UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 20-F

(Mark One)



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



OR



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

For the fiscal year ended December 31, 2011



OR



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

For the transition period from ___________
to ___________



OR



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

Date of event requiring this shell company
report _________________________



Commission file number: 001-34532



CHINA
GERUI ADVANCED MATERIALS GROUP LIMITED






(Exact Name of Registrant
as Specified in Its Charter)



Not Applicable

(Translation of Registrant’s Name
Into English)



British Virgin Islands

(Jurisdiction of Incorporation or Organization)



1 Shuanghu Development Zone

Xinzheng City,

Zhengzhou, Henan Province 451191

People’s Republic of China






(Address of Principal Executive
Offices)



Mingwang Lu

1 Shuanghu Development Zone

Xinzheng City

Zhengzhou, Henan Province 451191

People’s Republic of China
Tel: 86-371-62568634; Fax: 86-371-67718787
Email: mingwang.lu@geruigroup.com




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





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



|Title of Each Class           |  | Name of Each Exchange On Which Registered                        
|----------------------------- |  | -----------------------------------------------------------------
|Ordinary Shares, no par value |  | The NASDAQ Stock Market LLC
        (NASDAQ Global Select Market)



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



None






(Title of Class)



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



None

(Title of Class)



Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report: 58,311,076 ordinary shares as of
December 31, 2011



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.	YesxNo ̈



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.



|Large Accelerated Filer ̈ |  | Accelerated Filerx |  | Non-Accelerated Filer ̈
|------------------------ |  | ------------------ |  | ----------------------



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



|U.S. GAAPx |  | International Financial Reporting ̈       |  | Other ̈
|---------- |  | ---------------------------------------- |  | ------
|           |  | Standards as issued by the International |  |       
|           |  | Accounting Standards Board               |  |       



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




















CHINA GERUI ADVANCED MATERIALS
GROUP LIMITED



Annual Report on Form 20-F








TABLE OF CONTENTS



|         |                                                       | Page                                                   
|-------- | ----------------------------------------------------- | -------------------------------------------------------
|         |                                                       |                                                        
|         | PART I                                                |                                                        
|         |                                                       |                                                        
|ITEM 1.  | Identity of Directors, Senior Management and Advisers | 1                                                      
|ITEM 2.  | Offer Statistics and Expected Timetable               | 2                                                      
|ITEM 3.  | Key Information                                       | 2                                                      
|         | A.                                                    | Selected Financial Data                                
|         | B.                                                    | Capitalization and Indebtedness                        
|         | C.                                                    | Reasons for the Offer and Use of Proceeds              
|         | D.                                                    | Risk Factors                                           
|ITEM 4.  | Information on the Company                            | 25                                                     
|         | A.                                                    | History and Development of the Company                 
|         | B.                                                    | Business Overview                                      
|         | C.                                                    | Organizational Structure                               
|         | D.                                                    | Property, Plants and Equipment                         
|ITEM 4A. | Unresolved Staff Comments                             | 32                                                     
|ITEM 5.  | Operating and Financial Review and Prospects          | 32                                                     
|ITEM 6.  | Directors, Senior Management and Employees            | 46                                                     
|         | A.                                                    | Directors and Senior Management                        
|         | B.                                                    | Compensation                                           
|         | C.                                                    | Board Practices                                        
|         | D.                                                    | Employees                                              
|         | E.                                                    | Share Ownership                                        
|ITEM 7.  | Major Shareholders and Related Party Transactions     | 57                                                     
|         | A.                                                    | Major Shareholders                                     
|         | B.                                                    | Related Party Transactions                             
|         | C.                                                    | Interests of Experts and Counsel                       
|ITEM 8.  | Financial Information                                 | 58                                                     
|         | A.                                                    | Consolidated Statements and Other Financial Information
|         | B.                                                    | Significant Changes                                    
|ITEM 9.  | The Offer and Listing                                 | 59                                                     
|         | A.                                                    | Offer and Listing Details                              
|         | B.                                                    | Plan of Distribution                                   
|         | C.                                                    | Markets                                                
|         | D.                                                    | Selling Shareholders                                   
|         | E.                                                    | Dilution                                               
|         | F.                                                    | Expenses of the Issue                                  
|ITEM 10. | Additional Information                                | 59                                                     
|         | A.                                                    | Share Capital                                          
|         | B.                                                    | Memorandum and Articles of Association                 
|         | C.                                                    | Material Contracts                                     
|         | D.                                                    | Exchange Controls                                      





i









|         | E.                                                                             | Taxation                                                               | 66
|-------- | ------------------------------------------------------------------------------ | ---------------------------------------------------------------------- | --
|         | F.                                                                             | Dividends and Paying Agents                                            | 72
|         | G.                                                                             | Statement by Experts                                                   | 72
|         | H.                                                                             | Documents on Display                                                   | 72
|         | I.                                                                             | Subsidiary Information                                                 | 72
|ITEM 11. | Quantitative and Qualitative Disclosures About Market Risk                     | 72                                                                    
|ITEM 12. | Description of Securities Other Than Equity Securities                         | 73                                                                    
|         |                                                                                |                                                                       
|         | PART II                                                                        |                                                                       
|         |                                                                                |                                                                       
|ITEM 13. | Defaults, Dividend Arrearages and Delinquencies                                | 73                                                                    
|ITEM 14. | Material Modifications to the Rights of Securities Holders and Use of Proceeds | 73                                                                    
|ITEM 15. | Controls and Procedures                                                        | 73                                                                    
|ITEM 16. | [RESERVED]                                                                     | 75                                                                    
|         | A.                                                                             | Audit Committee Financial Expert                                       | 75
|         | B.                                                                             | Code of Ethics                                                         | 75
|         | C.                                                                             | Principal Accountant Fees and Services                                 | 76
|         | D.                                                                             | Exemptions from the Listing Standards for Audit Committees             | 76
|         | E.                                                                             | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 76
|         | F.                                                                             | Change in Registrant’s Certifying Accountant                           | 77
|         | G.                                                                             | Corporate Governance                                                   | 77
|         | H.                                                                             | Mine Safety Disclosure                                                 | 77
|         |                                                                                |                                                                       
|         | PART III                                                                       |                                                                       
|         |                                                                                |                                                                       
|ITEM 17. | Financial Statements                                                           | 77                                                                    
|ITEM 18. | Financial Statements                                                           | 77                                                                    
|ITEM 19. | Exhibits                                                                       | 77                                                                    



ii







USE OF CERTAIN DEFINED TERMS



Except as otherwise indicated by the context, references in
this annual report to:



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



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



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



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



| | · | “BVI” are to the British Virgin Islands;
| | - | ----------------------------------------



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



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



| | · | “RMB” are to Renminbi, the legal currency of China;
| | - | ---------------------------------------------------



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



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



| | · | “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
| | - | ----------------------------------------------------------------------



FORWARD-LOOKING INFORMATION



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



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



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 the Annual Report.



