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, 2013.

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:



|Title of each class               | Name of each exchange on which registered
|--------------------------------- | -----------------------------------------
|                                  |                                          
|ORDINARY SHARES, PAR VALUE $0.001 | The NASDAQ Stock Market LLC              





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, 2013, the issuer
had 20,430,838 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  ̈Nox



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  ̈Nox



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 xNo ̈





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 | x 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
 ̈Nox











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   
|          |                                                                              |     
|ITEM 4.   | INFORMATION ON THE COMPANY                                                   | 20  
|          |                                                                              |     
|ITEM 4A.  | UNRESOLVED STAFF COMMENTS                                                    | 42  
|          |                                                                              |     
|ITEM 5.   | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 | 42  
|          |                                                                              |     
|ITEM 6.   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   | 65  
|          |                                                                              |     
|ITEM 7.   | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 75  
|          |                                                                              |     
|ITEM 8.   | FINANCIAL INFORMATION                                                        | 78  
|          |                                                                              |     
|ITEM 9.   | THE OFFER AND LISTING                                                        | 80  
|          |                                                                              |     
|ITEM 10.  | ADDITIONAL INFORMATION                                                       | 81  
|          |                                                                              |     
|ITEM 11.  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                    | 94  
|          |                                                                              |     
|ITEM 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 95  
|          |                                                                              |     
|ITEM 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 96  
|          |                                                                              |     
|ITEM 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 96  
|          |                                                                              |     
|ITEM 15.  | CONTROLS AND PROCEDURES                                                      | 96  
|          |                                                                              |     
|ITEM 16.  | RESERVED                                                                     | 98  
|          |                                                                              |     
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT.                                            | 98  
|          |                                                                              |     
|ITEM 16B. | CODE OF ETHICS.                                                              | 98  
|          |                                                                              |     
|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.                                      | 98  
|          |                                                                              |     
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.                  | 99  
|          |                                                                              |     
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.      | 99  
|          |                                                                              |     
|ITEM 16F. | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.                               | 99  
|          |                                                                              |     
|ITEM 16G: | CORPORATE GOVERNANCE                                                         | 101 
|          |                                                                              |     
|ITEM 17.  | FINANCIAL STATEMENTS                                                         | 101 
|          |                                                                              |     
|ITEM 18.  | FINANCIAL STATEMENTS                                                         | 101 
|          |                                                                              |     
|ITEM 19.  | EXHIBITS                                                                     | 101 



i







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”), and Fujian Province
Hengdali Building Materials Co., Ltd. each a 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 July 25, 2014, the
buying rate announced by the Federal Reserve Statistical Release was RMB 6.1913 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 on 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, 2013, 2012, 2011 have been derived from the audited
consolidated financial statements of China Ceramics included in this Annual Report and the financial data as of and for the years
ended December 31, 2010 and 2009 have been derived from previously filed audited consolidated financial statements. 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.



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 |           
|-------------------------------------------------- |  | ----------------- | ----------
|                                                   |  | 2013              |           
|Consolidated Statements of Financial Position Data |  |                   |           
|Cash and cash equivalents                          |  |                   | 28,848    
|Total current assets                               |  |                   | 880,201   
|Total assets                                       |  |                   | 1,726,240 
|Total current liabilities                          |  |                   | 305,423   
|Long-term obligations                              |  |                   | 1,245     
|Total liabilities                                  |  |                   | 306,668   
|Total equity                                       |  |                   | 1,419,572 
|Outstanding shares                                 |  |                   | 20,430,838



2







|                                                                              |  | For the years ended December
    31, |           
|----------------------------------------------------------------------------- |  | ------------------------------------ | ----------
|                                                                              |  | 2013                                 |           
|Consolidated Statements of Profit or Loss and Other Comprehensive Income Data |  |                                      |           
|Revenues                                                                      |  |                                      | 932,894   
|Gross profit                                                                  |  |                                      | 54,076    
|Operating income                                                              |  |                                      | 12,496    
|(Loss)/profit before taxation                                                 |  |                                      | (3,697    
|(Loss)/profit attributable to shareholders                                    |  |                                      | (2,032    
|Earnings per share –                                                          |  |                                      |           
|Basic                                                                         |  |                                      | (0.10     
|Diluted                                                                       |  |                                      | (0.10     
|Weighted average shares outstanding –                                         |  |                                      |           
|Basic                                                                         |  |                                      | 20,430,838
|Diluted                                                                       |  |                                      | 20,430,838
|Cash dividends declared per share (RMB)                                       |  |                                      | 1.22      



The following
table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On July
25, 2014, the buying rate announced by the Federal Reserve Statistical Release was RMB 6.1913 to $1.00.



|          |  | Spot Exchange Rate |       
|--------- |  | ------------------ | ------
|Period    |  | Period Ended       |       
|          |  | (RMB per US$1.00)  |       
|2009      |  |                    | 6.8259
|2010      |  |                    | 6.6000
|2011      |  |                    | 6.2939
|2012      |  |                    | 6.2301
|2013      |  |                    | 6.0537
|September |  |                    | 6.1200
|October   |  |                    | 6.0943
|November  |  |                    | 6.0922
|December  |  |                    | 6.0537
|2014      |  |                    |       
|January   |  |                    | 6.0590
|February  |  |                    | 6.1448
|March     |  |                    | 6.2164
|April     |  |                    | 6.2591
|May       |  |                    | 6.2471
|June      |  |                    | 6.2036



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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | A. | Capitalization
                                         and Indebtedness
| | -- | ------------------------------------------------------------------------



Not required.



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



3







Not required.



| | C. | 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 accounted for an aggregate of 12.8%, 18.1% and 20.1% of our total revenue in fiscal years 2011, 2012 and 2013, 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 a 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 to 150 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.



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



In fiscal years
2011, 2012 and 2013 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 71.5%, 70.9% and 68.7% 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
29.2%, 27.9% and 22.6% of our total raw material costs in fiscal years 2011, 2012 and 2013 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.



4







If
China’s inflation increases or the prices of energy or raw materials increase, we may not be able to pass the resulting
increased costs to our customers and this may adversely affect our profitability or cause us to suffer operating losses.



Economic growth
in China has, in the past, been accompanied by periods of high inflation. In the past, the Chinese government has implemented
various policies from time to time to control inflation. For example, the Chinese government has periodically introduced measures
in certain sectors to avoid overheating of the economy, including tighter bank lending policies, increases in bank interest rates,
and measures to curb inflation, which has resulted in a decrease in the rate of inflation. An increase in inflation could cause
our costs for energy, labor costs, raw materials and other operating costs to increase, which would adversely affect our financial
condition and results of operations.



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 beneficially owns 8,345,308 shares in us. Our employment agreements with Messrs. Huang and Su end on January 31, 2016,
and there is no assurance that we will be able to enter new long-term agreements with Messrs. Huang or Su. 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. 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 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 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 costs 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.



Due
to reduced demand for our products, we are currently operating our facilities at significantly less than our maximum capacity,
which could reduce our profitability.



Our facilities
currently provide an aggregate annual maximum production capacity of approximately 72 million square meters. However, due to a
reduction in demand, we are currently utilizing production facilities capable of producing only 35 million square meters. In addition,
we currently have fourteen production lines of which only eight were utilized as of the end of 2013 due to challenging macroeconomic
conditions that began in the fourth quarter of 2012. The fact that a significant portion of our facilities are not being used
means that our net income will be significantly less than it would otherwise be because we must maintain those unused facilities
even though they are not currently being productive. In addition, if our facilities remain idle for an extended period of time,
we may be required to take an impairment charge on our financial statements. In light of the existence of idle assets at Hengdali,
an impairment assessment has been performed by the directors of the Company to determine the recoverable amount of the property,
plant and equipment. The directors of the Company engaged an independent appraiser to assist the Company to perform a valuation
of the property, plant and equipment for impairment assessment. No impairment loss on property, plant and equipment was recorded
for 2013, 2012 and 2011, but further reductions in demand could result in the impairment in the recoverable amount of our property,
plant and equipment in the future with a resulting reduction in our net income.



We
have recently significantly reduced the selling prices of our products in order to maintain market share, which will reduce our
revenues and net income.



In order to maintain
our market share, we significantly reduced the selling price of certain of our products at the end of 2012 and the beginning of
2013. Our revenues and net income for those periods were lower than they would otherwise be due to such reductions. In addition,
if clients grow accustomed to such significant reductions, we may need to offer significant discounts in the future, which could
reduce our net income and revenues long term.



6







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 April13, 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. Since April13, 2011, WULIQIAO has been transferred
to Hengdali, according to Certificate of Approved Transference of Trademark issued on April 13, 2011 by the Trademark Office of
the State Administration for Industry & Commerce of the PRC. In addition, we own twenty-two utility model patents 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.



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.



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 construction market and the government may adopt further measures in the future that may further
adversely affect our business.



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.



7







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 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.



During the
year ended December 31, 2013 we entered into foreign currency transaction agreements that resulted in significant losses to us
in 2014.



During 2013, we
entered into certain foreign currency transaction agreements with a financial institution related to the movement of the Renminbi
against the U.S. dollar. We recorded realized and unrealized fair value gains on these agreements totaling RMB3,346,000 for the
year ended December 31, 2013. In 2014, as the Renminbi depreciated against the U.S. dollar, we incurred realized and unrealized
losses totaling RMB70,312,000 ($11,615,000) for the six months ended June 30, 2014 in connection with these agreements. In July
2014, Sound Treasure Limited, our largest shareholder and an affiliate of our Chief Executive Officer, agreed to assume these
agreements.As a result, we will not be required to fund any losses related to
these agreements,and will neither suffer any future liabilities arising under those agreements
nor enjoy any benefits arising under those agreements.



8







We had a
material weakness in our internal control in financial reporting for the years ended December 31, 2013 and 2012, which
could result in our financial statements not being prepared properly.



Our management
identified material weaknesses and concluded that our internal controls over financial reporting were not effective as of December
31, 2013 and 2012. A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination
of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis.



The specific material
weakness we identified in our internal control over financial reporting for 2013 related to the lack of sufficient qualified accounting
personnel with appropriate understanding of IFRS and SEC reporting requirements commensurate with our financial reporting requirements,
which resulted in a number of internal control deficiencies that were identified as being significant..



A material weakness
makes it a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will
not be prevented or detected on a timely basis. In the event that the material weakness described above led to our financial statements
not being prepared properly (which we currently do not believe to be the case), we would be required to restate our financial
statements, which could result in a decline in our stock price.



Our
independent registered public accounting firm’s audit documentation related to their audit reports included in this annual
report may be located in the People’s Republic of China. The Public Company Accounting Oversight Board currently cannot
inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection.



Our independent
registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities
and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the
Public Company Accounting Oversight Board (United States) (the “PCAOB”), is required by the laws of the United States
to undergo regular inspections by the PCAOB to assess its compliance with the applicable laws of the United States and professional
standards. Because the audit documentation relating to our auditor’s audit report is located in the People’s Republic
of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities,
such auditor, like other independent registered public accounting firms operating in China, is not currently inspected by the
PCAOB. In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with
the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and
exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the
United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance
to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade
on U.S. exchanges.



Inspections
of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures
and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The
inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult
to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. As a result, investors may
be deprived of the benefits of PCAOB inspections.



On December
3, 2012, the SEC issued an order instituting administrative proceedings against five of the largest global public accounting firms
relating to work performed in the PRC and such firms’ failure to provide audit workpapers to the SEC in this regard. Our
independent registered public accounting firm is not one of the accounting firms referenced in the order. On January 22, 2014,
an initial administrative law decision was issued, censuring the five accounting firms and suspending four of the five firms from
practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed
and approved by the SEC. These accounting firms have the ability to appeal and the four firms which are subject to the six-month
suspension from practicing before the SEC have filed a petition for review of the decision. The sanction will not become effective
until after a full appeal process is concluded and a final decision is issued by the SEC. The accounting firms can also further
appeal the final decision of the SEC through the federal appellate courts. We cannot predict the outcome of this matter or the
effect it may have on our independent registered public accounting firm or on our ability to make timely filings with the SEC.



9







Risk
Factors Relating to Operations In China



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



Approximately
93.0% 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 require us to 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 wholly foreign-owned
enterprises, we are required to comply with certain additional 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.



On 14 July 2014,
China’s State Administration of Foreign Exchange (SAFE), the foreign exchange control authority, released the Notice of
the State Administration of Foreign Exchange on Relevant Issues Concerning Foreign Exchange Administration for Overseas Investment,
Financing and Round Trip Investment Undertaken by Domestic Residents via Special Purpose Vehicles (Notice 37). The new regulation
took effect 4 July 2014. At that time, the old regulation, “Notice on Issues concerning Foreign Exchange Management in Financing
by PRC Residents by Overseas Special Purpose Vehicle and Return Investments” (the “No. 75 Notice”), which was
issued in 2005, was repealed. Compared with Circular 75, Circular 37 reflects the trend of SAFE’s policy to gradually loosen
the restrictions and simplify the procedures for overseas financing and investment by Chinese residents, so as to fully utilize
the financial resources in domestic and overseas markets. However, as Circular 37 has only recently been issued, the actual interpretation
and enforcement of the above changes by SAFE in practice remain to be seen.



11







There can be no
assurance that SAFE will not continue to issue new rules and regulations and/or further interpretations of the No. 37 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.



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 did 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 have in the past and may in the future impose material liabilities on us and 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.



12







During 2014, our
Hengda facility was required by the local governmental entity to begin using natural gas to operate the facility, as opposed to
coal. This mandated change in fuel source is part of a province-wide (and country-wide) effort to reduce pollution. This change
resulted in our incurring a one-time charge of approximately RMB5.6 million ($0.9 million) in December 2013, and will increase
our cost of goods produced at that facility because natural gas is a more expensive energy source than coal. There is no assurance
that in the future our other production facilities will not be required to make similar modifications which could have similar
adverse effects on our operations.



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



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



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



Together with
three other companies, we jointly 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.



Our
business will suffer if we fail to comply with Environmental Protection Regulations



Companies
which cause 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.



Our Hengda
facility obtained a Temporary Pollutant Discharge Permit (JH(2013)ZZ No. 320) granted by Jinjiang City Environmental Protection
Bureau on October 28, 2013, which expired on April 27, 2014. And Hengda is currently in the process of applying for the renewal
of the permit. 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.
If Hengdali’s application is denied or if the Hengdali facility is ordered to stop discharging pollutants or is fined, that
could have a material adverse effect on our results of operations and financial condition.



13







Our
corporate structure together with applicable law impede shareholders from asserting claims against us and our principals.



All of our
operations and records, and all of our senior management are located in the People’s Republic of China. Shareholders of
companies such as ours have limited ability to assert and collect on claims in litigation against such companies and their principals.
In addition, China has very restrictive secrecy laws that prohibit the delivery of many of the financial records maintained by
a business located in China to third parties absent Chinese government approval. Since discovery is an important part of proving
a claim in litigation, and since most if not all of our records are in China, Chinese secrecy laws could frustrate efforts to
prove a claim against us or our management.



In order
to commence litigation in the United States against an individual such as an officer or director, that individual must be served.
Generally, service requires the cooperation of the country in which a defendant resides. China has a history of failing to cooperate
in efforts to affect such service upon Chinese citizens in China.



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



Trading
in our ordinary shares was halted by the Nasdaq Stock Market on May 1, 2014 and we received a notice of non-compliance from Nasdaq
due to the failure to timely file this Annual Report on Form 20-F, and there is no assurance that trading on Nasdaq will recommence.



On
May 1, 2014, the Nasdaq Stock Market (“Nasdaq”) halted trading in our ordinary shares and notified us of our non-compliance
with the Nasdaq Marketplace continued listing requirements. We had previously notified Nasdaq (i) of our inability to timely file
this Annual Report on Form 20-F, and (ii) of our termination of Grant Thornton Shanghai PRC (“GT”) as our principal
independent registered public accountants on April 30, 2014.



Following
the trading halt on May 1, 2014, we received a letter from Nasdaq informing us that we no longer complied with the Nasdaq requirements
for continued listing set forth in Nasdaq Listing Rule 5250(c)(1), which requires the timely filing of periodic reports. The non-compliance
cited was the result of our failure to timely file this Annual Report on Form 20-F for the year ended December 31, 2013. The letter
stated that the Nasdaq Staff pursuant to Nasdaq Listing Rule 5101 was affording us the opportunity to submit a plan prior to June
2, 2014 that addressed the details of our plan to regain compliance with the Nasdaq Marketplace Rules. The letter recited that
the Nasdaq Marketplace Rules provide that the Staff can grant us an extension of up to 180 calendar days from the filing's due
date to regain compliance if Nasdaq accepts our plan of compliance.



14







We
submitted our plan of compliance on June 2, 2014. The plan anticipated that we would regain compliance with our public reporting
obligations by August 15, 2014. On June 11, 2014, we received a notification from the Nasdaq Staff stating that, having reviewed
our plan of compliance, the Staff determined to grant a listing exception to enable us to regain compliance with the Nasdaq Rules.
Specifically, the Staff noted that in order to comply with the terms of the exception, we must, on or before August 15, 2014,
file our Form 20-F for the period ended December 31, 2013.



We
believe that with the filing of this Form 20-F prior to the August 15, 2014 deadline we have satisfied the terms of the plan of
compliance we submitted to Nasdaq and that we are in compliance with the Nasdaq Marketplace Rules. We await Nasdaq’s determinations
whether we have complied with the terms of the exception that was granted by Nasdaq, whether our ordinary shares will continue
to be listed and whether trading on Nasdaq will be allowed to recommence. There is no assurance that Nasdaq will allow our ordinary
shares to continue to be listed or that it will allow trading to recommence.



If
our ordinary shares commence trading on the NASDAQ Global Market again, the price of our shares could be volatile and could decline
at a time when you want to sell your holdings.



Even if trading
in our ordinary shares on the NASDAQ Global Market recommences, the price of our shares may be volatile, and that volatility may
continue for an extended period of time. Since the completion of the business combination through May 1, 2014, the date trading
in our ordinary shares was halted by the NASDAQ Stock Market, the closing price of our shares was $1.35 per share.



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 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. Shareholders 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.



15







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
rata 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 rata 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 shares, the U.S. Holder may be subject to increased U.S. federal income tax
liability upon a sale or other disposition of the shares 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 2013 taxable year, China Ceramics does not
believe that it would be treated as a PFIC for such year. However, because China Ceramics has not performed a definitive analysis
as to its PFIC status for its 2013 taxable year, there can be no assurance in respect to its PFIC status for such year. There
also can be no assurance with respect to China Ceramics’ status as a PFIC for its current (2014) taxable year or any future
taxable year. U.S. Holders of the shares 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.”



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 shareholders, 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.



16







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 shareholders 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’
shares, 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’
shares 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’ shares.



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





17







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







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. On March 17, 2014, the People’s Bank of China announced that the RMB exchange rate flexibility increased to 2% in
order to proceed further with reform of the RMB exchange rate regime. These could result in a further and more significant fluctuation
in the RMB’s value against the U.S. Dollar.



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.



During 2013 we
entered into certain foreign currency transaction agreements with a financial institution related to the fluctuation of the Renminbi
against the U.S. dollar, not for hedging purposes but for investment purposes. We recorded fair value gains on these agreements
totaling RMB3,346,000 for the year ended December 31, 2013. However, in 2014, as the Renminbi depreciated against the U.S. dollar,
we incurred realized and unrealized losses totaling RMB70,312,000 ($11,615,000) for the six months ended June 30, 2014 in connection
with these agreements. We do not intend to enter into similar transactions for investment purposes n the future.



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 governed
by the BVI Act and the common law of the British Virgin Islands. 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 the common law of England and the
wider Commonwealth, 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 largely codified in the
BVI Act, but are potentially 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.





18







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



Shareholders of
British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United
States (Shareholders of a British Virgin Islands company could, however, bring a derivative action in the British Virgin Islands
courts, and there is a clear statutory right to commence such derivative claims under Section 184C of the BVI Act). 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 may provide less protection for minority shareholders than those under US. law, so minority
shareholders may have less recourse than they would under US. Law if the shareholders are dissatisfied with the conduct of our
affairs.



Under the laws
of the British Virgin Islands, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder
remedies and other remedies available under common law (in tort or contractual 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.
The BVI Act also provides for certain other protections for minority shareholders, including in respect of investigation of the
company and inspection of the company books and records.



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.



The
market price for our shares has been and may continue to be volatile.



The market price
for our shares has been and is likely to continue 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.
| | - | ------------------------------------------------------------------------------------------------------------





19







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





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



Although
we already paid a dividend in July 2014 and currently plan to pay a dividend in January 2015, we may cancel such dividend or decide
not to declare a dividend in future periods, in which case, shareholders will benefit from an investment in our shares only if
those share appreciate in value.



We paid dividends
in July 2013, January 2014 and July 2014. Although we currently plan to pay dividend in January 2015, we may cancel such dividend
or decide not to declare a dividend in future periods.The declaration and payment of cash dividends is 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. If we choose not to pay out the currently planned dividends or if we choose not to declare
dividends in the future, 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 in the future due to British Virgin Islands law.



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.



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. 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.



20







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.



On September
17, 2013, Fujian Province Hengdali Building Materials Co., Ltd. (“Fujian Hengdali”) was incorporated in Pingtan, Fujian
Province, with 100% owned by Hengda. Fujian Hengdali’s approved scope of business includes sales of building materials and
interior and exterior decoration materials.



The total
maximum annual production capacity from our two facilities is 72 million square meters of ceramic tiles as of December 31, 2013.
However, due to current economic conditions, we are currently utilizing production facilities capable of producing 35 million
square meters.



The following
chart reflects our organizational structure as of December 31, 2013:



21











China
Ceramics’ History



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



Pre-IPO
Private Placement



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



The
Initial Public Offering



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



22







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 were achieved. Of the Contingent Shares, 5,185,763 Contingent Shares were released based on our achieving growth
in either net earnings before tax or net earnings after tax. 3,000,000 Contingent Shares that were eligible to be released if
China Ceramics shares closed at or above certain share price targets for any twenty trading days within a thirty trading day period
prior to April 30, 2012 were canceled because we did not meet applicable price targets. We currently have 20,430,838 issued and
outstanding shares.



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.



On November
16, 2012 all of our share purchase warrants expired and ceased to trade.



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



| | A. | Business
                                         Overview
| | -- | ----------------------------------------------------------



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 69.0% of our total revenue in 2013.



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. Citigroup Global Markets 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.
In addition, the government recently released a statement stating that the greatest potential for expanding domestic demand and
sustaining economic growth lies in urbanization. Since urbanization leads to new property development and construction, this could
positively impact the Company’s business.



Our manufacturing
facilities operated by Jinjiang Hengda Ceramics Co., Ltd. are located in Jinjiang, Fujian Province, and our manufacturing facilities
operated by Jiangxi Hengdali Ceramic Materials Co., Ltd. are located in Gaoan, Jiangxi Province. Combined, these facilities currently
provide an aggregate annual maximum production capacity of approximately 72 million square meters. However, due to current economic
conditions, we are currently utilizing production facilities capable of producing 35 million square meters. We currently have
fourteen production lines (eight of which were utilized as of the end of 2013), with each production line optimized to manufacture
specific size ranges to maximize efficiency and output.



23







We primarily
sell our products through an exclusive distributor network or directly to property developers. We have long-term relationships
with our customers; most of our top ten customers in 2013 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 foreseeable future.



We focus
our research and development efforts on developing innovative and environmentally-friendly products. We own eighteen utility model
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 2012” 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 2013,
according to China Daily, China’s gross domestic product (GDP) totaled approximately $7.4 trillion, making it the world’s
second largest economy after the United States. Although 2013 GDP grew by 7.7% compared to 7.8% growth in 2012, due to a slowdown
of the economy, we believe that construction and real estate development will continue 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.



We believe
that China’s real estate sector has been under pressure due to speculative activities and government policies that restricted
construction with the intent to rein in rising prices. However, we see some positive developments in recent reports that the government
is urging local planning authorities to free up land supplies for housing development. The government recently released a statement
stating that the greatest potential for expanding domestic demand and sustaining economic growth lies in urbanization. Since urbanization
leads to new property development and construction, this could positively impact our business.



Commencing
in the fourth quarter of 2012, we experienced challenging market conditions in China’s real estate and construction markets
which resulted in a marked decrease in the sales volume of our ceramic tile products for the quarter. Our fourth quarter 2013
revenue was down 10.2% from the fourth quarter of 2012 and our 2013 full year revenue was down 35.4% as compare to 2012 full year
revenue.



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.



24







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 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
15%, 18% and 20% of total sales in 2013, 2012 and 2011, respectively 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.



Industry
and 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.



25







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.



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. Because
no distributors ordered ultra-thin tiles for 2013, we stopped production of ultra-thin tiles in 2013.



Polished
glazed tiles: Ceramic tiles can be manufactured in differing sizes according to customer specifications, with the largest
sized tiles measuring 800 mm by 800 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 April 13, 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
April 13, 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. From 2012 to 2014, we were recognized
with the “Asia’s 500 Most Influential Brands” 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.



26







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 5.46% of our revenue in the year ended December 31, 2013 was from sales of our products
for use in projects in Tier-I cities, and we expect any weakness in the Tier-I cities to be offset by continued demand growth
in the Tier-II and Tier-III 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 most of Hengda’s top ten customers
in 2013 have been purchasing from us for over 10 years each.



Experienced
Management Team



Our experienced,
professional and dedicated management team brings a wealth of knowledge to our day-to-day operations and provides us with strategic
direction. Our Chairman, 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 other members of the senior management
team have many 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 in 2007, which reduced
our energy usage and energy costs. 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 eighteen utility model patents. “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, 2013, our research
and development team includes 20 employees and focuses on new products as well as developing energy and resource efficient production
methods.





27







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:



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, Shandong, Shanxi, Shaanxi, and Yunnan.



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



Evaluating
Opportunities to Increase Exports



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



Pursuing
Selective Acquisition Opportunities



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



Further
Enhancing Our Brand Awareness



We plan
to enhance awareness of the “Hengda” or “HD,” “HDL” or “Hengdeli,” “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.



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:



28







| | · | 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:







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.



29







| | (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.



| | (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.





30







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, 2013, our quality assurance team consisted of 84 members.



Notable Awards & Certificates



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



|Year
    InitiallyReceived |  | 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                               
|2012                       |  | Asia’s 500 Most Influential Brands 2012                         |  | World Brand Laboratory                                                              
|2013                       |  | China’s 500 Most Valuable Brands                                |  | World Brand Laboratory                                                              
|2013                       |  | Asia’s 500 Most Influential Brands 2013                         |  | World Brand Laboratory                                                              
|2014                       |  | China’s 500 Most Valuable Brands                                |  | World Brand Laboratory                                                              



Customers, Sales &
Marketing



We primarily
sell our products through an exclusive distributor network or directly to property developers. Distributors are located in major
cities such as Shanghai, Beijing, and Shenyang and second and third tier cities such as Chengdu, Haikou, Hefei, Tianjin, Wuhan
and other rural areas in the PRC. We have long-term relationships with many of our customers; most of our top ten customers in
2013 have been purchasing from us for several years.



The following
table sets forth revenues by geographic market and the related percentage for the years ended 2011, 2012 and 2013:





31







|                      |  | 2011    |           |  | 2012       |  |      | 2013    | 
|--------------------- |  | ------- | --------- |  | ---------- |  | ---- | ------- | 
|Geographic
    Market |  | RMB’000 |           |  | Percentage |  |      | RMB’000 | 
|PRC                   |  |         | 1,383,619 |  |            |  | 92.8 | %       | 
|Japan                 |  |         | 13,423    |  |            |  | 0.9  | %       | 
|Burma                 |  |         | 11,176    |  |            |  | 0.7  | %       | 
|India                 |  |         | 10,751    |  |            |  | 0.7  | %       | 
|Korea                 |  |         | 10,280    |  |            |  | 0.7  | %       | 
|Thailand              |  |         | 10,041    |  |            |  | 0.7  | %       | 
|Hong Kong             |  |         | 9,917     |  |            |  | 0.7  | %       | 
|Spain                 |  |         | 7,029     |  |            |  | 0.5  | %       | 
|Turkey                |  |         | 7,037     |  |            |  | 0.5  | %       | 
|South Africa          |  |         | 6,862     |  |            |  | 0.5  | %       | 
|Sierra Leone          |  |         | 5,008     |  |            |  | 0.3  | %       | 
|Ghana                 |  |         | 4,876     |  |            |  | 0.3  | %       | 
|Russia                |  |         | 4,198     |  |            |  | 0.3  | %       | 
|Morocco               |  |         | 4,099     |  |            |  | 0.3  | %       | 
|Great Britain         |  |         | 3,258     |  |            |  | 0.2  | %       | 
|Total                 |  |         | 1,491,574 |  |            |  | 100  | %       | 



Our major
customers that accounted for 2.0% or more of our net revenue for the last three years are set forth in the table below, and none
of these customers individually accounted for more than 10% of our total revenue for the years ended December 31, 2011, 2012 and
2013.



