | - | ------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | - |  | --------------------------------------------------------------------------------------------------------------------------- | 
|April 2011 |  | 28,984 shares                                  |  | $ | 4.47/share                                  |  |                                                                                                | 0 |  |                                                                                                                             | 










(1) On April 13, 2011, Paul Kelly purchased
20,000 of the Company’s shares for an aggregate purchase price of $89,020. On April 13, 2011, William Stulginsky purchased
5,000 of the Company’s shares for an aggregate purchase price of $22,750. On April 14, 2011, Paul Kelly purchased 3,984 of
the Company’s shares for an aggregate purchase price of $17,848.



ITEM 16F.  CHANGES IN REGISTRANT’S CERTIFYING
ACCOUNTANT.



Not applicable.



ITEM 16G. CORPORATE GOVERNANCE



Pursuant to the home country rule exemption
set forth under Nasdaq Listing Rule 5615(a)(3), we elected not to hold an annual meeting of shareholders in 2010. Neither our Memorandum
and Articles of Association nor the law of the British Virgin Islands require us to hold an annual meeting of shareholders. We
did not make use of any other exemptions from the corporate governance standards set forth in the Nasdaq Listing Rules.



PART III



| | ITEM 17. | FINANCIAL STATEMENTS
| | -------- | --------------------



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



| | ITEM 18. | FINANCIAL STATEMENTS
| | -------- | --------------------



The financial statements are filed as part
of this annual report beginning on page F-1.



| | ITEM 19. | EXHIBITS
| | -------- | --------



|Exhibit No. |  | Description                                                                                
|----------- |  | -------------------------------------------------------------------------------------------
|1.1         |  | Amended and Restated Memorandum  and Articles of Association of China Ceramics Co., Ltd.(1)
|1.2         |  | Memorandum and Articles of Association of Success Winner Limited(2)                        
|1.3         |  | Memorandum and Articles of Association of Stand Best Creation Limited(2)                   
|1.4         |  | Operation Charter of Jinjiang Hengda Ceramics Co., Ltd.(2)                                 
|2.1         |  | Specimen Unit Certificate(3)                                                               
|2.2         |  | Specimen Common Stock Certificate(3)                                                       
|2.3         |  | Specimen Public Warrant Certificate(3)                                                     



93







|2.4  |  | Warrant Agreement, dated as of November 15, 2007, by and between CHAC and Continental Stock Transfer & Trust Company(4)                                                                                                                   
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Form of Voting Agreement(2)                                                                                                                                                                                                               
|4.1  |  | Merger and Stock Purchase Agreement among CHAC, China Ceramics Co., Ltd., Hengda, Success Winner and the Seller(2)                                                                                                                        
|4.2  |  | Form of Registration Rights Agreement among CHAC and the founders(3)                                                                                                                                                                      
|4.3  |  | Form of Earn-Out Escrow Agreement(2)                                                                                                                                                                                                      
|4.4  |  | Form of Indemnity Escrow Agreement(2)                                                                                                                                                                                                     
|4.6  |  | Form of Lock-Up Agreement for CHAC founders(2)                                                                                                                                                                                            
|4.7  |  | Form of Lock-Up Agreement(2)                                                                                                                                                                                                              
|4.8  |  | Acquisition Agreement, dated November 19, 2009, by and between Jinjiang Hengda Ceramics Co., Ltd., all of the shareholders of Jiangxi Hengdali Constructional Ceramics Co., Ltd., and Jiangxi Hengdali Constructional Ceramics Co., Ltd(8)
|4.9  |  | Administrative Services Agreement by and between China Ceramics Co., Ltd. and Stuart Management Co., dated December 1, 2009(8)                                                                                                            
|4.10 |  | License Agreement between Huang Jia Dong and Jinjiang Hengda Ceramics Co., Ltd.(6)                                                                                                                                                        
|4.11 |  | China Ceramics Co., Ltd. 2010 Incentive Compensation Plan(7)                                                                                                                                                                              
|8.1  |  | List of Subsidiaries(5)                                                                                                                                                                                                                   
|11.1 |  | Code of Business Conduct and Ethics(8)                                                                                                                                                                                                    
|12.1 |  | Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended                                                                                          
|12.2 |  | Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended                                                                                          
|13.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 80 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                 
|15.1 |  | Consent of Grant Thornton, an independent registered public accounting firm                                                                                                                                                               



| | (1) | Incorporated by reference to Annexes C and D of China Ceramics’ Prospectus on Form 424B3 filed with the SEC on November
13, 2009.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (2) | Incorporated by reference to China Ceramics’ Registration Statement on Form F-4 (File No. 333-161557).
| | --- | ------------------------------------------------------------------------------------------------------



| | (3) | Incorporated by reference to exhibits of the same number filed with CHAC’s Registration Statement on Form F-1 or amendments
thereto (File No. 333-145085).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Incorporated by reference to CHAC’s Form 8-K, dated November 21, 2007.
| | --- | ----------------------------------------------------------------------



| | (5) | Incorporated by reference to exhibits of the same number filed with China Ceramics’ Registration Statement on Form F-1
(File No. 333-164784).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Incorporated by reference to exhibits of the same number filed with China Ceramics’ Registration Statement on Form F-1
(File No. 333-170237).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Incorporated by reference to Annex A to Exhibit 99.1 filed with China Ceramics’ Report of Foreign Private Issuer on Form
6-K filed with the SEC on November 20, 2010
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Incorporated by reference to China Ceramics’ Annual Report on Form 20-F filed with the SEC on May 17, 2010.
| | --- | -----------------------------------------------------------------------------------------------------------



94







SIGNATURES



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.



|               | CHINA CERAMICS CO., LTD.
|-------------- | ------------------------
|               |                         
|March 30, 2012 | By:                     
|               |                         
|               |                         
|               |                         



|March 30, 2012 | By: | /s/ Hen Man Edmund                       
|-------------- | --- | -----------------------------------------
|               |     | Name: Hen Man Edmund                     
|               |     | Title: Chief Financial Officer (Principal
|               |     | Financial Officer)                       



95







China Ceramics Co., Ltd. and Its Subsidiaries



Index to Consolidated Financial Statements



|                                                                                                     | Page
|---------------------------------------------------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm                                              | F-2 
|                                                                                                     |     
|Consolidated Statements of Comprehensive Income for the years ended December 31, 2011, 2010 and 2009 | F-3 
|                                                                                                     |     
|Consolidated Statements of Financial Position as of December 31, 2011, 2010 and 2009                 | F-4 
|                                                                                                     |     
|Consolidated Statements of Changes in Equity for the years ended December 31, 2011, 2010 and 2009    | F-5 
|                                                                                                     |     
|Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009           | F-6 
|                                                                                                     |     
|Notes to the Consolidated Financial Statements                                                       | F-7 

















China Ceramics Co., Ltd. and Its Subsidiaries





REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



Board of Directors and Shareholders

China Ceramics Co., Ltd.



We have audited the
accompanying consolidated statements of financial position of China Ceramics Co., Ltd and its subsidiaries as of December 31, 2011,
2010 and 2009, and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the
years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall 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 financial position of China
Ceramics Co., Ltd. and its subsidiaries as of December 31, 2011, 2010 and 2009, and the results of its operations and cash flows
for each of the years then ended in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.



|/s/ GRANT THORNTON
|------------------
|                  
|Shanghai, PRC     
|March 30, 2012    





F-2











China Ceramics Co., Ltd. and Its Subsidiaries





Consolidated Statements of Comprehensive
Income



|                                                                           |  |       |    |  | For the year ended December 31, | 
|-------------------------------------------------------------------------- |  | ----- | -- |  | ------------------------------- | 
|                                                                           |  |       |    |  | 2011                            | 
|                                                                           |  | Notes |    |  | RMB’000                         | 
|Revenue                                                                    |  |       | 5  |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Cost of sales                                                              |  |       |    |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Gross profit                                                               |  |       |    |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Other income                                                               |  |       | 5  |  |                                 | 
|Selling and distribution expenses                                          |  |       |    |  |                                 | 
|Administrative expenses                                                    |  |       |    |  |                                 | 
|Merger costs                                                               |  |       | 6  |  |                                 | 
|Finance costs                                                              |  |       | 7  |  |                                 | 
|Other expenses                                                             |  |       |    |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Profit before taxation                                                     |  |       | 8  |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Income tax expense                                                         |  |       | 9  |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Profit attributable to shareholders                                        |  |       |    |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Other comprehensive income                                                 |  |       |    |  |                                 | 
|Exchange loss on translation of financial statements of foreign operations |  |       |    |  |                                 | 
|Total comprehensive income for the year                                    |  |       |    |  |                                 | 
|                                                                           |  |       |    |  |                                 | 
|Earnings per share for profit attributable to shareholders during the year |  |       |    |  |                                 | 
|Basic (RMB)                                                                |  |       | 10 |  |                                 | 
|Diluted (RMB)                                                              |  |       | 10 |  |                                 | 



The annexed notes form an integral part
of and

should be read in conjunction with these
Consolidated Financial Statements





F-3









China Ceramics Co., Ltd. and Its Subsidiaries



Consolidated Statements of Financial
Position



|                                       |  |       |    |  | As at December 31, | 
|-------------------------------------- |  | ----- | -- |  | ------------------ | 
|                                       |  |       |    |  | 2011               | 
|                                       |  | Notes |    |  | RMB’000            | 
|                                       |  |       |    |  |                    | 
|ASSETS AND LIABILITIES                 |  |       |    |  |                    | 
|Non-current assets                     |  |       |    |  |                    | 
|Property, plant and equipment          |  |       | 11 |  |                    | 
|Land use rights                        |  |       | 12 |  |                    | 
|Goodwill                               |  |       | 24 |  |                    | 
|                                       |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|Current assets                         |  |       |    |  |                    | 
|Inventories                            |  |       | 13 |  |                    | 
|Trade receivables                      |  |       | 14 |  |                    | 
|Other receivables and prepayment       |  |       | 15 |  |                    | 
|Cash and bank balances                 |  |       | 16 |  |                    | 
|                                       |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|Non-current liabilities                |  |       |    |  |                    | 
|Deferred tax liabilities               |  |       |    |  |                    | 
|Interest-bearing bank borrowings       |  |       | 19 |  |                    | 
|                                       |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|Current liabilities                    |  |       |    |  |                    | 
|Trade payables                         |  |       | 17 |  |                    | 
|Accrued liabilities and other payables |  |       | 18 |  |                    | 
|Interest-bearing bank borrowings       |  |       | 19 |  |                    | 
|Income tax payable                     |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|Net current assets                     |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|Net assets                             |  |       |    |  |                    | 
|                                       |  |       |    |  |                    | 
|EQUITY                                 |  |       |    |  |                    | 
|Share capital                          |  |       | 20 |  |                    | 
|Reserves                               |  |       | 21 |  |                    | 
|                                       |  |       |    |  |                    | 
|Total shareholder’s equity             |  |       |    |  |                    | 