PART I



| | ITEM 1. | Identity of Directors, Senior Management and Advisers
| | ------- | -----------------------------------------------------



Not applicable.



1







| | ITEM 2. | Offer Statistics and Expected Timetable
| | ------- | ---------------------------------------



Not applicable.



| | ITEM 3. | Key Information
| | ------- | ---------------



| | A. | Selected Financial Data
| | -- | -----------------------



The following table presents selected financial data regarding
our business.  It should be read in conjunction with our consolidated financial statements and related notes contained
elsewhere in this annual report and the information under Item 5 “Operating and Financial Review and Prospects.”  The
selected consolidated statement of income data for the fiscal years ended December 31, 2011, 2010 and 2009, and the selected consolidated
balance sheet data as of December 31, 2011 and 2010 have been derived from our audited consolidated financial statements that are
included in this annual report beginning on page F-1.  The selected consolidated statement of income data for the fiscal
years ended December 31, 2008 and 2007, and the selected consolidated balance sheet data as of December 31, 2009, 2008 and 2007
have been derived from our audited consolidated financial statements that are not included in this annual report.



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



China Gerui Advanced Materials Group Limited
Selected Historical Consolidated Financial Information
(In thousands of U.S. Dollars, except number of shares and per share data)



|                                                       |  | For the Year Ended December 31, |           
|------------------------------------------------------ |  | ------------------------------- | ----------
|                                                       |  | 2011                            |           
|Statements of Income Data:                             |  |                                 |           
|Revenue                                                |  | $                               | 341,778   
|Gross Profit                                           |  |                                 | 101,578   
|Operating income                                       |  |                                 | 83,537    
|Net income before income taxes and minority interest   |  |                                 | 79,582    
|Net income before non-controlling interest(1)          |  |                                 | 79,582    
|Net income (1)(2)                                      |  |                                 | 57,621    
|Weighted average ordinary common shares — basic (3)    |  |                                 | 56,297,652
|Weighted average number of diluted ordinary shares (3) |  |                                 | 56,297,652
|Basic earnings per share (1)(3)                        |  | $                               | 1.02      
|Diluted earnings per share (1)(3)                      |  | $                               | 1.02      
|Balance Sheet Data:                                    |  |                                 |           
|Total current assets                                   |  | $                               | 445,186   
|Total assets                                           |  |                                 | 601,076   
|Total current liabilities                              |  |                                 | 302,648   
|Total liabilities                                      |  |                                 | 302,648   
|Non-controlling Interest(1)                            |  |                                 | -         
|Stockholders’ equity                                   |  |                                 | 298,428   



(1)       Henan Green was acquired by China Gerui on October 21,
2008 and for reporting purposes a 44.98% interest of Henan Green has been accounted for as a minority interest prior to the date
of acquisition during the years ended December 31, 2007 and 2008.  Net income and per share data have been calculated
after giving effect to the minority interest in such periods.



2







| | (2) | We have no discontinued operations, therefore net income and net income
per share has been provided in lieu of income from continuing operations and income from continuing operations per share.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | In anticipation of the merger transaction with COAC, China Gerui effectuated a recapitalization on March 13, 2009 pursuant
to which 29,999,900 newly issued ordinary shares were issued to China Gerui’s then-current shareholders pro rata with their
relative ownership percentages.  Consequently, the foregoing table presents ordinary shares outstanding (actual and diluted)
and per share data (basic and diluted) on a pro forma basis assuming that the recapitalization had already occurred at all times
during the periods presented.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Information



Our reporting and financial statements are expressed in the
U.S. dollar, which is the reporting and functional currency of our BVI parent company. However, substantially all of the revenues
and expenses of our consolidated PRC operating subsidiary, Henan Green, is denominated in RMB, its functional currency. The conversion
of RMB into U.S. dollars in this annual report is based on the noon buying rate in The City of New York for cable transfers of
RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB
to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.2939 to US$1.00, the noon buying
rate in effect as of December 30, 2011. We make no representation that any RMB or U.S. dollar amounts could have been, or could
be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The Chinese
government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign
exchange. On April 27, 2012, the noon buying rate was RMB6.3093 to US$1.00.



The following table sets forth information concerning exchange
rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are
not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or
any other information to be provided to you.



|              |  |  | Noon Buying
    Rate (1) |       
|------------- |  |  | ------------------------ | ------
|              |  |  | Average (2)              |       
|Period        |  |  | (RMB per US$1.00)        |       
|2007          |  |  |                          | 7.5806
|2008          |  |  |                          | 6.9459
|2009          |  |  |                          | 6.8307
|2010          |  |  |                          | 6.7603
|2011          |  |  |                          | 6.4475
|October 2011  |  |  |                          |       
|November 2011 |  |  |                          |       
|December 2011 |  |  |                          |       
|January 2012  |  |  |                          |       
|February 2012 |  |  |                          |       
|March 2012    |  |  |                          |       



| | (1) | For periods prior to January 1, 2009, the exchange rates reflect
the noon buying rates as reported by the Federal Reserve Bank of New York. For periods after January 1, 2009, the exchange rates
reflect the noon buying rates as set forth in the H.10 statistical release of the Federal Reserve Board.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Annual averages are calculated from the average of the exchange rates on the last day of each month during the period.
| | --- | ----------------------------------------------------------------------------------------------------------------------



The functional currency of our consolidated Hong Kong holding
subsidiary, Wealth Rainbow, is Hong Kong dollars.



3







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



Not applicable.



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



Not applicable.



| | D. | Risk Factors
| | -- | ------------



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



RISKS RELATED TO OUR BUSINESS



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



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



Due to our rapid growth in recent
years, our past results may not be indicative of our future performance so evaluating our business and prospects may be difficult.