The following
table sets forth revenue for our major customers and the related percentage of our net revenue for the years ended December 31,
2011, 2012 and 2013. (1)



|                                                            |  | 2011    |        |  | 2012       |  |      | 2013    | 
|----------------------------------------------------------- |  | ------- | ------ |  | ---------- |  | ---- | ------- | 
|Customer Name                                               |  | RMB’000 |        |  | Percentage |  |      | RMB’000 | 
|Foshan City Jundian Ceramics Co., Ltd.                      |  |         | 45,607 |  |            |  | 3.06 | %       | 
|Xiamen Tongying Trading Co., Ltd.                           |  |         | 43,232 |  |            |  | 2.90 | %       | 
|Fuzhou Chuanpin Materials Co., Ltd.                         |  |         | 28,178 |  |            |  | 1.89 | %       | 
|Liuzhou City Shengquanda Trading Co., Ltd.                  |  |         | 38,070 |  |            |  | 2.55 | %       | 
|Jiangxi Zhongshi Industry Co., Ltd.                         |  |         | 37,928 |  |            |  | 2.54 | %       | 
|Chengdu City Dehui Construction Materials Co., Ltd.         |  |         | 34,727 |  |            |  | 2.33 | %       | 
|Chaozhou Chenqiao Jianxing Construction Materials Co., Ltd. |  |         | 36,002 |  |            |  | 2.41 | %       | 
|Shangrao New Fangyuan Materials Co., Ltd.                   |  |         | 30,723 |  |            |  | 2.06 | %       | 
|Xuzhou Haige Material Co., Ltd.                             |  |         | 17,025 |  |            |  | 1.14 | %       | 
|Hubei Wanshi Trading Co., Ltd.                              |  |         | 30,082 |  |            |  | 2.02 | %       | 



| | (1) | The revenue generated
                                         was net revenue.
| | --- | -------------------------------------------------------------------------------



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, 2013, our Sales and Marketing
Department had 41 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 to 150 days of delivery.



As of December
31, 2013, our backlog was RMB 136.6 million ($ 22.6 million) which represents approximately the next two months of revenue at
the time, compared to a backlog of approximately RMB 96.2 million on December 31, 2012.



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
term from our major suppliers is from 1 to 4 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. 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.



33







Our major
suppliers that accounted for more than 2.9% of our total purchases in fiscal years 2011, 2012 and 2013 are: Foshan City Sanshui
Baoligao Inorganic Materials Co., Ltd., Foshan City Nanhai Zhongtai Glaze Production Plant, Quanzhou Like Ceramic Materials Co.,
Ltd., Foshan City Nanhai Huaxiong Ceramic Materials Co., Ltd., Xinyu City Yanhua Industrial Co., Ltd., Fengxin Huafeng Ceramic
Co., Ltd., Fujian Nanping Minning Mining Exploitation Co., Ltd. , Foshan City Sanshui Golden Eagle Inorganic Materials Co., Ltd.,
Yongchun Junjie Mining Co., Ltd. and Foshan City Henglixin Diamond Products Co., Ltd. No major supplier except Foshan City Sanshui
Baoligao Inorganic Materials Co., Ltd individually accounted for more than 10% of our total raw material purchases in 2013. Our
business or profitability is not materially dependent on any industrial, commercial or financial contract with any of our suppliers.



The following
chart lists our major suppliers and the percentage of total purchases in fiscal years 2011, 2012 and 2013:



|                                                                   |  |       |  | 2011    |        |  | 2012       |  |      | 2013    | 
|------------------------------------------------------------------ |  | ----- |  | ------- | ------ |  | ---------- |  | ---- | ------- | 
|Supplier
    Name                                                  |  | Type  |  | RMB’000 |        |  | Percentage |  |      | RMB’000 | 
|Foshan City Sanshui Baoligao Inorganic
    Materials Co., Ltd.     |  | Color |  |         | 33,708 |  |            |  | 4.51 | %       | 
|Foshan City Nanhai Zhongtai Glaze Production Plant                 |  | Color |  |         | 41,854 |  |            |  | 5.60 | %       | 
|Quanzhou Like Ceramic Materials Co., Ltd.                          |  | Color |  |         | -      |  |            |  | -    |         | 
|Foshan City Nanhai Huaxiong Ceramic Materials Co.,
    Ltd.        |  | Color |  |         | -      |  |            |  | -    |         | 
|Xinyu City Yanhua Industrial Co., Ltd.                             |  | Clay  |  |         | 27,658 |  |            |  | 3.70 | %       | 
|Fengxin Huafeng Ceramic Co., Ltd.                                  |  | Clay  |  |         | 47,765 |  |            |  | 6.39 | %       | 
|Fujian Nanping Minning Mining Exploitation Co.,
    Ltd.           |  | Clay  |  |         | 40,705 |  |            |  | 5.44 | %       | 
|Foshan City Sanshui Golden Eagle Inorganic Materials
    Co., Ltd. |  | Color |  |         | 37,275 |  |            |  | 4.98 | %       | 
|Yongchun Junjie Mining Co., Ltd.                                   |  | Coal  |  |         | 36,260 |  |            |  | 4.85 | %       | 
|Foshan City Henglixin Diamond Products Co., Ltd.                   |  | Clay  |  |         | 36,804 |  |            |  | 4.92 | %       | 



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:



34







| | · | 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 costs were approximately RMB 1.3 million, RMB 1.2 million and RMB 1.1million ($0.2 million) for fiscal years 2011,
2012 and 2013. 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, 2013, our R&D department had 20 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.



As conditions
in the real estate market have weakened, certain of our competitors have begun reducing prices for their products, causing us
to do the same in order to maintain market share since the fourth quarter of 2012.



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:





35











|Trademark |  | Class/Products                                                                                                                                                                                                                          |  | Validity
        Term                             |  | Registration
        No.
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- |  | ------------------------
|          |  | 19/ Tile, ceramic tile and wave pattern
    tile                                                                                                                                                                                        |  | From February 21, 2012 to February 20,
    2022   |  | 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/ Red floor tile
        and ceramic tile                                                                                                                                                                                             |  | From 14 December 2013 to
        13 December 2023 |  | 669884                  
|          |  |                                                                                                                                                                                                                                         |  |                                                   |  |                         
|          |  | 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                 
|          |  |                                                                                                                                                                                                                                         |  |                                                   |  |                         
|          |  | 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                 



36







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 twenty two utility model patents in the PRC for exterior wall tiles, which were applied for in November of 2007, July of 2011
and November of 2012 respectively. 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.



Except as
disclosed above, as of December 31, 2013, 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 obtained a Temporary Pollution Discharge Permit for our Hengda production facility, which expired
on April 27, 2014, and we are currently in the process of applying for the renewal of the permit. The permit 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. 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.



Legal
Proceedings



China Ceramics
and certain of its current and former officers and directors are defendants in class action cases pending in the United States
District Court for the Southern District of New York.



On June
6, 2014, Robert Pollock brought an action styled No. 14-CV-04100, Robert Pollock, et al., v. China Ceramics Co., Ltd., Huang Jia
Dong, Su Pei Zhi, Hen Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky, Su Wei Feng, Shen Cheng
Liang and Jianwei Liu, in the United States District Court for the Southern District of New York. In this action, the plaintiff
purports to bring a federal securities fraud class action on behalf of purchasers of the publicly traded securities of China Ceramics
between March 30, 2012 and May 1, 2014. The action asserts that the defendants violated Section 10(b) of the Exchange Act and
Rule 10b-5 by making certain false and misleading statements and omissions to the investing public regarding the Company’s
business operations, management, and future prospects. The complaint also alleges liability against the individual defendants
under Section 20(a) of the Exchange Act.



On June
16, 2014, Roger Artinoff brought an action styled 14-CV-04312, Roger Artinoff, et al., v. China Ceramics Co., Ltd., et al., in
the United States District Court for the Southern District of New York. On July 2, 2014, Richard Finlayson brought an action styled
14-CV-04997, Richard Finlayson, et al., v. China Ceramics Co., Ltd., et al., in the United States District Court for the Southern
District of New York. These actions make allegations against the defendants substantially similar to those made in the Pollack
action.



We plan
to defend ourselves vigorously in these lawsuits; however, failure by us to obtain a favorable resolution of the claims set forth
in the complaint could have a material adverse effect on our business, results of operations and financial condition. Moreover,
certain of our officers and directors have been named as defendants in these lawsuits and we are obliged to indemnify them and
advance costs to them for their defense. Currently, the amount of such material adverse effect cannot be reasonably estimated,
and no provision or liability has been recorded for these claims. The costs associated with defending and resolving the lawsuit
and ultimate outcome cannot be predicted. These matters are subject to inherent uncertainties and the actual cost, as well as
the distraction from the conduct of our business, will depend upon many unknown factors and management’s view of these may
change in the future.



37







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.





38







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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



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.



39







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.



| | B. | Organizational
                                         Structure
| | -- | -----------------------------------------------------------------



The following
chart illustrates China Ceramics’ organizational structure as of December 31, 2013:







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, 2013. Hengda is a wholly foreign-owned enterprise in China.



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, 2013.



40







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



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



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



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



Pursuant to the
terms of a merger and stock purchase agreement dated August 19, 2009, 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.



On September 17,
2013, Fujian Province Hengdali Building Materials Co., Ltd. (“Fujian Hengdali”) was incorporated in Pingtan, Fujian
Province, and is 100% owned by Hengda. Fujian Hengdali’s approved scope of business includes sales of building materials
and interior and exterior decoration materials.



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



Together with
three other companies, we jointly 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. The land-use rights of the co-owned six buildings expire in
2055 and cover approximately 10,023 square meters. We also own land-use rights at two locations and seven buildings in Gaoan for
office, 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
17 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.



41







As of December
31, 2013 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 1,233 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 332 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 five production lines with an annual production capacity of 30 million square meters of ceramic tiles. Historically,
we have not experienced any form of disruption in our production facility.



Combined, these
facilities currently provide an aggregate annual maximum production capacity of approximately 72 million square meters. However,
due to current economic conditions, we are currently utilizing production facilities capable of producing 35 million square meters.
We currently have sixteen production lines (eight of which were utilized at the end of 2013), with each production line optimized
to manufacture specific size ranges to maximize efficiency and output.



In 2013, we expended
RMB 51.7 million ($8.5 million) for the acquisition of equipment at our Hengda and Hengdali facility to improve the production
line, expended RMB 28.4 million ($4.7 million) to modify an existing production line at the Hengda facility to enable the manufacture
of products that are in high demand, expended RMB 5.6 million ($0.9 million) for the acquisition of equipment at Hengda facility
that replaced coal with gas as the source of Hengda’s power supply, and expended RMB 11.4 million ($1.9 million) for the
interior build-out of the completed office building adjacent to the Hengdali facility.



During 2014, our
Hengda facility was required by the local governmental entity to begin using natural gas to operate the facility, as opposed to
coal. This mandated change in fuel source is part of a province-wide (and country-wide) effort to reduce pollution. This change
resulted in our incurring a one-time charge of approximately RMB5.6 million ($0.9 million) in December 2013, and will increase
our cost of goods produced at that facility because natural gas is a more expensive energy source than coal. There is no assurance
that in the future our other production facilities will not be required to make similar modifications which could have similar
adverse effects on our operations.



| | 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 69.0% of our total revenue in 2013.



42







Combined,
these facilities currently provide an aggregate annual maximum production capacity of approximately 72 million square meters.
However, due to current economic conditions, we are currently utilizing production facilities capable of producing 35 million
square meters. We currently have sixteen production lines (eight of which were utilized at the end of 2013), with each production
line 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, 2011, 2012 and 2013 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 as issued by the International Accounting Standards Board, or “IASB.” The
consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments
that have been measured at fair value.



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, 2011, 2012 and 2013.



|                                               |  | Year Ended December 31, |           
|---------------------------------------------- |  | ----------------------- | ----------
|RMB(’000)                                      |  | 2011                    |           
|Revenue                                        |  |                         | 1,491,574 
|Cost of sales                                  |  |                         | (1,024,336
|Gross profit                                   |  |                         | 467,238   
|Other income                                   |  |                         | 5,422     
|Other expenses                                 |  |                         | (3,178    
|Selling and distribution expenses              |  |                         | (11,832   
|Administrative expenses                        |  |                         | (46,079   
|Finance costs                                  |  |                         | (11,067   
|Profit/(loss) before taxation                  |  |                         | 400,504   
|Income tax (expense)/income                    |  |                         | (106,065  
|Profit/(loss) attributable
    to shareholders |  |                         | 294,439   





43







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. In 2013, we attribute our reduced sales volume to the continued challenging business conditions in China’s real
estate sector, especially since the second half of 2012 resulting from the slowing economic expansion in the sector. Beginning
in December 2012, we began reducing the selling price of our ceramic tile products to be competitive in the market and to maintain
market share. We believe that the decrease in the pricing of our ceramic tile products is temporary because we believe that smaller
competitors will not be able to survive the economic downturn and resulting downward pricing pressures, and we believe that product
pricing will revert to normal levels once business conditions improve.



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:



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



| | l | Availability and
                                         price of coal;
| | - | ------------------------------------------------------------------------



| | l | Availability and
                                         price of dyes; and
| | - | ----------------------------------------------------------------------------



| | l | Price of energy.
| | - | ----------------



Clay is a key
material for making ceramic tiles, and accounted for approximately 24.4% of our cost of sales in 2013. 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 15.8%
of our cost of sales in the year ended December 31, 2013. We have long-term relationships with our coal suppliers. Prices of coal
have experienced fluctuations in the past few years.



Dyes are another
key material for making ceramic tiles, and accounted for approximately 25.4% of our cost of sales in the year ended December 31,
2013. A number of dyes are used in ceramic tiles, and the prices of different dyes have experienced fluctuations in the past few
years.



Other income
and other expenses. Other income consists of interest income, foreign exchange gain/loss, gain on derivative financial instruments.
Other expenses primarily consist of the loss on disposal of equipment.



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.



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



Income taxes.
Our subsidiaries in the PRC are subject to the PRC Enterprise Income Tax Law, and the applicable income tax rate pursuant to such
law in the years ended December 31, 2011, 2012 and 2013 is 25%.



Previously
Disclosed Capital Asset Impairment



On
May 1, 2014, we filed a Form 12b-25 with the SEC in which we announced that this Annual Report on Form 20-F would not be filed
within the prescribed time period (the “Form 12b-25”). The Form 12b-25 disclosed that during the course of the preparation
of our 2013 financial statements, we identified certain adjustments in the fourth quarter of 2013 in connection with a write down
of assets resulting from unused capacity at our Hengdali facility. The estimate of the asset write-down for the fourth quarter
of 2013 anticipated at the time and therefore disclosed in the Form 12b-25 was approximately $7.5 million. During the course of
the 2013 audit by Crowe HK, it was observed that when performing the impairment analysis, we had improperly input certain data
into its model which, in turn, resulted in an erroneous result. Once the errors were identified and corrected, there was no capital
asset impairment, and, accordingly, this Annual Report does not reflect a write down of assets as anticipated at the time of the
Form 12b-25.





44







Results
of Operations



Year ended
2013 compared to the year ended 2012



Revenue.
The following table sets forth the breakdown of revenue, by product categories, for fiscal years 2012 and 2013:





|                  |  | December 31, |          
|----------------- |  | ------------ | ---------
|Revenue RMB (000) |  | 2012         |          
|Porcelain         |  |              | 784,383  
|Glazed Porcelain  |  |              | 57,359   
|Glazed            |  |              | 97,411   
|Rustic            |  |              | 374,276  
|Ultra-thin        |  |              | 45,794   
|Polished Glazed   |  |              | 85,668   
|Total             |  |              | 1,444,891



Revenue
decreased by RMB 512.0 million ($84.6 million), or 35.4%, to RMB 932.9 million ($154.1 million) in the year ended December 31,
2013, from RMB 1,444.9 million for the year ended December 31, 2012. The year-over-year decrease in revenue was primarily driven
by a 24.8% decrease in the sales volume of ceramic tiles to 34.7 million square meters in the year ended December 31, 2013 from
46.2 million square meters in the year ended December 31, 2012. In addition, we began price reductions in December 2012 that resulted
in a 14.1% decrease in our average selling price in 2013 as compared to 2012 (RMB 26.9 ($4.4) per square meter for the year end
2013 per square meter compared to RMB 31.3 per square meter for 2012). We attribute our reduced sales volume to the continued
challenging business conditions in China’s real estate and construction sector. However, we believe that the decrease in
the pricing of our ceramic tile products is temporary and that product pricing will revert to normal levels once business conditions
improve. Because no distributors ordered ultra-thin tiles for 2013, we stopped production of ultra-thin tiles in 2013.



Porcelain
tiles. Revenue from porcelain tiles decreased 17.9% from RMB 784.4 million for the year ended December 31, 2012 to RMB 643.8
million ($106.3 million) for the year ended December 31, 2013. The decrease was primarily attributable to a decrease in the sales
volume and the average selling price. The average selling price decreased by 9.6% to RMB 24.4 ($4.0) per square meter for the
year ended December 31, 2013 from an average selling price of RMB 27.0 per square meter for the year ended December 31, 2012,
the sales volume decreased by 2.7 million square meters to approximately 26.4 million square meters for the year ended December
31, 2013 from 29.1 million square meters for the year ended December 31, 2012. The decrease in volume was caused by reducing market
demand. Porcelain tiles for exterior walls are still 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 decreased 4.0% from approximately RMB 57.4 million for the year ended
December 31, 2012 to RMB 55.1 million ($9.1 million) for the year ended December 31, 2013. The decrease was mainly due to a decrease
in average selling price. The average selling price decreased 4.1% to RMB 25.7 ($4.2) per square meter for the year ended December
31, 2013 from an average selling price of RMB 26.8 per square meter for the year ended December 31, 2012. Glazed porcelain tiles
accounted for 5.9% of total sales for the year ended December 2013 compared to 4.0% for the year ended December 2012.



45













Glazed
tiles. Revenue from glazed tiles decreased by 54.0% from RMB 97.4 million for the year ended December 31, 2012 to RMB 44.8
million ($7.4 million) for the year ended December 31, 2013. The decrease was mainly due to a decrease in sales volume. The sales
volume decreased by 2.8 million square meters to approximately 2.1 million square meters for the year ended December 31, 2013
from 4.9 million square meters for the year ended December 31, 2012. Glazed tiles have a lower selling price than our other products.
Glazed porcelain tiles accounted for 4.8% of total sales for the year ended December 2013 compared to 6.7% for the year ended
December 2012.



Rustic
tiles.Revenue from rustic tiles decreased 68.9% from RMB 374.3 million for the year ended December 31, 2012 to RMB 116.5
million ($19.2 million) for the year ended December 31, 2013 which was mainly due to a decrease of sales volume and average selling
price. The sales volume decreased by 4.6 million square meters to approximately 2.7 million square meters for the year ended December
31, 2013 from 7.3 million square meters for the year ended December 31, 2012. The average selling price decreased 16.5% to RMB
42.5 ($7.0) per square meter for the year ended December 31, 2013 from an average selling price of RMB 50.9per square meter for
the year ended December 31, 2012. Rustic tiles accounted for 12.5% of total sales for the year ended December 31, 2013 from 25.9%
for the year ended December 31, 2012.We have been promoting rustic tiles since it was introduced in 2007 and believe that rustic
tiles 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 decreased 100% from RMB 45.8 million ($7.3 million) for the year ended December 31, 2012
to nil for the year ended December 31, 2013 as no distributors ordered ultra-thin tiles for the year ended December 31, 2013.



Polished
glazed tile. Revenue from polished glazed tiles decreased 15.3% from RMB 85.7 million for the year ended December
31, 2012 to RMB 72.6 million ($12.0 million) for the year ended December 31, 2013, mainly due to the decrease in average selling
price. The average selling price decreased by 11.1% to RMB 55.5 ($9.2) per square meter for the year ended December 31, 2013 from
an average selling price of RMB 62.4 per square meter for the year ended December 31, 2012. We introduced polished glazed tiles
in March 2011 and began selling them in the second quarter of 2011. We believe that this product represents both a functional
and cost-effective replacement for actual marble or stone materials used in a decorative fashion inside homes. The polished glazed
tiles are of a larger size than our other tiles and we believe that demand for this series will increase in the future.



Cost
of sales.The following table sets forth the breakdown of cost of sales, by product segment, for December 31, 2012 and 2013:



|                         |  | December 31, |          
|------------------------ |  | ------------ | ---------
|Cost of sales RMB (’000) |  | 2012         |          
|Porcelain                |  |              | 576,279  
|Glazed Porcelain         |  |              | 49,633   
|Glazed                   |  |              | 94,641   
|Rustic                   |  |              | 255,933  
|Ultra-thin               |  |              | 29,110   
|Polished Glazed          |  |              | 58,296   
|Total                    |  |              | 1,063,892



Cost of
sales was RMB 878.8 million ($145.2 million) for the year ended December 31, 2013 compared to RMB 1,063.9 million for the year
ended December 31, 2012, representing a decrease of RMB 185.1 million, or 17.4%. The decrease in cost of sales was primarily due
to the decrease in sales volume.



Gross
profit.The following table sets forth the breakdown of our gross profit and gross profit margin, by product segment, for
December 31, 2012 and 2013:



|                 |  | December 31, |        
|---------------- |  | ------------ | -------
|                 |  | 2012         |        
|RMB (‘000)       |  | Gross Profit |        
|Porcelain        |  |              | 208,104
|Glazed Porcelain |  |              | 7,726  
|Glazed           |  |              | 2,770  
|Rustic           |  |              | 118,343
|Ultra-thin       |  |              | 16,684 
|Polished Glazed  |  |              | 27,372 
|All products     |  |              | 380,999



46









Our gross
profit decreased 85.8% from RMB 381.0 million for the year ended December 31, 2012 to RMB 54.1 million ($8.9 million) for the
year ended December 31, 2013. Our gross profit margin declined from 26.4% for the year ended December 31, 2012 to 5.8% for the
year ended December 31, 2013. The year-over-year decrease in gross profit margin was primarily driven by a decrease in the selling
price and an increase in material cost and labor cost. The decrease in gross profit in dollar terms was mainly driven by the decrease
in sales volume and price since the fourth quarter of 2012.



Administrative
expenses.Administrative expenses were RMB 27.6 million ($4.6 million) for the year ended December 31, 2013, compared to RMB
30.0 million for the year ended December 31, 2012, representing a decrease of RMB 2.4 million, or 8.0%. The year-over-year decrease
in administrative expenses was primarily due to a reduction to RMB 2.1 million of non-cash share-based compensation expenses in
2013 related to the 2010 Incentive Compensation Plan, which is designed to retain directors and senior management. The comparable
non-cash share-based expenses were RMB 5.7 million in the year ended December 31, 2012.



Finance costs.Finance costs decreased 54.8% from RMB 9.3 million for the year ended December 31, 2012 to RMB 4.2 million ($0.7 million)
for the year ended December 31, 2013. The year-over-year decrease in finance costs resulted from the decrease in average debt
outstanding in 2013. The average debt outstanding was RMB 79,826,000 and RMB 122,500,000 during the years ended December 31, 2013
and 2012, respectively.



Other expenses.Other expenses increased about10 times from RMB1.9 million for the year ended December 31, 2012 to RMB20.2 million ($3.3 million)
for the s year ended December 31, 2013. The year-over-year increase was primarily caused by the loss on disposal of property,
plant and equipment of RMB18.9 million ($3.1 million). The disposal of property, plant and equipment primarily related to the
disposal of old equipment at our Hengda facility during 2013.



Profit/(loss)
before taxation. We recorded a profit of RMB 328.8 million ($52.5 million) before taxation for the year ended December 31,
2012 and a loss of RMB 3.7 million ($0.6 million) before taxation for the year ended December 31, 2013. The loss in 2013 was mainly
due to the lower gross profit.



Income
taxes.We incurred an income tax credit of RMB 1.7 million ($0.3 million) for the year ended December 31, 2013 compared to
an income tax expense of RMB 84.9 million for the year ended December 31, 2012, representing a decrease of RMB 86.6 million ,
due to lower profit before taxation in 2013. Our PRC statutory enterprise income tax rate was 25.0% for the years ended December
31, 2013 and 2012.



Profit/(loss)
attributable to shareholders. We recorded a profit of RMB 243.8 million attributable to shareholders for the year ended December
31, 2012 and a loss of RMB 2.0 million ($0.3 million) attributable to shareholders for the year ended December 31, 2013. The year-over-year
change from net profit to net loss was primarily driven by lower gross profit in 2013.



Year
ended 2012 compared to the year ended 2011



Revenue.
The following table sets forth the breakdown of revenue, by product categories, for fiscal years 2011 and 2012:



|                  |  | December 31, |          
|----------------- |  | ------------ | ---------
|Revenue RMB (000) |  | 2011         |          
|Porcelain         |  |              | 1,019,737
|Glazed Porcelain  |  |              | 66,004   
|Glazed            |  |              | 112,262  
|Rustic            |  |              | 208,832  
|Ultra-thin        |  |              | 57,081   
|Polished Glazed   |  |              | 27,658   
|Total             |  |              | 1,491,574



47







Revenue
decreased RMB 46.7 million, or 3.1%, to RMB 1,444.9 million in the year ended December 31, 2012, from RMB 1,491.6 million for
the year ended December 31, 2011, which is mainly due to the decrease of sales volume. The year-over-year decrease in revenue
was primarily driven by an 11.5% decrease in the sales volume of ceramic tiles to 46.2 million square meters in the year ended
December 31, 2012 from 52.2 million square meters in the year ended December 31, 2011. While we implemented price reductions beginning
in December 2012, a change in the sales mix, with more sales coming from the higher-priced rustic and polished glazed series of
ceramic tiles that are being produced in our Hengdali facility, resulted in a 9.4% increase in the average selling price to RMB
31.3 per square meter in 2012, as compared to RMB 28.6 per square meter in the comparable period of 2011. The increase in average
selling prices partially offset the decrease in sales volume. The full year decrease in revenue also was mainly driven by the
decrease in sales volume in fourth quarter of 2012, where we recorded revenue of RMB 245.3 million, down 39.3% from the fourth
quarter of 2011. The year-over-year decrease in revenue was primarily driven by a 29.8% decrease in sales volume of ceramic tiles
to 8.7 million square meters in the fourth quarter of 2012 from 12.4 million square meters in the fourth quarter of 2011.



Porcelain
tiles. Revenue from porcelain tiles decreased 23.1% from RMB 1,019.7 million for the year ended December 31, 2011 to RMB 784.4
million for the year ended December 31,2012. The decrease was primarily due to the marked decrease in the sales volume from customers
since the challenging market conditions in China’s real estate in 2012. The average selling price decreased by 0.4% to RMB
27.0 per square meter for the year ended December 31, 2012 from an average selling price of RMB 27.1 per square meter for the
year ended December 31, 2011. The sales volume decreased by 8.5 million square meters to approximately 29.1 million square meters
for the year ended December 31, 2012 from 37.6 million square meters for the year ended December 31, 2011. In 2012, we sold more
rustic tiles and polished glazed tiles that are higher priced, and higher profit margin products. We found the economic climate
in China to be softening and decided to introduce these new high margin products in order to maintain a reasonable profit margin.
Porcelain tiles for exterior walls are still our most popular product and have the largest market potential of all of our tiles,
although its sales volume decreased 22.6% in 2012 as compared to 2011. We expect porcelain tiles to continue to be our key product
for the foreseeable future.



Glazed
porcelain tiles. Revenue from glazed porcelain tiles decreased 13.0% from approximately RMB 66.0 million for the year ended
December 31, 2011 to RMB 57.4 million for the year ended December 31, 2012 mainly due to a decrease in sales volume. The sales
volume decreased 0.5 million square meters to approximately 2.1 million square meters for the year ended December 31, 2012 from
2.6 million square meters for the year ended December 31, 2011. Glazed porcelain tiles accounted for 4.0% of the total sales for
the year ended December 2012 compared to 4.4% for the year ended December 2011.



Glazed
tiles. Revenue from glazed tiles decreased 13.3% from RMB 112.3 million for the year ended December 31, 2011 to RMB 97.4 million
for the year ended December 31, 2012 mainly due to the decrease in sales volume. Glazed tiles have a lower selling price than
our other products. Glazed porcelain tiles accounted for 6.7% of total sales for the year ended December 2012 compared to 7.5%
for the year ended December 2011.



Rustic
tiles.Revenue from rustic tiles increased 79.3% from RMB 208.8 million for the year ended December 31, 2011 to RMB 374.3
million for the year ended December 31, 2012 which was mainly due to more sales coming from higher priced varieties produced from
our new Hengdali facility. The sales of Rustic tiles in Hengdali was RMB 305.9 million in 2012, compared to RMB 125.6 million
in 2011. Rustic tiles accounted for 25.9% of total sales for the year ended December 31, 2012 from 14.0% for the year ended December
31, 2011. We have been promoting the rustic tiles since it has been introduced from 2007 and also believe 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 decreased 19.8% from RMB 57.1 million for the year ended December 31, 2011 to RMB 45.8
million for the year ended December 31, 2012 mainly due to a decrease in sales volume. The sales volume decreased 0.4 million
square meters to approximately 1.3 million square meters for the year ended December 31, 2012 from 1.7 million square meters for
the year ended December 31, 2011. Ultra-thin tiles are a new product and were commercialized in June 2008. Ultra-thin tiles accounted
for 3.2% of total sales for the year ended December 31, 2012 compared to 3.8% for the year ended December 31, 2011.



48







Polished
glazed tile. Revenue from polished glazed tiles increased 209% from RMB 27.7 million for the year ended December 31,
2011 to RMB 85.7 million for the year ended December 31, 2012 mainly due to the increase in sales volume. The sales volume increased
by 1.0 million square meters to approximately 1.4 million square meters for the year ended December 31, 2012 from 0.4 million
square meters for the year ended December 31, 2011.We introduced polished glazed tiles 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 used in a decorative fashion inside homes. The polished glazed tiles are larger sized tiles and we believe
that demand for this new series will increase in the future.



Cost
of sales.The following table sets forth the breakdown of cost of sales, by product segment, for year ended December,31, 2011
and 2012:



|                         |  | December 31, |          
|------------------------ |  | ------------ | ---------
|Cost of sales RMB (‘000) |  | 2011         |          
|Porcelain                |  |              | 687,152  
|Glazed Porcelain         |  |              | 57,132   
|Glazed                   |  |              | 105,428  
|Rustic                   |  |              | 127,608  
|Ultra-thin               |  |              | 30,830   
|Polished Glazed          |  |              | 16,186   
|Total                    |  |              | 1,024,336



Cost of
sales was RMB 1,063.9 million for the year ended December 31, 2012 compared to RMB 1,024.3 million for the year ended December
31, 2011, representing an increase of RMB 39.6 million, or 3.9 %. The increase in cost of sales was primarily due to the increase
in the price of raw materials. For example, the price of clay increased from approximately RMB 204.6 per ton in the year ended
December 31, 2011 to approximately RMB 208.3 per ton in the year ended December 31, 2012, and the price of coal increased from
approximately RMB 1,021.5 per ton in the year ended December 31, 2011 to approximately RMB 1,047.2 per ton in the year ended December
31, 2012.