The annexed notes form an integral part
of and

should be read in conjunction with these
Consolidated Financial Statements





F-4







China Ceramics Co., Ltd. and Its Subsidiaries



Consolidated Statements of Changes in
Equity



|                                                                                                            |  |           |     |   |         |  |         | Reverse          |  |  |              |   |  | Share-based  |        |  |              |  |         |          |  |  | Currency     |  |  |         |        
|----------------------------------------------------------------------------------------------------------- |  | --------- | --- | - | ------- |  | ------- | ---------------- |  |  | ------------ | - |  | ------------ | ------ |  | ------------ |  | ------- | -------- |  |  | ------------ |  |  | ------- | -------
|                                                                                                            |  | Share     |     |   | Share   |  |         | recapitalization |  |  | Merger       |   |  | payment      |        |  | Statutory    |  |         | Retained |  |  | translation  |  |  | Total   |        
|                                                                                                            |  | capital   |     |   | premium |  |         | reserve          |  |  | reserve      |   |  | reserve      |        |  | reserve      |  |         | earnings |  |  | reserve      |  |  | Equity  |        
|                                                                                                            |  | RMB’000   |     |   | RMB’000 |  |         | RMB’000          |  |  | RMB’000      |   |  | RMB’000      |        |  | RMB’000      |  |         | RMB’000  |  |  | RMB’000      |  |  | RMB’000 |        
|                                                                                                            |  | (Note 20) |     |   |         |  |         | (Note 21(e))     |  |  | (Note 21(c)) |   |  | (Note 21(d)) |        |  | (Note 21(a)) |  |         |          |  |  | (Note 21(b)) |  |  |         |        
|Balance at
    January 1, 2009                                                                              |  |           | 0   | * |         |  | -       |                  |  |  | -            |   |  |              | 58,980 |  |              |  | -       |          |  |  | 29,490       |  |  |         | 164,981
|Arising from Reorganisation                                                                                 |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | 9      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Recapitalization of Company                                                                                 |  |           | 61  |   |         |  | 592,088 |                  |  |  | (507,235     | ) |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Equity-settled share-based payment                                                                          |  |           | -   |   |         |  | (84,200 | )                |  |  | -            |   |  |              | -      |  |              |  | 98,300  |          |  |  | -            |  |  |         | -      
|Transactions with owners                                                                                    |  |           | 61  |   |         |  | 507,888 |                  |  |  | (507,235     | ) |  |              | 9      |  |              |  | 98,300  |          |  |  | -            |  |  |         | -      
|Net profit for the year                                                                                     |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | 152,861
|Other comprehensive income  -Exchange loss
    on translation of financial statements of foreign operations |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Total comprehensive income for the year                                                                     |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | 152,861
|Transfer to statutory reserve                                                                               |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | 10,242       |  |  |         | (10,242
|Balance at December 31,
    2009                                                                            |  |           | 61  |   |         |  | 507,888 |                  |  |  | (507,235     | ) |  |              | 58,989 |  |              |  | 98,300  |          |  |  | 39,732       |  |  |         | 307,600
|Issuance of new shares                                                                                      |  |           | 31  |   |         |  | 158,467 |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Warrants Exchange                                                                                           |  |           | 20  |   |         |  | (20     | )                |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Purchase of warrants                                                                                        |  |           | -   |   |         |  | (6,803  | )                |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Transactions with owners                                                                                    |  |           | 51  |   |         |  | 151,644 |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Net profit for the year                                                                                     |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | 225,474
|Other comprehensive income -Exchange loss
    on translation of financial statements of foreign operations  |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Total comprehensive income for the year                                                                     |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | 225,474
|Transfer to statutory reserve                                                                               |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | 23,076       |  |  |         | (23,076
|Balance at December 31,
    2010                                                                            |  |           | 112 |   |         |  | 659,532 |                  |  |  | (507,235     | ) |  |              | 58,989 |  |              |  | 98,300  |          |  |  | 62,808       |  |  |         | 509,998
|Issuance of new shares                                                                                      |  |           | 12  |   |         |  | (12     | )                |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Employee share-based payment options                                                                        |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | 17,295  |          |  |  | -            |  |  |         | -      
|Transactions with owners                                                                                    |  |           | 12  |   |         |  | (12     | )                |  |  | -            |   |  |              | -      |  |              |  | 17,295  |          |  |  | -            |  |  |         | -      
|Net profit for the year                                                                                     |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | 294,439
|Other comprehensive income -Exchange loss
    on translation of financial statements of foreign operations  |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | -      
|Total comprehensive income for the year                                                                     |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | -            |  |  |         | 294,439
|Transfer to statutory reserve                                                                               |  |           | -   |   |         |  | -       |                  |  |  | -            |   |  |              | -      |  |              |  | -       |          |  |  | 31,800       |  |  |         | (31,800
|Balance at December 31,
    2011                                                                            |  |           | 124 |   |         |  | 659,520 |                  |  |  | (507,235     | ) |  |              | 58,989 |  |              |  | 115,595 |          |  |  | 94,608       |  |  |         | 772,637










* Amount less than RMB 1,000



The annexed notes form an integral part
of and

should be read in conjunction with these
Consolidated Financial Statements





F-5







China Ceramics Co., Ltd. and Its Subsidiaries



Consolidated Statements of
Cash Flows



|                                                         |  |       |      |  | For the year ended December 31, | 
|-------------------------------------------------------- |  | ----- | ---- |  | ------------------------------- | 
|                                                         |  |       |      |  | 2011                            | 
|                                                         |  | Notes |      |  | RMB’000                         | 
|Cash flows from operating activities                     |  |       |      |  |                                 | 
|Profit before taxation                                   |  |       |      |  |                                 | 
|Adjustments for                                          |  |       |      |  |                                 | 
|Amortization of land use rights                          |  |       | 8/12 |  |                                 | 
|Depreciation of property, plant and equipment            |  |       | 8/11 |  |                                 | 
|Loss/(gain) on disposal of property, plant and equipment |  |       |      |  |                                 | 
|Merger costs by share-based payment                      |  |       |      |  |                                 | 
|Share-based compensation                                 |  |       | 23   |  |                                 | 
|Finance costs                                            |  |       | 7    |  |                                 | 
|Interest income                                          |  |       | 5    |  |                                 | 
|Operating profit before working capital changes          |  |       |      |  |                                 | 
|(Increase)/decrease in inventories                       |  |       |      |  |                                 | 
|(Increase) in trade receivables                          |  |       |      |  |                                 | 
|(Increase)/decrease in other receivables and prepayments |  |       |      |  |                                 | 
|Increase in trade payables                               |  |       |      |  |                                 | 
|(Decrease) in accrued liabilities and other payables     |  |       |      |  |                                 | 
|Cash generated from operations                           |  |       |      |  |                                 | 
|Interest paid                                            |  |       |      |  |                                 | 
|Income tax paid                                          |  |       |      |  |                                 | 
|Net cash generated from operating activities             |  |       |      |  |                                 | 
|Cash flows from investing activities                     |  |       |      |  |                                 | 
|Prepayment for the Gaoan facility acquisition            |  |       | 24   |  |                                 | 
|Proceed from disposal of property, plant and equipment   |  |       |      |  |                                 | 
|Acquisition of property, plant and equipment             |  |       | 11   |  |                                 | 
|Interest received                                        |  |       |      |  |                                 | 
|Acquisition of subsidiary, net of cash acquired          |  |       | 24   |  |                                 | 
|Net cash used in investing activities                    |  |       |      |  |                                 | 
|Cash flows from financing activities                     |  |       |      |  |                                 | 
|Bank borrowings obtained                                 |  |       |      |  |                                 | 
|Repayment of short-term loans                            |  |       |      |  |                                 | 
|Cash acquired in reverse recapitalization                |  |       |      |  |                                 | 
|Payment of underwriting fee                              |  |       |      |  |                                 | 
|Advances from a director                                 |  |       |      |  |                                 | 
|Public offering of new shares                            |  |       | 20   |  |                                 | 
|Purchase of warrants                                     |  |       | 20   |  |                                 | 
|Dividend paid                                            |  |       | 22   |  |                                 | 
|Net cash generated from financing activities             |  |       |      |  |                                 | 
|Net (decrease)/increase in cash and cash equivalents     |  |       |      |  |                                 | 
|Cash and cash equivalents, beginning of year             |  |       |      |  |                                 | 
|Effect of foreign exchange rate differences              |  |       |      |  |                                 | 
|Cash and cash equivalents, end of year                   |  |       | 16   |  |                                 | 












* Amount less than RMB 1,000



The annexed notes form an integral part
of and

should be read in conjunction with these
Consolidated Financial Statements





F-6







| | 1. | GENERAL INFORMATION
| | -- | -------------------



China
Ceramics Co., Ltd. (“the Company” or “China Ceramics”) is a British Virgin Islands company operating
under the BVI Business Companies Act (2004). Its predecessor company, China Holdings Acquisition Corp. (“CHAC”),
was incorporated in Delaware on June 22, 2007, and was organized as a blank check company for the purpose of acquiring,
through a stock exchange, asset acquisition or other similar business combination, or controlling, through contractual
arrangements, an operating business, that has its principal operations in Asia. The Company has no operations and has no
assets or liabilities of consequence outside its investments in its operating subsidiaries.





On November 20, 2009,
CHAC merged with and into China Ceramics, its wholly owned British Virgin Islands subsidiary, with China Ceramics surviving the
merger (the “Redomestication”). On the same day, pursuant to the terms of a merger and stock purchase agreement dated
August 19, 2009 (the “acquisition agreement”), China Ceramics acquired all of the outstanding securities of Success
Winner Limited (“Success Winner”) held by Mr. Wong Kung Tok in exchange for US$ 10.00 and 5,743,320 shares of China
Ceramics (the “Success Winner Acquisition”). The total number of issued and outstanding shares of China Ceramics immediately
after the acquisition was 8,950,171 (Note 20).



Prior to the Success
Winner Acquisition on November 20, 2009, neither CHAC nor China Ceramics had an operating business.



Jinjiang Hengda Ceramics
Co., Ltd. (“Hengda”), which becomes the operating entity of China Ceramics (the “Group”) in connection
with the Success Winner Acquisition, was established on September 30, 1993 under the laws of PRC with 15% of its equity interest
owned by Fujian Province Jinjiang City Anhai Junbing Hengda Construction Material Factory (“Anhai Hengda”) and 85%
owned by Chi Wah Trading Import and Export Company (“Chi Wah”). Chi Wah is a sole proprietor under the laws of Hong
Kong with its legal and equitable interest solely owned by Mr. Wong Kung Tok. Anhai Hengda was owned by Mr. Wong Kung Tok’s
family, which was considered an act-in-concert party of Mr. Wong Kung Tok.



Hengda is principally
engaged in the manufacture and sale of ceramic tiles used for exterior siding and for interior flooring and design in residential
and commercial buildings.



Hengda’s owners
reorganized the corporate structure in 2008 and 2009 (the “Hengda Reorganisation” or the “Reorganisation”),
as follows:



Stand Best Creation
Limited (“Stand Best”) was established on January 17, 2008 under the laws of Hong Kong with its paid-up share capital
being HK$1.00 divided into 1 ordinary share solely owned by Mr. Wong Kung Tok. The company acquired 100% of Hengda’s equity
interest from Anhai Hengda and Chi Wah on April 1, 2008 at the consideration of RMB 58,980,000.



Success Winner Limited
(“Success Winner”) was incorporated in British Virgin Islands on May 29, 2009 as a limited liability company. The paid-up
and issued capital of the company is US$1 divided into 1 ordinary share solely owned by Mr. Wong Kung Tok.



On June 30, 2009, through
a capitalization agreement between Mr. Wong Kung Tok and Stand Best, Stand Best capitalized a shareholder loan due to Mr. Wong
Kung Tok in the amount of HK$67.9 million (equivalent to approximately RMB58.9 million) through the issuance of an aggregate of
9,999 ordinary shares of HK$1.00 par value which Mr. Wong Kung Tok allotted to Success Winner.



On the same date, Mr.
Wong Kung Tok transferred his ownership of the remaining 1 ordinary share of Stand Best to Success Winner, thus making Success
Winner the sole parent company of Stand Best.





F-7









| | 1. | GENERAL INFORMATION (continued)
| | -- | -------------------------------



On January 8, 2010,
Hengda completed the acquisition of all voting equity interests of Jiangxi Hengdali Ceramic Materials Co., Ltd. (“Hengdali”
or the “Gaoan Facility”), located in Gaoan, Jiangxi Province (the “Hengdali Acquisition”). Hengdali manufactures
and sells ceramics tiles used for exterior siding and for interior flooring. In total, Hengda assumed loans of RMB 60.0 million
and paid cash consideration of RMB185.5 million for the acquisition.