Our business has grown and evolved rapidly in recent years as
demonstrated by our growth in sales revenue from approximately $139.6 million in 2007 to $341.8 million in 2011.  Our
net income has grown from approximately $13.0 million in 2007 to approximately $57.6 million in 2011.  We may not be
able to achieve similar growth in future periods.  Therefore, our historical operating results may not provide a meaningful
basis for evaluating our business, financial performance and prospects in the future.  Moreover, our ability to achieve
satisfactory operating results at higher production and sales volumes is unproven.  You should not rely on our past results
or our historical rate of growth as an indication of our future performance.



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



We currently sell high precision steel products to more than
20 major customers in the Chinese domestic market.  For the fiscal years ended December 31, 2011 and 2010, sales revenues
generated from our top 10 customers amounted to 25.8% and 33.4% of total sales revenues, respectively, and sales to our largest
single customer for the same periods amounted to 5.5% and 8.5% of our total sales revenues, respectively.  We do not
enter into long-term contracts with our customers and therefore cannot be certain that sales to these customers will continue.
The loss of any of our largest customers would likely have a material negative impact on our sales revenues and business.



4







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



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



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



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



As of December 31, 2011, we have used the net proceeds from
the aforementioned financings to expand our cold-rolled steel processing capacity from 250,000 metric tons per annum to 400,000
metric tons per annum and to add 200,000 metric tons per annum of capacity to our 50,000-metric ton-per-annum chromium plating
line so as to be capable of chromium-plating 250,000 tons of cold-rolled steel per annum. The estimated total capital expenditure
for these expansion projects was approximately $42 million.We expanded our annual production capacity an additional
100,000 metric tons to 500,000 metric tons as of the first quarter of 2012 in order to meet expected demand for our products. This
additional expansion required capital expenditures of approximately $14 million.  We will also need to use capital to
test and optimize our new production lines in order to bring them into full operation, maintain the condition of our equipment,
and comply with environmental laws and regulations. In addition, we have initiated a transaction to purchase the land use rights
relating to our main operational facilities and adjoining lands from a related party to protect the legal status of our current
operations and potential expansions. In this regard, we have pre-paid approximately $12.7 million to the related party, and may
need to make additional payments depending on the conditions of transfer that are ultimately negotiated. Although we received $66.5
million in proceeds from warrant exercises in the first quarter of fiscal year 2011 and plan to use such proceeds for our capital
expansion program and land use rights purchase, our capital expenditure plans and estimates are subject to change as determined
by our management and we may determine that we do not have sufficient cash on hand to fund these initiatives without seeking external
capital funds.  Sourcing external capital funds for these purposes are key factors that have constrained and may in the
future constrain our growth, production capability and profitability.  To the extent that we finance our capital expansion
and maintenance projects with debt financing, we may become subject to financial covenants or operating covenants that restrict
our ability to freely operate our business or take actions that are desired by shareholders, such as the payment of dividends.  If
we elect to finance our capital expansion and maintenance plans through equity financing, our shareholders may experience dilution
or may have their voting or economic rights as shareholders subordinated to a senior class of stock.  In either event,
we may be unable to find external sources of financing on favorable terms or at all.  Our failure to obtain external
financing for our capital expansion and maintenance projects can severely impede our growth plans and strategy and impair our revenue,
earnings and overall financial performance.



If we have miscalculated the future demand for our products,
we may wind up unnecessarily spending a significant amount of funds on the expansion of our manufacturing facilities.



As described immediately above, we have spent almost all of
the $43 million in total proceeds from our November 2009 underwritten public offering and June 2010 private placement to construct
additional manufacturing facilities  We have added an additional 100,000 metric tons per annum of manufacturing capacity
at a cost of $14 million, allowing us to produce up to approximately 500,000 metric tons of our high precision, cold rolled steel
products annually once testing and optimization is completed.  The scope and timing of our expansion plans has been based
on our internal projections and estimated demand for our products.  If our projections are incorrect and the actual demand
for our products is less than our projections, we may expend a significant amount of capital on an expansion project which
ultimately may not have been needed.



5







Zhengzhou No. 2 Iron and Steel Company Limited, or Zhengzhou
Company, isthe owner of a land use right with respect to 24.94 acres (151.4
Chinese mu), as to which we currently lease a part of the land use right for 6.69 acres (40.60 Chinese mu). Our existing production
lines and warehouses are located on this parcel of land. Zhengzhou Company is controlled by our chairman, Mr. Mingwang Lu. For
operation risk mitigation purposes, we have started the process of transferring title to the existing land use right to 24.94 acres
from Zhengzhou Company. To facilitate Zhengzhou Company’s negotiation with local regulatory authorities on the transfer and
in anticipation of the upfront payments associated with the transaction, we have prepaid $12,710,719 to Zhengzhou Company as of
December 31, 2011. The final transfer price is to be further determined based on market-based valuation of the land value and calculation
of associated value-added tax. This payment and transaction are premised on our view that it will ultimately reduce our overall
risk position by reducing our dependence on related parties for our land use rights, and that the terms of the transaction are
substantially equivalent to those that would be paid to an unrelated third party. However, if a regulator or shareholder disagrees
with this view and seeks to block the transaction or sue for damages, we may need to engage in expensive litigation or other measures
to defend our actions, which we may lose, and our efforts to bolster our land use rights may be frustrated. Even if this transaction
is not blocked or otherwise challenged, substantial additional funds may need to be paid in order to transfer the land use rights,
which may have a material adverse effect on our financial condition.



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



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



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



During the
fourth quarter of fiscal year 2011, a general slowdown in the Chinese economy due to macroeconomic factors led to a decrease in
domestic spending and infrastructure investment.  This directly impacted some of the end-use applications that we and our
products serve, causing our average sales prices and sales volume to decline compared to the same quarter of fiscal year 2010.Steel consumption is highly cyclical and generally follows general economic and industrial conditions, both worldwide and
in various smaller geographic areas. Pricing can be volatile as a result of general economic conditions, labor costs, competition,
import duties, tariffs and currency exchange rates.  The steel industry has historically been characterized by excess
world supply and wide fluctuations in results of operations both in China and globally.  This has led to substantial
price decreases during periods of economic weakness, which have not been offset by commensurate price increases during periods
of economic strength.  Substitute materials are increasingly available for many steel products, which may further reduce
demand for steel.  Additional overcapacity or the use of alternative products could hurt our results of operations.