Gross
profit.The following table sets forth the breakdown of our gross profit and gross profit margin, by product segment, for
the year ended December 31, 2011 and 2012:



|                 |  | December 31, |        
|---------------- |  | ------------ | -------
|                 |  | 2011         |        
|RMB(’000)        |  | Gross Profit |        
|Porcelain        |  |              | 332,585
|Glazed Porcelain |  |              | 8,872  
|Glazed           |  |              | 6,834  
|Rustic           |  |              | 81,224 
|Ultra-thin       |  |              | 26,251 
|Polished Glazed  |  |              | 11,472 
|All products     |  |              | 467,238



Our gross
profit decreased 18.5% from RMB 467.2 million for the year ended December 31, 2011 to RMB381.0 million for the year ended December
31, 2012. Our gross profit margin decreased 4.9% from 31.3% for the year ended December 31, 2011 to 26.4% for the year ended December
31, 2012. The year-over-year decrease in gross profit margin was primarily driven by a decrease in the selling price and an increase
in material cost and labor cost. The decrease in gross profit in dollar term was mainly driven by the decrease in sales volume
and price in the fourth quarter. Gross profit margin was 12.0% for the fourth quarter ended December 31, 2012 compared to 34.5%
for the year ended December 31, 2011.



49







Administrative
expenses.Administrative expenses were RMB 30.0 million for the year ended December 31, 2012, compared to RMB 46.1 million
for the year ended December 31, 2011, representing a decrease of RMB 16.1 million, or 34.9%. The year-over-year decrease in administrative
expenses was primarily due to a reduction to RMB 5.7 million of non-cash share-based compensation expenses in 2012 related to
the 2010 Incentive Compensation Plan, which is designed to retain directors and senior management. The comparable non-cash share-based
expenses were RMB 17.3 million in the year ended December 31, 2011. Furthermore, the year-over-year decrease resulted mainly from
decreased training expenses and lawyer expenses of RMB 2.1 million in 2012.



Finance
costs.Finance costs decreased 16.2% from RMB 11.1 million for the year ended December 31, 2011 to RMB 9.3 million for the
year ended December 31, 2012. The year-over-year decrease in finance costs resulted from a decrease in average debt outstanding.
The average debt outstanding was RMB 122,500,000 and RMB 141,000,000 during the years ended December 31, 2012 and 2011, respectively.



Profit
before taxation.Profit before taxation decreased 17.9% from RMB 400.5 million for the year ended December 31, 2011 to RMB
328.8 million for the year ended December 31, 2012. The decrease of the profit before taxation was mainly due to the lower gross
profit in 2012.



Income
taxes.We incurred an income tax expense of RMB 84.9 million for the year ended December 31, 2012 compared to RMB 106.1 million
for the year ended December 31, 2011, representing a decrease of RMB 21.2 million or 20.0%, due to lower profit before taxation.
Our statutory PRC enterprise income tax rate was 25.0% for the years ended December 31, 2012 and 2011.



Profit
attributable to shareholders.Profit attributable to shareholders decreased by 17.2% from RMB 294.4 million for the year ended
December 31, 2011 to the RMB243.8 million for the year ended December 31, 2012. The year-over-year decrease in net profit was
primarily driven by lower gross profit.



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, 2011, 2012
and 2013:



|                                                       |  | Year Ended December 31, |         
|------------------------------------------------------ |  | ----------------------- | --------
|RMB(’000)                                              |  | 2011                    |         
|Net cash generated from operating activities           |  |                         | 124,227 
|Net cash used in investing activities                  |  |                         | (433,339
|Net cash generated from/(used in) financing activities |  |                         | 88,000  
|Net cash flow                                          |  |                         | (221,112
|Cash and cash equivalents at beginning of year         |  |                         | 263,495 
|Effect of foreign exchange rate differences            |  |                         | (234    
|Cash and cash equivalents at end of year               |  |                         | 42,149  



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



Cash
flows from operating activities.



Our net
cash generated from operating activities was RMB 52.1 million ($8.6 million) for the year ended December 31, 2013, a decrease
of RMB 139.1 million, or 72.8%, from RMB 191.2 million net cash generated from operating activities for the year ended December
31, 2012. The year-over-year decrease was driven by the slowdown and decrease of revenue in 2013, resulting in a loss before taxation
of RMB3.7 million in 2013 as compared to a profit before taxation of RMB328.8 million in 2012. Also, our trade receivables and
inventory level increased in 2013. We had a cash outflow for trade receivables of RMB 35.1 million and cash outflow for inventory
of RMB40.2 million in 2013. In 2012, we had a cash inflow for trade receivables of RMB 17.3 million and a cash outflow for inventory
of RMB 3.1 million. The decrease in cash inflow in 2013 was offset by (i) an increase in trade payables (we had a cash inflow
of trade payables of RMB 37.4 million in 2013 and a cash outflow of trade payables of RMB 137.6 million in 2012); and (ii) a reduced
income tax obligation as a result of lower profit in 2013 (we paid income taxes of RMB6.2 million and RMB120.2 million in 2013
and 2012, respectively).



50







Our net
cash generated from operating activities was RMB 191.2 million for the year ended December 31, 2012, an increase of RMB 67.0 million,
or 53.9%, from RMB 124.2 million net cash generated from operating activities for the year ended December 31, 2011. The year-over-year
increase was primarily driven by (i) the decrease in trade receivables in 2012 (we had cash inflow from trade receivables of RMB17.3
million in 2012 and cash outflow for trade receivables of RMB190.2 million in 2011); and (ii) the decrease in inventories in 2012
(we had cash outflow for inventories of RMB3.1 million and RMB114.6 million in 2012 and 2011, respectively). The increase in cash
inflows in 2012 was offset by (i) the decrease in revenue, resulting in a lower profit before taxation of RMB328.8 million in
2012, as compared to RMB400.5 million in 2011; (ii) the decrease in trade payables caused by lower sales and purchases in the
fourth quarter of 2012 (we had cash outflow for trade payables of RMB137.6 million in 2012 and a cash inflow of trade payables
from RMB 74.3 million in 2011).



Inventory
and Accounts Receivable.



Our inventory
turnover rate decreased from 4.37 times in 2011 to 3.65 times for the year ended December 31, 2012 and decreased to 2.94 times
for the year ended December 31, 2013. Based on our historical experience, except for the RMB 4.2 million and RMB 23.4 million
($3.9 million) of inventory that was impaired for the years ended December 31, 2012 and 2013, respectively, 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 93 days in 2011, which increased to 117 days as of December
31, 2012 and increased further to 185 days as of December 31, 2013. The increase in the average number of days in which we receive
payment is attributable n part to our extension of the time period for collection to address the funding pressures of some of
our customers. We typically give the existing customers credit terms of approximately 90 days to 150 days. Based on our historical
experience and current operation, we believe that all our trade receivables are collectable in full.



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, and placement of restricted cash.



Net cash
used in investing activities in the year ended December 31, 2013 was RMB 128.7 million ($21.3 million), compared to RMB 18.9 million
of net cash used in investing activities in the year ended December 31, 2012. The increase was primary due to i) an increase in
acquisition of property, plant and equipment, modification of an existing production line of Hengda, acquisition of equipment
at Hengda facility that replaced coal with gas as the source of Hengda’s power supply and the completion and interior build-out
of office; and (ii) an increase in restricted cash in relation to the Company’s bank borrowings and foreign currency transactions
agreements.



Net cash
used in investing activities in the year ended December 31, 2012 was RMB 18.9 million, compared to RMB 433.3 million of net cash
used in investing activities in the year ended December 31, 2011. The decrease was primarily due to a decrease in acquisition
of property, plant and equipment.



Cash
flows from financing activities.



For the
year ended December 31, 2013, net cash generated from financing activities was RMB 16.0 million ($2.6 million) due to t new bank
borrowings, offset by the payment of dividends, as compared to net cash used in financing activities of RMB125.0 million ($19.9
million) for the year ended December 31, 2012.



Net cash
used in financing activities was RMB 125.0 million due to the repayment of bank borrowings for the year ended December 31, 2012,
as compared to RMB 88.0 million of cash generated from financing activities for the year ended December 31, 2011.



51







The major
sources of our liquidity for fiscal year 2011, 2012 and 2013 were cash generated from operations and bank borrowings. The cash
generated in 2013 was primarily due to the cash generated from operating activities of RMB 52.1 million ($8.6 million) and net
new bank borrowing of RMB 40.0 million ($6.6 million), offset primarily by the cash payment of RMB 97.1 million ($16.0 million)
for the acquisition of property, plant and equipment for the Hengdali facility and Hengda facility, increase in restricted cash
of RMB37.4million ($6.2 million) and deposit to the stock transfer agent for dividend payment RMB11.8 million ($2.0 million) and
payment RMB11.8 million ($2.0 million) for dividends. The cash generated in 2012 was primarily due to the cash generated from
operating activities of RMB 191.2 million, offset primarily by the cash payment of RMB 19.5 million for the acquisition of property,
plant and equipment for the replacement of old equipment at its Hengda facility and repayment of bank borrowing of RMB 125.0 million.
The cash generated in 2011 was primarily due to the cash generated from operating activities of RMB 124.2 million and net new
bank borrowing of RMB 88.0 million, offset primarily by the cash payment of RMB 441.6 million for the acquisition of property,
plant and equipment for the construction and expansion of the Hengdali facility and Hengda facility.



Cash and
bank balances were RMB 28.8 million ($ 4.8 million) as of December 31, 2013, as compared to RMB 89.4 million as of December 31,
2012, and RMB 42.1 million as of December 31, 2011.



As of December
31, 2013, our total outstanding bank loans amounted to RMB 99.7 million ($16.5 million) with interest rates in the range of 2.44%
to 7.8% per annum and maturity dates in the range of June 13, 2014 to December 15, 2014.



Operating
lease commitments totaled RMB 17.6 million ($2.9 million) as of December 31, 2013.



There were
capital commitments that totaled RMB14.0 million ($2.3 million) as of December 31, 2013.



There were
commitments for advertising expenditure that totaled RMB6.2 million ($1.0 million) as of December 31, 2013.



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 are purchased from our suppliers located in
Fujian, Guangdong and Jiangxi Provinces and comprise 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 reflected the decrease in sales volume of ceramic titles, which resulted in slower movement of finished
goods during year ended December 31, 2013. Our inventory turnover for the years ended 2011, 2012 and 2013 are as follows:



|                             |  | FY2011 |         |  | FY2012 |  |         | FY2013 | 
|---------------------------- |  | ------ | ------- |  | ------ |  | ------- | ------ | 
|Inventories (RMB’000)        |  |        | 291,781 |  |        |  | 290,603 |        | 
|Inventory turnover (days)(1) |  |        | 84      |  |        |  | 100     |        | 



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



52







In December
2012, the Company launched a sales promotion which decreased some of the selling prices of the products, resulting in the carrying
value of some of its inventory being higher than their net realizable value. Provision for the declines in the value of inventory
as at December 31, 2012 and December 31, 2013 was RMB 4,237,000 and RMB 23,414,000 respectively and was charged to Cost of Sales.
There was no inventory write-off or allowance for inventory obsolescence for the year ended December 31, 2011.



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.
Considering the challenging market conditions in China’s real estate industry, we extended the collection period to 150
days to address funding pressures of some distributors since the year ended December 31, 2012. As at December 31, 2011, 2012 and
2013, trade receivables were neither past due nor impaired.



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, 2013 were as follows:



|                                     |  | FY2011 |         |  | FY2012 |  |         | FY2013 | 
|------------------------------------ |  | ------ | ------- |  | ------ |  | ------- | ------ | 
|Trade receivables (RMB’000)          |  |        | 473,209 |  |        |  | 455,885 |        | 
|Trade receivables turnover (days)(1) |  |        | 93      |  |        |  | 117     |        | 



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



Credit
terms from our suppliers



Our typical
credit terms from our major suppliers are from 1 to 4 months after the raw materials have been delivered.



Our average
trade payables’ turnover days in the last three years ended December 31, 2013 were as follows:



|                                  |  | FY2011 |         |  | FY2012 |  |         | FY2013 | 
|--------------------------------- |  | ------ | ------- |  | ------ |  | ------- | ------ | 
|Trade payables (RMB’000)          |  |        | 252,682 |  |        |  | 115,123 |        | 
|Trade payables turnover (days)(1) |  |        | 89      |  |        |  | 91      |        | 



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



Trade payables
turnover was 79 days as of December 31, 2013 compared with 91 days as of December 31, 2012. The year-over-year decrease in trade
payables turnover resulted from the lower average quarter-end trade balances in the trailing twelve months in 2013. The average
turnover days were within the Company’s normal credit period.



53







Capital
Expenditures



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



Capital expenditures
on property, plant and equipment were RMB 97.1 million ($16.0 million) for the year ended December 31, 2013 compared to RMB 19.5
million for the year ended December 31, 2012. In 2013, we expended RMB 51.7 million ($8.5 million) for the acquisition of equipment
at our Hengda and Hengdali facilities to improve production lines, expended RMB 28.4 million ($4.7 million) to modify an existing
production line at the Hengda facility to enable the manufacture of products that are in high demand, expended RMB 5.6 million
($0.9 million) for the acquisition of equipment at Hengda facility that replaced coal with gas as the source of Hengda’s
power supply and expended RMB11.4 million ($1.9 million) for the interior build-out of the completed office building adjacent
to the Hengdali facility.



Capital expenditures
on property, plant and equipment was RMB 19.5 million for the year ended December 31, 2012, compared to RMB 441.6 million for
the year ended December 31, 2011. In the year ended December 31, 2012, we invested RMB 19.5 million to replace old equipment at
the Hengda facility.



Contractual
Obligations



Our contractual
obligations consist mainly of debt obligations, operating lease obligations and other purchase obligations and commitments, and
will be paid off with our cash flow from operations. The following table sets forth a breakdown of our contractual obligations
(including both interest and principal cash flows) as of December 31, 2013:



|                                  |  | Payment Due by Period |        
|--------------------------------- |  | --------------------- | -------
|                                  |  | Total                 |        
|                                  |  | (RMB’000)             |        
|Short-term debt obligations(1)    |  |                       | 103,280
|Operating purchase obligations(2) |  |                       | 17,612 
|Other obligations(3)              |  |                       | 6,200  
|Total                             |  |                       | 127,092



| | (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, 2013.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | (3) | Includes advertising expenditure contracted but not provided for
                                         in the financial statements as of December 31, 2013
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



The following
table sets forth further details regarding our loans outstanding as of December 31, 2013:



|Short-term debt obligations: |  | Amount of loans RMB’000 |  | Interest rates (p.a)
|---------------------------- |  | ----------------------- |  | --------------------
|China Citic Bank             |  | 60,000                  |  | 6.7650%-7.8000%     
|Taishin International Bank   |  | 39,652                  |  | 2.4400%             



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;
| | - | -------------------------------------------------------------------------------------



54







| | · | 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 expenses were approximately RMB 1.30 million, RMB 1.2 million and RMB 1.1 million ($0.2 million), for fiscal years
2011, 2012 and 2013. From time to time, we may enter into collaboration with other research institutes to develop new products
or improve our production process.



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 to 150 days of delivery.



As of December
31, 2013, our backlog was RMB 136.6 million ($22.6 million) which represents approximately the next two months of revenue at the
time, compared to a backlog of approximately RMB 96.2 million on December 31, 2012, a year-over-year increase of 42.0%.



Dividends



We
paid a cash dividend of $0.10 per share on July 13, 2013 and January 14, 2014 to our shareholders, which totaled $4.1 million
(equivalent to RMB 24.9 million gross, RMB23.66 million net of 5% PRC withholding tax). We recently declared a semi-annual cash
dividend of $0.0125 (equivalent as RMB 0.08), per share. On July 14, 2014, we paid cash dividends of RMB1.5 million (equivalent
to $0.2 million), net of 5% PRC withholding tax, with a record date of June 13, 2014. Another cash dividend will be payable on
January 14, 2015, with a record date of December 12, 2014.



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



The general annual
inflation rate in China was approximately 5.4% in 2011 and 2.6% in both 2012 and 2013, respectively, according to the National
Bureau of Statistics. Our results of operations may be affected by inflation, particularly rising prices for energy, labor costs,
raw materials and other operating costs. See “Item 3. Key Information — Risk Factors — Risks relating to our
business — If China’s inflation increases or the prices of energy or raw materials increase, we may not be able to
pass the resulting increased costs to our customers and this may adversely affect our profitability or cause us to suffer operating
losses.”



Financial
Risk Management



We are exposed
to financial risks arising from our 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.



Apart from the
foreign currency forward contracts that we have entered into during 2013, we do not hold or issue derivative financial instruments
for trading purposes or to hedge against fluctuations, if any, in interest rates and foreign exchange rates.



55







Our exposure to
these financial risks increased substantially during 2013 due to our execution of the foreign currency forward contracts. However,
in July 2014 those contracts were assumed by an affiliate of our Chairman and we were released from the liabilities that we incurred
under those contracts. We do not intend to enter into similar contracts in the future.



| | (i) | Credit risk
| | --- | -----------



Credit risk refers
to the risk that a counterparty will default on its contractual obligations resulting in financial loss us. Our exposure to credit
risk arises primarily from bank balances and trade receivables. For trade receivables, we adopt the policy of dealing only with
customers with appropriate credit history to mitigate credit risk. For other financial assets, we adopt the policy of dealing
only with high credit quality counterparties.



As we do 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.



Cash
and bank balances



Our bank deposits
are placed with reputable banks in the PRC, Hong Kong and the United States. The credit exposure of our cash and bank balances
(including restricted cash) as of December 31, 2011, 2012 and 2013 were RMB 42,149,000, RMB 89,448,000 and RMB 66,207,000, respectively.



Trade
receivables



Our objective
is to seek continual growth while minimizing losses incurred due to increased credit risk exposure.



We have significant
concentration of credit risk as our largest trade receivables represent approximately 3%, 13% and 8% of the trade receivable balance
as of December 31, 2011, 2012 and 2013, respectively. Our five largest trade receivables represent approximately 13%, 23% and
21% of the trade receivable balance as of December 31, 2011, 2012 and 2013, respectively.



Our exposure to
credit risks is influenced mainly by the individual characteristics of each customer. We typically give the existing customers
credit terms of approximately 90 days to 150 days. In deciding whether credit shall be extended, we 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.



We perform ongoing
credit evaluation of our customers’ financial condition and require no collateral from our customers. The provision for
impairment loss for doubtful debts is based upon a review of the expected collectability of all trade and other receivables.



The credit exposure
of our trade receivables as of December 31, 2011, 2012 and 2013 was RMB473,209,000, RMB455,885,000 and RMB490,989,000, respectively.



Liquidity risk



Liquidity risk
is the risk that we 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.



Our exposure to
liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. Our objective is to maintain
a balance between continuity of funding and flexibility through the use of stand-by credit facilities.



56







The table below
summarizes the maturity profile of the liabilities based on contractual undiscounted payments:



|                                     |  | As of December 31, 2013 |        
|------------------------------------ |  | ----------------------- | -------
|                                     |  | Within 1 year           |        
|                                     |  | RMB’000                 |        
|Trade payables                       |  |                         | 152,572
|Amounts owed to related parties      |  |                         | 8,539  
|Interest-bearing bank borrowings (1) |  |                         | 103,280
|Total                                |  |                         | 264,391

| | (1) | Includes contractual interest payments
| | --- | --------------------------------------



We intend
to ensure that there are adequate funds to meet all its obligations in a timely and cost-effective manner. We intend to maintain
a sufficient level of cash and cash equivalents and have available an adequate amount of committed credit facilities from financial
institutions to meet our liquidity requirements in the short and longer term.



Interest
rate risk



Interest
rate risk is the risk that the fair value or future cash flows of our financial instruments will fluctuate because of changes
in market interest rates.



Our exposure
to interest rate risk arises primarily from our interest-bearing bank deposits and borrowings. As of December 31, 2013, RMB10
million ($1.7 million) of our borrowings were on a fixed rate basis and RMB89.65 million ($14.8 million) were on a variable rate
basis.



We are exposed
to fair value interest rate risk in relation to our fixed-rate bank borrowings. Bank borrowings subject to fixed interest rates
are contractually repriced at intervals of 12 months. We currently do not have an interest rate hedging policy. However, the management
monitors interest rate exposure and will consider other necessary actions when significant interest rate exposure is anticipated.



We are also
exposed to cash flow interest rate risk related to bank balances and cash held at financial institutions carried at prevailing
market rate and variable-rate bank borrowings.



At December
31, 2013, if the average interest rate on our variable-rate bank borrowings had been 50 basis point higher/lower, loss before
tax for the year ended December 31, 2013 would have been increased/decreased by RMB 448,000/RMB 448,000 (2012: decreased/increased
profit before tax by approximately RMB 300,000 /RMB 300,000, 2011: decreased/increased profit before tax by approximately RMB
925,000 /RMB 925,000).



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.



Our 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, 2011, 2012 and 2013, nearly all of our monetary assets and monetary liabilities were denominated in RMB except that as of
December 31, 2013, certain bank balances, bank borrowings and other payables were denominated in US dollars.



During 2013,
we entered into foreign currency forward contracts for investment purposes. The net fair value of foreign exchange forward contracts
entered into by us at December 31, 2013 was RMB44,000 and have been recognized as derivative financial instruments.



57







At December
31, 2013, if the RMB had weakened/strengthened by 4 % against the US$ with all other variables held constant, the post-tax loss
for the year would have been approximately RMB35,012,000 higher/lower, mainly as a result of fair value (including foreign exchange)
losses/gains on these foreign currency forward contracts.



Critical Accounting Policies
and Judgment



Our consolidated
financial statements are prepared in accordance with IFRS including related interpretations as issued by the IASB, and have been
consistently applied throughout the years ended December 31, 2011, 2012, and 2013. 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.



Inventories



Inventories are
carried at the lower of cost and net realizable value. 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.



Net realizable
value is the estimated selling price in the ordinary course of business less the estimated cost of completion and applicable selling
expenses.



When inventories
are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized.
The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense
in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction
in the amount of inventories recognized as an expense in the period in which the reversal occurs.



Financial
instruments



Recognition,
initial measurement and subsequent measurement



Financial
assets and financial liabilities are recognized when we become a party to the contractual provisions of the financial instrument
and are measured initially at fair value adjusted by transaction costs, except for those carried at fair value through profit
or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described
below.



Financial
assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset
and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged,
cancelled or expires.



Classification
and subsequent measurement of financial assets



For the
purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified
into the following categories upon initial recognition:



| | - | Loans and receivables
| | - | ---------------------



| | - | Financial assets
                                         at fair value through profit or loss (“FVTPL”)
| | - | --------------------------------------------------------------------------------------------------------



| | - | Held-to-maturity
                                         (“HTM”) investments
| | - | -----------------------------------------------------------------------------



| | - | Available-for-sale
                                         (“AFS”) financial assets
| | - | ------------------------------------------------------------------------------------



58







All financial
assets except for those at FVTPL are subject to review for impairment at least at each reporting date to identify whether there
is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment
are applied for each category of financial assets, which are described below.



All income
and expenses relating to financial assets are recognized in profit and loss.



Loans
and receivables



Loans and
receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They
are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue. After
initial recognition, these are subsequently measured at amortized cost using the effective interest method, less provision for
impairment. Discounting is omitted where the effect of discounting is immaterial. Our cash and trade receivables fall into this
category of financial instruments.



Individually
significant receivables are considered for impairment when they are past due or when other objective evidence is received.



Financial
assets at FVTPL



Financial
assets at FVTPL include financial assets that are either classified as held for trading or that meet certain conditions and are
designated at FVTPL upon initial recognition. All derivative financial instruments fall into this category, except for those designated
and effective as hedging instruments, for which the hedge accounting requirements apply.



Assets in
this category are measured at fair value with net changes in fair value presented in the statement of profit or loss. Transaction
costs are expensed as incurred. The fair values of financial assets in this category are determined by reference to active market
transactions or using a valuation technique where no active market exists..



HTM investments



HTM investments
are non-derivative financial assets with fixed or determinable payments and fixed maturity other than loans and receivables. Investments
are classified as HTM if we have the intention and ability to hold them until maturity.



HTM investments
are measured subsequently at amortized cost using the effective interest method. We do not have any financial assets classified
as HTM.



AFS financial
assets



AFS financial
assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any
of the other categories of financial assets. We do not have any financial assets classified as AFS.



After
initial measurement, AFS financial investments are subsequently measured at fair value with unrealized gains or losses recognized
in other comprehensive income and credited in the AFS reserve until the investment is derecognized, at which time the cumulative
gain or loss is recognized in other operating income, or the investment is determined to be impaired. Interest is calculated using
the effective interest method and dividends are recognized in profit or loss within finance income.



59







Impairment
of financial assets



We assess,
at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired.
An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss
event’), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can
be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant
financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy
or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.



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



| | - | For
                                         trade and other current receivables and other financial assets carried at amortized cost,
                                         the impairment loss is measured as the difference between the asset’s carrying
                                         amount and the present value of estimated future cash flows. The present value of the
                                         estimated future cash flows is discounted at the financial asset’s original effective
                                         interest rate, where the effect of discounting is material. This assessment is made collectively
                                         where these financial assets share similar risk characteristics, such as similar past
                                         due status, and have not been individually assessed as impaired. Future cash flows for
                                         financial assets which are assessed for impairment collectively are based on historical
                                         loss experience for assets with credit risk characteristics similar to the collective
                                         group.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If in
a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring
after the impairment loss was recognized, the impairment loss is reversed through profit or loss. A reversal of an impairment
loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss
been recognized in prior years.



| | - | For
                                         available-for-sale securities which are stated at fair value, when a decline in the fair
                                         value has been recognized in other comprehensive income and there is objective evidence
                                         that the asset is impaired, the cumulative loss that had been recognized in other comprehensive
                                         income shall be reclassified from equity to profit or loss as a reclassification adjustment
                                         even though the financial asset has not been derecognized. The amount of the cumulative
                                         loss that is recognized in profit or loss is the difference between the acquisition cost
                                         (net of any principal repayment and amortization) and current fair value, less any impairment
                                         loss on that asset previously recognized in profit or loss.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment
losses recognized in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss.
Any subsequent increase in the fair value of such assets is recognized in other comprehensive income.



Impairment losses
are written off against the corresponding assets directly, except for impairment losses recognized in respect of trade debtors
included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment
losses for doubtful debts are recorded using an allowance account. When we are satisfied that recovery is remote, the amount considered
irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt
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.



Classification
and subsequent measurement of financial liabilities



Financial liabilities



Financial
liabilities are classified as FVTPL, or other financial liabilities, as appropriate upon initial recognition. A financial liability
is derecognized when the obligation under the liability is discharged, cancelled or expired.



i             Financial
liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction
costs. Subsequent to the initial recognition, other financial liabilities are measured at amortized cost using the effective interest
method. Our other financial liabilities include trade payables and accrued liabilities.



60







ii             Financial
liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial
recognition as FVTPL. Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling
in the near term. This category includes derivative financial instruments (including separated embedded derivatives) held for
trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized
in the consolidated statement of profit or loss. We do not have any financial liabilities classified as FVTPL.



Derivative
financial instruments



Initial recognition
and subsequent measurement



We use derivative
financial instruments, such as forward currency contracts, for investment purposes. Such derivative financial instruments are
initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured
at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the
fair value is negative.



Any gains
or losses arising from changes in the fair value of derivatives are taken directly to profit or loss.



Leases



Financial leases
refers to the situation that the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially
all the risks and rewards of ownership of the leased asset.



All other leases
are treated as operating leases. Where we have the right to use of assets held under operating leases, payments made under the
leases are charged to profit or loss 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 rentals are charged to profit or loss in the accounting
period in which they are incurred.



All of our leases
are operating leases for the years ended December 31, 2013, 2012 and 2011.



Revenue
recognition



Revenue comprises
the fair value of the consideration received or receivable for the sale of goods, net of rebates and discounts. We paid rebates
to some distributors on their annual cash collections in 2012 and 2011. 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. Once goods are accepted by a customer, there is no continuing
                                         management involvement with the goods and we do not have the obligation to accept the
                                         return of the goods to us from the customer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Impairment
of non-financial assets



Impairment testing
is made on our goodwill at each reporting date. Property, plant and equipment and land use rights are tested for impairment if
there is any indication that the assets may be impaired at the balance sheet date.



If any indication
exists, or when annual impairment testing for an asset is required, we estimate the asset’s recoverable amount.



61







Calculation
of recoverable amount



An asset’s
recoverable amount is the greater of an asset’s or cash-generating unit’s fair value less costs of disposal and its
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 assessments of the time value of money and the risks specific to the asset. Where an
asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for
the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).



Recognition
of impairment losses



An impairment
loss is recognized in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs,
exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce
the carrying amount of any goodwill allocated to that cash-generating unit (or group of units), and then, to reduce on a pro rata
basis the carrying amount of the other assets in the unit (or group of units), except that the carrying amount of an asset will
not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).



Reversal of
impairment losses



In respect of
assets other than goodwill, an impairment loss is reversed if there has been a favorable change in the estimates used to determine
the recoverable amount. An impairment loss in respect of goodwill is not reversed.



A reversal of
an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been
recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are
recognized.



Share-based
employee remuneration



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



The fair value
of share options granted to employees is recognized as an employee cost with a corresponding increase in the share-based payment
reserve within equity. The fair value is measured at the grant date using the Black Scholes Option Pricing Model, taking into
account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before
becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the
vesting period, taking into account the probability that the options will vest.