China Ceramics' holding
structure as at December 31, 2011 is as follows:







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | ------------------------------------------



2.1           Basis of preparation



The consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board, (“IFRSs”) which collective term includes all applicable individual International Financial Reporting
Standards, International Accounting Standards and Interpretations issued by the International Accounting Standards Board (“IASB”).



The significant accounting
policies that have been used in the preparation of these consolidated financial statements are summarised below. These policies
have been consistently applied to all the years presented unless otherwise stated. The adoption of new or amended IFRSs and the
impacts on the Group’s financial statements, if any, are disclosed in Note 3.



The consolidated financial
statements have been prepared on the historical cost basis. The measurement bases are fully described in the accounting policies
below.





F-8









| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.1           Basis of preparation
(continued)



It should be noted
that accounting estimates and assumptions are used in preparation of the consolidated financial statements. Although these estimates
are based on management’s best knowledge and judgement of current events and actions, actual results may ultimately differ
from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements, are disclosed in Note 4.



The consolidated financial
statements were approved and authorised for issue by the Board of Directors on March 30, 2012.



2.2           Basis of consolidation



The Success Winner
Acquisition on November 22, 2009 has been accounted for as a reverse recapitalisation. The acquisition agreement resulted in the
former owner of Success Winner obtaining effective operating and financial control of the combined entity. Prior to the acquisition,
China Ceramics had no operating business. Accordingly, the acquisition does not constitute a business combination for accounting
purposes and is accounted for as a capital transaction. That is, the transaction is in substance a reverse recapitalisation, equivalent
to the issuance of equity interests by Success Winner for the net monetary assets of China Ceramics accompanied by a recapitalisation.
The consolidated financial statements are a continuation of the financial statements of Success Winner. The assets and liabilities
of China Ceramics are recognised at their carrying amounts at the date of acquisition with a corresponding credit to the consolidated
equity and no goodwill or other intangible assets are recognised. The equity of the combined entity recognised at the date of acquisition
represents the equity balances of Success Winner together with the deemed proceeds from the reverse recapitalisation determined
as described above. However, the equity structure presented in the consolidated financial statements (number and values of equity
instruments issued) reflects the equity structure of the legal parent, China Ceramics. Costs directly attributable to the transaction
have been debited to equity to the extent of net monetary assets received.



Success Winner and
its subsidiaries as a group is regarded as a continuing entity resulting from the Hengda Reorganisation since the management of
all the entities which took part in the Reorganisation was controlled by the same director and shareholder before and immediately
after the Reorganisation. Consequently, immediately after the Reorganisation, there was a continuation of the control over the
entities’ financial and operating policy decision and risk and benefits to the ultimate shareholders that existed prior to
the Reorganisation. Accordingly, the reorganization has been accounted for as a reorganization under common control and the financial
statements of Success Winner, Stand Best and Hengda have been combined on the basis of merger accounting for all periods presented.



The assets and liabilities
of the combining entities or businesses are combined using the existing book values from the controlling party’s perspective.
No amount is recognised as consideration for goodwill or excess of the acquirer’s interest in the net fair values of the
acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of the common control combination.
The consolidated statement of comprehensive income includes the results of each of the combining entities or businesses from the
earliest date presented or the date of their incorporation/establishment or since the date when the combining entities or businesses
first came under common control, where this is a shorter period, regardless of the date of the common control combination.



F-9











| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.2           Basis of consolidation
(continued)



The Hengdali Acquisition
on January 8, 2010 has been accounted for as a business combination using the acquisition method. Hengdali is a subsidiary of the
Group, and the Group has the power to govern the financial and operating policies which accompanies its shareholding of 100% of
the voting rights in Hengdali. Therefore, Hengdali as a subsidiary is fully consolidated from January 8, 2010, the date on which
control was transferred to the Group.



The accounting for
the Hengdali Acquisition under the acquisition method, the Group treats the consideration transferred for the acquisition of Hengdali
as the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related
costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in this business
combination are measured initially at their fair values at the acquisition date.



The excess of the consideration
transferred over the fair value of the identifiable net assets acquired is recorded as goodwill.



Inter-company transactions,
balances and unrealised gains or losses on transactions between group companies are eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.



2.3           Foreign currency translation



The functional currency
of China Ceramics is the United States dollars (“US dollars” or “US$”). The functional currency of Success
Winner, Stand Best, Hengda and Hengdali is Renminbi (“RMB”), as their principal operations are predominantly conducted
in the People’s Republic of China (PRC) where the Group generates most of its revenue and incurs most of expenses. The financial
statements are presented in Renminbi (to the nearest thousand), being the currency that best reflects the economic substance of
the underlying events and circumstances relevant to the Group.



In the individual financial
statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual
entity using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities
denominated in foreign currencies are translated at the foreign exchange rates ruling at that date. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the reporting date retranslation of monetary assets and liabilities
are recognised in profit or loss.



Non-monetary items
carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the
fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.





F-10









| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.3           Foreign currency translation (continued)



In the consolidated
financial statements, all individual financial statements of foreign operations, originally presented in a currency different from
the Group’s presentation currency, have been converted into Renminbi. Assets and liabilities have been translated into Renminbi
at the closing rates at the reporting date. Income and expenses have been converted into Renminbi at the exchange rates ruling
at the transaction dates, or at the average rates over the reporting period provided that the exchange rates do not fluctuate significantly.
Any differences arising from this procedure have been recognised in other comprehensive income and accumulated separately in the
translation reserve in equity.



When a foreign operation
is sold, such exchange differences are reclassified from equity to profit or loss as part of the gain or loss on sale.



2.4           Property, plant and equipment



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



For the buildings owned
collectively by the Group and other three companies, the cost of buildings are stated according to the amount paid by the Group
for its part of buildings, which represents for the Group’s interests in the buildings.



All buildings are depreciated
over their expected useful lives of 40 years.



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



|Buildings           |  |  | 10%     | 
|------------------- |  |  | ------- | 
|Plant and machinery |  |  | 10%-20% | 
|Motor vehicles      |  |  | 10%     | 
|Office equipment    |  |  | 10%-20% | 



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



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



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





F-11







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.5           Land use rights



Upfront payments made
to acquire land held under an operating lease are stated at cost less accumulated amortization and any accumulated impairment losses.
Amortization is calculated on a straight line basis over the leasing period of 50 years.



2.6           Goodwill



Goodwill represents
the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment
losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.



2.7           Research and development activities



Costs associated with
research activities are expensed in profit or loss as they occur. Costs that are directly attributable to development activities
are recognised as intangible assets provided they meet the following recognition requirements:



| | (i) | demonstration of technical feasibility of the prospective product for internal use or sale;
| | --- | -------------------------------------------------------------------------------------------



| | (ii) | there is intention to complete the intangible asset and use or sell it;
| | ---- | -----------------------------------------------------------------------



| | (iii) | the Group’s ability to use or sell the intangible asset is demonstrated;
| | ----- | ------------------------------------------------------------------------



| | (iv) | the intangible asset will generate probable economic benefits through internal use or sale;
| | ---- | -------------------------------------------------------------------------------------------



| | (v) | sufficient technical, financial and other resources are available for completion; and the expenditure
attributable to the intangible asset can be reliably measured.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Direct costs include
employee costs incurred on development activities along with an appropriate portion of relevant overheads. The costs of development
of internally generated products or knowhow that meet the above recognition criteria are recognised as intangible assets. They
are subject to the same subsequent measurement method as acquired intangible assets.



2.8           Financial assets



The Group’s accounting
policies for financial assets are set out below.



Financial assets are
classified into the following category:



-	loans
and receivables



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





F-12







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.8           Financial assets
(continued)



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



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



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



Loans and receivables



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



Impairment of financial
assets



At each reporting date,
financial assets are reviewed to determine whether there is any objective evidence of impairment.



Objective evidence
of impairment of individual financial assets includes observable data that comes to the attention of the Group about one or more
of the following loss events:



- Significant financial difficulty
of the debtor;



- A breach of contract, such
as a default or delinquency in interest or principal payments;



- It becoming probable that the
debtor will enter bankruptcy or other financial reorganisation;



- Significant changes in the
technological, market, economic or legal environment that have an adverse effect on the debtor; and



- A significant or prolonged
decline in the fair value of an investment in an equity instrument below its cost.



Loss events in respect
of a group of financial assets include observable data indicating that there is a measurable decrease in the estimated future cash
flows from the Group of financial assets. Such observable data includes but not limited to adverse changes in the payment status
of debtors in the Group and national or local economic conditions that correlate with defaults on the assets in the Group.





F-13







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.8           Financial assets (continued)



Management
reviewed all financial assets at reporting date and there is  no objective evidence of impairment. If any such evidence
exists, the impairment loss is measured and recognised as follows:



| | (i) | Financial assets carried at amortised cost
| | --- | ------------------------------------------



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



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



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



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



2.9            Inventories



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



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



2.10           Cash and cash equivalents



Cash and cash equivalents
include cash at bank and in hand, demand deposits with banks and short term highly liquid investments with original maturities
of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk
of changes in value. For the purpose of the statement of cash flows presentation, cash and cash equivalents include bank overdrafts
which are repayable on demand and form an integral part of the Group’s cash management.



F-14









| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.11           Financial liabilities



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



Financial liabilities
are recognized when the Group becomes a party to the contractual provisions of the instrument. All interest related charges are
recognized in accordance with the Group’s accounting policy for borrowing costs (see Note 2.18).



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



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



Borrowings



Borrowings are recognized
initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference
between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the
borrowings using the effective interest method.



Borrowings are classified
as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months
after the balance sheet date.



Trade and other
payables and accrued liabilities



Trade and other payables
and accrued liabilities are recognized initially at their fair value and subsequently measured at amortized cost, using the effective
interest method.



2.12           Leases



Leases which do not
transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.



Where the Group has
the right to use of assets held under operating leases, payments made under the leases are charged to the income statement on a
straight line basis over the lease terms except where an alternative basis is more representative of the time pattern of benefits
to be derived from the leased assets. Lease incentives received are recognized in profit or loss as an integral part of the aggregate
net lease payments made. Contingent rental are charged to profit or loss in the accounting period in which they are incurred.





F-15









| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.13           Provisions



Provisions for product
warranties, legal disputes, onerous contracts or other claims are recognized when the Group has a present obligation (legal or
constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the
obligation and a reliable estimate of the amount of the obligation can be made. Where the time value of money is material, provisions
are stated at the present value of the expenditure expected to settle the obligation.



All provisions are
reviewed at each reporting date and adjusted to reflect the current best estimate.



Where it is not probable
that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed
as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence
will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not wholly within the control
of the Group are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.



2.14           Share capital



Ordinary shares are
classified as equity. Share capital is determined using the nominal value of shares that have been issued.



Any transaction costs
associated with the issuing of shares are deducted from share premium (net of any related income tax benefit) to the extent they
are incremental costs directly attributable to the equity transaction.



2.15           Revenue recognition



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



Sales of goods are
recognized upon transfer of the significant risks and rewards of ownership to the customer. This is usually taken as the time when
the goods are delivered and the customer has accepted the goods.



Interest income is
recognized on a time-proportion basis using the effective interest method.



2.16           Impairment of non-financial assets



Impairment testing
is made on the Group’s Property, plant and equipment, land use rights and goodwill at each reporting date.



For the purpose of
assessing impairment, assets are grouped at the lowest level for which there are largely independent cash inflows (cash-generating
units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill
is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and
represent the lowest level within the Group at which management monitors goodwill.





F-16







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.16           Impairment
of non-financial assets (continued)



An impairment loss
is recognized as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessment of time value of money and the risk specific to the asset.



Impairment losses for
cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment
loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently
reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed
if the cash-generating unit’s recoverable amount exceeds its carrying amount.