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



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



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



| | · | quality;
| | - | --------

| | · | price competitiveness;
| | - | ----------------------

| | · | technical expertise and development capability;
| | - | -----------------------------------------------



6







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

| | · | reliability and timeliness of delivery;
| | - | ---------------------------------------

| | · | product design capability;
| | - | --------------------------

| | · | operational flexibility;
| | - | ------------------------

| | · | customer service; and
| | - | ---------------------

| | · | overall management.
| | - | -------------------



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



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



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



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



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



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





Our total debt under existing bank loans and lines
of credit to the Company as of December 31, 2011 was approximately $249 million. Our obligations under certain of our short
term bank loans are guaranteed by Zhengzhou Company, which owns the land use rights and buildings in which we conduct
our operations and that we lease from it. Zhengzhou Company has pledged the land use rights and buildings under this
guarantee. We had $367.9 million in total cash (including certificate of deposit) of which $246.6 million was unrestricted
cash as of December 31, 2011. We have elected to reserve the use of such cash for our capital expansion program and have
recently renewed certain existing bank loans and lines of credit. This indebtedness and the incurrence of any new
indebtedness could (i) make it more difficult for us to satisfy and pay our existing liabilities and obligations, which could
in turn result in an event of default, (ii) require us to dedicate a substantial portion of our cash flow from operations to
debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes, (iii) impair our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iv) diminish our ability
to withstand a downturn in our business, the industry in which we operate or the economy generally, (v) limit our flexibility
in planning for, or reacting to, changes in our business and the industry in which we operate, or (vi) place us at a
competitive disadvantage compared to competitors that have proportionately less debt.  If we are unable to meet our
debt service obligations, and Zhengzhou Company defaults on its guarantees, we could be forced to restructure or
refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell
assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations, be subject to
foreclosure on such loans, and lose possession of the land and buildings in which we conduct our
operations.  Additionally, we could incur additional indebtedness in the future and, if new debt is added to our
current debt levels, the risks above could intensify.



During 2011, we were not in compliance with the financial
covenants. The terms of the loans prohibit making advances or providing guarantees to other unrelated parties without prior
consent of the bank. The bank may call the loans since we were not in compliance with its financial covenants. The banks have
not called the loans or assessed a penalty on us for these violations. We do not believe that any penalty will be assessed by
the banks for these violations. In addition, as of December 31, 2011, we provided guarantees for certain
non-related parties. We believe that Zhengzhou Aluminium Industry Co., Ltd., one of the non-related companies to which we
provided a loan guarantee, experienced financial difficulties in 2011 and may not be able to perform on its payments under
its loans and guarantees. If Zhengzhou Aluminium Industry Co., Ltd. is unable to repay its debt or guarantees, we may be
required to pay up to $6.4 million related to its debt and guarantees. No provision has been made in our financial statements
for this obligation as we have not been called upon to date to perform under our guarantee.





7







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



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



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



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



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



Cold-rolled specialty precision steel manufacturing is a relatively
new industry in China.  Previously, our customers which manufacture durable goods have relied solely on imports from
Japan, Korea, the European Union and the United States.  We believe the average quality and standards of products of
China’s high precision steel industry lags behind international standards.  While we offer five series and over
20 types of high-precision steel products and believe we have developed a nationally recognizable brand, there are many other specialty
precision steel products of similar nature in the market.  As of December 31, 2011, we have not yet penetrated the international
market and have not developed an internationally recognizable brand for specialty steel products.  If there are significant
changes in market demand and/or competitive forces, we may not be able to change our product mix or adapt our production equipment
quickly enough to meet customers’ needs.  Under such circumstances, our narrow band of precision steel products
and/or new market entrants may negatively impact our financial performance.



8







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



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



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



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



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

| | · | lack of developed infrastructure;
| | - | ---------------------------------

| | · | variances in payment cycles;
| | - | ----------------------------

| | · | currency fluctuations;
| | - | ----------------------

| | · | overlapping taxes and multiple taxation issues;
| | - | -----------------------------------------------

| | · | employment and severance taxes;
| | - | -------------------------------

| | · | compliance with local laws and regulatory requirements;
| | - | -------------------------------------------------------

| | · | greater difficulty in collecting accounts receivable; and
| | - | ---------------------------------------------------------

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



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



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



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



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



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



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



9







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



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



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



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



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



We face risks associated with future investments or acquisitions.



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



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

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

| | · | coordinate research and development efforts;
| | - | --------------------------------------------

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

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



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



10







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



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



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



Henan Green’s business will suffer if it loses its
land use rights. Should its expenditures and efforts to strengthen its land use rights by purchasing those relating to its main
facilities and adjoining lands from a related party be perceived as a waste of resources or non-arms’-length transaction,
we may be subject to greater regulatory scrutiny or shareholder litigation risks.



There is no private ownership of land in China and all land
ownership is held by the government of China, its agencies, and collectives.  In the case of land used for business purposes,
land use rights can be obtained from the government for a period up to 50 years, and are typically renewable.  Land use
rights can be granted upon approval by the land administrative authorities of China (State Land Administration Bureau) upon payment
of the required land granting fee, the entry into a land use agreement with a competent governmental authority and certain other
ministerial procedures.  Henan Green holds land use rights for some of its occupied properties and leases the land and
the building on which its main facilities are located from third parties that it reasonably believes have proper land use rights,
but no assurance can be given that Henan Green’s land use rights will be renewed or that our lessors will maintain their
land use rights. We have received land use certificates for certain parcels of land on which our properties reside, but we may
not have followed all procedures required to obtain such certificates or paid all required fees.  If the Chinese administrative
authorities determine that we have not fully complied with all procedures and requirements needed to hold a land use certificate,
we may be forced by the Chinese administrative authorities to retroactively comply with such procedures and requirements, which
may be burdensome and require us to make payments, or such Chinese administrative authorities may invalidate or revoke our land
use 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, or if we are unable to renew the lease for our facilities when it expires in 2027,
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 its costs of production,
which would negatively impact financial results.