During the vesting
period, the number of share options expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognized
in prior years is charged/credited to the profit or loss for the year under review, unless the original employee expenses qualify
for recognition as an asset, with a corresponding adjustment to the share-based payment reserve. On the vesting date, the amount
recognized as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment
to the share-based payment reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the
market price of our shares. The equity amount is recognized in the share-based payment reserve until either the option is exercised
(when it is transferred to the share premium account) or the option expires (when it is released directly to retained earnings).



Accounting
for income taxes



Income tax comprises
current tax and deferred tax.



62







Current tax and
movements in deferred tax assets and liabilities are recognized in profit or loss except to the extent that they relate to items
recognized in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognized in other
comprehensive income or directly in equity, respectively.



Current tax is
the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the
reporting period, and any adjustment to tax payable in respect of previous years.



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 we are 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,
based on tax rate (and tax laws) that have been enacted or substantively enacted at the reporting date.



The carrying amount
of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed
to the extent that it becomes probable that sufficient taxable profits will be available.



Additional income
taxes that arise from the distribution of dividends are recognized when the liability to pay the related dividends is recognized.



Current tax assets
and current tax liabilities are presented in net if we have the legally enforceable right to set off the recognized amounts and
the following additional conditions are met:



| | a) | in the case of current tax assets and liabilities, we intend
                                         either to settle on a net basis, or to realize the asset and settle the liability simultaneously;
                                         or
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | in the case of deferred tax assets and liabilities, if they
                                         relate to income taxes levied by the same taxation authority on either:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(i)	the
same taxable entity; or



| | (ii) | different taxable entities, which, in each future period in
                                         which significant amounts of deferred tax liabilities or assets are expected to be settled
                                         or recovered, intend either to settle current tax liabilities and realize the current
                                         tax assets on a net basis, or to settle the liabilities and realize the assets simultaneously.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Critical accounting estimates
and assumptions



We make
estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related
actual results. The key sources of estimation uncertainty and key assumptions concerning the future at the end of the reporting
period, 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:



63







Useful
lives and impairment assessment of property, plant and equipment



Property, plant
and equipment are stated at cost less accumulated depreciation and identified impairment losses. The estimation of useful lives
impacts the level of annual depreciation expenses recorded. Property, plant and equipment are evaluated for possible impairment
on a specific asset basis or in groups of similar assets, as applicable. This process requires management’s estimate of
future cash flows generated by each asset or group of assets. For any instance where this evaluation process indicates impairment,
the relevant asset’s carrying amount is written down to the recoverable amount and the amount of the write-down is charged
against profit or loss.



Impairment
loss recognized in respect of property, plant and equipment



As of December
31, 2013, the carrying amount of property, plant and equipment was approximately RMB802,578,000 (2012: RMB795,983,000 ; 2011:
RMB843,429,000). There was no impairment loss recognized for the years ended December 31, 2013, 2012 and 2011.Determining whether
property, plant and equipment are impaired requires an estimation of the recoverable amount of the property, plant and equipment.
Such estimation was based on certain assumptions, which are subject to uncertainty and might materially differ from the actual
results.



Impairment
loss recognized in respectof land use rights



As of 31 December
2013, the carrying amount of land use rights was approximately RMB29,929,000 (2012: RMB30,598,000 ; 2011: RMB31,267,000). There
was no impairment loss recognized for the years ended December 31, 2013, 2012 and 2011. Determining whether land use rights are
impaired requires an estimation of the recoverable amount of the land use rights. Such estimation was based on certain assumptions,
which are subject to uncertainty and might materially differ from the actual results.



Impairment
loss of goodwill



Determining whether
goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated.
The value in use calculation requires us to estimate the future cash flows expected to arise from the cash-generating unit and
a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material
impairment loss may arise. We performed goodwill impairment test annually. No impairment loss was recognized for the year ended
December 31, 2013, 2012 and 2011.



Income
tax



We have exposure
to income taxes in the PRC. Significant judgment 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. We
recognize 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 recognized, such differences will impact the income tax and
deferred tax provisions in the period in which such determination is made. The carrying amounts of our income tax payable as of
December 31, 2013, 2012 and 2011 were RMB 1,520,000, RMB 869,000 and RMB 35,090,000, respectively.



Impairment
of trade receivables



We assess the
collectability of trade receivables. This estimate is based on the credit history of our customers and the current market condition.
We assess the collectability of trade receivables at the balance sheet date and make the provision, if any. The identification
of doubtful debts requires the use of judgment and estimates. Judgment is required in assessing the ultimate realization of these
receivables, including the current creditworthiness, past collection history of each customer and on-going dealings with them.
Where the expectation is different from the original estimate, such difference will impact the carrying value of trade and other
receivables and doubtful debts expenses in the period in which such estimate has been changed. The carrying amounts of our trade
receivables as of December 31, 2013, 2012 and 2011 were RMB 490,989,000, RMB 455,885,000 and RMB 473,209,000, respectively. If
the financial condition of a customer deteriorates, resulting in an impairment of their ability to make payments, we may be required
to make provision for such impairment in our financial statements.



64







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. The carrying amounts
of our inventories as of December 31, 2013, 2012 and 2011 were RMB 307,436,000, RMB 290,603,000, and RMB 291,781,000, respectively.



Shares-based
payment transaction



We measure the
cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which
they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation
model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate
inputs to the valuation model including the expected life of the stock option, volatility and dividend yield and making assumptions
about them.



| | 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            |  | 56  |  | Director and Chief Executive Officer
|Hen Man Edmund            |  | 41  |  | Chief Financial Officer             
|Cheng Yan Davis (1)(2)(3) |  | 72  |  | Director                            
|Jianwei Liu (1)(2)(3)     |  | 42  |  | Director                            
|Shen Cheng Liang (2)(3)   |  | 58  |  | Director                            
|Su Wei Feng               |  | 33  |  | Director and Corporate Secretary    



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



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



| | (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. 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.



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 our 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 a member of the Institute of Chartered Accountants in England and Wales and a
member of the Hong Kong Institute of Certified Public Accountants.



65







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 Sichuan 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.



Jianwei
Liu has been our director since January 7, 2014. Mr. Jianwei Liu has been a portfolio manager with China-based Bosera
Asset Management Co., Ltd. since October 2004. Prior joining to Bosera, Mr. Liu worked at Shanghai AllBright Law Offices and ICBC
(Industrial and Commercial Bank of China Ltd.) at their main headquarters beginning in July 1999. Mr. Liu worked with China Holdings
Acquisition Corp. (“CHAC”), the Company’s predecessor, prior to its merger with the Company, and participated
in the sourcing of targets for CHAC, the performance of due diligence on potential acquisitions and the structuring of the Company’s
acquisition of its operating business in 2009. Mr. Liu resides in China and holds an MBA in finance from the Wharton School of
the University of Pennsylvania, and an MA degree in English and BA degrees in English and Law from Beijing University.



Shen
Cheng Liang has been our director since November 1, 2013. Mr. Shen Cheng Liang is a ceramics production expert with over
30 years of experience in the ceramics industry in China. Prior to his retirement from the industry in 2012, he was a senior production
engineer and general manager at Fujian Yiyan Ceramics Ltd. where he worked from 1983 to 2012. Mr. Liang graduated with a Bachelor’s
degree in material physics from Jingdezhen Ceramics College in 1983.



66







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. We have chosen Mr. Su to serve as director because of his legal background.



There are
no 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, and Mr. William
L. Stulginsky, as the Chairman of the Audit Committee, received $45,000. Mr. Stulginsky resigned from the Board of Directors in
April 2014. 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 2013 to each of our non-employee directors
for such person’s service as an director (including contingent or deferred compensation accrued during 2013):



|Name and Principal Position                        |  | Compensation RMB |         |  | Value of Options(1)
    RMB |  |   | Total RMB | 
|-------------------------------------------------- |  | ---------------- | ------- |  | --------------------------- |  | - | --------- | 
|Shen Cheng Liang                                   |  |                  | -       |  |                             |  | - |           | 
|Cheng Yan Davis                                    |  |                  | 242,148 |  |                             |  | - |           | 
|William L. Stulginsky (resigned on April 27, 2014) |  |                  | 276,386 |  |                             |  | - |           | 
|Paul K. Kelly (resigned on November 27, 2013)      |  |                  | 222,951 |  |                             |  | - |           | 
|Ding Wei Dong (resigned on November 1, 2013)       |  |                  | 254,000 |  |                             |  | - |           | 



| | (1) | No options were
                                         granted to our directors in 2013.
| | --- | ------------------------------------------------------------------------------------------



Executive Officers



The following
table sets forth all of the compensation paid by us or our significant subsidiaries in 2013 to each of our officers for such person’s
service as an officer (including contingent or deferred compensation accrued during 2013 but not including any amounts paid to
such persons for their services as directors):



|                                         |  | Salary |         |  | Bonus |  |   | Value of Options(1) |  |  | Total | 
|---------------------------------------- |  | ------ | ------- |  | ----- |  | - | ------------------- |  |  | ----- | 
|Name and Principal Position              |  | RMB    |         |  | RMB   |  |   | RMB                 |  |  | RMB   | 
|Huang Jia Dong, Chief Executive Office   |  |        | 129,144 |  |       |  | - |                     |  |  | -     | 
|Su Pei Zhi, Sales Deputy General Manager |  |        | 155,969 |  |       |  | - |                     |  |  | -     | 
|Hen Man Edmund, Chief Financial Officer  |  |        | 341,014 |  |       |  | - |                     |  |  | -     | 
|Su Wei Feng, Corporate Secretary         |  |        | 85,745  |  |       |  | - |                     |  |  | -     | 



67







| | (1) | No options were
                                         granted to our executives in 2013.
| | --- | -------------------------------------------------------------------------------------------



Retirement Benefits



As of December
31, 2013, we have 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 us 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. We have no further
commitments beyond our monthly contribution.



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, 2013 to January 31, 2016 for Huang
                                         Jia Dong and Su Wei Feng and August 1, 2012 to July 31, 2015 for Hen Man Edmund) and
                                         August 1, 2013 to January 31, 2014 for Su Pei Zhi.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Since August
                                         1, 2013, Huang Jia Dong received compensation of RMB 12,000 per month; Su Pei Zhi received
                                         compensation of RMB 16,000 per month; Hen Man Edmund received compensation of RMB 38,000
                                         per month; and Su Wei Feng received compensation of RMB 8,100 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.



68







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.



We have
not entered into any service contracts with any of our officers, directors or employees that contain any provisions for benefits
upon termination of employment.



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, 2013, 1,130,000stock options 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.



69







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.



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.



70







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.



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.



71







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.



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. 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 $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 on a net income basis, 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 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 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 China Ceramics 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 generally would be entitled to deduct such
amount.



72







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.



A U.S. participant
who receives a restricted stock award or who purchases shares of restricted stock, 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 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 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 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 China Ceramics 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 Jianwei Liu, Cheng Yan Davis and Shen Cheng Liang. Mr. Liu is the chair of the audit committee,
and our board of directors believes that Mr. Liu 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;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



73







| | · | 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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



A copy
of the audit committee charter is available on our website at http://cceramics.com/Corporate-Governance.html.



Compensation
Committee. Our compensation committee consists of Jianwei Liu, Shen Cheng Liang and Cheng Yan Davis. Shen Cheng Liang is the
chair of our compensation committee. Jianwei Liu, Shen Cheng Liang 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A copy
of the compensation committee charter is available on our website at http://cceramics.com/Corporate-Governance.html.



Governance
and Nominating Committee. Our governance and nominating committee consists of Jianwei Liu, Shen Cheng Liang and Cheng Yan
Davis. Shen Cheng Liang is the chair of our governance and nominating committee. Jianwei Liu, Shen Cheng Liang 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



A copy
of the governance and nominating committee charter is available on our website at http://cceramics.com/Corporate-Governance.html.



74







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.



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. Jianwei Liu, Shen Cheng Liang 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 reduced our employees in
2013 due to the reduction in the facilities that were being operated. 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.



|                    |  | 2011 |       |  | 2012 |  |       | 2013 | 
|------------------- |  | ---- | ----- |  | ---- |  | ----- | ---- | 
|Number of Employees |  |      | 2,491 |  |      |  | 2,297 |      | 



| | 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 June 30, 2014, 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 20,417,945 shares issued and outstanding as of June 30, 2014.



75







|Name(1)                                                         |  | Number of Shares Beneficially
    Owned |           |      | Percentage of Ownership | 
|--------------------------------------------------------------- |  | --------------------------------------- | --------- | ---- | ----------------------- | 
|Shen Cheng Liang                                                |  |                                         | 0         |      |                         | 
|Cheng Yan Davis(4)                                              |  |                                         | 109,750   | (3)  |                         | 
|Huang Jia Dong                                                  |  |                                         | 8,345,308 | (4)  |                         | 
|Jianwei Liu                                                     |  |                                         | 0         |      |                         | 
|Su Wei Feng                                                     |  |                                         | 200,000   | (5)  |                         | 
|Hen Man Edmund                                                  |  |                                         | 358,000   | (6)  |                         | 
|All directors and executive officers as a group (8 individuals) |  |                                         | 9,013,058 |      |                         | 
|Sound Treasure Limited                                          |  |                                         | 5,212,905 | (7)  |                         | 
|Clear Harbor Asset Management, LLC                              |  |                                         | 1,613,557 | (8)  |                         | 
|James D. Dunning, Jr.                                           |  |                                         | 1,101,251 | (9)  |                         | 
|Alan G. Hassenfeld                                              |  |                                         | 1,101,251 | (9)  |                         | 
|Gregory E. Smith                                                |  |                                         | 1,101,251 | (9)  |                         | 
|Prescott Group Capital Management, L.L.C.                       |  |                                         | 1,322,395 | (10) |                         | 
|Prescott Group Aggressive Small Cap, L.P.                       |  |                                         | 1,322,395 | (10) |                         | 
|Prescott Group Aggressive Small Cap II, L.P.                    |  |                                         | 1,322,395 | (10) |                         | 
|Phil Frohlich                                                   |  |                                         | 1,322,395 | (10) |                         | 



| | * | 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) | Cheng Yan Davis’s address is 160 Riverside Blvd, New York
                                         NY.
| | --- | ------------------------------------------------------------------------------------------------------



| | (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) | Includes (i) an aggregate of 2,682,403 ordinary shares owned by
                                         Mr. Huang’s spouse and children for which Mr. Huang may be deemed to be the beneficial
                                         owner but for which Mr. Huang disclaims any beneficial ownership, (ii) 5,212,905 shares
                                         owned by Sound Treasure Limited, an entity of which Mr. Huang is the sole director and
                                         shareholder, and (iii) 300,000 shares underlying options that are currently exercisable
                                         for $7.65 per ordinary share and expire on January 27, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Consists of 200,000 shares underlying options. The options are
                                         currently exercisable for $7.65 per ordinary share and expire on January 27, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Includes 350,000 shares underlying options. The options are currently
                                         exercisable for $7.65 per ordinary share and expire on January 27, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Huang Jia Dong is the sole director and shareholder of Sound Treasure
                                         Limited.
| | --- | -----------------------------------------------------------------------------------------------------------------------



| | (8) | Based on a Schedule 13G/A filed with the Securities and Exchange
                                         Commission on February 14, 2014. The principal business address of Clean Harbor Asset
                                         Management, LLC is 420 Lexington Avenue, Suite 2006; New York, NY 10170.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | 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
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



76







| | (10) | Based on a Schedule 13G filed with the Securities and Exchange
                                         Commission on February 14, 2014 filed Prescott Group Capital Management, L.L.C., an Oklahoma
                                         limited liability company (“Prescott Capital”), Prescott Group Aggressive
                                         Small Cap, L.P., an Oklahoma limited partnership (“Prescott Small Cap”),
                                         Prescott Group Aggressive Small Cap II, L.P., an Oklahoma limited partnership (“Prescott
                                         Small Cap II” and, together with Prescott Small Cap, the “Small Cap Funds”),
                                         and Mr. Phil Frohlich, the principal of Prescott Capital. The Small Cap Funds and Mr.
                                         Phil Frohlich are the beneficial owners of 1,322,395 Shares. The business address of
                                         each of the beneficial owners is 1924 South Utica, Suite 1120 Tulsa, Oklahoma 74104-6529.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 us and certain of our officers and directors, we must use our best efforts to cause
a registration statement relating to the resale of certain securities owned by them to be declared effective and, once effective,
only to use our best efforts to maintain the effectiveness of the registration statement. A registration statement pursuant to
these rights is currently effective.



Related
Party Transactions of China Ceramics and Operating Predecessor



Mr. Huang
Jia Dong, the founder and Chairman of Hengda and our Chief Executive Officer and one of our directors, and a holder of approximately
40.3% of our shares as of June 30, 2014, and Mr. Wong Kung Tok, formerly one of our significant shareholders, provide working
capital loans to us from time to time during the normal course of our business. These loans amounted to RMB 1,327,000, RMB 4,796,000,
and RMB 8,539,000 ($1,411,000) in 2011, 2012, and 2013, respectively. These loans are interest free, unsecured and repayable on
demand. Mr. Huang and Mr. Wong are brothers-in-law. In July 2014, an entity affiliated with Mr. Huang assumed RMB20.7 million
in loans due from us to Mr. Wong and then forgave those loans. (See below).



Pursuant
to an administrative services agreement dated as of December 1, 2009 between us and Stuart Management Co., an affiliate of Paul
K. Kelly, an ex-director, we pay US$7,000 (equivalent to RMB44,000) a month plus out-of-pocket expenses to Stuart Management Co.
for administrative services. The initial one-year term began on December 1, 2009, and the agreement automatically renews 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 the Company’s administrative agent in the
United States and the British Virgin Islands, and allow the Company to utilize certain of its office space for meetings. The agreement
was renewed to reduce the amount to US$4,900 (equivalent to RMB31,000) a month in December 2013.



Mr. Huang
Jia Dong and Su Pei Zhi, a sales deputy general manager whose wife is Mr. Huang’s second cousin, provide guarantees to us
for certain bank loans. The guarantees amounted to RMB 180,000,000, RMB 180,000,000 and RMB 102,800,000 ($16,981,000) as of December
31, 2011, 2012 and 2013, respectively.



Other
Related Party Transactions



During 2013
we entered into certain foreign currency transaction agreements with an unaffiliated financial institution related to the fluctuation
in value of the Renminbi against the U.S. dollar. The Company recorded fair value gains on these agreements totaling RMB3,346,000
for the year ended December 31, 2013. However, in 2014, as the Renminbi depreciated against the U.S. dollar, we incurred realized
and unrealized losses totaling RMB70, 312,000 ($11,615,000) for the six months ended June 30, 2014 in connection with these agreements.



77







In June
2014, we, our Chief Executive Officer and the Audit Committee set out to attempt to terminate the foreign currency transaction
agreements; and to reach a resolution that would preclude the depletion of our liquid assets by virtue of our having entered into
the foreign currency transaction agreements. Ultimately our Chief Executive Officer agreed to cause an entity controlled by him
to assume those agreements. On July 31, 2014, Sound Treasure Limited, our largest shareholder and an affiliate of our Chief Executive
Officer, executed an agreement (the “Novation”) with us and the financial institution that originated the foreign
currency transaction agreements pursuant to which Sound Treasure Limited assumed the foreign currency transaction agreements and
all assets (mainly deposits placed with the financial institution) and all existing and future liabilities arising under these
agreements, and we were released from the liabilities arising under the foreign currency transaction agreements. As a result,
we will not be required to fund any losses related to these agreements, and will neither suffer any future liabilities arising
under those agreements nor enjoy any benefits arising under those agreements.



At the time
that each of the foreign currency transaction agreements was established with the financial institution, we were required to deposit
monies with the financial institution that was the counterparty to the agreements. RMB6.7 million of a total of RMB15.1 million
in deposits that we made were funded on our behalf by Wong Kung Tok (who is the brother-in-law of our Chief Executive Officer),
and were included in a total of RMB40.2 million in loans owing by us to Wong Kung Tok as of July 9, 2014. In connection with the
Novation discussed above, our Chief Executive Officer, Sound Treasure Limited and Wong Kung Tok executed an agreement with the
Company on July 31, 2014 (the “Offset Agreement”) pursuant to which loans totaling RMB20.7 million owed by us to Wong
Kung Tok were transferred to Sound Treasure Limited and then were forgiven by Sound Treasure Limited, and in return the Company
agreed to forego any claim to RMB15.1 million in Deposits under the foreign currency transaction agreements which were transferred
to Sound Treasure Limited pursuant to the Novation.



Except as
disclosed above, neither our Chief Executive Officer nor any affiliate of our Chief Executive Officer received any remuneration
for agreeing to assume the foreign currency transaction agreements.



The Novation
and the Offset Agreement became effective on July 31, 2014. The exact financial impact of these agreements will be determined
as of their effective date, and following receipt by us of the July 2014 account statements from the financial institution. The
latest statements that the Company received were June 2014 statements. Assuming that the Novation and the Offset Agreement took
effect on July 1, 2014 and based on the statements on June 30, 2014, the financial impact of the Novation and Offset Agreements
would be as follows: Sound Treasure Limited would release us from liabilities of RMB67.1 million related to unpaid liabilities
(fair value) arising under the foreign currency transaction agreements and the loans of RMB20.7 million, and we would transfer
ownership of RMB15.1 million in Deposits held at the financial institution to Sound Treasure Limited. As a result of the Novation
and the Offset Agreement (and assuming both of those agreements took effect on July 1, 2014), approximately RMB87.8 million in
liabilities and RMB15.1 million in assets on our books would be extinguished in the third quarter of 2014 and Additional Paid-In
Capital would be increased by approximately RMB72.7 million.



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



Not required.



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



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



See Item 18. for
our audited consolidated financial statements.



Legal Proceedings



China Ceramics
and certain of its current and former officers and directors are defendants in class action cases pending in the United States
District Court for the Southern District of New York.



78







On June 6, 2014,
Robert Pollock brought an action styled No. 14-CV-04100, Robert Pollock, et al., v. China Ceramics Co., Ltd., Huang Jia Dong,
Su Pei Zhi, Hen Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky, Su Wei Feng, Shen Cheng Liang
and Jianwei Liu, in the United States District Court for the Southern District of New York. In this action, the plaintiff purports
to bring a federal securities fraud class action on behalf of purchasers of the publicly traded securities of China Ceramics between
March 30, 2012 and May 1, 2014. The action asserts that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
by making certain false and misleading statements and omissions to the investing public regarding the Company’s business
operations, management, and future prospects. The complaint also alleges liability against the individual defendants under Section
20(a) of the Exchange Act.



On June 16, 2014,
Roger Artinoff brought an action styled 14-CV-04312, Roger Artinoff, et al., v. China Ceramics Co., Ltd., et al., in the United
States District Court for the Southern District of New York. On July 2, 2014, Richard Finlayson brought an action styled 14-CV-04997,
Richard Finlayson, et al., v. China Ceramics Co., Ltd., et al., in the United States District Court for the Southern District
of New York. These actions make allegations against the defendants substantially similar to those made in the Pollack action.



We plan to defend
ourselves vigorously in these lawsuits; however, failure by us to obtain a favorable resolution of the claims set forth in the
complaint could have a material adverse effect on our business, results of operations and financial condition. Moreover, certain
of our officers and directors have been named as defendants in these lawsuits and we are obliged to indemnify them and advance
costs to them for their defense. Currently, the amount of such material adverse effect cannot be reasonably estimated, and no
provision or liability has been recorded for these claims. The costs associated with defending and resolving the lawsuit and ultimate
outcome cannot be predicted. These matters are subject to inherent uncertainties and the actual cost, as well as the distraction
from the conduct of our business, will depend upon many unknown factors and management’s view of these may change in the
future.



Dividend Policy



Our Board of Directors
has discretion to pay dividends. The form, frequency and amount will depend upon our future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant.
Although we have paid dividends in the past, there is no assurance that we will continue to pay dividends in the future.



On February 25,
2014, we announced two semi-annual cash dividends of $0.0125 per share. The first dividend was paid on July 14, 2014 and the second
will be payable on January 14, 2015, with record dates of June 13, 2014 and December 12, 2014, respectively.



We are a holding
company incorporated in the British Virgin Islands. We rely on dividends paid by our Hong Kong and Chinese subsidiaries for our
cash needs. The payment of dividends by entities organized in China is subject to limitations. If the Boards of our Chinese subsidiaries
decide to pay dividends in the future, these restrictions may impede our ability to pay dividends and/or the amount of dividends
we could pay. In addition, if our Chinese subsidiaries incur debt on their own behalf in the future, the instruments governing
the debt may restrict their ability to pay dividends or make other distributions to us.



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



Except as disclosed
elsewhere in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated financial
statements included in this Annual Report.



79







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



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



The following
tables set forth, for the calendar quarters indicated and through June 30, 2014, the quarterly high and low sale prices for our
shares, as reported on NASDAQ Stock Market, the OTC Bulletin Board or the NYSE Amex, as applicable. The OTC Bulletin Board market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions. On May 1, 2014, the Nasdaq Stock Market (“Nasdaq”) halted trading in our ordinary shares and notified
us of our non-compliance with the Nasdaq Marketplace continued listing requirements, as further described below.



|                         |  | Shares |      
|------------------------ |  | ------ | -----
|                         |  | High   |      
|Annual Highs and Lows    |  |        |      
|2009                     |  |        | 10.01
|2010                     |  |        | 10.10
|2011                     |  |        | 8.48 
|2012                     |  |        | 4.25 
|2013                     |  |        | 4.06 
|Quarterly Highs and Lows |  |        |      
|2012                     |  |        |      
|First Quarter            |  |        | 4.25 
|Second Quarter           |  |        | 3.99 
|Third Quarter            |  |        | 3.09 
|Fourth Quarter           |  |        | 2.54 
|2013                     |  |        |      
|First Quarter            |  |        | 3.44 
|Second Quarter           |  |        | 2.53 
|Third Quarter            |  |        | 3.34 
|Fourth Quarter           |  |        | 4.06 
|2014                     |  |        |      
|First Quarter            |  |        | 2.41 
|Second Quarter           |  |        | 1.69 
|Monthly Highs and Lows   |  |        |      
|January 2014             |  |        | 2.41 
|February 2014            |  |        | 2.21 
|March 2014               |  |        | 1.89 
|April 2014               |  |        | 1.69 
|May 2014*                |  |        | —    
|June 2014*               |  |        | —    



*Trading on
the Nasdaq Stock Market was halted at the open of trading on May 1, 2014 and remains halted as of the date of this Annual Report.



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



Not Applicable.



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



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



On May 1, 2014,
the Nasdaq Stock Market (“Nasdaq”) halted trading in our ordinary shares and notified us of our non-compliance with
the Nasdaq Marketplace continued listing requirements. We had previously notified Nasdaq (i) of our inability to timely file this
Annual Report on Form 20-F, and (ii) of our termination of Grant Thornton Shanghai PRC (“GT”) as our principal independent
registered public accountants on April 30, 2014.



80







Following the
trading halt on May 1, 2014, we received a letter from Nasdaq informing us that we no longer complied with the Nasdaq requirements
for continued listing set forth in Nasdaq Listing Rule 5250(c)(1), which requires the timely filing of periodic reports. The non-compliance
cited was the result of our failure to timely file this Annual Report on Form 20-F for the year ended December 31, 2013. The letter
stated that the Nasdaq Staff pursuant to Nasdaq Listing Rule 5101 was affording us the opportunity to submit a plan prior to June
2, 2014 that addressed the details of our plan to regain compliance with the Nasdaq Marketplace Rules. The letter recited that
the Nasdaq Marketplace Rules provide that the Staff can grant us an extension of up to 180 calendar days from the filing's due
date to regain compliance if Nasdaq accepts our plan of compliance.



We submitted our
plan of compliance on June 2, 2014. The plan anticipated that we would regain compliance with our public reporting obligations
by August 15, 2014. On June 11, 2014, we received a notification from the Nasdaq Staff stating that, having reviewed our plan
of compliance, the Staff determined to grant a listing exception to enable us to regain compliance with the Nasdaq Rules. Specifically,
the Staff noted that in order to comply with the terms of the exception, we must, on or before August 15, 2014, file our Form
20-F for the period ended December 31, 2013.



We believe that
with the filing of this Form 20-F prior to the August 15, 2014 deadline we have satisfied the terms of the plan of compliance
we submitted to Nasdaq, and that we are in compliance with the Nasdaq Marketplace Rules. There can be no assurance that Nasdaq
will agree, that Nasdaq will not take action to delist our ordinary shares or that trading on Nasdaq will recommence.



| | 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 an
administrative services agreement dated as of December 1, 2009 between us and Stuart Management Co., an affiliate of Paul K. Kelly,
former Chairman of the board of directors, China Ceramics paid $7,000 a month plus out-of-pocket expenses to Stuart Management
Co. for administrative services. From December 1, 2013, China Ceramics began paying $4,900 a month plus out-of-pocket expenses
to Stuart Management Co. for administrative services. The agreement is for a term of one year and shall automatically renew for
successive one-year terms unless either party notifies the other of its intent not to renew.



81







During 2013,
we entered into certain foreign currency transaction agreements with an unaffiliated financial institution related to the fluctuation
in value of the Renminbi against the U.S. dollar. We recorded fair value gains on these agreements totaling RMB3,346,000 for the
year ended December 31, 2013. However, in 2014, as the Renminbi depreciated against the U.S. dollar, we incurred realized and
unrealized losses totaling RMB70,312,000 ($11,615,000) for the six months ended June 30, 2014 in connection with these agreements.
On July 31, 2014, Sound Treasure Limited, our largest shareholder and an affiliate of our Chief Executive Officer, executed an
agreement (the “Novation”) with us and the financial institution that originated the foreign currency transaction
agreements pursuant to which Sound Treasure Limited assumed these agreements and all assets (mainly deposits placed with the financial
institution) and all existing and future liabilities arising under these agreements, and we were released from the liabilities
arising under the foreign currency transaction agreements. As a result, we will not be required to fund any losses related to
these agreements, and will neither suffer any future liabilities arising under those agreements nor enjoy any benefits arising
under those agreements.