2.17           Employee benefits



Retirement benefits



The employees of the
Group’s PRC subsidiary are required to participate in a central pension scheme operated by the local municipal government.
Contributions are recognized as an expense in profit or loss as employees render services during the year. The Group’s obligation
under these plans is limited to the fixed percentage contributions payable.



Share-based employee
remuneration



The Group operates
equity-settled share-based remuneration plans for its employees. None of the Group’s plans feature any options for a cash
settlement.



All goods and services
received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of
the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions
(for example profitability and sales growth targets and performance conditions).



All share-based remuneration
is ultimately recognised as an expense in profit or loss with a corresponding credit to share-based payment reserve. If vesting
periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate
of the number of share options expected to vest.



Non-market vesting
conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently
revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative
adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods
if share options ultimately exercised are different to that estimated on vesting.



Upon exercise of share
options, the proceeds received net of any directly attributable transaction costs up to the nominal value of the shares issued
are allocated to share capital with any excess being recorded as share premium.





F-17







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.18           Borrowing costs



Borrowing costs incurred
for the acquisition, construction or production of any qualifying asset are recognized during the period of time that is required
to complete and prepare the asset for its intended use. A qualifying asset is an asset which necessarily takes a substantial period
of time to get ready for its intended use or sale. Other borrowing costs are expensed when incurred.



Borrowing costs are
recognized as part of the cost of a qualifying asset when expenditure for the asset is being incurred, borrowing costs are being
incurred and activities that are necessary to prepare the asset for its intended use or sale are being undertaken. Capitalization
of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use
or sale are complete.



2.19           Accounting for income taxes



Income tax comprises
current tax and deferred tax.



Current income tax
assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the fiscal
periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized
as a component of tax expense in profit or loss.



Deferred tax is calculated
using the liability method on temporary differences at the reporting date between the carrying amounts of assets and liabilities
in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognized for all taxable temporary
differences. Deferred tax assets are recognized for all deductible temporary differences, tax losses available to be carried forward
as well as other unused tax credits, to the extent that it is probable that taxable profit, including existing taxable temporary
differences, will be available against which the deductible temporary differences, unused tax losses and unused tax credits can
be utilized.



Deferred tax assets
and liabilities are not recognized if the temporary difference arises from goodwill or from initial recognition (other than in
a business combination) of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss.



Deferred tax liabilities
are recognized for taxable temporary differences arising on investments in subsidiaries, associates and joint ventures, except
where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences
will not reverse in the foreseeable future.



Deferred tax is calculated,
without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realized, provided
they are enacted or substantively enacted at the reporting date.



Changes in deferred
tax assets or liabilities are recognized in profit or loss, or in other comprehensive income or directly in equity if they relate
to items that are charged or credited to other comprehensive income or directly in equity.





F-18







| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.19           Accounting
for income taxes (continued)



Current tax assets
and current tax liabilities are presented in net if, and only if,



| | a) | the Group has the legally enforceable right to set off the recognized amounts; and
| | -- | ----------------------------------------------------------------------------------



| | b) | intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
| | -- | ---------------------------------------------------------------------------------------------------------



The Group presents
deferred tax assets and deferred tax liabilities in net if, and only if,



| | a) | the entity has a legally enforceable right to set off current tax assets against current tax liabilities;
and
| | -- | -------------------------------------------------------------------------------------------------------------



the deferred tax assets and the
deferred tax liabilities relate to income taxes levied by the same taxation authority on either:



| | (i) | the same taxable entity; or
| | --- | ---------------------------



| | (ii) | different taxable entities which intend either to settle current tax liabilities and assets on
a net basis, or to release the assets and settle the liabilities simultaneously, in each future period in which significant amounts
of deferred tax liabilities or assets are expected to be settled or recovered.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2.20           Segment reporting



The Group identifies operating segments and
prepares segment information based on the regular internal financial information reported to the Chief Executive Officer and executive
directors, who are the Company's chief operating decision maker, for their decisions about resources allocation to the Group’s
business components and for their review of the performance of those components.



Business segment



The Company operates
principally in the manufacturing and sale of medium to high-end ceramic tiles. The Chief Executive Officer and executive directors
regularly review the Group's business as one business segment.



Geographical segment



The business of the
Group is engaged entirely in the PRC. The Chief Executive Officer and executive directors regularly review the Group's business
as one geographical segment.



2.21           Related parties



(a) A person, or a
close member of that person’s family, is related to the group if that person:



(i) has control or
joint control over the group;



(ii) has significant
influence over the group; or



(iii) is a member
of the key management personnel of the group or the group’s parent.



F-19









| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| | -- | ------------------------------------------------------



2.21           Related parties
(continued)



(b) An entity is related
to the group if any of the following conditions applies:



(i) The entity and
the group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).



(ii) One entity is
an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity
is a member).



(iii) Both entities
are joint ventures of the same third party.



(iv) One entity is
a joint venture of a third entity and the other entity is an associate of the third entity.



(v) The entity is a
post-employment benefit plan for the benefit of employees of either the group or an entity related to the group.



(vi) The entity is
controlled or jointly controlled by a person identified in (a).



(vii) A person identified
in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent
of the entity).



Close members of the
family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings
with the entity.



2.22           Equity-settled share based payments



The Group has received
services from financial advisors related to the Success Winner Acquisition (Note 1) as consideration for transfer of shares by
a shareholder. Since financial advisory services are predominantly compensated by contingent shares, the fair value of which could
not be estimated reliably, the services were measured indirectly at the cost of the equity instruments granted.



| | 3 | CHANGES IN ACCOUNTING POLICIES
| | - | ------------------------------



3.1           Adoption of new or amended IFRSs



In the current year,
the Group has applied for the first time the following new standards, amendments and interpretations (the “new IFRSs”)
issued by the IASB, which are relevant to and effective for the Group’s financial statements for the annual period beginning
on January 1, 2011:



|IAS 24 | Related Party Disclosure
|------ | ------------------------



Various Annual improvements
to IFRSs 2010



Other than as noted
below, the adoption of the new IFRSs had no material impact on how the results and financial position for the current and prior
periods have been prepared and presented.



IAS 24 (Revised
2008) Related Party Disclosure



On November 4, 2009,
the IASB issued amendments to IAS 24 Related Party Disclosures. The revised Standard simplifies the disclosure requirements for
entities that are controlled, jointly controlled or significantly influenced by a government (referred to as government related
entities) and clarifies the definition of a related party. The application of the revised IFRSs in the current period has had no
material effect on the amounts reported and disclosures set out in the consolidated financial statements.





F-20







| | 3 | CHANGES IN ACCOUNTING POLICIES (continued)
| | - | ------------------------------------------



3.2     Standards, amendments and interpretations
to existing standards that are not yet effective and have not been adopted early by the Group



At the date of authorisation
of these financial statements, certain new standards, amendments and interpretations to existing standards have been published
by the IASB but are not yet effective, and have not been adopted early by the Group.



Management anticipates
that all of the relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after
the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant
to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but
are not expected to have a material impact on the Group's financial statements.



IFRS 9 Financial
Instruments (IFRS 9)



The IASB aims to replace
IAS 39 Financial Instruments: Recognition and Measurement in its entirety. IFRS 9 is being issued in phases. To date, the chapters
dealing with recognition, classification, measurement and derecognition of financial assets and liabilities have been issued. These
chapters are effective for annual periods beginning 1 January 2013. Further chapters dealing with impairment methodology and hedge
accounting are still being developed. The Group’s management have yet to assess the impact of this new standard on the Group’s
consolidated financial statements. However, they do not expect to implement IFRS 9 until all of its chapters have been published
and they can comprehensively assess the impact of all changes.



Consolidation Standards



A package of consolidation
standards are effective for annual periods beginning or after January 1, 2013. Information on these new standards is presented
below. The Group’s management have yet to assess the impact of these new and revised standards on the Group’s consolidated
financial statements.



IFRS 10 Consolidated
Financial Statements (IFRS 10)



IFRS 10 supersedes
IAS 27 Consolidated and Separate Financial Statements (IAS 27) and SIC 12 Consolidation – Special Purpose Entities. It revised
the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements
and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.



IFRS 11 Joint
Arrangements (IFRS 11)



IFRS 11 supersedes
IAS 31 Interests in Joint Ventures (IAS 31). It aligns more closely the accounting by the investors with their rights and obligations
relating to the joint arrangement. In addition, IAS 31’s option of using proportionate consolidation for joint ventures has
been eliminated. IFRS 11 now requires the use of the equity accounting method, which is currently used for investments in associates.



IFRS 12 Disclosure
of Interests in Other Entities (IFRS 12)



IFRS 12 integrates
and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities.
It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.



Consequential amendments
to IAS 27 and IAS 28 Investments in Associates and Joint Ventures (IAS 28)



IAS 27 now only deals
with separate financial statements. IAS 28 brings investments in joint ventures into its scope. However, IAS 28’s equity
accounting methodology remains unchanged.





F-21







| | 3 | CHANGES IN ACCOUNTING POLICIES (continued)
| | - | ------------------------------------------



3.2      Standards, amendments
and interpretations to existing standards that are not yet effective and have not been adopted early by the Group (continued)



IFRS 13 Fair
Value Measurement (IFRS 13)



IFRS 13 does not affect
which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced
disclosures about fair value measurements. It is applicable for annual periods beginning on or after January 1, 2013. The Group’s
management have yet to assess the impact of this new standard.



Amendments to
IAS 1 Presentation of Financial Statements (IAS 1 Amendments)



The IAS 1 Amendments
require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will
not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions
are met. It is applicable for annual periods beginning on or after July 1, 2012. The Group’s management expects this will
change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition
of such items.



Amendments to
IAS 19 Employee Benefits (IAS 19 Amendments)



The IAS 19 Amendments
include a number of targeted improvements throughout the Standard. The main changes relate to defined benefit plans. They:



• eliminate the
‘corridor method’, requiring entities to recognise all gains and losses arising in the reporting period



• streamline the
presentation of changes in plan assets and liabilities



• enhance the
disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities are
exposed to through participation in them.



The amended version
of IAS 19 is effective for financial years beginning on or after January 1, 2013. The Group’s management have yet to assess
the impact of this revised standard on the Group’s consolidated financial statements.



| | 4 | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
| | - | --------------------------------------------



Estimates and judgements
are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances.



4.1           Critical accounting
estimates and assumptions



The Group makes estimates
and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below:



Depreciation of
property, plant and equipment



Property, plant and
equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of
property, plant and equipment to be within 5 to 40 years. The carrying amounts of the Group’s property, plant and equipment
as at December 31, 2011, 2010 and 2009 were RMB 843,429,000, RMB 459,161,000, and RMB 64,184,000, respectively. Changes in the
expected level of usage and technological developments could impact the economic useful lives and the residual values of these
assets, therefore future depreciation charges could be revised.





F-22







| | 4 | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
| | - | --------------------------------------------------------



4.1           Critical accounting
estimates and assumptions (continued)



Income tax



The Group has exposure
to income taxes in the PRC. Significant judgement is required in determining the provision for income taxes. There are certain
transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The
Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. When the final
tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income
tax and deferred tax provisions in the period in which such determination is made.



Impairment of trade
receivables



The Group’s management
assesses the collectability of trade receivables. This estimate is based on the credit history of the Group’s customers and
the current market condition. Management assesses the collectability of trade receivables at the balance sheet date and makes the
provision, if any.



Net realizable value
of inventories



Net realizable value
of inventories is the management’s estimation of future selling price in the ordinary course of business, less estimated
costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience
of selling products of similar nature. It could change significantly as a result of various market factors.



4.2           Critical judgments in applying the entity's accounting policies



Accounting for the
Success Winner Acquisition



The Company has accounted
for the Success Winner Acquisition (Note 1) as a reverse recapitalisation. The management believes the acquisition agreement resulted
in the former owner of Success Winner obtaining effective operating and financial control of the combined entity through 1) the
owner's majority shareholder interest in the combined entity immediately after the acquisition, 2) his significant representation
on the Board of Directors and 3) Success Winner management being named to all the senior executive positions in the combined entity.