Zhengzhou No. 2 Iron and Steel Company Limited, or Zhengzhou
Company, isthe owner of a land use right with respect to 24.94 acres (151.4
Chinese mu), as to which we currently lease a part of the land use right for 6.69 acres (40.60 Chinese mu). Our existing production
lines and warehouses are located on this parcel of land. Zhengzhou Company is controlled by our chairman, Mr. Mingwang Lu. For
operation risk mitigation purposes, we have started the process of transferring title to the existing land use right to 24.94 acres
(151.4 Chinese mu) from Zhengzhou Company. To facilitate Zhengzhou Company’s negotiation with local regulatory authorities
on the transfer and in anticipation of the upfront payments associated with the transaction, we have prepaid as of December 31,
2011 $12,710,719 to Zhengzhou Company. The final transfer price is to be further determined based on market-based valuation of
the land value and calculation of associated value-added tax. This payment and transaction are premised on our view that it will
ultimately reduce our overall risk position by reducing our dependence on third parties for our land use rights, and that the terms
of the transaction are substantially equivalent to those that would be paid to an unrelated third party. However, if a regulator
or shareholder disagrees with this view and seeks to block the transaction or sue for damages, we may need to engage in expensive
litigation or other measures to defend our actions, which we may lose, and our efforts to bolster our land use rights may be frustrated.
Even if this transaction is not blocked or otherwise challenged, substantial additional funds may need to be paid in order to transfer
the land use rights, which may have a material adverse effect on our financial condition.



11







If we fail to maintain an effective system of internal
control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely
affected and investor confidence and the market price of our ordinary shares may be adversely impacted.



As directed by Section 404 of the Sarbanes-Oxley Act of 2002,
the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over
financial reporting in their annual reports, including Form 20-F.  Although our management concluded that our internal
controls over our financial reporting were effective as of December 31, 2011, they may not do so in future annual reports. Our
independent registered public accounting firm may issue a report that is qualified if it is not satisfied with our controls or
the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently
from us.  Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss
of investor confidence in the reliability of our reporting processes, which could adversely impact the market price of our securities.



We may face adverse claims from and may be liable for
damages to some former shareholders of COAC based on an agreement we entered into with our original shareholders.



On November 12, 2008, we entered into an Agreement of Merger
and Plan of Reorganization, or the Merger Agreement, with COAC, Wealth Rainbow, Henan Green, and several of our original shareholders,
Oasis Green Investments Limited, or Oasis, Plumpton Group Limited, or Plumpton, and Honest Joy Group Limited, or Honest Joy, or
collectively the Original Shareholders.



When the parties entered into the Merger Agreement, we and the
Original Shareholders expected to succeed to COAC’s liabilities and obligations as a result of the merger, but also expected
to receive, as partial consideration for the merger, a significant portion of COAC’s $41.5 million in cash and cash equivalents.  Additionally,
in connection with the merger negotiations, the parties agreed to an earn-out arrangement whereby, upon our attainment of certain
financial milestones and results, the Original Shareholders would be entitled to receive from us a total of 3,000,000 additional
ordinary shares, or the Earn-Out Shares.  Under the Merger Agreement, the Earn-Out Shares were to be issued and paid
in three equal annual installments and distributed among the Original Shareholders as specified in the Merger Agreement for each
year that we met the respective performance threshold specified therein.  The parties also agreed upon customary conditions
to closing, including the approval of the merger by the stockholders of COAC.  Prior to and in connection with the vote
of COAC’s stockholders on the proposal to merge with and into China Gerui, COAC used a significant portion of the $41.5 million
in cash and cash equivalents held in trust to satisfy obligations to its stockholders in respect of the vote on the merger.  Thereafter,
persons holding a sufficient number of shares of COAC stock voted in favor of the merger.



Notwithstanding the redemptions and the substantial depletion
of funds held in COAC’s trust fund, we and the Original Shareholders consummated the merger with COAC on March 17, 2009.  All
COAC securities were exchanged for our equivalent securities, and COAC merged with and into the Company which survived the merger
and succeeded to the rights and obligations of COAC.



Shortly after completion of the merger, we and the Original
Shareholders initiated discussions regarding the proper treatment of the Earn-Out Shares given that the Original Shareholders agreed
to complete the merger transaction even though the expected COAC cash assets were no longer available to us as originally envisioned
by the parties.   As a result of the negotiations between the Original Shareholders and us regarding the appropriate
treatment of the Earn-Out Shares, we and the Original Shareholders entered into an agreement dated September 15, 2009, or the Settlement
Agreement, pursuant to which we agreed to issue to the Original Shareholders an aggregate of 2,850,000 ordinary shares within ten
days of entering into the agreement.  The 2,850,000 shares were to be divided among the Original Shareholders in the
same proportion to the amounts of the Earn-Out Shares that they would have received under the terms of the Earn-Out in the Merger
Agreement. In consideration of the issuance of the ordinary shares, we and the Original Shareholders agreed to a mutual release
of all claims relating to the merger, the redemptions, and the Earn-Out Shares.



Some former shareholders of COAC, who are currently minority
shareholders in our company, may believe that this treatment of the Earn-Out Shares and the related agreement are not in their
best interests and may file adverse claims against us seeking monetary or injunctive relief.  Although we do not believe
such claims would have merit and that any have been filed to date, if such claims are filed and are successful, our agreement with
the Original Stockholders may not be enforced and we may be exposed to monetary damages to such shareholders.  In addition,
we may incur significant costs associated with the defense of such a lawsuit. We have not received any claims related to the Earn-Out
Shares to date.



12







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



Our executive officers, employees and other agents may violate
applicable law in connection with the marketing or sale of our products, including China’s anti-corruption laws and the U.S.
Foreign Corrupt Practices Act, or the FCPA, which generally prohibits United States companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business.  In addition, we are required
to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls.  Foreign
companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive
advantage over us.  Our executive officers and employees have not been subject to the U.S. Foreign Corrupt Practices
Act prior to the completion of our merger in March of 2009.  The PRC also strictly prohibits bribery of government officials.  However,
corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC.  While
we intend to implement measures to ensure compliance with the FCPA and Chinese anti-corruption laws by all individuals involved
with our company, our employees or other agents may engage in such conduct for which we might be held responsible.  If
our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and results of operations.  In addition,
our brand and reputation, our sales activities or the price of our ordinary shares could be adversely affected if we become the
target of any negative publicity as a result of actions taken by our employees or other agents.