At the time
that each of the foreign currency transaction agreements was established with the financial institution, we were required to deposit
monies (the “Deposits”) with the financial institution that was the counterparty to the agreements. RMB6.7 million
of a total of RMB15.1 million in deposits that we made were funded on our behalf by Wong Kung Tok (who is the brother-in-law of
our Chief Executive Officer), and were included in a total of RMB40.2 million in loans owing by us to Wong Kung Tok as of July
9, 2014. In connection with the Novation discussed above, our Chief Executive Officer, Sound Treasure Limited and Wong Kung Tok
executed an agreement with the Company on July 31, 2014 (the “Offset Agreement”) pursuant to which loans totaling
RMB20.7 million owed by us to Wong Kung Tok were transferred to Sound Treasure Limited and then were forgiven by Sound Treasure
Limited, and in return the Company agreed to forego any claim to RMB15.1 million in Deposits under the foreign currency transaction
agreements which were transferred to Sound Treasure Limited pursuant to the Novation.



The Novation
and the Offset Agreement became effective on July 31, 2014.



Except for the
above, we did not enter into any other material contracts during fiscal years 2012 or 2013.



| | 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
shares, sometimes referred to 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.



82







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.



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.



83







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%.



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.



84







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.



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.



85







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 cannot 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.



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.



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.



86







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:



| | · | 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;
| | - | --------------------------------------------------------------------------------------------------



| | · | controlled
                                         foreign corporations; or
| | - | ----------------------------------------------------------------------------



| | · | passive foreign
                                         investment companies.
| | - | ------------------------------------------------------------------------------



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.



87







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 regulations recently promulgated under Section 7874, a warrant holder
of either the acquired corporation or the acquiring corporation generally is treated for this purpose as owning stock of the acquired
corporation or the acquiring corporation, as the case may be, with a value equal to the excess of the value of the shares underlying
the warrant over the exercise price of the warrant. If Section 7874(b) were to apply to the Redomestication, then, among other
things, 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 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 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.



88







With respect to
non-corporate U.S. Holders, 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 Securities” 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 or will
be traded 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.



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.



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.



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 20%. 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 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 any gain, 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.



Additional
Taxes



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, without limitation, dividends on, and gains from the sale or other taxable disposition of,
China Ceramics’ securities, subject to certain limitations and exceptions. Under recently issued proposed regulations, in
the absence of a special election, such unearned income generally would not include income inclusions under the qualified electing
fund, or QEF, rules discussed below under “ –Passive Foreign Investment Company Rules,” but would include distributions
of earnings and profits from a QEF. 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.



89







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 composition
(and estimated values) of the assets and the nature of the income of China Ceramics and its subsidiaries during its 2012 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 2012 taxable year, there can be no assurance in respect to its PFIC status
for such year. There also can be no assurance with respect to China Ceramics’ status as a PFIC for its current (2013) 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 and, the U.S. Holder did not make a timely QEF election for China Ceramics’ first taxable year
as a PFIC in which the U.S. Holder held (or was deemed to hold) shares, a QEF election along with a purging election or a mark-to-market
election, each as described below, such holder generally will be subject to special rules for regular U.S. federal income tax
purposes with respect to:



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



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



| | · | 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 (or a QEF election along with a purging election). Pursuant to the QEF election,
a U.S. Holder will be required 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.



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 (Information 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.



90







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.



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 QEF election, along with a purge of the PFIC taint pursuant to a purging election,
as described below), 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, for regular U.S. federal income tax purposes, 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 such U.S. Holders. 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 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 the holder
files on a timely filed U.S. income tax return (including extensions) a QEF election and a purging election to recognize under
the rules of Section 1291 of the Code any gain that it would otherwise recognize if the U.S. Holder sold its shares for their
fair market value on the “qualification” date. The qualification date is the first day of China Ceramics’
tax year in which it qualifies as a QEF with respect to such U.S. Holder. The purging election can only be made if such U.S. Holder
held shares on the qualification date. 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 by the amount of the gain recognized and will also have a new holding period
in the shares for purposes of the PFIC rules.



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 for each year that China
Ceramics is treated as a PFIC 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.



91







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 or will
be traded 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.



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. Holder’s 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 in China Ceramics should consult their own tax advisors concerning the application
of the PFIC rules to such shares under their particular circumstances.



Non-U.S.
Holders



Cash 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 disposition and certain other conditions are
met (in which case, such gain from U.S. 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 regular U.S. federal income tax at the same regular
U.S. federal income tax rates 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.



92







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, 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, and certain holders may be required to file an IRS Form 8938 (Statement of Specified
Foreign Financial Assets) to report their interest in our securities.



Moreover,
backup withholding of U.S. federal income tax at a rate of 28% 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.



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 accessed at http://www.sec.gov.



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



Not required.



93







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. Interest-earning instruments carry a degree of interest rate risk. As of December 31, 2013,
our total outstanding loans for the continuing operations amounted to RMB 99.7 million ($16.5 million) with interest rates in
the range of 2.13000% to 7.8000% per annum. We have not been exposed, nor do we anticipate being exposed, to material risks due
to changes in market interest rates.



Foreign
Currency Risk



During 2013
we entered into certain foreign currency transaction agreements with an unaffiliated financial institution related to the fluctuation
in value of the Renminbi against the U.S. dollar, for investment and not hedging purposes. The Company recorded fair value gains
on these agreements totaling RMB3,346,000 for the year ended December 31, 2013. However, in 2014, as the Renminbi depreciated
against the U.S. dollar, we incurred realized and unrealized losses totaling RMB70,312,000 ($11,615,000) for the six months ended
June 30, 2014 in connection with these agreements. We do not intend to enter into similar investment transactions in the future.



In June
2014, we, our Chief Executive Officer and the Audit Committee set out to attempt to terminate the foreign currency transaction
agreements; and to reach a resolution that would preclude the depletion of our liquid assets by virtue of its having entered into
the foreign currency transaction agreements. Ultimately our Chief Executive Officer agreed to cause an entity controlled by him
to assume those agreements. On July 31, 2014, Sound Treasure Limited, our largest shareholder and an affiliate of our Chief Executive
Officer, executed an agreement (the “Novation”) with us and the financial institution that originated the foreign
currency transaction agreements pursuant to which Sound Treasure Limited assumed these agreements and all assets (mainly deposits
placed with the financial institution) and all existing and future liabilities arising under these agreements, and we were released
from the liabilities arising under the foreign currency transaction agreements. As a result, we will not be required to fund any
losses related to these agreements, and will neither suffer any future liabilities arising under those agreements nor enjoy any
benefits arising under those agreements.



At the time
that each of the foreign currency transaction agreements was established with the financial institution, we were required to deposit
monies (the “Deposits”) with the financial institution that was the counterparty to the agreements. RMB6.7 million
of a total of RMB15.1 million in deposits that we made were funded on our behalf by Wong Kung Tok (who is the brother-in-law of
our Chief Executive Officer), and were included in a total of RMB40.2 million in loans owing by us to Wong Kung Tok as of July
9, 2014. In connection with the Novation discussed above, our Chief Executive Officer, Sound Treasure Limited and Wong Kung Tok
executed an agreement with the Company on July 31, 2014 (the “Offset Agreement”) pursuant to which loans totaling
RMB20.7 million owed by us to Wong Kung Tok were transferred to Sound Treasure Limited and then were forgiven by Sound Treasure
Limited, and in return the Company agreed to forego any claim to RMB15.1 million in Deposits under the foreign currency transaction
agreements which will be transferred to Sound Treasure Limited pursuant to the Novation.



The Novation
and the Offset Agreement became effective on July 31, 2014. The exact financial impact of these agreements will be determined
as of their effective date, and following receipt by us of the July 2014 statements from the financial institution. The latest
statements that the Company received were June 2014 statements. Assuming that the Novation and the Offset Agreement took effect
on July 1, 2014 and based on the statements on June 30, 2014, the financial impact of the Novation and Offset Agreements would
be as follows: Sound Treasure Limited would release us from liabilities of RMB67.1 million related to unpaid liabilities (fair
value) arising under the foreign currency transaction agreements and the loans of RMB20.7 million, and we would transfer ownership
of RMB15.1 million in Deposits held at the financial institution to Sound Treasure Limited. As a result of the Novation and the
Offset Agreement (and assuming both of those agreements took effect on July 1, 2014), approximately RMB87.8 million in liabilities
and RMB15.1 million in assets on our books would be extinguished in the third quarter of 2014 and Additional Paid-In Capital would
be increased by approximately RMB72.7 million.



94







Except as disclosed
above, 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 have no present intention to
enter into currency hedging transactions in the future. we may decide to enter into hedging transactions 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.



95







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.



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 within the meaning of Rules 13a-15(e) and 15d-15(e) of the
Exchange Act as of December 31, 2013. Based on such evaluation, our management has concluded that our disclosure controls and
procedures as of December 31, 2013 were not effective. The conclusion was reached primarily due to the material weakness in our
internal control over financial reporting described below.



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 disclosures.



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, 2013 were not effective for the reasons set forth in “Reasons For Delay in Filing Form
20-F” below.



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 and fairly 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.



96







Because of its
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.



Our management,
including our Chief Executive Officer and Chief Financial Officer, has 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 as of December 31, 2013. Management has concluded that our
internal control over financial reporting was not effective as of December 31, 2013.



The specific material
weakness we identified in our internal control over financial reporting related to the lack of sufficient qualified accounting
personnel with appropriate understanding of IFRS and SEC reporting requirements commensurate with our financial reporting requirements.



After the material
weakness was reported to our audit committee, the audit committee approved an action plan that requires our management to remediate
the weakness. In accordance with the action plan, we have set up a timeline for the internal review process and have engaged an
additional external consultant to conduct a separate and independent review of our financial reporting.



We believe that
the measures described above will improve our ability to prepare financial information and consolidated financial statements.
Although we are still in the process of strengthening our controls and procedures in order to eliminate inadvertent errors, deficiencies
and deviations that can appear in the normal course of business and achieve full compliance with Section 404 of the Sarbanes-Oxley
Act of 2002, our management believes that the controls and procedures implemented to date have already enhanced the reliability
of the financial information produced by us.



Attestation
report of the registered public accounting firm



This Annual Report
does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the
Securities and Exchange Commission.



Changes
in Internal Controls over Financial Reporting



During its evaluation
of the effectiveness of internal control over financial reporting as of December 31, 2013, management identified that in our internal
control over financial reporting there was a lack of sufficient qualified accounting personnel with appropriate understanding
of IFRS and SEC reporting requirements commensurate with our financial reporting requirements, and concluded that to meet the
requirements of being a U.S. public company, we need to enhance our supervision, monitoring and review of the financial statements
preparation processes.



| | 1. | We adopted additional internal review procedures with respect to
                                         required disclosures in the reports that we file with, or submit to, the SEC under the
                                         Exchange Act.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On July 24, 2014, we contracted with a US internal control consulting
                                         firm to act as our consultant to conduct a separate and independent review of our financial
                                         reporting.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



97







| | 3. | Our finance and accounting staff members will attend seminars organized
                                         by professional accountancy bodies.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------



Other than as
set forth above, there have not been any changes in internal control over financial reporting that occurred during the period
covered by this annual report that have materially affected, or are reasonably likely to materially affect our internal control
over financial reporting.



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.



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



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 /Corporate-Governance.html.



ITEM 16C.          PRINCIPAL
ACCOUNTANT FEES AND SERVICES.



The following
table represents the approximate aggregate fees for services rendered by Grant Thornton Shanghai, PRC and Crowe Horwath (HK) CPA
Limited for the periods indicated:



|                                                  |  | December 31, 2011 |           |  | December 31, 2012 |  |           | December 31, 2013 | 
|------------------------------------------------- |  | ----------------- | --------- |  | ----------------- |  | --------- | ----------------- | 
|                                                  |  | RMB               |           |  | RMB               |  |           | RMB               | 
|Audit Fees - Grant Thornton Shanghai, PRC         |  |                   | 2,955,316 |  |                   |  | 2,761,732 |                   | 
|Audit Fees - Crowe Horwath (HK) CPA Limited       |  |                   | -         |  |                   |  | -         |                   | 
|Audit Related Fees - Grant Thornton Shanghai, PRC |  |                   | -         |  |                   |  | -         |                   | 
|Tax Fees                                          |  |                   | -         |  |                   |  | -         |                   | 
|All Other Fees - Grant Thornton Shanghai, PRC     |  |                   | -         |  |                   |  | 70,180    |                   | 
|Total Fees                                        |  |                   | 2,955,316 |  |                   |  | 2,831,912 |                   | 



Audit
Fees



Crowe Horwath
(HK) CPA Limited audit fees for 2013 consisted of fees in relation to the audit of our financial statements for the three years
ended December 31, 2011, 2012 and 2013.



Audit fees
paid to Grant Thornton Shanghai, 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 reviews of the quarterly financial results submitted on Form 6-K for the three years ended December
31, 2011, 2012 and 2013. 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.



98







Audit
Related Fees



There were
no audit-related fees.



Tax
Fees



There were
no tax fees.



All
Other Fees



All other
fees paid to Grant Thornton Shanghai, PRC during our fiscal year ended December 31, 2012 comprise fees for specific procedures
performed as approved by the Audit Committee.



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.



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



No purchase of
our securities were made by us or our affiliates in 2013.



ITEM
16F.           CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.



On May 1,
2014, we announced that the Audit Committee of the Board had terminated the engagement of Grant Thornton (Shanghai, PRC), our
principal independent registered public accountants (“GT”), and approved the engagement of Crowe Horwath (HK) CPA
Limited (“Crowe HK”), as our principal independent registered public accountant to audit our financial statements
for each of the years in the three years period ended December 31, 2013. During our two most recent fiscal years, and any subsequent
interim period prior to engaging Crowe HK, neither we nor anyone on our behalf consulted Crowe HK regarding the application of
accounting principles, the type of audit opinion that might be rendered on our financial statements, or any matter that was either
the subject of a disagreement or a reportable event (each as defined in Item 16F(a)(1)(iv) of Form 20-F).



On June
4, 2014, GT informed us that reliance should no longer be placed on its audit opinions for the years ended December 31, 2010 through
2012.



During the
course of its audit of our 2013 financial statements, GT raised certain questions with our management. GT raised questions regarding
(i) a discrepancy related to a bank confirmation from one bank, (ii) a difference between the taxation information posted on a
local PRC government website and our own records, (iii) what GT perceived to be certain hand writing similarities on envelopes
relating to a few confirmations received from our distributors, and (iv) one of our distributors that had an outstanding balance
owed to us at year end had ceased operations. We provided explanations in response to each of the questions, and the Audit Committee
discussed these questions with GT, but the questions were not resolved to GT’s satisfaction at the time we terminated GT
based on what we felt was an absence of effective communication.



99







With respect
to the specific items raised by GT, we believe each item has been addressed as follows:



| | (i) | Bank Confirmation Received from Pingan Bank. GT informed us
                                         that it received a bank confirmation from Pingan Bank, and that the bank’s teller
                                         at Pingan Bank made a notation on the confirmation stating that we also had a RMB30 million
                                         bank acceptance note issued by us (similar to a post-dated check) outstanding as of December
                                         31, 2013. We responded to GT that this was a clerical error committed by the bank. In
                                         turn, GT asked us to request that the bank provide an explanation for the erroneous confirmation
                                         and that the bank send that explanation directly to GT. We made a written request that
                                         the bank provide an explanation directly to GT, and understand that approximately one
                                         week later, GT received a letter from the bank explaining that the previous confirmation
                                         was a mistake and that there was no outstanding bank acceptance note. GT has never provided
                                         a copy of that correspondence to us, but we understand that the correspondence was duly
                                         “chopped” and that it was issued by a different department at the bank. GT
                                         questioned the validity of the bank’s correction of its initial confirmation, and
                                         informed us that a bank teller at Pingan Bank told a GT representative that she would
                                         have been the person at the bank responsible for issuing any such follow-on correspondence
                                         and that she did not generate the correspondence that explained that the initial confirmation
                                         contained an erroneous reference to an outstanding bank acceptance note.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Taxation Information from Local Government Website. GT notified
                                         us that it had noticed a posting on a local district government website that indicated
                                         that we are is one of the top taxpayers in that district and that we had paid RMB10-20
                                         million in taxes (income tax and VAT) for 2012. However, GT raised the concern that our
                                         records and financial statements reflect that we paid in excess of RMB100 million in
                                         taxes in 2012. We cautioned GT that the local government’s calculation is different
                                         from the tax bureau’s calculation, and also shared our belief that the local government
                                         website might only reflect the tax paid to the domestic tax bureau and not the tax paid
                                         to the national tax bureau. We thereafter sought and received a certification from the
                                         tax bureau that all taxes due and owing by us for the subject periods have been paid.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | Similar Hand Writing on Three Accounts Receivable Confirmation
                                         Envelopes. GT informed us that it noticed that there were accounts receivable confirmations
                                         sent to GT from three customers that appeared to have “very similar hand writing”
                                         on their envelopes. According to GT, the three confirmations are from three different
                                         companies in three different locations in China. When so informed by GT, we checked with
                                         our distributors and customers and confirmed that each sent out its own confirmation
                                         to GT. We offered to assist GT in obtaining additional comfort regarding the status of
                                         the amounts confirmed. We are aware that certain of our employees did assist their customers
                                         with the process to assure that the confirmations were received by GT in a timely fashion.
                                         That assistance involved the preparation of the return envelopes in which certain customer
                                         confirmations were deposited and transmitted. Said employees did not complete the confirmations,
                                         and there has been no indication that the confirmations were anything but accurate.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | Customer Closed Its Business. GT informed us that it noticed
                                         in March 2014 that one of our distributors is listed as “de-registered” on
                                         the government website. That particular distributor purchased RMB23 million in product
                                         from us in 2013 and had a RMB13 million accounts receivable balance at the end of the
                                         year. We notified GT that the distributor informed us of its intent to close its business
                                         and paid its outstanding balance with us before the distributor closed.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to
the foregoing explanations provided by our management, the Audit Committee discussed with GT implementing additional special procedures
or conducting an internal investigation in order to address GT’s concerns. GT rejected these suggestions and, instead, insisted
that we conduct an independent investigation of the concerns outline above, which, in turn, would have rendered the timely completion
of the 2013 audit and timely filing of the 2013 Annual Report all but impossible. The Audit Committee and the Company also believe
that GT’s request for an independent investigation was premature and disproportionate given the nature of the concerns raised.
In addition, a majority of the Audit Committee believed that communications between GT and our management and the Audit Committee
had become significantly impaired. In light of the foregoing, the Audit Committee and the Board voted to dismiss GT and to engage
Crowe HK to implement additional procedures in the audit of the Company’s financial statements for the fiscal year ended
December 31, 2013 and to re-audit of the prior fiscal years ended December 31, 2012 and 2011 to address the questions raised by
GT.



100







The Company
has provided GT with a copy of the foregoing disclosures and has requested that GT review such disclosures and provide a letter
addressed to the SEC as specified by Item 16.F of Form 20-F. GT’s letter will be filed by amendment.



We also
requested our new independent registered public accountants, Crowe HK, to review the foregoing disclosures regarding them. We
offered Crowe HK the opportunity to furnish us with a letter addressed to the SEC containing any new information, clarification
of our expression of our views or the respects in which it does not agree with our statements in response to Item 16F of Form
20-F.



Crowe
HK informed us that it had no disagreement with the disclosure regarding them. Consequently, it declined the opportunity to
furnish us with such a letter.



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 2011. Neither our Memorandum and Articles of Association nor the law of the British Virgin Islands require us to hold an annual
meeting of shareholders.



ITEM 16H.          MINE
SAFETY DISCLOSURE



Not
applicable.



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)                                                                                                                                                                                                          
|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)                                                                                                            
|            |  | amendment to administrative services agreement to be added                                                                                                                                                                                    
|4.10        |  | License Agreement between Huang Jia Dong and Jinjiang Hengda Ceramics Co., Ltd.(6)                                                                                                                                                            



101







|4.11 |  | China Ceramics Co., Ltd. 2010 Incentive Compensation Plan(7)                                                                                                                 
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.12 |  | Employment Agreement, dated as of February 1, 2013, by and between China Ceramics and Huang Jia Dong                                                                         
|4.13 |  | Employment Agreement, dated as of February 1, 2013, by and between China Ceramics and Su Pei Zhi                                                                             
|4.14 |  | Employment Agreement, dated as of February 1, 2013, by and between China Ceramics and Su Wei Feng                                                                            
|4.15 |  | Employment Agreement, dated as of August 1, 2012, by and between China Ceramics and Hen Man Edmund                                                                           
|4.16 |  | Term sheets relating to agreemens for derivative instruments                                                                                                                 
|4.17 |  | Agreement between Taishin International Bank, Co., Ltd., Stand Best Creation Limited and Sound Treasure Limited, dated
    July 31, 2014                                     
|4.18 |  | Agreement between Stand Best Creation Limited, Huang Jia Dong, Wong Kung Tok, Mr. Huang’s brother-in-law, and Sound
    Treasure Limited, dated July 31, 2014                
|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 18 U.S.C. 1350, as adopted pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002
|15.1 |  | Consent of Crowe Horwath (HK) CPA Limited, 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



102







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.
|------------- | ------------------------
|              |                         
|July 31, 2014 | By:                     
|              |                         
|              |                         
|              |                         
|              |                         
|              |                         
|              | CHINA CERAMICS CO., LTD.
|              |                         
|July 31, 2014 | By:                     
|              |                         
|              |                         
|              |                         
|              |                         



103









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 Profit or Loss and Other Comprehensive Income
    for the years ended December 31, 2013, 2012 and 2011 | F-3 
|                                                                                                                                  |     
|Consolidated Statements of Financial Position as of December 31, 2013,
    2012 and 2011                                          | F-4 
|                                                                                                                                  |     
|Consolidated Statements of Changes in Equity for the years ended December
    31, 2013, 2012 and 2011                             | F-5 
|                                                                                                                                  |     
|Consolidated Statements of Cash Flows for the years ended December 31,
    2013, 2012 and 2011                                    | F-6 
|                                                                                                                                  |     
|Notes to Consolidated Financial Statements                                                                                        | F-7 











China Ceramics
Co., Ltd. and Its Subsidiaries



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the 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 (the “Company”) as of December 31,
2013, 2012 and 2011, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity
and cash flows for each of the years in the three-year period ended December 31, 2013. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company AccountingOversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of
the Company’s internal control over financial reporting. Our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes 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 consolidated financial position of the Company and
its subsidiaries as of December 31, 2013, 2012 and 2011, and the consolidated results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2013, in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board.



/s/ Crowe Horwath (HK) CPA Limited

Hong Kong, China

July 31, 2014



F-2







China Ceramics
Co., Ltd. and Its Subsidiaries



Consolidated Statements of Profit
or Loss and Other Comprehensive Income



|                                                                                      |  |       |  | For the year ended December
    31, |         
|------------------------------------------------------------------------------------- |  | ----- |  | ----------------------------------- | --------
|                                                                                      |  |       |  | 2013                                |         
|                                                                                      |  | Notes |  | RMB’000                             |         
|Revenue                                                                               |  | 5     |  |                                     | 932,894 
|                                                                                      |  |       |  |                                     |         
|Cost of sales                                                                         |  |       |  |                                     | (878,818
|                                                                                      |  |       |  |                                     |         
|Gross profit                                                                          |  |       |  |                                     | 54,076  
|                                                                                      |  |       |  |                                     |         
|Other income                                                                          |  | 5     |  |                                     | 4,002   
|Selling and distribution expenses                                                     |  |       |  |                                     | (9,814  
|Administrative expenses                                                               |  |       |  |                                     | (27,565 
|Finance costs                                                                         |  | 6     |  |                                     | (4,201  
|Other expenses                                                                        |  | 11    |  |                                     | (20,195 
|                                                                                      |  |       |  |                                     |         
|(Loss)/profit before taxation                                                         |  | 7     |  |                                     | (3,697  
|Income tax credit/(expense)                                                           |  | 8     |  |                                     | 1,665   
|                                                                                      |  |       |  |                                     |         
|(Loss)/profit attributable to shareholders                                            |  |       |  |                                     | (2,032  
|                                                                                      |  |       |  |                                     |         
|Other comprehensive income for the year,  net of tax:                                 |  |       |  |                                     |         
|Items that may be reclassified subsequently to profit or loss:                        |  |       |  |                                     |         
|Exchange differences on translation of financial statements
    of foreign operations |  |       |  |                                     | (41     
|Total comprehensive (loss)/income for the year                                        |  |       |  |                                     | (2,073  
|                                                                                      |  |       |  |                                     |         
|(Loss)/earnings per share                                                             |  |       |  |                                     |         
|Basic (RMB)                                                                           |  | 9     |  |                                     | (0.10   
|Diluted (RMB)                                                                         |  | 9     |  |                                     | (0.10   



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



F-3







China Ceramics
Co., Ltd. and Its Subsidiaries



Consolidated Statements of Financial
Position





|                                       |  |           |  | As of December 31, |          
|-------------------------------------- |  | --------- |  | ------------------ | ---------
|                                       |  |           |  | 2013               |          
|                                       |  | Notes     |  | RMB’000            |          
|ASSETS AND LIABILITIES                 |  |           |  |                    |          
|Non-current assets                     |  |           |  |                    |          
|Property, plant and equipment          |  | 11        |  |                    | 802,578  
|Land use rights                        |  | 12        |  |                    | 29,929   
|Goodwill                               |  | 10 and 24 |  |                    | 3,735    
|Deferred tax assets                    |  | 8         |  |                    | 9,797    
|                                       |  |           |  |                    |          
|                                       |  |           |  |                    | 846,039  
|                                       |  |           |  |                    |          
|Current assets                         |  |           |  |                    |          
|Inventories                            |  | 13        |  |                    | 307,436  
|Trade receivables                      |  | 14        |  |                    | 490,989  
|Other receivables and prepayments      |  | 15        |  |                    | 15,525   
|Derivative financial instruments       |  | 27        |  |                    | 44       
|Restricted cash                        |  | 16        |  |                    | 37,359   
|Cash and bank balances                 |  | 16        |  |                    | 28,848   
|                                       |  |           |  |                    |          
|                                       |  |           |  |                    | 880,201  
|                                       |  |           |  |                    |          
|Current liabilities                    |  |           |  |                    |          
|Trade payables                         |  | 17        |  |                    | 152,572  
|Accrued liabilities and other payables |  | 18        |  |                    | 43,140   
|Interest-bearing bank borrowings       |  | 19        |  |                    | 99,652   
|Amounts owed to related parties        |  | 25        |  |                    | 8,539    
|Income tax payable                     |  |           |  |                    | 1,520    
|                                       |  |           |  |                    |          
|                                       |  |           |  |                    | 305,423  
|                                       |  |           |  |                    |          
|Net current assets                     |  |           |  |                    | 574,778  
|                                       |  |           |  |                    |          
|Non-current liabilities                |  |           |  |                    |          
|Interest-bearing bank borrowings       |  | 19        |  |                    | -        
|Deferred tax liabilities               |  | 8         |  |                    | 1,245    
|                                       |  |           |  |                    |          
|                                       |  |           |  |                    | 1,245    
|                                       |  |           |  |                    |          
|Net assets                             |  |           |  |                    | 1,419,572
|                                       |  |           |  |                    |          
|EQUITY                                 |  |           |  |                    |          
|Share capital                          |  | 20        |  |                    | 137      
|Reserves                               |  | 21        |  |                    | 1,419,435
|                                       |  |           |  |                    |          
|Total shareholder’s equity             |  |           |  |                    | 1,419,572