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



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



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



The management has
determined this equity-settled share-based payment, together with the audit, legal and consulting fees incurred for the Success
Winner Acquisition (Note 1), were all incremental transaction costs directly related to the reverse recapitalization transaction
and has charged these costs directly to equity to the extent of net monetary assets received and charged the incremental transaction
costs in excess of the net monetary assets received to expense.



Determining the
date when the Company obtained control of the Gaoan Facility (Note 29)



The management has
regarded January 8, 2010, the date when the registration and business license was officially transferred from the Gaoan Facility's
former shareholders to the Group and when an executive officer was appointed by the Group to take over controls over the Facility's
operating and financing activities, as the date the Group obtained control of the Gaoan Facility.





F-23







| | 5. | REVENUE AND OTHER INCOME
| | -- | ------------------------



Revenue comprises
the fair value of the consideration received or receivable for the sale of goods. An analysis of the Group's revenue and other
income is as follows:



|                                    |  | Year ended December 31, |          
|----------------------------------- |  | ----------------------- | ---------
|                                    |  | 2011                    |          
|                                    |  | RMB'000                 |          
|Revenue                             |  |                         |          
|Sale of goods                       |  |                         | 1,491,574
|                                    |  |                         |          
|Other income                        |  |                         |          
|Sale of scrap materials             |  |                         | 4,921    
|Interest income                     |  |                         | 494      
|Net foreign exchange gains/(losses) |  |                         | 7        
|                                    |  |                         | 5,422    



| | 6. | MERGER COSTS
| | -- | ------------



The merger costs of
RMB 26.4 million in 2009 were legal fees, audit fees, and other professional advisors’ costs directly attributable to the
reverse recapitalization transaction on November 22, 2009 which exceeded the net monetary assets received. The Group treats these
incremental transaction costs exceeding the net monetary assets received as the expenses Success Winner incurred to obtain a public
listing in the United States of America (Note 4.2).



| | 7. | FINANCE COSTS
| | -- | -------------



Finance costs comprise
interest expense on the Group’s bank borrowings:



|                            |  | Year ended December 31, |       
|--------------------------- |  | ----------------------- | ------
|                            |  | 2011                    |       
|                            |  | RMB'000                 |       
|Interest on bank borrowings |  |                         | 11,067





F-24







| | 8. | PROFIT BEFORE TAXATION
| | -- | ----------------------



The Group's profit
before taxation is arrived at after charging:



|                                                |  | Year ended December 31, |          
|----------------------------------------------- |  | ----------------------- | ---------
|                                                |  | 2011                    |          
|                                                |  | RMB'000                 |          
|Cost of inventories recognized as expense(1)    |  |                         | 1,020,847
|Depreciation expenses                           |  |                         | 48,410   
|Amortisation of land use rights                 |  |                         | 669      
|Directors' remuneration                         |  |                         |          
|- salaries and related cost                     |  |                         | 1,376    
|- retirement scheme contribution                |  |                         | 13       
|- share-based payments                          |  |                         | 11,938   
|Key management personnel (other than directors) |  |                         |          
|- salaries and related cost                     |  |                         | 415      
|- retirement scheme contribution                |  |                         | 9        
|- share-based payments                          |  |                         | 5,357    
|Research and development personnel              |  |                         |          
|- salaries and related cost                     |  |                         | 1,228    
|- retirement scheme contribution                |  |                         | 68       
|Other personnel                                 |  |                         |          
|- salaries and related cost                     |  |                         | 64,074   
|- retirement scheme contribution                |  |                         | 9,022    
|Operating lease expenses                        |  |                         | 11,855   



| | (1) | Cost of inventories recognised as expense included staff costs, depreciation and amortisation expense,
operating lease charges and research and development costs, which amount is also included in the respective total amounts disclosed
separately for each of these types of expenses.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-25







| | 9. | INCOME TAX EXPENSE
| | -- | ------------------



|                                       |  | Year ended December 31, |        
|-------------------------------------- |  | ----------------------- | -------
|                                       |  | 2011                    |        
|                                       |  | RMB'000                 |        
|Current year provision-PRC Income Tax: |  |                         |        
|Current tax expense                    |  |                         | 106,100
|Deferred tax expense                   |  |                         | (35    
|                                       |  |                         | 106,065



No deferred tax has
been provided at December 31, 2009 as the Group did not have any significant temporary differences which gave rise to a deferred
tax asset or liability. As of December 31, 2011 and 2010, there were RMB 1.09 million and RMB 1.12 million defer tax liabilities,
respectively, in respect of the temporary differences in depreciation expenses arising from the acquisition accounting for the
Hengdali Acquisition.



Reconciliation between
income tax expense and profit before taxation at applicable tax rates is as follows:



|                                                                                    |  | Year ended December 31, |        
|----------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                    |  | 2011                    |        
|                                                                                    |  | RMB'000                 |        
|Profit before taxation                                                              |  |                         | 400,504
|                                                                                    |  |                         |        
|Tax calculated at a tax rate of 25%                                                 |  |                         | 100,126
|Tax effect on non-deductible expenses                                               |  |                         | 137    
|Tax effect on different tax rate of group entities operation in other jurisdictions |  |                         | 5,802  
|                                                                                    |  |                         | 106,065



British Virgin Islands
Profits Tax



The Group has not been
subject to any taxation in this jurisdiction for the year ended December 31, 2011 (2009 and 2010: Nil).



Hong Kong Profits
Tax



No Hong Kong profits
tax has been provided as the Group has no assessable profit arising in Hong Kong for the year ended December 31, 2011 (2009 and
2010: Nil).



PRC Income Tax



Hengda andHengdali
determined and paid the corporate income tax in accordance with “PRC Enterprise Income Tax Law”, and the applicable
income tax rate in this year is 25%.



Any dividend paid by
a PRC entity to an overseas parent made out of profits earned after January 1, 2008 will be subject to up to 10% withholding tax.
Hengda, the Group's PRC subsidiary, has cumulative undistributed earnings of RMB 334,275,000, RMB 541,961,000 and RMB 827,915,000
as of December 31, 2009, 2010 and 2011, which are included in consolidated retained earnings and will continue to be indefinitely
reinvested in the PRC subsidiary's operations. Accordingly, no provision has been made for deferred taxes related to future repatriation
of these earnings. If the Group were to distribute these cumulated earnings in the foreseeable future, the deferred tax liabilities
of RMB 33,428,000, RMB 54,196,000 and RMB 82,792,000 would be recognised as of December 31, 2009, 2010 and 2011, respectively.





F-26









| | 10. | EARNINGS PER SHARE (“EPS”)
| | --- | --------------------------



Basic EPS is computed
by dividing income available to common shareholders by the weighted average number of common shares outstanding for the periods.
Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Diluted net earnings per share is based on the assumption that all dilutive warrants were exercised.
Dilution is computed by applying the treasury stock method. Under this method, the warrants are assumed to be exercised at the
date of the reverse recapitalization, and as if funds obtained thereby were used to purchase common stock at the average market
price during the period. The following table presents a reconciliation of basic and diluted earnings per share:



|                                                                                                                   |  | Years ended December 31, |           
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ----------
|                                                                                                                   |  | 2011                     |           
|Income (numerator):                                                                                                |  |                          |           
|Income attributable to holders of ordinary shares (RMB '000):                                                      |  |                          | 294,439   
|                                                                                                                   |  |                          |           
|Shares (denominator):                                                                                              |  |                          |           
|Weighted average ordinary shares outstanding used in computing basic income per share                              |  |                          | 20,430,838
|Plus incremental weighted average ordinary shares from assumed conversions of warrants using treasury stock method |  |                          | -         
|Weighted average ordinary shares outstanding used in computing diluted income per share                            |  |                          | 20,430,838
|                                                                                                                   |  |                          |           
|Earnings per share-basic (RMB)                                                                                     |  |                          | 14.41     
|                                                                                                                   |  |                          |           
|Earnings per share-diluted (RMB)                                                                                   |  |                          | 14.41     



For the year ended
December 31, 2011, there was no difference in the weighted- average number of ordinary shares used for basic and diluted, earnings
per ordinary share as the warrants outstanding had no dilutive effect. As of December 31, 2011, there were 2,774,300 warrants outstandings,
which could potentially have a dilutive impact in the future. The number of ordinary shares would be 21,028,302 if all of the warrants
were exercised.





F-27







| | 11. | PROPERTY, PLANT AND EQUIPMENT
| | --- | -----------------------------



|                                         |  | Buildings RMB'000 |         |  | Plant and machinery RMB'000 |  |         | Motor vehicles RMB'000 |  |  | Office equipment RMB'000 |  |  | Total RMB'000 |      
|---------------------------------------- |  | ----------------- | ------- |  | --------------------------- |  | ------- | ---------------------- |  |  | ------------------------ |  |  | ------------- | -----
|Cost                                     |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|At January 1, 2009                       |  |                   | 3,363   |  |                             |  | 157,538 |                        |  |  | 5,136                    |  |  |               | 1,365
|Additions                                |  |                   | -       |  |                             |  | 7,750   |                        |  |  | -                        |  |  |               | 291  
|Disposals                                |  |                   | -       |  |                             |  | (7,767  | )                      |  |  | -                        |  |  |               | (248 
|At December 31, 2009                     |  |                   | 3,363   |  |                             |  | 157,521 |                        |  |  | 5,136                    |  |  |               | 1,408
|Additions                                |  |                   | 117,235 |  |                             |  | 103,964 |                        |  |  | 616                      |  |  |               | 432  
|Acquisition through business combination |  |                   | 95,226  |  |                             |  | 110,510 |                        |  |  | 796                      |  |  |               | -    
|Disposals                                |  |                   | -       |  |                             |  | (51,506 | )                      |  |  | -                        |  |  |               | -    
|At December 31, 2010                     |  |                   | 215,824 |  |                             |  | 320,489 |                        |  |  | 6,548                    |  |  |               | 1,840
|Additions                                |  |                   | 116,739 |  |                             |  | 324,866 |                        |  |  | -                        |  |  |               | -    
|Disposals                                |  |                   | -       |  |                             |  | (32,610 | )                      |  |  | -                        |  |  |               | -    
|At December 31, 2011                     |  |                   | 332,563 |  |                             |  | 612,745 |                        |  |  | 6,548                    |  |  |               | 1,840
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|Accumulated depreciation                 |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|At January 1, 2009                       |  |                   | 746     |  |                             |  | 91,935  |                        |  |  | 1,794                    |  |  |               | 755  
|Depreciation charge                      |  |                   | 112     |  |                             |  | 14,805  |                        |  |  | 488                      |  |  |               | 223  
|Disposals                                |  |                   | -       |  |                             |  | (7,379  | )                      |  |  | -                        |  |  |               | (235 
|At December 31, 2009                     |  |                   | 858     |  |                             |  | 99,361  |                        |  |  | 2,282                    |  |  |               | 743  
|Depreciation charge                      |  |                   | 3,388   |  |                             |  | 26,055  |                        |  |  | 494                      |  |  |               | 258  
|Disposals                                |  |                   | -       |  |                             |  | (47,899 | )                      |  |  | -                        |  |  |               | -    
|At December 31, 2010                     |  |                   | 4,246   |  |                             |  | 77,517  |                        |  |  | 2,776                    |  |  |               | 1,001
|Depreciation charge                      |  |                   | 6,462   |  |                             |  | 41,140  |                        |  |  | 608                      |  |  |               | 200  
|Disposals                                |  |                   | -       |  |                             |  | (23,683 | )                      |  |  | -                        |  |  |               | -    
|At December 31, 2011                     |  |                   | 10,708  |  |                             |  | 94,974  |                        |  |  | 3,384                    |  |  |               | 1,201
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|Net book amount                          |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|At December 31, 2009                     |  |                   | 2,505   |  |                             |  | 58,160  |                        |  |  | 2,854                    |  |  |               | 665  
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|At December 31, 2010                     |  |                   | 211,578 |  |                             |  | 242,972 |                        |  |  | 3,772                    |  |  |               | 839  
|                                         |  |                   |         |  |                             |  |         |                        |  |  |                          |  |  |               |      
|At December 31, 2011                     |  |                   | 321,855 |  |                             |  | 517,771 |                        |  |  | 3,164                    |  |  |               | 639  



All property, plant
and equipment held by the Group are located in the PRC.