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



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



RISKS RELATED TO DOING BUSINESS IN CHINA



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



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



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



13







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



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



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



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



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



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



14







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



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



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



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



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



The value of our securities will be indirectly affected by the
foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be
denominated. Because substantially all of our earnings and cash assets are denominated in RMB and our financial results are reported
in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and RMB will affect our balance sheet and our earnings
per share in U.S. dollars.  In addition, appreciation or depreciation in the value of RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business
or results of operations.  Fluctuations in the exchange rate will also affect the relative value of any dividend we issue
that will be exchanged into U.S. dollars as well as earnings from, and the value of, any U.S. dollar-denominated investments we
make in the future.  Since July 2005, RMB has not been pegged to the U.S. dollar.  Although the People’s
Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange
rate, RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term.  Moreover,
it is possible that in the future PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen intervention
in the foreign exchange market.



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



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



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



15







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



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



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



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



16







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



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



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



We and our PRC employees who have been or in the future are
granted stock options are subject to the New Share Incentive Rule. If we or our PRC employees fail to comply with the New Share
Incentive Rule, we and/or our PRC employees may face sanctions imposed by the foreign exchange authority or any other PRC government
authorities.



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



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



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



17







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



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



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



Any outbreak of the Swine Flu (H1N1), severe acute respiratory
syndrome, the Avian Flu, or another widespread public health problem in the PRC could adversely affect our operations.



There have been recent outbreaks of the highly pathogenic Swine
Flu, caused by the H1N1 virus, in certain regions of the world, including parts of China, where all of our manufacturing facilities
are located and where all of our sales occur.  Our business is dependent upon our ability to continue to manufacture
and distribute our products, and an outbreak of the Swine Flu, or a renewed outbreak of severe acute respiratory syndrome, the
Avian Flu, or another widespread public health problem in China, could have a negative effect on our operations.  Any
such outbreak could have an impact on our operations as a result of:



| | · | quarantines or closures of our manufacturing or distribution facilities, which would severely disrupt our operations;
| | - | ---------------------------------------------------------------------------------------------------------------------

| | · | the sickness or death of our key officers and employees; and
| | - | ------------------------------------------------------------

| | · | a general slowdown in the Chinese economy.
| | - | ------------------------------------------



Any of the foregoing events or other unforeseen consequences
of public health problems could adversely affect our operations.



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



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



18







Because our funds are held in banks in uninsured PRC bank
accounts, the failure of any bank in which we deposit our funds could affect our ability to continue in business.



Funds on deposit at banks and other financial institutions in
the PRC are often uninsured.  A significant portion of our assets are in the form of cash deposited with banks in the
PRC, and in the event of a bank failure, we may not have access to our funds on deposit.  Depending upon the amount of
money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not
able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.



Our management is continuing to become more familiar with
United States securities laws and will have to continue to learn about such laws which could lead to various regulatory issues.



Some members of our management team are not entirely familiar
with United States securities laws and will have to expend time and resources becoming familiar with such laws.  This
could be expensive and time-consuming and could lead to various regulatory issues and a diversion of management attention, which
may harm our operations.



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



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



If any dividend is declared in the future and paid in
a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately
receive.



If you are a U.S. holder, you will be taxed on the U.S. dollar
value of your dividends at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment
is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the
dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made
in the foreign currency, determined at the conversion rate of the foreign currency to the U.S. dollar on the date the dividend
distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the
value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger
amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.



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



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



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

| | · | changes in taxation;
| | - | --------------------

| | · | changes in employment restrictions;
| | - | -----------------------------------

| | · | restrictions on imports and sources of supply;
| | - | ----------------------------------------------



19







| | · | import duties; and
| | - | ------------------

| | · | currency revaluation.
| | - | ---------------------



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



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



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



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



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



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



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



20







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



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



There can be no guarantee that China will comply with
the membership requirements of the World Trade Organization, which could leave us subject to retaliatory actions by other governments
and reduce our ability to sell our products internationally.



China has agreed that foreign companies will be allowed to import
most products into any part of China. In the sensitive area of intellectual property rights, China has agreed to implement the
trade-related intellectual property agreement of the Uruguay Round. There can be no assurances that China will implement any or
all of the requirements of its membership in the World Trade Organization in a timely manner, if at all. If China does not fulfill
its obligations as a member of the World Trade Organization, we may be subject to retaliatory actions by the governments of the
countries into which we sell our products, which could render its products less attractive, thus reducing revenues and profits.



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



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



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



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



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



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



21







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



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



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



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



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



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



22







RISKS RELATED TO THE MARKET FOR OUR ORDINARY SHARES GENERALLY



The market price for our ordinary shares may be volatile.



The market price for our ordinary shares could be subject to
wide fluctuations in response to a variety of factors, some of which may be beyond our control. During the fiscal year ended December
31, 2011, the high and low reported sales prices of our ordinary shares were $6.33 and $1.87, respectively. Factors affecting the
trading price of our ordinary shares include:



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

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

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

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

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

| | · | customer demand for our products;
| | - | ---------------------------------

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

| | · | the operating and stock performance of comparable companies;
| | - | ------------------------------------------------------------

| | · | general economic conditions and trends;
| | - | ---------------------------------------

| | · | major catastrophic events;
| | - | --------------------------

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

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

| | · | loss of external funding sources;
| | - | ---------------------------------

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

| | · | additions or departures of key personnel.
| | - | -----------------------------------------



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



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



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



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



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



Prior to our March 2009 merger with COAC, our operating subsidiary,
Henan Green, declared and paid dividends of $51.9 million and $42.3 million in 2008, respectively, and declared and paid dividends
of $16.1 million in 2007.  We paid no dividends during the fiscal year ended December 31, 2011.  Notwithstanding
Henan Green’s past history of making dividend payments, we intend to retain any future earnings to fund the operation and
expansion of our business and, therefore, we do not anticipate paying cash dividends on our ordinary shares in the foreseeable
future.



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



23







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



You may have difficulty enforcing judgments obtained against
us.



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



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



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



24







We may be classified as a passive foreign investment company,
which could result in adverse U.S. federal income tax consequences to U.S. shareholders.