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



F-4







China Ceramics
Co., Ltd. and Its Subsidiaries



Consolidated Statements of Changes
in Equity





|                                                                                      |  | Outstandingsharecapital |     |  | Sharepremium |  |         | Reverserecapitalizationreserve |  |  | MergerReserve |   |  | Share-basedpaymentreserve |        |  | Statutoryreserve |  |         | Retainedearnings |  |  | Currencytranslationreserve |  |  | TotalEquity |        
|------------------------------------------------------------------------------------- |  | ----------------------- | --- |  | ------------ |  | ------- | ------------------------------ |  |  | ------------- | - |  | ------------------------- | ------ |  | ---------------- |  | ------- | ---------------- |  |  | -------------------------- |  |  | ----------- | -------
|                                                                                      |  | RMB’000                 |     |  | RMB’000      |  |         | RMB’000                        |  |  | RMB’000       |   |  | RMB’000                   |        |  | RMB’000          |  |         | RMB’000          |  |  | RMB’000                    |  |  | RMB’000     |        
|                                                                                      |  | (Note
    20)           |     |  |              |  |         | (Note21(e))                    |  |  | (Note21(c))   |   |  | (Note21(d))               |        |  | (Note21(a))      |  |         |                  |  |  | (Note21(b))                |  |  |             |        
|Balance
    at January 1, 2011                                                        |  |                         | 112 |  |              |  | 659,532 |                                |  |  | (507,235      | ) |  |                           | 58,989 |  |                  |  | 98,300  |                  |  |  | 62,808                     |  |  |             | 509,998
|Net profit for the year                                                               |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | 294,439
|Exchange differences on translation
    of financial statements of foreign operations |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | -      
|Total comprehensive income
    for the year                                           |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | 294,439
|Issuance of new shares                                                                |  |                         | 12  |  |              |  | (12     | )                              |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | -      
|Transfer to statutory reserve                                                         |  |                         |     |  |              |  |         |                                |  |  |               |   |  |                           | -      |  |                  |  | -       |                  |  |  | 31,800                     |  |  |             | (31,800
|Employee share-based payment
    options                                              |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | 17,295  |                  |  |  | -                          |  |  |             | -      
|Balance
    at December 31, 2011                                                      |  |                         | 124 |  |              |  | 659,520 |                                |  |  | (507,235      | ) |  |                           | 58,989 |  |                  |  | 115,595 |                  |  |  | 94,608                     |  |  |             | 772,637
|                                                                                      |  |                         |     |  |              |  |         |                                |  |  |               |   |  |                           |        |  |                  |  |         |                  |  |  |                            |  |  |             |        
|Net profit for the year                                                               |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | 243,831
|Exchange differences on translation
    of financial statements of foreign operations |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | -      
|Total comprehensive income
    for the year                                           |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | 243,831
|Issuance of new shares                                                                |  |                         | 13  |  |              |  | (13     | )                              |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | -      
|Transfer to statutory reserve                                                         |  |                         |     |  |              |  |         |                                |  |  |               |   |  |                           | -      |  |                  |  | -       |                  |  |  | 25,347                     |  |  |             | (25,347
|Employee share-based payment
    options                                              |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | 5,651   |                  |  |  | -                          |  |  |             | -      
|Balance
    at December 31, 2012                                                      |  |                         | 137 |  |              |  | 659,507 |                                |  |  | (507,235      | ) |  |                           | 58,989 |  |                  |  | 121,246 |                  |  |  | 119,955                    |  |  |             | 991,121
|Net loss for the year                                                                 |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | (2,032 
|Exchange differences on translation
    of financial statements of foreign operations |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | -      
|Total comprehensive loss for
    the year                                             |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | (2,032 
|Transfer to statutory reserve                                                         |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | 3,057                      |  |  |             | (3,057 
|Employee share-based payment options                                                  |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | 2,117   |                  |  |  | -                          |  |  |             | -      
|Dividends declared and paid
    (Note 22)                                             |  |                         | -   |  |              |  | -       |                                |  |  | -             |   |  |                           | -      |  |                  |  | -       |                  |  |  | -                          |  |  |             | (23,662
|Balance
    at December 31, 2013                                                      |  |                         | 137 |  |              |  | 659,507 |                                |  |  | (507,235      | ) |  |                           | 58,989 |  |                  |  | 123,363 |                  |  |  | 123,012                    |  |  |             | 962,370







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



F-5







China Ceramics
Co., Ltd. and Its Subsidiaries



Consolidated Statements of Cash Flows



|                                                                                                   |  |          |  | For the year ended December
    31, |         
|-------------------------------------------------------------------------------------------------- |  | -------- |  | ----------------------------------- | --------
|                                                                                                   |  |          |  | 2013                                |         
|                                                                                                   |  | Notes    |  | RMB’000                             |         
|Cash flows from operating activities                                                               |  |          |  |                                     |         
|(Loss)/profit before taxation                                                                      |  |          |  |                                     | (3,697  
|Adjustments for                                                                                    |  |          |  |                                     |         
|Amortization of land use rights                                                                    |  | 7 and 12 |  |                                     | 669     
|Depreciation of property, plant and equipment                                                      |  | 7 and 11 |  |                                     | 69,553  
|Loss on disposal of property, plant and equipment                                                  |  | 11       |  |                                     | 18,926  
|Realized gain from derivative financial instruments                                                |  | 5        |  |                                     | (3,302  
|Fair value gain on derivative financial instruments                                                |  | 5        |  |                                     | (44     
|Write down of inventories                                                                          |  | 13       |  |                                     | 23,414  
|Share-based compensation                                                                           |  | 23       |  |                                     | 2,117   
|Finance costs                                                                                      |  | 6        |  |                                     | 4,201   
|Interest income                                                                                    |  | 5        |  |                                     | (467    
|Operating cash inflow before working capital changes                                               |  |          |  |                                     | 111,370 
|Increase in inventories                                                                            |  |          |  |                                     | (40,247 
|(Increase)/decrease in trade receivables                                                           |  |          |  |                                     | (35,104 
|Decrease/(increase) in other receivables and prepayments                                           |  |          |  |                                     | 398     
|Increase/(decrease) in trade payables                                                              |  |          |  |                                     | 37,449  
|(Decrease)/increase in accrued liabilities,
    other payables and amounts owed to related parties |  |          |  |                                     | (11,114 
|Cash generated from operations                                                                     |  |          |  |                                     | 62,752  
|Interest paid                                                                                      |  |          |  |                                     | (4,408  
|Income tax paid                                                                                    |  |          |  |                                     | (6,229  
|Net cash generated
    from operating activities                                                   |  |          |  |                                     | 52,115  
|Cash flows from investing activities                                                               |  |          |  |                                     |         
|Proceed from derivative financial instruments                                                      |  |          |  |                                     | 3,302   
|Proceed from disposal of property, plant and equipment                                             |  |          |  |                                     | 1,994   
|Acquisition of property, plant and equipment                                                       |  | 11       |  |                                     | (97,068 
|Increase in restricted cash                                                                        |  |          |  |                                     | (37,359 
|Interest received                                                                                  |  |          |  |                                     | 467     
|Net cash used
    in investing activities                                                          |  |          |  |                                     | (128,664
|Cash flows from financing activities                                                               |  |          |  |                                     |         
|New bank borrowings                                                                                |  |          |  |                                     | 49,652  
|Repayment of short-term loans                                                                      |  |          |  |                                     | (10,000 
|Deposit to stock transfer agent for dividend payment                                               |  |          |  |                                     | (11,831 
|Dividend paid                                                                                      |  |          |  |                                     | (11,831 
|Net cash generated
    from/(used in) financing activities                                         |  |          |  |                                     | 15,990  
|Net (decrease)/increase in cash and
    cash equivalents                                           |  |          |  |                                     | (60,559 
|Cash and cash equivalents, beginning of year                                                       |  |          |  |                                     | 89,448  
|Effect of foreign exchange rate differences                                                        |  |          |  |                                     | (41     
|Cash and cash
    equivalents, end of year                                                         |  | 16       |  |                                     | 28,848  



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



F-6







CHINA CERAMICS CO.
LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 1. | GENERAL INFORMATION
| | -- | -------------------



China Ceramics Co., Ltd. (“China
Ceramics” or the “Company”) is a British Virgin Islands company operating under the BVI Business Companies Act
(2004) with its shares listed on the NASDAQ (“symbol: CCCL”). 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. The head office of the Company
is located at Junbing Industrial Zone, Jinjiang City, Fujian Province, the People’s Republic of China (“PRC”).



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.



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 became the operating entity of China Ceramics 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
for accounting purposes.



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 Reorganization” or the “Reorganization”), 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. Stand Best acquired 100% of Hengda’s equity interest from Anhai
Hengda and Chi Wah on April 1, 2008 at the consideration of RMB58,980,000.



Success Winner Limited (“Success
Winner”) was incorporated in the British Virgin Islands on May 29, 2009 as a limited liability company. Its paid-up and
issued capital is US$1 divided into 1 ordinary share solely owned by Mr. Wong Kung Tok.



F-7







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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.



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.



On September 17, 2013, Fujian Province
Hendali Building Materials Co., Ltd. (“Fujian Hengdali”) was incorporated in Pingtan, Fujian Province, 100% owned
by Hengda. Fujian Hengdali’s approved scope of business includes sales of building materials and interior and exterior decoration
materials.



China Ceramics and its subsidiaries’
(the “Company”) corporate structure as of December 31, 2013 is as follows:







F-8







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



|                                                                     |  | Place and                            |  | Nominal value   |  |                 |     |           
|-------------------------------------------------------------------- |  | ------------------------------------ |  | --------------- |  | --------------- | --- | ----------
|                                                                     |  | date of                              |  | of issued       |  | Percentage      |     |           
|                                                                     |  | incorporation or                     |  | ordinary share/ |  | of equity       |     |           
|                                                                     |  | establishment/                       |  | registered      |  | attributable to |     | Principal 
|Name                                                                 |  | operation                            |  | capital         |  | the Company     |     | activities
|                                                                     |  |                                      |  |                 |  | Direct          |     | Indirect  
|                                                                     |  |                                      |  |                 |  |                 |     |           
|Success Winner Limited                                               |  | British Virgin Islands  May 29, 2009 |  | US$1            |  |                 | 100 |           
|                                                                     |  |                                      |  |                 |  |                 |     |           
|Stand Best Creation Limited                                          |  | Hong Kong January 17, 2008           |  | HK$10,000       |  |                 | -   |           
|                                                                     |  |                                      |  |                 |  |                 |     |           
|Jinjiang Hengda Ceramics Co.,
    Ltd. (Note (i))                    |  | PRC September 30, 1993               |  | RMB288,880,000  |  |                 | -   |           
|                                                                     |  |                                      |  |                 |  |                 |     |           
|Jiangxi Hengdali Ceramic Materials
    Co., Ltd. (Note (ii))         |  | PRC May 4, 2008                      |  | RMB55,880,000   |  |                 | -   |           
|                                                                     |  |                                      |  |                 |  |                 |     |           
|Fujian Province Hendali Building
    Materials Co., Ltd (Note (iii)) |  | PRC September 17, 2013               |  | RMB1,000,000    |  |                 | -   |           



Notes:



|(i) | The registered capital of Hengda is RMB288,880,000, of which RMB274,833,000 had been paid
                                up as of December 31, 2013 (Note 26).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) | The registered capital of Hengdali is RMB55,880,000, which had been fully paid up.
|---- | ----------------------------------------------------------------------------------



|(iii) | The registered capital of Fujian Hengdali is RMB1,000,000, of which RMB1,000,000 had been
                                  fully paid up.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------



F-9







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 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 (“IFRSs”) as issued by the International
Accounting Standards Board (“IASB”), which collective term includes all applicable individual International Financial
Reporting Standards, International Accounting Standards and Interpretations issued by the IASB..



The significant accounting policies that
have been used in the preparation of these consolidated financial statements are summarized 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 Company’s
financial statements, if any, are disclosed in Note 3.



The consolidated financial statements have
been prepared on the historical cost basis, except for derivative financial instruments that have been measured at fair value.



The preparation of financial statements
in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies
and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical
experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying amounts of assets and liabilities not readily apparent from other sources. Actual results
may differ from these estimates.



The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised
if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current
and future periods.



Judgments made by management in the application
of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in
Note 4.



The consolidated financial statements were
approved and authorized for issue by the Board of Directors on July 29, 2014.



| | 2.2 | Basis of consolidation
| | --- | ----------------------



The Success Winner Acquisition on November
22, 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, 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 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.



F-10







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Success Winner and its subsidiaries as
a group is regarded as a continuing entity resulting from the Hengda Reorganization since the management of all the entities which
took part in the Reorganization were controlled by the same director and shareholder before and immediately after the Reorganization.
Immediately after the Reorganization, 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 Reorganization. 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
recognized 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.



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 Company, and
the Company 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 Company.



The accounting for the Hengdali Acquisition
under the acquisition method, 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 Company. 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.



The Company’s financial statements
consolidate those of the Company and all of its subsidiaries as of December 31, 2013. Subsidiaries are entities controlled by
the Company. The Company controls an entity when it is exposed, or has rights, to variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity. When assessing whether the Company has power,
only substantive rights (held by the Company and other parties) are considered. All subsidiaries have a reporting date of December
31.



Inter-company transactions, balances and
unrealized 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 Company.



| | 2.3 | Foreign currency translation
| | --- | ----------------------------



The financial statements are presented
in RMB (to the nearest thousand), being the currency that best reflects the economic substance of the underlying events and circumstances
relevant to the Company. The Company’s operations are conducted through the subsidiaries in the People’s Republic
of China (“PRC”). The functional currency of these subsidiaries is Renminbi (“RMB”).The functional currency
of China Ceramics is the United State dollars (US$)



F-11







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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 recognized
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.



In the consolidated financial statements,
all individual financial statements of foreign operations, originally presented in a currency different from the Company’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 recognized 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
| | --- | -----------------------------



Leasehold land and buildings for own
use



When a lease includes both land and building
elements, the Company assesses the classification of each element as a finance or an operating lease separately based on the assessment
as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Company,
unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease.
Specifically, the minimum lease payments (including any lump sum upfront payments) are allocated between the land and the building
elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the
lease at the inception of the lease.



To the extent the allocation of the lease
payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as "land
use rights" in the consolidated statement of financial position and is amortized over the lease term on a straight-line basis.



All buildings are depreciated over their
expected useful lives of 40 years.



F-12







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Other
property, plant and equipment



Property, plant and equipment are stated
in the statement of financial position at cost less any accumulated depreciation and any accumulated impairment losses.



Depreciation is provided to write off the
cost less their residual values over their estimated useful lives as follows, using the straight-line method:



|Plant and machinery | 10 years
|------------------- | --------
|Motor vehicles      | 10 years
|Office equipment    | 5 years 



The assets’ residual values, depreciation
methods and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period, with the effect of any
changes in estimate accounted for on a prospective basis.



Historical cost includes expenditure that
is directly attributable to the acquisition of the items. 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 the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized.
All other costs, such as repairs and maintenance, are charged to profit or loss during the financial period in which they are
incurred.



An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.



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.



| | 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 arising on an acquisition of a
business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.



For the purposes of impairment testing,
goodwill is allocated to each of the Company’s cash-generating units, or groups of cash-generating units, that is expected
to benefit from the synergies of the combination.



A cash-generating unit to which goodwill
has been allocated is tested for impairment annually, or more frequently whenever there is indication that the unit may be impaired.
If some or all of the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual
period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the
cash-generating unit is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of
any goodwill allocated to the unit and then to the other assets of the unit on a pro – rata basis based on the carrying
amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss
recognized for goodwill is not reversed in subsequent periods.



F-13







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



On disposal of the relevant cash generating
unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.



| | 2.7 | Inventories
| | --- | -----------



Inventories are carried at the lower of
cost and net realizable value. 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.



Net realizable value is the estimated selling
price in the ordinary course of business less the estimated cost of completion and applicable selling expenses.



When inventories are sold, the carrying
amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of
any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period
the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the
amount of inventories recognized as an expense in the period in which the reversal occurs.



| | 2.8 | 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 Company’s cash management.



| | 2.9 | Financial instruments
| | --- | ---------------------



Financial assets and financial liabilities
are recognized when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially
at fair value adjusted by transaction costs, except for those carried at fair value through profit or loss which are measured
initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below.



Financial assets are derecognized when
the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks
and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.



Classification and subsequent measurement
of financial assets



The Company’s financial assets include
cash and short-term deposits, trade and other receivables, loans and other receivables and derivative financial instruments.



For the purpose of subsequent measurement,
financial assets other than those designated and effective as hedging instruments are classified into the following categories
upon initial recognition:



| | - | Loans and receivables
| | - | ---------------------



| | - | Financial assets at fair value through profit or loss (“FVTPL”)
| | - | ---------------------------------------------------------------



| | - | Held-to-maturity (“HTM”) investments
| | - | ------------------------------------



| | - | Available-for-sale (“AFS”) financial assets
| | - | -------------------------------------------



F-14







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



All financial assets except for those at
FVTPL are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence
that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for
each category of financial assets, which are described below.



All income and expenses relating to financial
assets are recognized in profit and loss.



Loans and receivables



Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognized at
fair value plus transaction costs that are directly attributable to their acquisition or issue. After initial recognition, these
are subsequently measured at amortized cost using the effective interest method, less provision for impairment. Discounting is
omitted where the effect of discounting is immaterial. The Company’s cash and trade receivables fall into this category
of financial instruments.



Financial assets at FVTPL



Financial assets at FVTPL include financial
assets that are either classified as held for trading or that meet certain conditions and are designated at FVTPL upon initial
recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging
instruments, for which the hedge accounting requirements apply.



Assets in this category are measured at
fair value with net changes in fair value presented in the statement of profit or loss. Transaction costs are expensed as incurred.
The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation
technique where no active market exists.



HTM investments



HTM investments are non-derivative financial
assets with fixed or determinable payments and fixed maturity other than loans and receivables. Investments are classified as
HTM if the Company has the intention and ability to hold them until maturity.



HTM investments are measured subsequently
at amortized cost using the effective interest method. The Company does not have any financial assets classified as HTM.



AFS financial assets



AFS financial assets are non-derivative
financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of
financial assets. The Company does not have any financial assets classified as AFS.



After initial measurement, AFS financial
investments are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income and
credited in the AFS reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other
operating income, or the investment is determined to be impaired. Interest calculated using the effective interest method and
dividends are recognized in profit or loss within finance income.



F-15







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Impairment of financial assets



The Company assesses, at each reporting
date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists
if one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’), has
an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty,
default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization
and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears
or economic conditions that correlate with defaults.



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



| | – | For
                                         trade and other current receivables and other financial assets carried at amortized cost,
                                         the impairment loss is measured as the difference between the asset’s carrying
                                         amount and the present value of estimated future cash flows. The present value of the
                                         estimated future cash flows is discounted at the financial asset’s original effective
                                         interest rate, where the effect of discounting is material. This assessment is made collectively
                                         where these financial assets share similar risk characteristics, such as similar past
                                         due status, and have not been individually assessed as impaired. Future cash flows for
                                         financial assets which are assessed for impairment collectively are based on historical
                                         loss experience for assets with credit risk characteristics similar to the collective
                                         group.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If in a subsequent period the
amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss
was recognized, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the
asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognized in prior
years.



| | – | For
                                         available-for-sale securities which are stated at fair value, when a decline in the fair
                                         value has been recognized in other comprehensive income and there is objective evidence
                                         that the asset is impaired, the cumulative loss that had been recognized in other comprehensive
                                         income shall be reclassified from equity to profit or loss as a reclassification adjustment
                                         even though the financial asset has not been derecognized. The amount of the cumulative
                                         loss that is recognized in profit or loss is the difference between the acquisition cost
                                         (net of any principal repayment and amortization) and current fair value, less any impairment
                                         loss on that asset previously recognized in profit or loss.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment losses recognized in
profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase
in the fair value of such assets is recognized in other comprehensive income.



Impairment losses are written off against
the corresponding assets directly, except for impairment losses recognized in respect of trade debtors included within trade and
other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts
are recorded using an allowance account. When the Company is satisfied that recovery is remote, the amount considered irrecoverable
is written off against trade debtors directly and any amounts held in the allowance account relating to that debt 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.



Classification and subsequent measurement
of financial liabilities



Financial liabilities are classified as
FVTPL, or other financial liabilities, as appropriate upon initial recognition. A financial liability is derecognized when the
obligation under the liability is discharged, cancelled or expired.



F-16







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | i | Financial liabilities classified as other financial liabilities
                                         are initially recognized at fair value less directly attributable transaction costs.
                                         Subsequent to the initial recognition, other financial liabilities are measured at amortized
                                         cost using the effective interest method. The Company’s other financial liabilities
                                         include trade payables and accrued liabilities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii | Financial liabilities classified as FVTPL include financial
                                         liabilities held for trading and financial liabilities designated upon initial recognition
                                         as FVTPL. Financial liabilities are classified as held-for-trading if they are acquired
                                         for the purpose of selling in the near term. This category includes derivative financial
                                         instruments (including separated embedded derivatives) held for trading unless they are
                                         designated as effective hedging instruments. Gains or losses on liabilities held for
                                         trading are recognized in the statement of profit or loss.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2.10 | Derivative financial instruments
| | ---- | --------------------------------



Initial recognition and subsequent measurement



The Company uses derivative financial instruments,
such as forward currency contracts, for investment purposes. Such derivative financial instruments are initially recognized at
fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives
are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.



Any gains or losses arising from changes
in the fair value of derivatives are taken directly to profit or loss.



| | 2.11 | Leases
| | ---- | ------



Finance leases refers to the situation
that the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and
rewards of ownership of the leased asset.



All other leases are treated as operating
leases. Where the Company has the right to use of assets held under operating leases, payments made under the leases are charged
to profit or loss 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.



All the leases of the Company are operating
leases for the years ended December 31, 2013, 2012 and 2011.



| | 2.12 | Provisions and contingencies
| | ---- | ----------------------------



Provisions for product warranties, legal
disputes, onerous contracts or other claims are recognized when the Company 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.



F-17







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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 Company
are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.



| | 2.13 | 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.



| | 2.14 | Revenue recognition
| | ---- | -------------------



Revenue comprises the fair value of the
consideration received or receivable for the sale of goods, net of rebates and discounts. In 2011 and 2012, the Company paid rebates
to some distributors on their annual cash collections. Provided it is probable that the economic benefits will flow to the Company
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. Once goods are accepted by a customer, there is no continuing management involvement
with the goods and the Company does not have the obligation to accept the return of the goods to the Company from the customer.



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



| | 2.15 | Impairment of non-financial
                                         assets
| | ---- | ---------------------------------------------------------------------------



Impairment testing is made on the Company’s
goodwill at each reporting date. Property, plant and equipment and land use rights are tested for impairment if there is any indication
that the assets may be impaired at the balance sheet date.



If any indication exists, or when annual
impairment testing for an asset is required, the Company estimates the asset’s recoverable amount.



Calculation of recoverable amount



An asset’s recoverable amount is
the greater of an asset’s or cash-generating unit’s fair value less costs of disposal and its 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 assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash
inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets
that generates cash inflows independently (i.e. a cash-generating unit).



F-18







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Recognition of impairment losses



An impairment loss is recognized in profit
or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.
Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to that cash-generating unit (or group of units), and then, to reduce on a pro rata basis the carrying amount of the
other assets in the unit (or group of units), except that the carrying amount of an asset will not be reduced below its individual
fair value less costs of disposal (if measurable) or value in use (if determinable).



Reversal of impairment losses



In respect of assets other than goodwill,
an impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.



A reversal of an impairment loss is limited
to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals
of impairment losses are credited to profit or loss in the year in which the reversals are recognized.



| | 2.16 | Employee benefits
| | ---- | -----------------



Retirement benefits



The employees of the Company’s PRC
subsidiaries 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 Company’s obligation under
these plans is limited to the fixed percentage contributions payable.



F-19







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Share-based employee remuneration



The Company operates equity-settled share-based
remuneration plans for its employees. None of the Company’s plans feature any options for a cash settlement.



The fair value of share options granted
to employees is recognized as an employee cost with a corresponding increase in the share-based payment reserve within equity.
The fair value is measured at the grant date using the Black Scholes Option Pricing Model, taking into account the terms and conditions
upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled
to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account
the probability that the options will vest.



During the vesting period, the number of
share options expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognized in prior years is
charged/credited to the profit or loss for the year under review, unless the original employee expenses qualify for recognition
as an asset, with a corresponding adjustment to the share-based payment reserve. On the vesting date, the amount recognized as
an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the share-based
payment reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the
Company’s shares. The equity amount is recognized in the share-based payment reserve until either the option is exercised
(when it is transferred to the share premium account) or the option expires (when it is released directly to retained earnings).



| | 2.17 | Borrowing costs
| | ---- | ---------------



Borrowing costs consist of interest and
other costs incurred in connection with the borrowing of funds. Borrowing costs directly attributable to the acquisition, construction
or production of qualifying asset which necessarily takes a substantial period of time to get ready for its intended use or sale
are capitalized as part of the cost of that asset until such time as the assets are substantially ready for their intended use
or sale. Other borrowing costs are expensed when incurred.



| | 2.18 | Accounting for income
                                         taxes
| | ---- | --------------------------------------------------------------------



Income tax comprises current tax and deferred
tax.



Current tax and movements in deferred tax
assets and liabilities are recognized in profit or loss except to the extent that they relate to items recognized in other comprehensive
income or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly
in equity, respectively.



Current tax is the expected tax payable
on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any
adjustment to tax payable in respect of previous years.



F-20







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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 Company
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 the tax rates that are expected to apply in the period the liability is settled or the asset realized, based on tax rate (and
tax laws) that have been enacted or substantively enacted at the reporting date.



The carrying amount of a deferred tax asset
is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow the related tax benefit to be utilized. Any such reduction is reversed to the extent that it
becomes probable that sufficient taxable profits will be available.



Additional income taxes that arise from
the distribution of dividends are recognized when the liability to pay the related dividends is recognized.



Current tax assets and current tax liabilities
are presented in net if the Company has the legally enforceable right to set off the recognized amounts and the following additional
conditions are met:



| | a) | in the case of current
                                         tax assets and liabilities, the Company intends either to settle on a net basis, or to
                                         realize the asset and settle the liability simultaneously; or
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | in the case of deferred
                                         tax assets and liabilities, if they relate to income taxes levied by the same taxation
                                         authority on either:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | the same taxable entity; or
| | --- | ---------------------------



| | (ii) | different taxable entities, which, in each future period in
                                         which significant amounts of deferred tax liabilities or assets are expected to be settled
                                         or recovered, intend either to settle current tax liabilities and realize the current
                                         tax assets on a net basis, or to settle the liabilities and realize the assets simultaneously.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 2.19 | Research and development
                                         activities
| | ---- | ----------------------------------------------------------------------------



Costs associated with research activities
are expensed in profit or loss as they incur. Costs that are directly attributable to development activities are recognized as
intangible assets if, and only if, all of the following have been demonstrated:



| | (i) | the technical feasibility of completing the intangible asset
                                         so that the asset will be available for use or sale;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | the intention to complete the intangible asset and use or sell
                                         it;
| | ---- | -----------------------------------------------------------------------------------------------------------



| | (iii) | the ability to use or sell the intangible asset;
| | ----- | ------------------------------------------------



| | (iv) | how the intangible asset will generate probable future economic
                                         benefits;
| | ---- | ------------------------------------------------------------------------------------------------------------------



| | (v) | the availability of adequate technical, financial and other resources
                                         to complete the development and to use or sell the intangible asset; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | the ability to measure reliably the expenditure attributable
                                         to the intangible asset during its development.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------



The amount initially recognized for internally-generated
intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria
listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit
or loss in the period in which it is incurred.



Subsequent to initial recognition, internally-generated
intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible
assets that are acquired separately.



Gains and losses arising from derecognition
of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are
recognized in profit or loss when the asset is derecognized.



| | 2.20 | Segment reporting
| | ---- | -----------------



The Company 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 the allocation of resources
to the Company’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 Company’s business as one business segment.



F-22







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Geographical segment



The business of the Company is engaged
entirely in the PRC. The Chief Executive Officer and executive directors regularly review the Company’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.
| | ----- | ------------------------------------------------------------------------------------------------------------------------



| | (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.



F-23







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 3. | CHANGES IN ACCOUNTING POLICIES
                                         AND DISCLOSURES
| | -- | ---------------------------------------------------------------------------------------



| | 3.1 | Adoption of new
                                         or amended IFRSs
| | --- | -------------------------------------------------------------------------



In 2013, the Company has applied the following
new or revised standards and amendments issued by the International Accounting Standards Board (“IASB”) relevant to
the Company’s financial statements:



IFRSs (Amendments) Annual Improvements
to IFRSs 2009 – 2011 Cycle



IFRS 7 Financial Instruments: Disclosures
– Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7



IFRS 10 Consolidated Financial Statements
and IAS 27 Separate Financial Statements



IFRS 10, IFRS 11 and IFRS 12 Consolidated
Financial Statements, Joint Arrangements and Disclosure of Interest in Other Entities: Transition Guidance (Amendments)



IFRS 12 Disclosure of Interests in Other
Entities



IFRS 13 Fair Value Measurement



IAS 1 Presentation of Items of Other Comprehensive
Income (“OCI”) – Amendments to IAS 1



IAS 27 (Revised in 2011) Separate Financial
Statements



The nature and the impact of the new standards
and amendments relevant to the Company is described as follows:-



Amendments to IAS 1, Presentation of
financial statements – Presentation of items of other comprehensive income



The amendments require entities to present
separately the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions
are met from those that would never be reclassified to profit or loss. The presentation of other comprehensive income in the consolidated
statement of profit or loss and other comprehensive income in the financial statements will be modified accordingly.



In addition, the Company has chosen to
use the new title “statement of profit or loss and other comprehensive income” as introduced by the amendments in
the financial statements.



F-24







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Amendments to IFRS 7, Disclosures –
Offsetting Financial Assets and Financial Liabilities



The amendments introduce new disclosures
in respect of offsetting financial assets and financial liabilities. Those new disclosures are required for all recognized financial
instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation and those that are subject to an enforceable
master netting arrangement or similar agreement that covers similar financial instruments and transactions, irrespective of whether
the financial instruments are set off in accordance with IAS 32. The amendment has no impact on the Company.



IFRS 10 Consolidated Financial Statements,
IAS 27 Separate Financial Statements



IFRS 10 replaces the portion of IAS 27
Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also addresses
the issues raised in SIC-12 Consolidation – Special Purpose Entities.



IFRS 10 establishes a single control model
that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to
exercise significant judgment to determine which entities are controlled and therefore are required to be consolidated by a parent,
compared with the requirements that were in IAS 27. This standard was effective for annual periods beginning on or after January
1, 2013. As a result of the adoption of IFRS 10, the Company has changed its accounting policy with respect to determining whether
it has control over an investee. The adoption does not change any of the control conclusions reached by the Company in respect
of its currently held investments.



IFRS 12 Disclosure of Interests in Other
Entities



IFRS 12 sets out the requirements for disclosures
relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The requirements
in IFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries, for example, where a
subsidiary is controlled with less than a majority of voting rights. The Company has no subsidiaries with material non-controlling
interests. IFRS 12 disclosures are provided in Note 1.



IFRS 13 Fair Value Measurement



IFRS 13 establishes a single source of
guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but
rather provides guidance on how to measure fair value under IFRS. IFRS 13 defines fair value as an exit price. As a result of
the guidance in IFRS 13, the Company re-assessed its policies for measuring fair values. IFRS 13 also requires additional disclosures.



Application of IFRS 13 has not materially
impacted the fair value measurements of the Company. Additional disclosures where required, are provided in the individual notes
relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 27.