The Group’s building
including renovation, with a carrying value of approximately RMB 2,505,000 , RMB 2,393,000 and RMB 2,281,000 was pledged as securities
to secure the Group’s interest-bearing bank borrowings at December 31, 2009, 2010 and 2011 respectively (Note 19).



For the buildings owned
collectively by the Group and other three companies, the cost of buildings are stated according to the amount paid by the Group
for its part of buildings, which represents for the Group’s interests in the buildings. Buildings are depreciated over their
expected useful lives of 40 years. These buildings’ cost was RMB 3,363,000, and accumulated depreciation of these buildings
was RMB 858,000, RMB 970,000 and RMB 1,082,000 at December 31, 2009, 2010 and 2011 respectively.





F-28







| | 12. | LAND USE RIGHTS
| | --- | ---------------



|                                         |  | 2011    |        |   | 2010    |  |        | 2009    | 
|---------------------------------------- |  | ------- | ------ | - | ------- |  | ------ | ------- | 
|                                         |  | RMB'000 |        |   | RMB'000 |  |        | RMB'000 | 
|At beginning of the year                 |  |         |        |   |         |  |        |         | 
|Cost                                     |  |         | 32,619 |   |         |  | 180    |         | 
|Accumulated amortisation                 |  |         | (683   | ) |         |  | (15    | )       | 
|Net book amount                          |  |         | 31,936 |   |         |  | 165    |         | 
|                                         |  |         |        |   |         |  |        |         | 
|For the year                             |  |         |        |   |         |  |        |         | 
|Opening net book amount                  |  |         | 31,936 |   |         |  | 165    |         | 
|Acquisition through business combination |  |         | -      |   |         |  | 32,439 |         | 
|Amortisation                             |  |         | (669   | ) |         |  | (668   | )       | 
|Net book amount                          |  |         | 31,267 |   |         |  | 31,936 |         | 
|                                         |  |         |        |   |         |  |        |         | 
|At end of the year                       |  |         |        |   |         |  |        |         | 
|Cost                                     |  |         | 32,619 |   |         |  | 32,619 |         | 
|Accumulated amortisation                 |  |         | (1,352 | ) |         |  | (683   | )       | 
|Net book amount                          |  |         | 31,267 |   |         |  | 31,936 |         | 



The land use rights
of the Group refer to lands located in PRC which were pledged to the banks as securities for the Group’s interest-bearing
bank borrowings at December 31, 2009, 2010 and 2011 respectively (Note 19).



| | 13. | INVENTORIES
| | --- | -----------



|                 |  | As at December 31, |        
|---------------- |  | ------------------ | -------
|                 |  | 2011               |        
|                 |  | RMB'000            |        
|At cost          |  |                    |        
|Raw materials    |  |                    | 51,267 
|Work in progress |  |                    | 6,228  
|Finished goods   |  |                    | 234,286
|                 |  |                    | 291,781



There has been no inventory
write-off or allowance for inventory obsolescence for the years ended December 31, 2009, 2010, and 2011.



| | 14. | TRADE RECEIVABLES
| | --- | -----------------



The Group’s trade
receivables are denominated in Renminbi and non-interest bearing, and generally have credit terms within 90 days.



The aging analysis
of the Group’s trade receivables is as follows:

|                        |  | As at December 31, |        
|----------------------- |  | ------------------ | -------
|                        |  | 2011               |        
|                        |  | RMB'000            |        
|Current(within 90 days) |  |                    | 473,209





F-29







| | 14. | TRADE RECEIVABLES (continued)
| | --- | -----------------------------



As at December 31,
2009, 2010 and 2011, trade receivables of RMB 270,840,000, RMB 282,976,000 and RMB 473,209,000 were neither past due nor impaired.
These related to a large number of diversified customers for whom there was no recent history of default. All amounts are short-term.
The net carrying value of trade receivables is considered a reasonable approximation of fair value. The Group does not hold any
collateral as security for these receivables.



| | 15. | OTHER RECEIVABLES AND PREPAYMENT
| | --- | --------------------------------



|                                                      |  | As at December 31, |       
|----------------------------------------------------- |  | ------------------ | ------
|                                                      |  | 2011               |       
|                                                      |  | RMB'000            |       
|Prepayment of acquisition cost for the Gaoan facility |  |                    | -     
|Prepayments                                           |  |                    | 8,679 
|Creditable Input VAT                                  |  |                    | 17,698
|Other                                                 |  |                    | -     
|                                                      |  |                    | 26,377



As at December 31,
2009, 2010 and 2011, other receivables and prepayment of RMB 149,268,000, RMB 8,907,000 and RMB 26,377,000 were neither past due
nor impaired. The net carrying value of these receivables is considered a reasonable approximation of fair value. The Group does
not hold any collateral as security for these receivables.



| | 16. | CASH AND BANK BALANCES
| | --- | ----------------------



|             |  | As at December 31, |       
|------------ |  | ------------------ | ------
|             |  | 2011               |       
|             |  | RMB'000            |       
|Cash on hand |  |                    | 44    
|Cash at bank |  |                    | 42,105
|             |  |                    | 42,149



Cash and bank balances
are denominated in the following currencies:



|                  |  | As at December 31, |       
|----------------- |  | ------------------ | ------
|                  |  | 2011               |       
|                  |  | RMB'000            |       
|Renminbi          |  |                    | 40,120
|Hong Kong dollars |  |                    | 1     
|US dollars        |  |                    | 2,028 
|                  |  |                    | 42,149



Bank balances denominated
in Renminbi are deposited with banks in the PRC and are not freely convertible to foreign currencies. The conversion of these RMB
denominated balances into foreign currencies is subject to the foreign exchange control rules and regulations promulgated by the
PRC Government.



As at December 31,
2011, bank balances denominated in US dollars with an amount equivalent to RMB 1,140,000 were deposited with banks in the United
States of America, which are held by China Ceramics whose functional currency is US dollars. Bank balances denominated in US dollars
with an amount equivalent to RMB 888,000 were deposited with banks in Hong Kong, which are held by Stand Best whose functional
currency is Renminbi.





F-30







| | 17. | TRADE PAYABLES
| | --- | --------------



|               |  | As at December 31, |        
|-------------- |  | ------------------ | -------
|               |  | 2011               |        
|               |  | RMB'000            |        
|Trade payables |  |                    | 252,682



Trade payables are
denominated in Renminbi and generally have credit terms ranging within 120 days. The carrying values of trade payables is considered
to be a reasonable approximation of fair value.



| | 18. | ACCRUED LIABILITIES AND OTHER PAYABLES
| | --- | --------------------------------------



|                                |  | As at December 31, |       
|------------------------------- |  | ------------------ | ------
|                                |  | 2011               |       
|                                |  | RMB'000            |       
|Amount owing to related parties |  |                    | 1,327 
|Sales discount payable          |  |                    | -     
|Accrued liabilities             |  |                    | 22,022
|Deposits payables               |  |                    | 21,000
|VAT payable                     |  |                    | -     
|                                |  |                    | 44,349



Accrued liabilities
and other payables are denominated in the following currencies:



|                  |  | As at December 31, |       
|----------------- |  | ------------------ | ------
|                  |  | 2011               |       
|                  |  | RMB'000            |       
|Renminbi          |  |                    | 42,951
|Hong Kong dollars |  |                    | 1,327 
|US dollars        |  |                    | 71    
|                  |  |                    | 44,349



Amount owing to related
parties relate to 1) payments made by a director on Hengda’s behalf for the purchase of motor vehicles owned by the Group
and 2) advances from a shareholder to the Group for working capital purposes. The amount is interest free, unsecured and repayable
on demand.



Accrued liabilities
consist mainly of accrued rental, wages and utility expenses.



Deposits payables represent
deposits from the Group’s distributors. The Group will usually request a deposit from RMB 400,000 to RMB 1,000,000 from new
distributors upon signing a distributorship agreement.



The carrying values
of these payables is considered to be a reasonable approximation of fair value.





F-31







| | 19. | INTEREST- BEARING BANK BORROWINGS
| | --- | ---------------------------------



|                                                                   |  | As at December 31, |        
|------------------------------------------------------------------ |  | ------------------ | -------
|                                                                   |  | 2011               |        
|                                                                   |  | RMB'000            |        
|Short-term bank borrowings secured and repayable within one year   |  |                    | 125,000
|Long-term bank borrowings secured and repayable more than one year |  |                    | 60,000 
|                                                                   |  |                    | 185,000



The Group's
interest-bearing bank borrowings are pledged by the Group's buildings and land use rights (Note 11 and 12) and guaranteed by
 related parties (Note 25) and third parties . Short-term bank borrowings bear effective interests rates ranging
from approximately 5.84% to 9.71%, 6.11% to 6.62% and 7.22% to 8.53% per annum during the years ended December 31, 2009, 2010
and 2011, respectively. Long-term bank borrowings bear effective interests rates ranging from approximately 6.62% and 7.32%
to 7.65% per annum during the years ended December 31, 2010 and 2011, respectively.



The carrying amounts
of interest-bearing bank borrowings are denominated in Renminbi.



| | 20. | SHARE CAPITAL
| | --- | -------------



As the Success Winner
Acquisition (Note 1) was accounted for as a reverse recapitalization transaction, the equity structure (i.e. the number and type
of equity interests issued) in the consolidated financial statements as of December 31, 2009, 2010 and 2011 reflects the equity
structure of China Ceramics (the legal parent and accounting acquiree), including the equity interests China Ceramics issued to
effect the combination.