Based on the price of our ordinary shares, and the composition
of our assets (in particular, the retention of a large amount of cash), we believe that it is likely that we were classified as
a “passive foreign investment company,” or PFIC, for United States federal income tax purposes for our taxable year
ended December 31, 2011, and we will likely be a PFIC for our current taxable year ending December 31, 2012 unless our share value
increases and/or we invest a substantial amount of the cash we hold in assets that do not produce and are not held for the production
of passive income. However, the PFIC test is an annual test that, as discussed below, depends upon the composition of our gross
income for the year and the percentage, based on a quarterly average for the year, of our gross assets that constitute “passive”
assets. Accordingly, it is not possible to determine whether or not we will be classified as a PFIC for our taxable year ending
December 31, 2012 until after the year has ended. In addition, even if we are not classified as a PFIC for our taxable year ending
December 31, 2012, because the PFIC test is annual, we cannot assure you that we will not be a PFIC for any following tax year.
A non-U.S. corporation will be classified as a PFIC for the taxable year if (i) at least 75% of its gross income is passive income
for such year or (ii) at least 50% of the fair market value of its assets (based on an average of the quarterly values of the assets
during such year) is attributable to assets that produce or are held for the production of passive income. The fair market
value of our assets may be determined to a large extent by the market price of our ordinary shares.  For any taxable year
during which U.S. shareholders hold ordinary shares and we are treated as a PFIC, certain adverse U.S. federal income tax consequences
could apply to such U.S. holders.  See Item 10 “Additional Information—Taxation—U.S. Federal Income
Taxation—Passive Foreign Investment Company Considerations.”  Our special U.S. counsel expresses no opinion
with respect to our expectations contained in this paragraph.



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



In April 2011, we announced that our board of directors had
approved a six-month share repurchase program to repurchase up to an aggregate of $10 million of our ordinary shares. Our board
of directors subsequently extended the program from six months to an indefinite period or until the program is completed. As of
December 31, 2011, consistent with the program, we had repurchased ordinary shares from to time in an aggregate amount of approximately
$4.5 million. Since the commencement of our program, the closing stock price of our ordinary shares has generally declined from
a high of $5.20 a few days following the announcement of the program to $2.85 as of April 30, 2012. Many factors may cause our
stock price to decline and our share repurchase program may be unable to prevent or reverse such a decline. To the extent that
our share repurchase program is unsuccessful in reversing the downward trend of our stock price, we may have expended capital without
achieving a concrete increase in our share value.



ITEM 4.Information
on the Company



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



Corporate History



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



China Gerui (formerly known as Golden Green Enterprises Limited)
was incorporated as a BVI company on March 11, 2008 under the BVI Business Companies Act, 2004.  China Gerui was incorporated
solely for the purpose of acquiring the issued share capital of Wealth Rainbow, which was organized for the sole purpose of
acquiring and holding all of the outstanding equity capital in Henan Green.  Neither China Gerui nor Wealth Rainbow has
any active business operations other than their ownership of Henan Green.



25







Henan Green was formed in China in December 2000 by Zhengzhou
Company together with six individuals including Mr. Mingwang Lu and Mr. Baiwang Lu, the brother of Mr. Mingwang Lu.  Mr.
Mingwang Lu has been actively involved in the operations and management of Henan Green. In December 2006, Zhengzhou Company
transferred all its equity interest in Henan Green to 11 individuals including Mr. Mingwang Lu.  On October 21, 2008,
the then shareholders of Henan Green transferred all their equity interest in Henan Green to Wealth Rainbow. The acquisition was
accounted for as a reorganization under common control with the purchase of a minority interest. For reporting purposes, a
control group comprised of our Chairman and CEO, Mr. Lu and his two direct relatives (Mr. Lu’s son, Yi Lu and Mr. Lu’s
brother, Baiwang Lu) held 55.02% of the shares of Henan Green on the date of acquisition.



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



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



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







Principal Capital Expenditures and Divestitures



In fiscal years 2011, 2010 and 2009, our total capital expenditures
were $49.1 million, $69.1 million and $5.2 million, respectively.  In 2008, we began construction of a 50,000-metric-ton
cold-rolled steel plating facility which commenced full production in the fourth quarter of 2009. In 2009, we began our capacity
expansion program using cash generated from operations. Capital expenditures in 2011 were primarily related to our capacity expansion
program, which involved the construction of three new cold-rolled steel production lines with 250,000 tons of total annual capacity
and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum.  The first phase of our
production capacity expansion program, the construction of two new cold-rolled production lines with total annual capacity of 150,000
tons, was completed during 2011, and launched normal production operations in July 2011. The second phase of our capacity expansion
program, the construction of an additional 100,000 tons of cold-rolled production capacity, was completed in the first quarter
of 2012 and is expected to launch production operations by the third quarter of 2012 following testing and optimization.





26









We used the net proceeds of our November 2009 public offering
and June 2010 private placement, totaling approximately $43 million, to expand our cold-rolled steel processing capacity to 400,000
metric tons during fiscal year 2011 at a capital expenditure of approximately $42 million. We expanded production capacity to
500,000 metric tons during fiscal year 2011 and first quarter of 2012 at a capital expenditure of approximately $14 million and
$1.5 million during fiscal year 2011 and the first quarter of 2012, respectively, to accelerate the expansion of our chromium-plating
production capacity by 200,000 metric tons, and for general working capital purposes related to the expanded production capacity.
The latter expansion is estimated to require an additional $1.5 million of capital expenditure to test, optimize and commence
commercial operation. This expansion will increase our product offerings, which we believe will increase our profit margin.



In addition, Zhengzhou Company owns a land use right with respect
to 24.94 acres (151.4 Chinese mu). We currently lease a part of the land use right for 6.69 acres (40.60 Chinese mu) from Zhengzhou
Company. Our existing production lines and warehouses are located on this parcel of land. For operation risk mitigation purpose,
we have started the process of title transfer of the existing land use right to 24.94 acres (151.4 Chinese mu) from Zhengzhou
Company. To facilitate Zhengzhou Company’s negotiation with local regulatory authorities on the transfer and in anticipation
of the upfront payments associated with the transaction, we prepaid $12,710,719 to Zhengzhou Company as of December 31, 2011.
The final transfer price is to be further determined based on market-based valuation of the land value and calculation of associated
value-added tax.