F-25







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



IAS 1 Presentation of Items of Other
Comprehensive Income – Amendments to IAS 1



The amendments to IAS 1 introduce a grouping
of items presented in OCI. Items that will be reclassified (‘recycled’) to profit or loss at a future point in time
(e.g., net loss or gain on AFS financial assets) have to be presented separately from items that will not be reclassified (e.g.,
revaluation of land and buildings). The amendments affect presentation only and have no impact on the Company’s financial
position or performance.



| | 3.2 | Accounting standards
                                         issued but not yet effective
| | --- | ------------------------------------------------------------------------------------------



At the date of authorization 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 by the Company.



Management anticipates that all of the
relevant pronouncements will be adopted in the Company’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
Company’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 Company’s financial statements.



Offsetting Financial Assets and Financial
Liabilities (Amendments to IAS 32)



These amendments clarify the meaning of
“currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement mechanisms
of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after January 1, 2014. These
amendments are not expected to have any impact on the financial position or performance of the Company upon adoption.



Recoverable Amount Disclosures for
Non-Financial Assets (Amendments to IAS 36)



These amendments remove the unintended
consequences of IFRS 13 on the disclosures required under IAS 36 on the recoverable amount of CGU which is not impaired. In addition,
these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognized
or reversed during the period, and expand the disclosure requirements regarding the fair value measurement for these assets or
units if their recoverable amounts are based on fair value less costs of disposal. The amendments are to be applied retrospectively
for annual periods beginning on or after January 1, 2014 but cannot be applied in periods (including comparative periods) in which
IFRS 13 is not applied. The amendments affect disclosures only and will have no impact on the Company’s financial position
or performance.



IFRIC 21 Levies



IFRIC 21 clarifies that an entity recognizes
a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy
that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before
the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The
Company does not expect that IFRIC 21 will have material financial impact in future financial statements.



F-26







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



IFRS 9 Financial Instruments (IFRS
9)



The IASB aims to replace IAS 39 ‘Financial
Instruments: Recognition and Measurement’ (IAS 39) in its entirety with IFRS 9. To date, the chapters dealing with recognition,
classification, measurement and de-recognition of financial assets and liabilities have been issued. These chapters are effective
for annual periods beginning on or after January 1, 2015. Chapters dealing with impairment methodology and hedge accounting are
still being developed. Further, in November 2011, the IASB tentatively decided to consider making limited modifications to IFRS
9’s financial asset classification model to address application issues. The Company’s management have yet to assess
the impact of this new standard on the Company’s consolidated financial statements. Management does not expect to implement
IFRS 9 until it has been completed and its overall impact can be assessed.



Investment Entities – Amendments
to IFRS 10, IFRS 12 and IAS 27



These amendments are effective for annual
periods beginning on or after January 1, 2014 and provide an exception to the consolidation requirement for entities that meet
the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for
subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the Company, since
none of the entities in the Company would qualify to be an investment entity under IFRS 10.



Annual Improvements to IFRS



These improvements, which are applicable
to the Company, include:



IFRS 8 Operating Segments



This improvement clarifies that operating
segments may be combined/aggregated if they are consistent with the core principle of the standard, if the segments have similar
economic characteristics and if they are similar in other qualitative respects. If they are combined, the entity must disclose
the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’. This
improvement also clarifies reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation
is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. This improvement
is to be applied retrospectively for annual periods beginning on or after July 1, 2014.



IAS 24 Related Party Disclosures



The amendment clarifies that a management
entity – an entity that provides key management personnel services – is a related party subject to the related party
disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management
services. The amendment is to be applied retrospectively for annual periods beginning on or after July 1, 2014.



F-27







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 4. | CRITICAL ACCOUNTING ESTIMATES
                                         AND JUDGEMENTS
| | -- | -------------------------------------------------------------------------------------



The preparation of the Company’s
consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affected in future periods.



Estimates and judgments 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.



The Company makes estimates and assumptions
concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The key
sources of estimation uncertainty and key assumptions concerning the future at the end of the reporting period, 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:



Useful lives and impairment assessment
of property, plant and equipment



Property, plant and equipment are stated
at cost less accumulated depreciation and identified impairment losses. The estimation of useful lives impacts the level of annual
depreciation expenses recorded. Property, plant and equipment are evaluated for possible impairment on a specific asset basis
or in groups of similar assets, as applicable. This process requires management’s estimate of future cash flows generated
by each asset or group of assets. For any instance where this evaluation process indicates impairment, the relevant asset’s
carrying amount is written down to the recoverable amount and the amount of the write-down is charged against profit or loss.



Impairment loss recognized in respect
of property, plant and equipment



As of 31 December 2013, the carrying amount
of property, plant and equipment was approximately RMB802,578,000 (2012: RMB795,983,000 ; 2011: RMB843,429,000). There was no
impairment loss recognized for the years ended December 31, 2013, 2012 and 2011. Determining whether property, plant and equipment
are impaired requires an estimation of the recoverable amount of the property, plant and equipment. Such estimation was based
on certain assumptions, which are subject to uncertainty and might materially differ from the actual results.



Impairment loss recognized in respect
of land use rights



As of 31 December 2013, the carrying amount
of land use rights was approximately RMB29,929,000 (2012: RMB30,598,000 ; 2011: RMB31,267,000). There was no impairment loss recognized
for the years ended December 31, 2013, 2012 and 2011. Determining whether land use rights are impaired requires an estimation
of the recoverable amount of the land use rights. Such estimation was based on certain assumptions, which are subject to uncertainty
and might materially differ from the actual results.



F-28







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Impairment of goodwill



Determining whether goodwill is impaired
requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use
calculation requires the Company to estimate the future cash flows expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment
loss may arise.



Income tax



The Company has exposure to income taxes
in the PRC. Significant judgment 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 Company recognizes
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 recognized, such differences will impact the income tax and deferred
tax provisions in the period in which such determination is made. The carrying amounts of the Company’s income tax payable
as of December 31, 2013, 2012 and 2011 were RMB1,520,000, RMB869,000 and RMB35,090,000, respectively.



Impairment of trade receivables



The Company’s management assesses
the collectability of trade receivables. This estimate is based on the credit history of the Company’s customers and the
current market conditions. Management assesses the collectability of trade receivables at the balance sheet dates and makes the
provision, if any. The identification of doubtful debts requires the use of judgment and estimates. Judgment is required in assessing
the ultimate realization of these receivables, including the current creditworthiness, past collection history of each customer
and on-going dealings with them. Where the expectation is different from the original estimate, such difference will impact the
carrying value of trade and other receivables and doubtful debts expenses in the period in which such estimate has been changed.
The carrying amounts of the Company’s trade receivables as of December 31, 2013, 2012 and 2011 were RMB490,989,000, RMB455,885,000
and RMB473,209,000, respectively.



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 a similar nature. It could change significantly as a result of various market factors. The carrying amounts of the Company’s
inventories as of December 31, 2013, 2012 and 2011 were RMB307,436,000, RMB290,603,000 and RMB291,781,000, respectively.



F-29







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Shares-based payment transaction



The Company measures the cost of equity-settled
transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating
fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent
on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation
model including the expected life of the stock option, volatility and dividend yield and making assumptions about them. The assumptions
and models used for estimating fair value for share-based payment transactions are disclosed in Note 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 Company’s revenue and other income is as
follows:



|                                                    |  | For the year ended December
    31,
|--------------------------------------------------- |  | -----------------------------------
|                                                    |  | 2013                               
|                                                    |  | RMB’000                            
|Revenue                                             |  |                                    
|Sale of goods                                       |  |                                    
|                                                    |  |                                    
|Other income                                        |  |                                    
|Sale of scrap materials                             |  |                                    
|Interest income                                     |  |                                    
|Net foreign exchange gains/(losses)                 |  |                                    
|Realized gain from derivative financial instruments |  |                                    
|Fair value gain on derivative financial instruments |  |                                    
|                                                    |  |                                    



| | 6. | FINANCE COSTS
| | -- | -------------



Finance costs comprise interest expense
on the Company’s bank borrowings:



|                            |  | For the year ended December
    31,
|--------------------------- |  | -----------------------------------
|                            |  | 2013                               
|                            |  | RMB’000                            
|Interest on bank borrowings |  |                                    



F-30







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 7. | (LOSS)/PROFIT BEFORE TAXATION
| | -- | -----------------------------



The Company’s (loss)/profit before
taxation is arrived at after charging:



|                                                |  | For the year ended December
    31,
|----------------------------------------------- |  | -----------------------------------
|                                                |  | 2013                               
|                                                |  | RMB’000                            
|Cost of inventories recognized as expense(1)    |  |                                    
|Depreciation expenses                           |  |                                    
|Amortization of land use rights                 |  |                                    
|Auditors’ remuneration                          |  |                                    
|–   Audit fee                                   |  |                                    
|–   Audit-related fee                           |  |                                    
|                                                |  |                                    
|Directors’ remuneration                         |  |                                    
|- salaries and related cost                     |  |                                    
|- retirement scheme contribution                |  |                                    
|- share-based payments                          |  |                                    
|Key management personnel (other than directors) |  |                                    
|- salaries and related cost                     |  |                                    
|- retirement scheme contribution                |  |                                    
|- share-based payments                          |  |                                    
|Research and development personnel              |  |                                    
|- salaries and related cost                     |  |                                    
|- retirement scheme contribution                |  |                                    
|Other personnel                                 |  |                                    
|- salaries and related cost                     |  |                                    
|- retirement scheme contribution                |  |                                    
|Total employee benefit expenses                 |  |                                    



| | (1) | Cost of inventories recognized as expense included staff costs
                                         of RMB53,027,000, RMB55,961,000 and RMB57,857,000, depreciation and amortization expense
                                         of RMB68,737,000, RMB65,659,000 and RMB47,886,000, operating lease charges of RMB11,552,000,
                                         RMB11,552,000 and RMB11,855,000 and write-down of inventories of RMB23,414,000 , RMB4,237,000
                                         and nil for the years ended December 31, 2013, 2012 and 2011, respectively, which amounts
                                         are also included in the respective total amounts disclosed separately for each of these
                                         types of expenses.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-31







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 8. | INCOME TAX (CREDIT)/EXPENSE
| | -- | ---------------------------



|                                               |  | For the year ended December
    31,
|---------------------------------------------- |  | -----------------------------------
|                                               |  | 2013                               
|                                               |  | RMB’000                            
|Current year provision-PRC Income Tax:         |  |                                    
|Current tax expense                            |  |                                    
|Deferred tax expense                           |  |                                    
|Over-provision of PRC Income Tax in prior year |  |                                    
|                                               |  |                                    



Reconciliation between income tax (credit)
expense and (loss) profit before taxation at applicable tax rates is as follows:



|                                                                                     |  | For the year ended December
    31,
|------------------------------------------------------------------------------------ |  | -----------------------------------
|                                                                                     |  | 2013                               
|                                                                                     |  | RMB’000                            
|(Loss)/profit before taxation                                                        |  |                                    
|                                                                                     |  |                                    
|Tax calculated at a tax rate of 25%                                                  |  |                                    
|Tax effect on non-deductible expenses                                                |  |                                    
|Tax effect on non-taxable income                                                     |  |                                    
|Tax effect on different tax rates of group entities operating in other jurisdictions |  |                                    
|Withholding tax on profits retained by a PRC subsidiary                              |  |                                    
|Over-provision of PRC Income Tax in prior year                                       |  |                                    
|                                                                                     |  |                                    



British Virgin Islands Profits Tax



The Company has not been subject to any
taxation in this jurisdiction for the years ended December 31, 2013, 2012 and 2011.



Hong Kong Profits Tax



The subsidiary in Hong Kong is subject
to tax charged on Hong Kong sourced income with a statutory tax rate of 16.5% for the years ended December 31, 2013, 2012 and
2011. No Hong Kong profits tax has been provided as the Company has no assessable profit arising in Hong Kong for the years ended
December 31, 2013, 2012 and 2011.



PRC Income Tax



The subsidiaries in the PRC are subject
to the enterprise income tax in accordance with “PRC Enterprise Income Tax Law” (“EIT Law”), and the applicable
income tax rate for the years ended December 31, 2013, 2012 and 2011 is 25%.



F-32







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



Under the prevailing EIT Law and its relevant
regulations, any dividends paid by the Company’s PRC subsidiaries to an overseas parent made out of profits earned after
January 1, 2008 to non-PRC corporate residents are subject to a 10% PRC dividend withholding tax, unless reduced by tax treaties
or arrangements. In addition, under the Sino-Hong Kong Double Tax Arrangement and its relevant regulations, a qualified Hong Kong
tax resident will be liable for withholding tax at the rate of 5% for dividend income derived from the PRC if the Hong Kong tax
resident is the “beneficial owner” and holds 25% or more of the equity interests of the PRC company. Deferred tax
liabilities have been provided for based on the expected dividends to be distributed from these subsidiaries in the foreseeable
future in respect of the profits generated since 1 January 2008..



Dividends withholding tax represents tax
charged/to be charged by the PRC tax authority on dividends distributed or intended to be distributed by the Group’s subsidiaries
in Mainland China during the years.



Deferred tax (assets)/liabilities recognized
in the consolidated statements of financial position and the movements during the years are as follows:



|Deferred tax arising from:     |  | Dividend withholding tax |       |  | Inventory provision |  |        | Net operating loss |  |  | Depreciation and amortization |   |  | Total   |      
|------------------------------ |  | ------------------------ | ----- |  | ------------------- |  | ------ | ------------------ |  |  | ----------------------------- | - |  | ------- | -----
|                               |  | RMB’000                  |       |  | RMB’000             |  |        | RMB’000            |  |  | RMB’000                       |   |  | RMB’000 |      
|                               |  |                          |       |  |                     |  |        |                    |  |  |                               |   |  |         |      
|As of January 1, 2011          |  |                          | -     |  |                     |  | -      |                    |  |  | -                             |   |  |         | 1,122
|Credits for the year           |  |                          | -     |  |                     |  | -      |                    |  |  | -                             |   |  |         | (35  
|As of December 31, 2011        |  |                          | -     |  |                     |  | -      |                    |  |  | -                             |   |  |         | 1,087
|Credits for the year           |  |                          | -     |  |                     |  | (1,059 | )                  |  |  | -                             |   |  |         | (35  
|As of December 31, 2012        |  |                          | -     |  |                     |  | (1,059 | )                  |  |  | -                             |   |  |         | 1,052
|Charges/(Credits) for the year |  |                          | 1,245 |  |                     |  | (5,854 | )                  |  |  | (3,901                        | ) |  |         | (35  
|As of December 31, 2013        |  |                          | 1,245 |  |                     |  | (6,913 | )                  |  |  | (3,901                        | ) |  |         | 1,017



Hengda and Hengdali, the Company’s
PRC subsidiaries, have cumulative undistributed earnings of RMB1,076,028,000, RMB1,056,030,000 and RMB827,915,000 as of December
31, 2013, 2012 and 2011, which are included in consolidated retained earnings. Deferred tax liabilities of RMB1,245,000, nil and
nil have been recognized to the extent of distributable profits earned by Hengda for the years ended 31 December 2013, 2012 and
2011. No provision has been made for deferred taxes related to future repatriation of the remaining earnings, as the Company controls
the dividend policy of these PRC subsidiaries and it has been determined that it is probable that these profits will not be distributed
in the foreseeable future. If the Company were to distribute these cumulated earnings in the foreseeable future, the deferred
tax liabilities of RMB53,801,000, RMB52,802,000 and RMB41,396,000 would be recognized as of December 31, 2013, 2012 and 2011,
respectively.

F-33







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 9. | (LOSS)/EARNINGS PER SHARE
| | -- | -------------------------



|                                                                                                             |  | For the year ended December
    31, |           
|------------------------------------------------------------------------------------------------------------ |  | ----------------------------------- | ----------
|                                                                                                             |  | 2013                                |           
|(Loss)/profit attributable to holders of ordinary shares (RMB’000):                                          |  |                                     | (2,032    
|                                                                                                             |  |                                     |           
|Weighted average number of ordinary shares outstanding used in computing basic (loss)/income
    per share   |  |                                     | 20,430,838
|Contingent shares (Note 20)                                                                                  |  |                                     | -         
|Weighted average number of ordinary shares outstanding used in computing
    diluted (loss)/income per share |  |                                     | 20,430,838
|                                                                                                             |  |                                     |           
|(Loss)/earnings per share - basic (RMB)                                                                      |  |                                     | (0.10     
|                                                                                                             |  |                                     |           
|(Loss)/earnings per share - diluted (RMB)                                                                    |  |                                     | (0.10     



| | 10. | GOODWILL
| | --- | --------



|                   |  | 2013    |       |  | 2012    |  |       | 2011    | 
|------------------ |  | ------- | ----- |  | ------- |  | ----- | ------- | 
|                   |  | RMB’000 |       |  | RMB’000 |  |       | RMB’000 | 
|Carrying amount    |  |         |       |  |         |  |       |         | 
|At end of the year |  |         | 3,735 |  |         |  | 3,735 |         | 



On January 8, 2010, the Company consummated
the acquisition of all voting equity interests of Hengdali (which is considered to be a CGU), and the excess of the consideration
transferred over the fair value of the identifiable net assets acquired is recorded as goodwill (Note 24).



The Company performs a goodwill impairment
test annually. No impairment loss was recognized for the years ended December 31, 2013, 2012 and 2011.



F-34







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 11. | PROPERTY, PLANT AND EQUIPMENT
| | --- | -----------------------------



|                         |  | Buildings |         |  | Plant and Machinery |  |         | Motor Vehicles |  |  | Office Equipment |  |  | Total   |      
|------------------------ |  | --------- | ------- |  | ------------------- |  | ------- | -------------- |  |  | ---------------- |  |  | ------- | -----
|                         |  | RMB’000   |         |  | RMB’000             |  |         | RMB’000        |  |  | RMB’000          |  |  | RMB’000 |      
|Cost                     |  |           |         |  |                     |  |         |                |  |  |                  |  |  |         |      
|At January 1, 2011       |  |           | 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
|Additions                |  |           | -       |  |                     |  | 18,542  |                |  |  | -                |  |  |         | 978  
|Disposals                |  |           | -       |  |                     |  | (14,542 | )              |  |  | -                |  |  |         | (875 
|At December 31, 2012     |  |           | 332,563 |  |                     |  | 616,745 |                |  |  | 6,548            |  |  |         | 1,943
|Additions                |  |           | 11,272  |  |                     |  | 85,706  |                |  |  | -                |  |  |         | 90   
|Disposals                |  |           | -       |  |                     |  | (28,302 | )              |  |  | -                |  |  |         | -    
|At December 31, 2013     |  |           | 343,835 |  |                     |  | 674,149 |                |  |  | 6,548            |  |  |         | 2,033
|                         |  |           |         |  |                     |  |         |                |  |  |                  |  |  |         |      
|Accumulated depreciation |  |           |         |  |                     |  |         |                |  |  |                  |  |  |         |      
|At January 1, 2011       |  |           | 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
|Depreciation charge      |  |           | 7,830   |  |                     |  | 57,576  |                |  |  | 569              |  |  |         | 211  
|Disposals                |  |           | -       |  |                     |  | (13,806 | )              |  |  | -                |  |  |         | (831 
|At December 31, 2012     |  |           | 18,538  |  |                     |  | 138,744 |                |  |  | 3,953            |  |  |         | 581  
|Depreciation charge      |  |           | 8,014   |  |                     |  | 60,669  |                |  |  | 562              |  |  |         | 308  
|Disposals                |  |           | -       |  |                     |  | (7,382  | )              |  |  | -                |  |  |         | -    
|At December 31, 2013     |  |           | 26,552  |  |                     |  | 192,031 |                |  |  | 4,515            |  |  |         | 889  
|                         |  |           |         |  |                     |  |         |                |  |  |                  |  |  |         |      
|Carrying amount          |  |           |         |  |                     |  |         |                |  |  |                  |  |  |         |      
|At December 31, 2011     |  |           | 321,855 |  |                     |  | 517,771 |                |  |  | 3,164            |  |  |         | 639  
|At December 31, 2012     |  |           | 314,025 |  |                     |  | 478,001 |                |  |  | 2,595            |  |  |         | 1,362
|At December 31, 2013     |  |           | 317,283 |  |                     |  | 482,118 |                |  |  | 2,033            |  |  |         | 1,144



All property, plant and equipment held
by the Company are located in the PRC.



The Company’s buildings are situated
on land under medium-term land use rights.



For the buildings owned collectively by
the Company and other three unrelated companies, the cost of buildings are stated according to the amounts paid by the Company
for its part of buildings, which represent the Company’s interests in the buildings. Buildings are depreciated over their
expected useful lives of 40 years. These buildings’ cost was RMB3,363,000, and accumulated depreciation of these buildings
was RMB1,306,000, RMB1,194,000 and RMB1,082,000 at December 31, 2013, 2012 and 2011, respectively. These buildings with a carrying
value of approximately RMB2,057,000, RMB2,169,000 and RMB2,281,000 were pledged to secure the Company’s interest-bearing
bank borrowings at December 31, 2013, 2012 and 2011, respectively (Note 19).



F-35













CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



No impairment loss was made to the carrying
amounts of the property, plant and equipment for 2013, 2012 and 2011.



Loss on disposal of property, plant and
equipment in 2013, 2012 and 2011 was RMB18,926,000, RMB512,000 and RMB1,155,000, respectively.



| | 12. | LAND USE RIGHTS
| | --- | ---------------



The Company’s land use rights are under medium-term leases
in the PRC, and are analyzed for reporting purposes as follows:



|                                                     |  | 2013    |        |   | 2012    |  |        | 2011    | 
|---------------------------------------------------- |  | ------- | ------ | - | ------- |  | ------ | ------- | 
|                                                     |  | RMB’000 |        |   | RMB’000 |  |        | RMB’000 | 
|Cost                                                 |  |         |        |   |         |  |        |         | 
|At January 1, 2011, December 31, 2011, 2012 and 2013 |  |         | 32,619 |   |         |  | 32,619 |         | 
|                                                     |  |         |        |   |         |  |        |         | 
|Accumulated amortization                             |  |         |        |   |         |  |        |         | 
|At beginning of the year                             |  |         | (2,021 | ) |         |  | (1,352 | )       | 
|Amortization                                         |  |         | (669   | ) |         |  | (669   | )       | 
|                                                     |  |         | (2,690 | ) |         |  | (2,021 | )       | 
|Carrying amount                                      |  |         |        |   |         |  |        |         | 
|At December 31                                       |  |         | 29,929 |   |         |  | 30,598 |         | 



All the land use rights of the Company
were pledged to the banks as securities for the Company’s interest-bearing bank borrowings at December 31, 2013, 2012 and
2011 respectively (Note 19).



F-36







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 13. | INVENTORIES
| | --- | -----------



|                 |  | As of December 31, |        
|---------------- |  | ------------------ | -------
|                 |  | 2013               |        
|                 |  | RMB’000            |        
|Raw materials    |  |                    | 52,881 
|Work in progress |  |                    | 5,663  
|Finished goods   |  |                    | 248,892
|                 |  |                    | 307,436



The analysis of the amount of inventories
recognized as an expense and included in profit or loss is as follows:



|                                    |  | For the year ended December
    31, |        
|----------------------------------- |  | ----------------------------------- | -------
|                                    |  | 2013                                |        
|                                    |  | RMB’000                             |        
|Carrying amount of inventories sold |  |                                     | 853,455
|Write down of inventories           |  |                                     | 23,414 
|                                    |  |                                     | 876,869



| | 14. | TRADE RECEIVABLES
| | --- | -----------------



|                               |  | As of December 31, |        
|------------------------------ |  | ------------------ | -------
|                               |  | 2013               |        
|                               |  | RMB’000            |        
|Trade receivables              |  |                    | 490,989
|Less: provision for impairment |  |                    | -      
|                               |  |                    | 490,989



The Company’s trade receivables are
denominated in Renminbi and non-interest bearing. In 2011, the credit period granted to distributors was generally for a period
within 90 days. Since the end of 2012, the Company had extended the collection period to 150 days to address funding pressures
of its distributors. Other customers were granted a credit period of 90 days in the years ended December 31, 2013, 2012 and 2011.



All of the trade receivables are expected
to be recovered within one year. An aging analysis of the Company's trade receivables, based on the invoice date, is as follows:

|                       |  | As of December 31, |        
|---------------------- |  | ------------------ | -------
|                       |  | 2013               |        
|                       |  | RMB’000            |        
|Within 90 days         |  |                    | 257,707
|Between 3 and 6 months |  |                    | 233,282
|                       |  |                    | 490,989



F-37







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



An aging of trade receivables that were
neither past due nor impaired or past due but not impaired, is as follows:



|                  |  |              |         |  | Past due but not impaired |  |   |          | 
|----------------- |  | ------------ | ------- |  | ------------------------- |  | - | -------- | 
|                  |  | Neither past |         |  |                           |  |   |          | 
|                  |  | due nor      |         |  | Less than                 |  |   | 31 to    | 
|                  |  | impaired     |         |  | 30 days                   |  |   | 120 days | 
|                  |  | RMB'000      |         |  | RMB'000                   |  |   | RMB'000  | 
|                  |  |              |         |  |                           |  |   |          | 
|December 31, 2011 |  |              | 473,209 |  |                           |  | - |          | 
|December 31, 2012 |  |              | 455,885 |  |                           |  | - |          | 
|December 31, 2013 |  |              | 490,989 |  |                           |  | - |          | 



Receivables that were neither past due
nor impaired relate to a large number of customers for whom there was no recent history of default. All amounts are short-term.
The Company does not hold any collateral over these receivables.



The net carrying value of trade receivables
is considered a reasonable approximation of fair value.



As of December 31, 2013, the Company is
exposed to certain credit risks as 8% and 21% of the total trade receivables were due from the Company's largest and the five
largest customers, respectively.



As of December 31, 2012, the Company is
exposed to certain credit risks as 13% and 23% of the total trade receivables were due from the Company's largest and the five
largest customers, respectively.



As of December 31, 2011, the Company is
exposed to certain credit risks as 3% and 13% of the total trade receivables were due from the Company's largest and the five
largest customers, respectively.



| | 15. | OTHER RECEIVABLES AND PREPAYMENTS
| | --- | ---------------------------------



|                                |  | As of December 31, |       
|------------------------------- |  | ------------------ | ------
|                                |  | 2013               |       
|                                |  | RMB’000            |       
|Prepayments                     |  |                    | 2,160 
|Deposit to stock transfer agent |  |                    | 11,831
|VAT recoverable                 |  |                    | 1,534 
|                                |  |                    | 15,525



An amount of RMB11,831,000 was paid to
the stock transfer agent to meet dividend obligations declared before December 31, 2013 and paid in January 2014 (note 22).



All of the other receivables and prepayments
are expected to be recovered or recognized as expense within one year. The net carrying value of these balances is considered
a reasonable approximation of fair value.



F-38







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 16. | RESTRICED CASH AND CASH AND
                                         BANK BALANCES
| | --- | ----------------------------------------------------------------------------------



|                       |  | As of December 31, |       
|---------------------- |  | ------------------ | ------
|                       |  | 2013               |       
|                       |  | RMB’000            |       
|Cash on hand           |  |                    | 42    
|Cash at banks          |  |                    | 28,806
|Cash and bank balances |  |                    | 28,848
|Restricted cash        |  |                    | 37,359
|                       |  |                    | 66,207



Restricted cash and cash and bank balances
are denominated in the following currencies:



|                  |  | As of December 31, |       
|----------------- |  | ------------------ | ------
|                  |  | 2013               |       
|                  |  | RMB’000            |       
|Renminbi          |  |                    | 55,467
|Hong Kong dollars |  |                    | 2     
|US dollars        |  |                    | 10,738
|                  |  |                    | 66,207



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.



Bank balances denominated in US dollars
are mainly held in bank accounts in Hong Kong and the United States of America.



Cash at banks and bank deposits comprise
cash held by the Company and short-term bank deposits with an original maturity of three months or less. The deposits carry interest
at prevailing market rates.



As of December 31, 2013, the Company has
restricted cash of RMB37,359,000 (2012 and 2011: nil), of which RMB28,872,000 was used as collateral for the Company’s bank
borrowings (Note 19) and RMB8,487,000 was used as collateral for the Company’s financial derivatives Note (29(b)). They
were temporarily not available for general use by the Company.



| | 17. | TRADE PAYABLES
| | --- | --------------



|               |  | As of December 31, |        
|-------------- |  | ------------------ | -------
|               |  | 2013               |        
|               |  | RMB’000            |        
|Trade payables |  |                    | 152,572



Trade payables are denominated in Renminbi,
non-interest bearing and generally settled on 30-day to 120-day terms. All of the trade payables are expected to be settled within
one year. The carrying value of trade payables is considered to be a reasonable approximation of fair value.



F-39







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 18. | ACCRUED LIABILITIES AND OTHER
                                         PAYABLES
| | --- | -------------------------------------------------------------------------------



|                                  |  | As of December 31, |       
|--------------------------------- |  | ------------------ | ------
|                                  |  | 2013               |       
|                                  |  | RMB’000            |       
|Accrued liabilities               |  |                    | 10,880
|VAT payables                      |  |                    | 303   
|Dividend payable (Note 15 and 22) |  |                    | 11,831
|Deposits received                 |  |                    | 19,800
|Others                            |  |                    | 326   
|                                  |  |                    | 43,140



Accrued liabilities and other payables
are denominated in the following currencies:

|           |  | As of December 31, |       
|---------- |  | ------------------ | ------
|           |  | 2013               |       
|           |  | RMB’000            |       
|Renminbi   |  |                    | 31,170
|US dollars |  |                    | 11,970
|           |  |                    | 43,140



Accrued liabilities consist mainly of accrued
rental, wages and utility expenses.



Deposits received represent deposits from
the Company’s distributors. The Company usually requests a deposit from RMB400,000 to RMB1,000,000 from new distributors
upon signing a distributorship agreement as security for the performance of their obligations under the distributorship agreement.



The carrying value of accrued liabilities
and other payables is considered to be a reasonable approximation of fair value.