The movement of the
equity structure is as follows:



|                                                                        |  | 2011             |            |  | 2010             |  |    | 2009             | 
|----------------------------------------------------------------------- |  | ---------------- | ---------- |  | ---------------- |  | -- | ---------------- | 
|                                                                        |  | (China Ceramics) |            |  | (China Ceramics) |  |    | (China Ceramics) | 
|                                                                        |  | Number           |            |  | US$              |  |    | Number           | 
|                                                                        |  | of shares        |            |  | '000             |  |    | of shares        | 
|Authorised                                                              |  |                  |            |  |                  |  |    |                  | 
|At January 1                                                            |  |                  | 51,000,000 |  |                  |  | 51 |                  | 
|Increase of authorised shares in connection with CHAC’s Redomestication |  |                  | -          |  |                  |  | -  |                  | 
|At December 31                                                          |  |                  | 51,000,000 |  |                  |  | 51 |                  | 





F-32









20. SHARE CAPITAL (continued)



|                                                                                                         |  | 2011                 |            |  | 2010                 |  |     | 2009                 | 
|-------------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- |  | -------------------- |  | --- | -------------------- | 
|                                                                                                         |  | (China
    Ceramics) |            |  | (China
    Ceramics) |  |     | (China
    Ceramics) | 
|                                                                                                         |  | Number               |            |  | RMB                  |  |     | Number               | 
|                                                                                                         |  | of
    shares        |            |  | '000                 |  |     | of
    shares        | 
|Issued and fully paid:                                                                                   |  |                      |            |  |                      |  |     |                      | 
|At January 1                                                                                             |  |                      | 16,459,202 |  |                      |  | 112 |                      | 
|Issuance of ordinary shares to Mr. Wong Kung Tok for reverse recapitalization                            |  |                      | -          |  |                      |  | -   |                      | 
|Redemption and repurchase of shares in connection with the closing
    of the reverse recapitalization   |  |                      | -          |  |                      |  | -   |                      | 
|Cancellation of CHAC founders' shares in connection with the closing
    of the reverse recapitalization |  |                      | -          |  |                      |  | -   |                      | 
|Issuance to Mr. Wong Kung Tok for achieving the 2009 performance
     threshold                          |  |                      | -          |  |                      |  | -   |                      | 
|Warrants exchange for ordinary shares                                                                    |  |                      | -          |  |                      |  | -   |                      | 
|Issuance of ordinary shares
    in the new equity offering                                               |  |                      | -          |  |                      |  | -   |                      | 
|Issuance to Mr. Wong Kung Tok for achieving
    the 2010 performance threshold                           |  |                      | 1,794,800  |  |                      |  | 12  |                      | 
|At December 31                                                                                           |  |                      | 18,254,002 |  |                      |  | 124 | (3)                  | 

(1) RMB equivalent 61,000

(2) US$ equivalent 17,000

(3)US$ equivalent 18,000



On November 21, 2007,
CHAC consummated its initial public offering, or IPO, of 12,800,000 units, including 800,000 units subject to an over-allotment
option, with each unit consisting of one ordinary share, US$ 0.001 par value per share, and one warrant to purchase one ordinary
share at an exercise price of US$ 7.50 per share. The units were sold at an offering price of US$ 10.00 per unit, generating total
gross proceeds of US$ 128,000,000. Simultaneously with the consummation of the IPO, CHAC consummated the private sale of 2,750,000
warrants to CHAC’s founders at a price of US$ 1.00 per warrant, generating total proceeds of US$ 2,750,000. CHAC’s
founders had 3,200,000 ordinary shares as founding shares.



All ordinary shares
are equally eligible to receive dividends and represent one vote at shareholders’ meetings of the Company.



Each warrant entitles
the holder to purchase shares at US$ 7.50 per share, subject to adjustment in the event of stock dividends and splits, reclassifications,
combinations and similar events for a period commencing on the later of: (a) completion of the business combination and (b) one
year from the closing date of the IPO, and ending November 16, 2012. China Ceramics may call the warrants for redemption, in whole
and not in part at a price of US$ 0.01 per warrant at any time after the warrants become exercisable, upon not less than 30 days’
prior written notice of redemption to each warrant holder, and if, and only if, the reported last sale price of the shares equals
or exceeds US$ 14.25 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to
the notice of redemption to warrant holders.





F-33







| | 20. | SHARE CAPITAL (continued)
| | --- | -------------------------



On November 20, 2009,
pursuant to the acquisition agreement, China Ceramics acquired all of the issued and outstanding shares of Success Winner held
by Mr. Wong Kung Tok in exchange for US$ 10.00 and 5,743,320 shares of China Ceramics. In addition, 8,185,763 shares of China Ceramics
were placed in escrow (the “Contingent Shares”) and will be released to Mr. Wong Kung Tok in the event certain earnings
and stock price thresholds are achieved. Of the Contingent Shares, up to 5,185,763 Contingent Shares would be released based on
achieving growth in either net earnings before tax or net earnings after tax, depending on the year, following the completion of
an annual audit. Additionally, 3,000,000 Contingent Shares will be released if China Ceramics shares close at or above certain
share price targets for any twenty trading days within a thirty trading day period prior to April 30, 2012. The Contingent Shares
will be released without regard to continued employment and are only contingent on future earnings and the stock price of China
Ceramics. On May 24, 2010, the Group issued 1,214,127 shares to Mr. Wong Kung Tok based on the audited earning before tax result
for the fiscal year 2009. On April 7, 2011, the Group issued 1,794,800 shares to Mr. Wong Kung Tok based on the audited earning
before tax result for the fiscal year 2010. The issuance of the contingent shares is accounted for as a stock dividend.



Also, concurrent with
the Success Winner Acquisition, the Company purchased an aggregate of 11,193,149 ordinary shares from the public stockholders for
an aggregate purchase price of approximately RMB 752.2 million in transactions intended to assure the successful completion of
the business combination. In connection with the closing of the Success Winner Acquisition, the CHAC’s founders forfeited
1,600,000 of their founders’ shares to CHAC for cancellation.



On May 25, 2010, the
Company purchased 996,051 public warrants from four warrant holders (all managed by a single entity) at a price of US$ 1.00 per
warrant in a privately negotiated transaction. The total amount paid to purchase the public warrants was US$ 996,051 (RMB equivalent
6,803,000) and has been deducted from shareholders’ equity.



The Company initiated
an exchange offer (the “Offer”) pursuant to which holders of all 14,553,949 of the Company’s outstanding warrants
(the “Warrants”) had the opportunity to acquire the Company’s shares through a warrant for share exchange. The
Company issued one share for every four warrants tendered. On September 1, 2010, pursuant to the terms of the tender offer, 11,779,649
warrants were exchanged for 2,944,904 of the shares, which are freely tradable.



On November 24, 2010,
the Company closed an underwritten public offering of 3,350,000 shares at a price of US$ 7.75 per share for an aggregate of approximately
RMB 172.7 million gross proceeds. The total net proceeds of the offering to the Company, after deduction of underwriters' commissions
and discounts and estimated transaction expenses, was approximately RMB 159.6 million.



As at December 31,
2011, China Ceramics' issued and outstanding equity instruments included 18,254,002 ordinary shares, US$ 0.001 par value per share,
and 2,774,300 warrants with the carrying value of US$ 18,000 and RMB equivalent 124,000.





F-34







| | 21. | RESERVES
| | --- | --------



| | a) | Statutory reserve
| | -- | -----------------



In accordance with
the relevant laws and regulations of the PRC, the Group’s PRC subsidiaries are required to transfer 10% of its profit after
taxation prepared in accordance with the accounting regulation of the PRC to the statutory reserve until the reserve balance reaches
50% of the respective registered capital. Such reserve may be used to offset accumulated losses or increase the registered capital
of these subsidiaries, subject to the approval from the Board of Directors, and are not available for dividend distribution to
the shareholders.



| | b) | Currency translation reserve
| | -- | ----------------------------



The reserve comprises
all foreign exchange differences arising from the translation of the financial statements of China Ceramics whose functional currency
is US dollars.



| | c) | Merger reserve
| | -- | --------------



The merger reserve
of the Group represents the difference between the nominal value of the shares of the subsidiaries acquired in the Hengda Reorganization
(Note 1) over the nominal value of the shares of the Group issued in exchange thereof.



| | d) | Share-based payment reserve
| | -- | ---------------------------



After the successful
consummation of the reverse recapitalization, Mr. Wong Kung Tok, the former sole shareholder of Success Winner, allotted a total
of 1,521,528 China Ceramics' ordinary shares to two financial advisors for their financial advisory services related to the recapitalization
activities. The shared based payment reserve represents the fair value of these allotted shares measured based on the average market
price over the service periods (Note 4.2).



Share-based payment
reserve also represents the equity-settled share options granted to employees (Note 23). The reserve is made up of the cumulative
value of services received from employees recorded over the vesting period commencing from the grant date of equity-settled share
options, and is reduced by the expiry or exercise of the share options.



| | e) | Reverse recapitalization reserve
| | -- | --------------------------------



The reverse recapitalization
reserve arises as a result of the method of accounting for the Success Winner Acquisition. In accordance with IFRS, the acquisition
has been accounted for as a reverse recapitalization.



| | 22. | DIVIDENDS
| | --- | ---------



Dividends disclosed
during the report periods represented dividends declared by Hengda to its equity owners. The rate of dividend and the number of
shares ranking for dividends are not presented as such information is not meaningful.





F-35







| | 23. | SHARE-BASED EMPLOYEE REMUNERATION
| | --- | ---------------------------------



On December 27, 2010,
the shareholders of the Group approved the 2010 Incentive Compensation Plan (“the Plan”) at the annual meeting, which
was designed to retain directors and senior management. In accordance with the Plan, the Group granted an aggregate of 1,130,000
stock options to Huang Jia Dong, Su Pei Zhi, Su Wei Feng, Hen Man Edmund, Paul K. Kelly, Cheng Yan Davis, Ding Wei Dong and William
L. Stulginsky, upon the approval by the Board of Directors on January 27, 2011, the grant date. The share options are valid for
a period of 5 years from January 27, 2011 to January 27, 2016.



Share options and
weighted average exercise prices are as follows for the reporting periods presented:



|                                 |  | Incentive Compensation Plan |          
|-------------------------------- |  | --------------------------- | ---------
|                                 |  | Number of 
shares           |          
|                                 |  |                             |          
|Granted                          |  |                             | 1,130,000
|Forfeited                        |  |                             | -        
|Exercised                        |  |                             | -        
|Outstanding at December 31, 2011 |  |                             | 1,130,000
|Exercisable at December 31, 2011 |  |                             | 282,500  



The total fair value
of the share options granted under the Plan is RMB 25,643,000 (US$ 3,978,000). The fair values of options granted were determined
using a variation of the Black-Scholes Option Pricing Model that takes into account factors specific to the share incentive plans,
such as the vesting period. The following principal assumptions were used in the valuation:



|                                            |  | Incentive 
Compensation Plan |                                   
|------------------------------------------- |  | ---------------------------- | ----------------------------------
|Grant date                                  |  |                              | January 27, 2011                  
|Vesting period ends                         |  |                              | January 27, 2014                  
|Share price at date of grant(US$)           |  |                              | 7.65                              
|Volatility                                  |  |                              | 65                                
|Option life                                 |  |                              | 5 years                           
|Dividend yield                              |  |                              | 0                                 
|Risk-free investment rate                   |  |                              | 1.98                              
|Fair value at grant date (US$)              |  |                              | 3.52                              
|Exercise price at date of grant (US$)       |  |                              | 7.65                              
|Exercisable from / to                       |  |                              | January 27, 2011/ January 27, 2016
|Weighted average remaining contractual life |  |                              | 3.25 years                        



The underlying expected
volatility was determined by reference to historical data of the Group’s shares over a period of time since its flotation
on the Stock Exchange. No special features inherent to the options granted were incorporated into measurement of fair value.



For the year ended
December 31, 2011 RMB 17.3 million (US$ 2.7 million) of employee remuneration expense (all of which related to equity-settled share-based
payment transactions) has been included in profit or loss and credited to share-based payment reserve.





F-36







| | 24. | BUSINESS COMBINATIONS
| | --- | ---------------------



On January 8, 2010,
the Group consummated the acquisition of all voting equity interests of Hengdali, a company that manufactures and sells ceramics
tiles used for exterior siding and for interior flooring, for a total cash consideration of RMB 185,517,000. The acquisition is
intended to increase the Group’s production capacity and reduce cost through economies of scale.



Details of the purchase
consideration, the net assets acquired and goodwill are as follows:



|Purchase consideration |  | RMB'000 |        
|---------------------- |  | ------- | -------
|- Cash paid            |  |         | 185,517



The assets and liabilities recognised as a result
of the acquisition are as follows:

|                              |  | Fair value |        
|----------------------------- |  | ---------- | -------
|                              |  | RMB'000    |        
|Cash and cash equivalents     |  |            | 3,822  
|Property, plant and equipment |  |            | 206,532
|Land use rights               |  |            | 32,439 
|Inventories                   |  |            | 11,473 
|Receivables                   |  |            | 400    
|Payables                      |  |            | (11,728
|Borrowings                    |  |            | (60,000
|Deferred tax liability        |  |            | (1,156 
|                              |  |            | 181,782
|                              |  |            |        
|Goodwill                      |  |            | 3,735  
|                              |  |            | 185,517



|Outflow of cash to acquire business, net of cash acquired, as at December 31, 2010
|----------------------------------------------------------------------------------
|- cash consideration                                                              
|- cash and cash equivalents in subsidiary acquired                                
|Net cash outflow on acquisition                                                   



The goodwill is attributable
to Hengdali’s strong production capacity, foreseeable profitability and synergies expected to arise from the economies of
scale after the acquisition. None of the goodwill is expected to be deductible for tax purposes.