F-40







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 19. | INTEREST- BEARING BANK BORROWINGS
                                         (SECURED)
| | --- | ------------------------------------------------------------------------------------



|                                                                                                                             |  | As of December 31, |       
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------
|                                                                                                                             |  | 2013               |       
|                                                                                                                             |  | RMB’000            |       
|Short-term bank borrowings - repayable within one year –
    shown under current liabilities                                 |  |                    | 99,652
|Long-term bank borrowings - repayable more than one
    year but not more than 5 years – shown under non-current liabilities |  |                    | -     
|                                                                                                                             |  |                    | 99,652



Bank borrowings are denominated in the
following currencies:

|           |  | As of December 31, |       
|---------- |  | ------------------ | ------
|           |  | 2013               |       
|           |  | RMB’000            |       
|Renminbi   |  |                    | 60,000
|US dollars |  |                    | 39,652
|           |  |                    | 99,652



The exposure of the Company’s loans
is as follows:



|                          |  | As of December 31,                 |                                                      
|------------------------- |  | ---------------------------------- | -----------------------------------------------------
|                          |  | 2013                               |                                                      
|                          |  | Effective
    interest rates
    % |                                                      
|                          |  |                                    |                                                      
|Fixed rate borrowings:    |  |                                    | 7.80                                                 
|Variable rate borrowings: |  |                                    | 2.44%
                                         - 7.07
|                          |  |                                    |                                                      



All of the Company’s bank borrowings
are carried at amortized cost. The carrying values of the Company’s bank borrowings approximate to fair value.



The Company’s banking facilities
are pledged by bank deposits (Note 16), the Company’s buildings and land use rights (Notes 11 and 12), land use rights of
third parties and guaranteed by related parties (Note 25), a subsidiary of the Company and third parties. As of December 31, 2013,
2012 and 2011, such banking facilities were utilized to the extent of RMB99,652,000, RMB60,000,000 and RMB185,000,000, respectively.



F-41







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



As of the end of the reporting periods,
the Company has the following undrawn bank borrowing facilities:



|                                       |  | As of December 31, |       
|-------------------------------------- |  | ------------------ | ------
|                                       |  | 2013               |       
|                                       |  | RMB’000            |       
|Variable-rate                          |  |                    |       
|–	        expiring
    within one year |  |                    | 81,154



| | 20. | SHARE CAPITAL
| | --- | -------------



|                                 |  | As of December 31, |           
|-------------------------------- |  | ------------------ | ----------
|                                 |  | 2013               |           
|                                 |  | Number of shares   |           
|Authorized:                      |  |                    |           
|Ordinary shares of US$0.001 each |  |                    |           
|At January 1 and December
    31 |  |                    | 51,000,000



|                                                                               |  | 2013             |            |  | 2012     |  |     | 2011             | 
|------------------------------------------------------------------------------ |  | ---------------- | ---------- |  | -------- |  | --- | ---------------- | 
|                                                                               |  | Number of shares |            |  | RMB ‘000 |  |     | Number of shares | 
|Issued:                                                                        |  |                  | 20,430,838 |  |          |  | 137 |                  | 
|Outstanding and fully paid: Ordinary shares of
    US$0.001 each               |  |                  |            |  |          |  |     |                  | 
|At January 1                                                                   |  |                  | 20,430,838 |  |          |  | 137 |                  | 
|Issuance to Mr. Wong Kung Tok for achieving the 2010
    performance threshold |  |                  | -          |  |          |  | -   |                  | 
|Issuance to Mr. Wong Kung Tok for achieving the 2011
    performance threshold |  |                  | -          |  |          |  | -   |                  | 
|At December 31                                                                 |  |                  | 20,430,838 |  |          |  | 137 | (2)              | 



| | (1) | Equivalent to US$18,000
| | --- | -----------------------

| | (2) | Equivalent to US$20,000
| | --- | -----------------------



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 entitled 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. On November 16, 2012, all of the share purchase warrants expired and ceased
to trade.



F-42







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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 for release 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 could have been released based on achieving growth in
either net earnings before tax or net earnings after tax, following the completion of an annual audit. Additionally, 3,000,000
Contingent Shares could have been released if China Ceramics shares closed 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 were to be released without regard
to continued employment and were only contingent on future earnings and the stock price of China Ceramics. On May 24, 2010, the
Company issued 1,214,127 shares to Mr. Wong Kung Tok based on the audited earnings before tax result for the fiscal year 2009.
On April 7, 2011, the Company issued 1,794,800 shares to Mr. Wong Kung Tok based on the audited earnings before tax result for
the fiscal year 2010. On April 3, 2012, the Company issued 2,176,836 shares to Mr. Wong Kung Tok based on the audited earnings
before tax result for the fiscal year 2011. No further Contingent Shares may be issued to Mr. Wong Kung Tok. The issuance of the
Contingent Shares is accounted for as a stock dividend.



The share price targets for the issuance
of the additional 3,000,000 Contingent Shares were not met by April 30, 2012.



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 RMB752.2 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 (equivalent to RMB6,803,000) 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 shares, which are freely tradable.



F-43







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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 gross proceed of approximately RMB172.7
million. The total net proceeds of the offering to the Company, after deduction of underwriters’ commissions and discounts
and estimated transaction expenses, were approximately RMB159.6 million.



| | 21. | RESERVES
| | --- | --------



| | a) | Statutory reserve
| | -- | -----------------



In accordance with the relevant laws and
regulations of the PRC, the Company’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 foreign operations.



| | c) | Merger reserve
| | -- | --------------



The merger reserve of the Company 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 Company 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.



The 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.



F-44







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 22. | DIVIDENDS
| | --- | ---------



The Company paid a cash dividend of US$0.10
(equivalent to RMB0.61) per share each on July 13, 2013 and January 14, 2014, respectively, to its shareholders which totaled
in aggregate US$4.1 million (equivalent to RMB24.9 million gross, RMB23.66 million net of 5% PRC withholding tax (Note 8)).



After the end of the reporting period
on February 25, 2014, the Company declared two semi-annual cash dividends, each of US$0.0125 per share (equivalent to RMB0.08).
The first cash dividend of US$0.0125 per share (equivalent to RMB0.08), totaled US$243,000 (equivalent to RMB1.5 million) (net
of 5% PRC withholding tax) was paid on July 14, 2014 based on a record date of June 13, 2014. The second dividend of US$0.0125
per share (equivalent to RMB0.08) will be paid on January 14, 2015 with based on a record date of December 12, 2014. The dividend
has not been recognized as a liability as of December 31, 2013.



| | 23. | SHARE-BASED EMPLOYEE REMUNERATION
| | --- | ---------------------------------



At the annual meeting on December 27, 2010,
the shareholders of the Company approved the 2010 Incentive Compensation Plan (“the Plan”), 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 the Company’s then directors (Huang Jia Dong, Su Wei Feng, Su Pei Zhi, Paul K. Kelly, Cheng Yan Davis, Ding Wei Dong
and William L. Stulginsky) and executives (Hen Man Edmund), upon the approval by the Board of Directors on January 27, 2011, the
grant date. The exercise price of the share options granted is US$7.65 per share and the share options are valid for a period
of 5 years from January 27, 2011 to January 27, 2016. One-fourth of the options granted vested on the grant date and and additional
one-fourth of the options will vest on the one-year anniversary of the grant date.



Share options and weighted average exercise
prices are as follows for the reporting periods presented:

|                                          |  | Number of |           |   | Weighted average exercise price | 
|----------------------------------------- |  | --------- | --------- | - | ------------------------------- | 
|                                          |  | shares    |           |   | US$                             | 
|Outstanding at January 1, 2011            |  |           | -         |   |                                 | 
|Granted                                   |  |           | 1,130,000 |   |                                 | 
|Forfeited                                 |  |           | -         |   |                                 | 
|Exercised                                 |  |           | -         |   |                                 | 
|Outstanding at December 31, 2011 and 2012 |  |           | 1,130,000 |   |                                 | 
|Forfeited                                 |  |           | (20,000   | ) |                                 | 
|Exercised                                 |  |           | -         |   |                                 | 
|Outstanding at December 31, 2013          |  |           | 1,110,000 |   |                                 | 
|                                          |  |           |           |   |                                 | 
|Exercisable at December 31, 2011          |  |           | 282,500   |   |                                 | 
|Exercisable at December 31, 2012          |  |           | 565,000   |   |                                 | 
|Exercisable at December 31, 2013          |  |           | 832,500   |   |                                 | 



The total fair value of the share options
granted under the Plan is RMB25,643,000. 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:

F-45







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



|Grant date                                  |  |     | January 27, 2011 |  
|------------------------------------------- |  | --- | ---------------- | -
|Vesting period ends                         |  |     | January 27, 2014 |  
|Share price at date of grant                |  | US$ | 7.65             |  
|Exercise price at date of grant             |  | US$ | 7.65             |  
|Volatility                                  |  |     | 65               | %
|Option life                                 |  |     | 5 years          |  
|Dividend yield                              |  |     | 0                | %
|Risk-free interest rate                     |  |     | 1.98             | %
|Fair value at grant date                    |  | US$ | 3.52             |  
|Weighted average remaining contractual life |  |     | 3.25 years       |  



The underlying expected volatility was
determined by reference to historical data of the Company’s shares over a period of time, adjusted for any expected changes
to future volatility based on publicly available information. Expected dividends are based on historical dividends. Changes in
the subjective input assumptions could materially affect the fair value estimate.



For the years ended December 31, 2013,
2012 and 2011, employee remuneration expense (all of which related to equity-settled share-based payment transactions) of RMB2,117,000,
RMB5,651,000 and RMB17,295,000, respectively, has been included in profit or loss and credited to the share-based payment reserve.



| | 24. | BUSINESS COMBINATIONS
| | --- | ---------------------



On January 8, 2010, the Company 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 RMB185,517,000. The acquisition is intended to increase the
Company’s production capacity and reduce costs through economies of scale.



Details of the purchase consideration,
the net assets acquired and goodwill 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 
|Total identified assets                   |  |                    | 181,782
|Goodwill                                  |  |                    | 3,735  
|Purchase consideration, satisfied in cash |  |                    | 185,517



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.



F-46







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 25. | SIGNIFICANT RELATED PARTY TRANSACTIONS
| | --- | --------------------------------------



| | (a) | The following
                                         are significant related party transactions entered into between the Company and its related
                                         parties at agreed rates:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                               |  | For the year ended December
    31, |    
|---------------------------------------------- |  | ----------------------------------- | ---
|                                               |  | 2013                                |    
|                                               |  | RMB’000                             |    
|Service fees paid to
    Stuart Management Co. |  |                                     | 503



|                                    |  | As of December 31, |      
|----------------------------------- |  | ------------------ | -----
|                                    |  | 2013               |      
|                                    |  | RMB’000            |      
|Amounts owed to related
    parties |  |                    | 8,539



Pursuant to an administrative services
agreement dated as of December 1, 2009 between the Company and Stuart Management Co., an affiliate of Paul K. Kelly, an ex-director,
the Company pays US$7,000 (equivalent to RMB44,000) a month plus out-of-pocket expenses to Stuart Management Co. for administrative
services. The initial one-year term began on December 1, 2009, and the agreement automatically renews 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 the Company with general administrative services, including acting as the Company’s administrative agent in
the United States and the British Virgin Islands, and allow the Company to utilize certain of its office space for meetings. The
agreement was renewed to reduce the amount to US$4,900 (equivalent to RMB31,000) a month in December 2013.



Mr. Huang Jia Dong, the founder and Chairman
of Hengda and the Chief Executive Officer and one of the directors of the Company, and a holder of approximately 40.3% equity
interests of the Company as of April 22, 2013, and Mr. Wong Kung Tok, formerly one of the Company’s significant shareholders,
provide working capital loans to the Company from time to time during the normal course of its business. These loans amounted
to RMB8,539,000, RMB4,796,000, and RMB1,327,000 as of December 31, 2013, 2012 and 2011, respectively. These loans are interest
free, unsecured and repayable on demand. They remain outstanding as of December 31, 2013. Mr. Huang and Mr. Wong are brothers-in-law.



| | (b) | Mr. Huang Jia Dong and Su Pei Zhi provide personal guarantees to
                                         the Company for the loans. The guarantees amounted to RMB102,800,000, RMB180,000,000
                                         and RMB180,000,000 as of December 31, 2013, 2012 and 2011, respectively. Mr. Su resigned
                                         as a director on April 27, 2014 but remains as the Company’s sales deputy general
                                         manager.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-47







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 26. | COMMITMENTS
| | --- | -----------



| | a) | Operating lease
                                         commitments
| | -- | --------------------------------------------------------------------



The Company leases production factories,
warehouses and employees’ hostel from unrelated parties under non-cancellable operating lease arrangements. The leases have
varying terms and the total future minimum lease payments of the Company under non-cancellable operating leases are payable as
follows:

|                                     |  | As of December 31, |       
|------------------------------------ |  | ------------------ | ------
|                                     |  | 2013               |       
|                                     |  | RMB’000            |       
|Within one year                      |  |                    | 11,552
|After one year and within five years |  |                    | 6,060 
|                                     |  |                    | 17,612



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 Company’s capital expenditures
consist of expenditures on property, plant and equipment and capital contribution. Capital expenditures contracted for at the
balance sheet date but not recognized in the financial statements are as follows:





|                                                                                                                            |  | As of December 31, |       
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------
|                                                                                                                            |  | 2013               |       
|                                                                                                                            |  | RMB’000            |       
|Contracted for capital commitment in respect of capital contribution to
    its wholly foreign owned subsidiary in the PRC: |  |                    |       
|–	Hengda
    (Note)                                                                                                         |  |                    | 14,047
|                                                                                                                            |  |                    |       
|Property, plant and equipment                                                                                               |  |                    | -     





| | Note: | The Company paid up the remaining capital of Hengda of RMB14,047,000
                                         in 2014.
| | ----- | ----------------------------------------------------------------------------------------------------------------------



| | c) | Other
                                         commitments
| | -- | ----------------------------------------------------------



The Company had the following other commitments:

|                                                                                         |  | Year ended December
    31, |      
|---------------------------------------------------------------------------------------- |  | --------------------------- | -----
|                                                                                         |  | 2013                        |      
|                                                                                         |  | RMB’000                     |      
|Advertising  expenditure contracted
    but not provided for in the financial statements |  |                             | 6,200



F-48







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | 27. | FINANCIAL RISK MANAGEMENT
| | --- | -------------------------



The Company’s overall financial risk
management program seeks to minimize potential adverse effects of financial performance of the Company. Management has in place
processes and procedures to monitor the Company’s risk exposures while balancing the costs associated with such monitoring
and management against the costs of risk occurrence. The Company’s risk management policies are reviewed periodically for
changes in market conditions and the Company’s operations.



The Company 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.



Except as disclosed in (d), the Company
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.



| | (a) | Credit risk
| | --- | -----------



Credit risk refers to the risk that a counterparty
will default on its contractual obligations resulting in financial loss to the Company. The Company’s exposure to credit
risk arises primarily from bank balances and trade receivables. For trade receivables, the Company adopts the policy of dealing
only with customers of appropriate credit history to mitigate credit risk. For other financial assets, the Company adopts the
policy of dealing only with high credit quality counterparties.



As the Company 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.



Cash and bank balances



The Company’s bank deposits are placed
with reputable banks in the PRC, Hong Kong and the United States, which management believes are of high credit quality. The Company
performs periodic evaluations of the relative credit standing of these financial institutions.



Trade receivables



The Company’s objective is to seek
continual growth while minimizing losses incurred due to increased credit risk exposure.



The Company’s exposure to credit
risks is influenced mainly by the individual characteristics of each customer. The Company typically gives the existing customers
credit terms of approximately 90 days to 150 days. In deciding whether credit shall be extended, the Company 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 Company performs ongoing credit evaluations
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.



The Company’s concentration of credit
risk by geographical location is wholly in the PRC as of December 31, 2013, 2012 and 2011. Further details of the Company’s
concentration of credit risk are set out in Note14.



F-49







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | (b) | Liquidity risk
| | --- | --------------



The Company’s policy
is to regularly monitor current and expected liquidity requirements and its compliance with loan covenants to ensure that it maintains
a sufficient amount of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements
in the short and longer term.



The following table details
the Company’s remaining contractual maturities for its financial liabilities. The table has been drawn up based on undiscounted
cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes
both interest and principal cash flows. To the extent that interest flows are at a floating rate, the undiscounted amount is calculated
based on interest rate at the end of the reporting periods:



|                                 |  | As of December 31, 2013 |        
|-------------------------------- |  | ----------------------- | -------
|                                 |  | Within 1 year           |        
|                                 |  | RMB’000                 |        
|Trade payables                   |  |                         | 152,572
|Amounts owed to related parties  |  |                         | 8,539  
|Interest-bearing bank borrowings |  |                         | 103,280
|Total                            |  |                         | 264,391



|                                 |  | As of December 31, 2012 |        
|-------------------------------- |  | ----------------------- | -------
|                                 |  | Within 1 year           |        
|                                 |  | RMB’000                 |        
|Trade payables                   |  |                         | 115,123
|Amounts owed to related parties  |  |                         | 4,796  
|Interest-bearing bank borrowings |  |                         | 14,096 
|Total                            |  |                         | 134,015



|                                 |  | As of December 31, 2011 |        
|-------------------------------- |  | ----------------------- | -------
|                                 |  | Within 1 year           |        
|                                 |  | RMB’000                 |        
|Trade payables                   |  |                         | 252,682
|Amounts owed to related parties  |  |                         | 1,327  
|Interest-bearing bank borrowings |  |                         | 133,886
|Total                            |  |                         | 387,895



F-50







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | (c) | Interest rate risk
| | --- | ------------------



Interest rate risk is the risk that the
fair value or future cash flows of the Company’s financial instruments will fluctuate because of changes in market interest
rates.



The Company’s exposure to interest
rate risk arises primarily from the Company’s interest-bearing bank deposits and borrowings. As of December 31, 2013, the
interest rates and terms of repayment of the bank borrowings are disclosed in Note 19.



The Company is exposed to fair value interest
rate risk in relation to its fixed-rate bank borrowings. Bank borrowings subject to fixed interest rates are contractually repriced
at intervals of 12 months. The Company currently does not have an interest rate hedging policy. However, the management monitors
interest rate exposure and will consider other necessary actions when significant interest rate exposure is anticipated.



The Company is also exposed to cash flow
interest rate risk related to bank balances and cash held at financial institutions carried at the prevailing market rate borrowings
and variable-rate bank borrowing.



At December 31, 2013, if average interest
rate on the Company’s variable-rate bank borrowings had been 50 basis point higher/lower, loss before tax for the year ended
December 31, 2013 would have been increased/decreased by RMB448,000/RMB 448,000 (2012: decreased/increased profit before tax by
approximately RMB 300,000/RMB 300,000, 2011: decreased/increased profit before tax by approximately RMB 925,000 /RMB 925,000).



| | (d) | Foreign currency risk
| | --- | ---------------------



Currency risk is the risk that the fair
value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises
when transactions are denominated in foreign currencies.



The Company is mainly exposed to foreign
exchange risk arising from future commercial transactions, recognized assets and liabilities denominated in currencies other than
the functional currency of the group entities to which they relate. The Company’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 of December 31, 2013, 2012 and 2011,
nearly all of the Company’s monetary assets and monetary liabilities were denominated in RMB except that as of December
31, 2013, certain bank balances (Note 16), bank borrowings (Note 19) and other payables (Note 18) were denominated in f US dollars.



The Company entered into foreign currency
forward contracts for investment purposes. The net fair value of foreign exchange forward contracts entered into by the Company
at December 31, 2013 was RMB44,000 and has been recognized as derivative financial instruments.



At December 31, 2013, if RMB had weakened/strengthened
by 4% against US$ with all other variables held constant, post-tax loss for the year would have been approximately RMB35,012,000
higher/lower, mainly as a result of fair value (including foreign exchange) losses/gains on these foreign currency forward contracts.



F-51







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



| | (e) | Fair value measurements
| | --- | -----------------------



| | (i) | Financial instruments carried at fair value
| | --- | -------------------------------------------



Fair value hierarchy



The following table presents the fair value
of the Company’s financial instruments measured at the end of the reporting period on a recurring basis, categorized into
the three-level fair value hierarchy as defined in IFRS 13 Fair value measurement. The level into which a fair value measurement
is classified is determined with reference to the observability and significance of the inputs used in the valuation technique
as follows:



| | n | Level 1: quoted prices
                                         (unadjusted) in active markets for identical assets or liabilities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | n | Level 2: inputs other
                                         than quoted prices included within level 1 that are observable for the asset or liability,
                                         either directly (that is, as prices) or indirectly (that is, derived from prices)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | n | Level 3: inputs for
                                         the assets or liability that are not based on observable market data (that is, unobservable
                                         inputs).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s directors are responsible
to determine the appropriate valuation techniques and inputs for fair value measurements.



The
following table shows the fair value measurement hierarchy for assets and liabilities as of December 31, 2013:



|Recurring fair value measurements                                         |  | Level 1 |   |  | Level 2 |  |    | Level 3 |  |  | Total   | 
|------------------------------------------------------------------------- |  | ------- | - |  | ------- |  | -- | ------- |  |  | ------- | 
|                                                                          |  | RMB’000 |   |  | RMB’000 |  |    | RMB’000 |  |  | RMB’000 | 
|Assets                                                                    |  |         |   |  |         |  |    |         |  |  |         | 
|Derivative financial instruments – foreign exchange forward
    contracts |  |         | - |  |         |  | 44 |         |  |  | -       | 



There were no transfers between Level 1
and Level 2 during the year ended December 31, 2013.



Derivative financial instruments (Level
2)



During 2013, the Company bought a CHN Target
Redemption Forward from Taishin International Bank, a kind of financial product, for investing purpose. The financial product
meets the definition of derivative: No initial net investment, value changes in response to the change of exchange rate (US$ vs
RMB) and is settled at a future date.



The notional principal amounts of the outstanding
foreign exchange forward contracts at December 31, 2013 are US$14,000,000. These foreign exchange forward contracts are expected
to mature at various dates within 12 months.



F-52







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



At December 31, 2013, the Company recognized
the fair value of the derivative based upon the MTM (Mark to market) report provided by Taishin International Bank, determined
using forward exchange market rates at the end of the reporting period.



Subsequent to December 31, 2013, RMB depreciated
against US$. According to the MTM report provided by Taishin International Bank as of June 30, 2014, the market value of this
product, resulted in a liability, for the Company to unwind (sell) the product of RMB 56,177,000.



| | (ii) | Financial assets and liabilities measured at other than fair
                                         value
| | ---- | -----------------------------------------------------------------------------------------------------------



The carrying amounts of the Company’s
other financial instruments carried at cost or amortized cost approximate their fair values as of December 31, 2013, 2012 and
2011.



| | 28. | CAPITAL MANAGEMENT
| | --- | ------------------



The
Company’s objectives when managing capital are:



(i)	        To
safeguard the Company’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 Company’s stability and growth.



The
Company actively and regularly reviews and manages its capital structure to ensure optimal shareholder returns, taking into consideration
the future capital requirements of the Company and capital efficiency, prevailing and projected profitability, projected operating
cash flows, projected capital expenditures and projected strategic investment opportunities. The Company manages its common shares
and stock options as capital.



The
Company is not subject to externally imposed capital requirements, except for, as disclosed in Note 21(a), the Company’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 utilization 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, 2013, 2012 and 2011.



In order
to maintain or adjust the capital structure, the Company 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 Company’s overall approach to capital management during the report periods.



F-53







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



The capital structure of the Company consists
of debts (which include borrowings, less cash and cash equivalents) and equity attributable to shareholders of the Company (comprising
issued capital and reserves). The Company monitors capital on the basis of the debt to capital ratio, which is calculated as net
debts divided by equity attributable to shareholders of the Company



|                                                                         |  | As of December 31, |          
|------------------------------------------------------------------------ |  | ------------------ | ---------
|                                                                         |  | 2013               |          
|                                                                         |  | RMB’000            |          
|Interest-bearing bank borrowings                                         |  |                    | 99,652   
|Amounts owed to related parties                                          |  |                    | 8,539    
|Total debt                                                               |  |                    | 108,191  
|Less: Cash and cash equivalents
    (excluding restricted bank balances) |  |                    | (28,848  
|Net debts                                                                |  |                    | 79,343   
|Equity attributable to shareholders
    of the Company                   |  |                    | 1,419,572
|Gearing ratio                                                            |  |                    | 5.6      



| | 29. | EVENTS AFTER THE REPORTING
                                         PERIOD
| | --- | --------------------------------------------------------------------------



| | (a) | On February 25, 2014,
                                         the Company announced that the first of its announced two semi-annual cash dividends
                                         of $0.0125 per share (equivalent to RMB0.08) will be payable on July 14, 2014 to shareholders
                                         of record as of June 13, 2014. The second cash dividend will be paid on January 14, 2015
                                         based on a record date of December 12, 2014. On July 14, 2014, dividends (net of 5% PRC
                                         withholding tax) of RMB1,469,000(US$243,000) were paid.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | During 2013, the Company
                                         entered into certain foreign currency transaction agreements with a financial institution
                                         related to the movement of the Renminbi against the U.S. dollar. The Company recorded
                                         realized and unrealized fair value gains on these agreements totaling RMB3,346,000 for
                                         the year ended December 31, 2013. In 2014, as the Renminbi depreciated against the U.S.
                                         dollar, the Company incurred realized and unrealized losses totaling RMB70,312,000 ($11,615,000)
                                         for the six months ended June 30, 2014 in connection with these agreements.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In June 2014, the Company, it’s
Chief Executive Officer and its Audit Committee set out to attempt to terminate the foreign currency transaction agreements as
to the Company; and to reach a resolution that would deplete the Company’s liquid assets by virtue of the Company
having entered into the foreign currency transaction agreements. Ultimately the Chief Executive Officer agreed to cause an entity
controlled by him to assume those agreements and the liabilities arising under those agreements. On July 31, 2014, Sound Treasure
Limited, the Company’s largest shareholder and an affiliate of the Company’s Chief Executive Officer, entered into
a three party agreement (the “Novation”) with the financial institution that originated the foreign currency transaction
agreements and the Company. Under the Novation, Sound Treasure Limited assumed these agreements and all assets (mainly deposits
placed with the financial institution) and all existing and future liabilities arising under these agreements, and the Company
was released from the liabilities arising under the foreign currency transaction agreements. As a result, the Company will not
be required to fund any losses related to these agreements, and the Company will neither suffer any future liabilities arising
under those agreements nor enjoy any benefit arising under those agreements.



F-54







CHINA CERAMICS CO. LTD. AND ITS SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



At the time that each of the
foreign currency transaction agreements was established with the financial institution, the Company was required to deposit monies
with the financial institution. RMB 6.7 million of a total of RMB 15.1 million in deposits were funded on behalf of the Company
by Wong Kung Tok (who is the brother-in-law of the Company’s Chief Executive Officer) at the request of our Chief Executive
Officer, and were included in a total of RMB 40.2 million in loans owed by the Company to Wong Kung Tok as of July 9, 2014. In
connection with the Novation discussed above, our Chief Executive Officer, Sound Treasure Limited and Wong Kung Tok entered into
an agreement with the Company (the “Offset Agreement”) pursuant to which loans totaling RMB20.7 million owed by the
Company to Wong Kung Tok as of the date of the Offset Agreement (the Loans) were transferred to Sound Treasure Limited and then
were forgiven by Sound Treasure Limited; and in return the Company agreed to forego any claim to RMB15.1 million in Deposits under
the foreign currency transaction agreements which were transferred to Sound Treasure Limited pursuant to the Novation. As a result
of these transactions Sound Treasure Limited released the Company from liabilities aggregating RMB87.8 million and the Company
transferred ownership of RMB15.1 million in Deposits held at the financial institution from the Company to Sound Treasure Limited.
Except as disclosed above neither the Company’s Chief Executive Officer nor any affiliate of the Chief Executive Officer
received any remuneration for agreeing to assume the foreign currency transaction agreements. The material terms of the Novation
and the Sound Treasure Agreement were reviewed and approved by the Audit Committee. As a result of the Novation and the Offset
Agreement, approximately RMB87.8 million in liabilities on the Company’s books will be extinguished in the third quarter
of 2014 and Additional Paid-In Capital will be increased by approximately RMB72.7 million.



| | (c) | Legal proceedings
| | --- | -----------------



The Company and certain of its
current and former officers and directors are defendants in class action cases pending in the United States District Court for
the Southern District of New York.



On June 6, 2014, Robert Pollock
brought an action styled No. 14-CV-04100, Robert Pollock, et al., v. China Ceramics Co., Ltd., Huang Jia Dong, Su Pei Zhi, Hen
Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky, Su Wei Feng, Shen Cheng Liang and Jianwei Liu,
in the United States District Court for the Southern District of New York. In this action, the plaintiff purports to bring a federal
securities fraud class action on behalf of purchasers of the publicly traded securities of China Ceramics between March 30, 2012
and May 1, 2014. The action asserts that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 by making certain
false and misleading statements and omissions to the investing public regarding the Company’s business operations, management,
and future prospects. The complaint also alleges liability against the individual defendants under Section 20(a) of the Exchange
Act.



On June 16, 2014, Roger Artinoff
brought an action styled 14-CV-04312, Roger Artinoff, et al., v. China Ceramics Co., Ltd., et al., in the United States District
Court for the Southern District of New York. On July 2, 2014, Richard Finlayson brought an action styled 14-CV-04997, Richard
Finlayson, et al., v. China Ceramics Co., Ltd., et al., in the United States District Court for the Southern District of New York.
These actions make allegations against the defendants substantially similar to those made in the Pollack action.



The Company plans to defend vigorously in these
lawsuits. Although it is unable to predict the final outcome of these proceedings, the Company does not believe that the final
results will have a material effect on its consolidated financial condition, results or operations, or cash flows.



F-55