The acquired business
contributed approximately revenue of RMB 243,495,000 and net profit of RMB 65,802,000 to the Group for the period from January
8, 2010 to December 31, 2010.



The revenue and net
profit of the combined group as if the business combination had been completed on January 1, 2010 were approximately RMB 1,068,551,000
and RMB 225,212,000.





F-37







| | 25. | SIGNIFICANT RELATED PARTY TRANSACTIONS
| | --- | --------------------------------------



Other than the related
party information disclosed elsewhere in the Consolidated Financial Statements, the following are significant related party transactions
entered into between the Group and its related parties at agreed rates:





|                                          |  | Year ended December 31, |    
|----------------------------------------- |  | ----------------------- | ---
|                                          |  | 2011                    |    
|                                          |  | RMB'000                 |    
|Service fee paid to Stuart Management Co. |  |                         | 542



Mr. Huang Jia Dong,
the founder and Chairman of Hengda and the Chief Executive Officer and one of our directors, and Mr. Wong Kung Tok, a shareholder
of the Group, provide working capital loans to the Group from time to time during the normal course of the business. These loans
amounted to RMB 3,380,000 (US$ 494,000), RMB 1,327,000 (US$ 201,000) and RMB 1,327,000 (US$ 211,000) in 2009, 2010 and 2011, respectively.
These loans are interest free, unsecured and repayable on demand. They remain outstanding as of December 31, 2011. Mr. Huang and
Mr. Wong are brothers-in-law.



Pursuant to an administrative
services agreement dated as of December 1, 2009 between China Ceramics and Stuart Management Co., an affiliate of Paul K. Kelly,
Chairman of the board of directors, China Ceramics will pay US$ 7,000 a month to Stuart Management Co. for administrative services
beginning on December 1, 2009 for a term of one year, and the agreement shall automatically renew for another successive year unless
either party notifies the other of its intent not to renew.



As of December 31,
2011, the Group has the exclusive right to use 11 design patents through our chief executive officer, Huang Jia Dong. Huang Jia
Dong has licensed to the Group, for no consideration, the exclusive right to use PRC design patents owned by him during the terms
of each of the patents.



Mr. Huang Jia Dong,
director and chief executive officer and Su Pei Zhi, director and sales deputy general manager provide the guarantee to the Group
for the loans. The guarantee amounted to RMB 30,000,000 (US$ 4,388,000), RMB 142,000,000 (US$ 21,515,000) and RMB 180,000,000 (US$
28,599,000) as of December 31, 2009, 2010 and 2011, respectively.



| | 26. | COMMITMENTS
| | --- | -----------



| | a) | Operating lease commitments
| | -- | ---------------------------



The Group leases production
factories, warehouses and employees’ hostel from non-related parties under non-cancellable operating lease arrangements.
The leases have varying terms and the total future minimum lease payments of the Group under non-cancellable operating leases for
assets are as follows:



|                                                   |  | Year ended December 31, |       
|-------------------------------------------------- |  | ----------------------- | ------
|                                                   |  | 2011                    |       
|                                                   |  | RMB'000                 |       
|Not later than one year                            |  |                         | 10,581
|Longer than one year and not later than five years |  |                         | 25,128
|                                                   |  |                         | 35,709





F-38







| | 26. | COMMITMENTS (continued)
| | --- | -----------------------



The leases typically
run for an initial period of three to five years, with an option to renew the lease when all terms are renegotiated. Lease payments
are usually increased every five years to reflect market rentals. None of the leases includes contingent rentals.



| | b) | Capital commitments
| | -- | -------------------



The Group’s capital
expenditures primarily consist of expenditures on property, plant and equipment. In the year ended December 31, 2011, the Group
complete Phase I and phase II of the Hengdali facility expansion and the phase III of the Hengdali facility will be completed in
2012. Capital expenditures contracted for at the balance sheet date but not recognized in the financial statements are as follows:



|                              |  | Year ended December 31, |      
|----------------------------- |  | ----------------------- | -----
|                              |  | 2011                    |      
|                              |  | RMB'000                 |      
|Property, plant and equipment |  |                         | 1,392



| | c) | Other commitments
| | -- | -----------------



The Group had the following additional
commitments:



|                                                                                                  |  | Year ended December 31, |      
|------------------------------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                                                  |  | 2011                    |      
|                                                                                                  |  | RMB'000                 |      
|Advertising and insurance expenditure contracted but not provided for in the financial statements |  |                         | 3,270



| | 27. | FINANCIAL RISK MANAGEMENT OBJECTIVES – POLICIES
| | --- | -----------------------------------------------



The Group’s overall
financial risk management program seeks to minimise potential adverse effects of financial performance of the Group. Management
has in place processes and procedures to monitor the Group’s risk exposures while balancing the costs associated with such
monitoring and management against the costs of risk occurrence. The Group’s risk management policies are reviewed periodically
for changes in market conditions and the Group’s operations.



The Group is exposed
to financial risks arising from its operations and the use of financial instruments. The key financial risks included credit risk,
liquidity risk, interest rate risk, foreign currency risk and market price risk.



The Group does not
hold or issue derivative financial instruments for trading purposes or to hedge against fluctuations, if any, in interest rates
and foreign exchange rates.



There has been no change
to the Group’s exposure to these financial risks or the manner in which it manages and measures the risk.





F-39







| | 27. | FINANCIAL RISK MANAGEMENT OBJECTIVES – POLICIES
(continued)
| | --- | -----------------------------------------------------------



| | (i) | Credit risk
| | --- | -----------



Credit risk refers
to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s
exposure to credit risk arises primarily from bank balances and trade receivables. For trade receivables, the Group adopts the
policy of dealing only with customers of appropriate credit history to mitigate credit risk. For other financial assets, the Group
adopts the policy of dealing only with high credit quality counterparties.



As the Group does not
hold any collateral, the maximum exposure to credit risk for each class of financial assets is the carrying amount of that class
of financial assets presented on the consolidated statements of financial position.



Bank balances



The Group’s bank
deposits are placed with reputable banks in the PRC, Hong Kong and the United States.



Trade receivables



The Group’s objective
is to seek continual growth while minimising losses incurred due to increased credit risk exposure.



The Group has significant
concentration of credit risk as the Group’s top three largest trade receivables represent approximately 16%, 10% and 8% of
the trade receivable balance as at December 31, 2009, 2010 and 2011, respectively.



The Group’s exposure
to credit risks is influenced mainly by the individual characteristics of each customer. The Group typically gives the existing
customers credit terms of approximately 90 days. In deciding whether credit shall be extended, the Group will take into consideration
factors such as the relationship with the customer, its payment history and credit worthiness. In relation to new customers, the
sales and marketing department will prepare credit proposals for approval by the Chief Executive Officer.



The Group performs
ongoing credit evaluation of its customers’ financial condition and requires no collateral from its customers. The provision
for impairment loss for doubtful debts is based upon a review of the expected collectability of all trade and other receivables.



Further details of
credit risks on trade receivables are disclosed in Note 14.



| | (ii) | Liquidity risk
| | ---- | --------------



Liquidity risk is the
risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity
risk may result from an inability to sell a financial asset quickly at close to its fair value.



The Group’s exposure
to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group’s objective
is to maintain a balance between continuity of funding and flexibility through the use of stand-by credit facilities.





F-40







| | 27. | FINANCIAL RISK MANAGEMENT OBJECTIVES – POLICIES
(continued)
| | --- | -----------------------------------------------------------



The Group’s financial
liabilities, including trade payables, accrued liabilities and other payables and bank borrowings, for the years ended December
31, 2009, 2010 and 2011, have maturity periods of less than 1 year or on demand from the respective statement of financial position
dates.



The Group intends to
ensure that there are adequate funds to meet all its obligations in a timely and cost-effective manner. The Group intends to maintain
sufficient level of cash and cash equivalents and have available an adequate amount of committed credit facilities from financial
institutions to meet its working capital requirements.



| | (iii) | Interest rate risk
| | ----- | ------------------



Interest rate risk
is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes
in market interest rates.



The Group’s exposure
to interest rate risk arises primarily from short-term and long-term bank borrowings. The Group does not have investment in other
financial assets. The Group’s policy is to maintain all its borrowings on a fixed rate basis. The interest rates and terms
of repayment of the bank borrowings are disclosed in Note 19.



Bank borrowings subject
to fixed interest rates are contractually repriced at intervals of 12 months. The other financial instruments of the Group are
not subject to significant interest rate risk.



| | (iv) | Foreign currency risk
| | ---- | ---------------------



Currency risk is the
risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises when
transactions are denominated in foreign currencies.



The Group’s operations
are primarily conducted in the PRC. All the sales and purchases transactions are denominated in RMB. As such, the operations are
not exposed to exchange rate fluctuation.



As at December 31,
2009, 2010 and 2011, all of the Group’s monetary assets and monetary liabilities were denominated in RMB except for certain
insignificant amount of bank balances (Note 16) and other payables (Note 18) which were denominated in foreign currencies.



In the opinion of the
management, the Group does not have any significant currency exposure. Accordingly, the Group has not used any financial instrument
to hedge its foreign currency risk as its risk exposure is considered to be minimal.



The management monitors
its exposure to currency risk on an on-going basis and endeavors to keep the net exposure at an acceptable parameter.





F-41







| | 27. | FINANCIAL RISK MANAGEMENT OBJECTIVES – POLICIES
(continued)
| | --- | -----------------------------------------------------------



| | (v) | Price risk
| | --- | ----------



Price risk is the risk
that the value of a financial instrument will fluctuate due to changes in market prices.



The Group does not hold any quoted or marketable
financial instrument, hence is not exposed to any movement in market prices.



| | 28. | CAPITAL MANAGEMENT
| | --- | ------------------



The Group’s objectives
when managing capital are:



| | (i) | To safeguard the Group’s ability to continue as a going concern and to be able to service
its debts when they are due;
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (ii) | To maintain an optimal capital structure so as to maximize shareholder value; and
| | ---- | ---------------------------------------------------------------------------------



| | (iii) | To maintain a strong credit rating and healthy capital ratios in order to support the Group’s
stability and growth
| | ----- | ------------------------------------------------------------------------------------------------------------------



The Group actively
and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into
consideration the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected
operating cash flows, projected capital expenditures and projected strategic investment opportunities.



The Group is not subject
to externally imposed capital requirements, except for, as disclosed in Note 21(a), the Group’s PRC subsidiary is required
by the Foreign Enterprise Law of the PRC to contribute to and maintain a non-distributable statutory reserve fund whose utilisation
is subject to approval by the Board of Directors. This externally imposed capital requirement has been complied with by the PRC
subsidiary for the financial years ended December 31, 2009, 2010 and 2011.



In order to maintain
or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders,
increase share capital, obtain new borrowings or sell assets to reduce debt.



There were no changes
in the Group’s overall approach to capital management during the report periods.





F-42







| | 29. | FINANCIAL INSTRUMENTS
| | --- | ---------------------



As at December 31,
2009, 2010 and 2011, the Group's financial instruments mainly consisted of cash and bank balances, trade receivables, other receivables,
trade payables, accrued liabilities, other payables and bank borrowings.



Fair value



The carrying amounts
of financial assets and financial liabilities with a maturity of less than one year approximate their fair values.



The Group does not
anticipate that the carrying amounts recorded at the statement of financial position date would be significantly different from
the values that would eventually be received or settled.



As at December 31,
2011, the Group's financial instruments also included the ordinary shares and warrants issued by China Ceramics (Note 20). Both
are considered equity instruments and were recorded at the net proceeds from the issuance of these instruments. They are not remeasured
after initial recognition.





F-43