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



General



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



Our PRC manufacturing facility is located in Zhengzhou, Henan
Province.  We currently operate eight sets of cold-rolled steel production lines with a current annual steel processing
capacity of approximately 400,000 metric tons and two chromium-plating production lines with total annual processing capacity
of approximately 250,000 metric tons.



Prior to 2009, we produced and sold unplated steel sheets to
manufacturers or distributors which then further treated or outsourced our products for tin or zinc plating to produce tinplate
or zinc-plated steel, or for electrolytic chromic acid treatments to produce chromium plated steel, according to customer
specifications.  We added chromium plating facilities in December 2008, and launched mass production of chromium plated
steel products in February 2009.  We have used the net proceeds of our November 2009 public offering and June 2010 private
placement and the net proceeds from the exercise of outstanding warrants, to expand our cold-rolled steel processing capacity
to 500,000 metric tons (including capacity not yet in commercial operation) and for general working capital purposes related to
the expanded production capacity.  This expansion will increase our product offerings, which we believe will increase
our profit margin.  Newly-added capacity to produce these types of high-end plated steel products will enable us
to enhance our higher-margin product offering to meet the increasing demand in the China market for high-end cold-rolled steel
products.



Our revenue has increased from $218.9 million in 2009 to $253.9
million in 2010 and to $341.8 million in 2011, representing a compounded annual growth rate, or CAGR, of approximately 16.0%
from 2009 to 2011.  Our net income increased from $43.4 million in 2009 to $47.1 million in 2010 and to $57.6 million
in 2011, representing a CAGR of 9.9% from 2009 to 2011.



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



27







Our Products



Prior to 2009, we produced and sold unplated cold-rolled steel
sheets.  We started to build a chromium plating facilities in December 2008, and launched mass production of chromium
plated steel products in October 2009.



From February 2009 through the end of 2011, we converted hot-rolled
coil steel manufactured by third parties into thin steel sheets and strips according to our customers’ specifications. We
produced precision ultra-thin, high-strength cold-rolled steel products, with thicknesses starting from 0.05 mm width up to 1,200
mm and tolerance +/- 0.003 mm.



During 2009, 2010 and 2011, we had five series and over 20
types of high precision strip steel products.  Our products were manufactured from steel substrate of cold-rolled or
hot-rolled pickled coils.  We have had the flexibility to adjust our production specifications to meet changes in market
demand.



Our Pricing Strategy



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



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



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



Raw Materials and Suppliers



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



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



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



For the years ended December 31, 2011, 2010 and 2009, our three
largest suppliers accounted for over 79%, 66% and 66%, respectively, of our total purchases.  For the fiscal years ended
December 31, 2011, 2010 and 2009, our single largest supplier accounted for 42.8%, 29.7% and 28.2% of our total purchases,
respectively.



Customers, Sales and Marketing



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



28







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



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

| | · | attending various
                                                                                                               exhibitions to
                                                                                                               improve our name
                                                                                                               recognition; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | visiting our
                                                                                                               customers and collecting
                                                                                                               information regarding
                                                                                                               their needs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



During the last three fiscal years, we produced on a contract
basis for our customers and developed, processed and manufactured steel products tailored to customers’ specifications. During
such time, we sold our products to domestic Chinese customers primarily operating in the food and industrial packaging, construction
and household decorations materials, electrical appliances, and telecommunications wires and cables industries.  Our
high precision steel products are sold directly to the end users in various parts of China and our production was based on confirmed
sales orders.



The following table sets forth the percentages
of sales of our products by industry applications during each of the three years of 2011, 2010 and 2009:



|                                                 |  |           |              |  |           |  |                                                                                 | Year Ended December
    31, | 
|------------------------------------------------ |  | --------- | ------------ |  | --------- |  | ------------------------------------------------------------------------------- | --------------------------- | 
|Revenue by Industry Application                  |  | Thickness |              |  | Precision |  |                                                                                 | 2011                        | 
|Food and industrial packaging                    |  |           | 0.1 - 1.3 mm |  |           |  | ±0.0025
                                                                - 0.005 |                             | 
|Construction and household decorations materials |  |           | 0.2 - 1.1 mm |  |           |  | ±0.0025 - 0.005                                                                 |                             | 
|Electrical appliances                            |  |           | 0.09-1.1 mm  |  |           |  | ±0.002 - 0.005                                                                  |                             | 
|Telecommunication wires and cables               |  |           | 0.1-0.24 mm  |  |           |  | ±0.0025 - 0.005                                                                 |                             | 
|Total                                            |  |           |              |  |           |  |                                                                                 |                             | 



During the last three fiscal years, we have sold our products
to more than 200 customers that were located in Shanghai, Zhejiang, Jiangsu, Shandong, Guangdong, Hebei, Tianjin, Guangxi,
Fujian and Liaoning.  Our major customers for the year ended December 31, 2011 included:



|Customer Name                         |  | Quantity Sold (Metric
    Tons) |        |  | % of Total Sales | 
|------------------------------------- |  | ------------------------------- | ------ |  | ---------------- | 
|Henan Jindan Enamel Products Co., Ltd |  |                                 | 18,811 |  |                  | 
|Tianjin Huayuan Steel Products Co.    |  |                                 | 14,382 |  |                  | 
|Beijing Chuyefa Materials Co. Ltd     |  |                                 | 9,584  |  |                  | 
|Xinglong Steel Co. Ltd                |  |                                 | 8,145  |  |                  | 
|Jinli Industrials Co. Ltd             |  |                                 | 7,524  |  |                  | 



For each of the years ended December 31, 2011, 2010 and 2009,
our five largest customers accounted for 16.2%, 22.9% and 25.2% of total sales, respectively.  For the fiscal years
ended December 31, 2011, 2010 and 2009, the single largest customer accounted for 5.5%, 8.5% and 8.4% of our total sales, respectively.



29







Intellectual Property



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



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



We have registered the trademark for the logo  with the
Trademark Office of the State Administration for Industry and Commerce of China.  We use our trademark for the sales
and marketing of our products.  Our trademark expires on November 27, 2012 and may be continually renewed thereafter.



Competition and Our Market Position



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



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



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



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

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

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

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



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



| | · | performance
                                                                                                               and cost effectiveness
                                                                                                               of products;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | high quality
                                                                                                               and reliability
                                                                                                               of products;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | in-house production
                                                                                                               process;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



30







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

| | · | flexibility
                                                                                                               in operations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | · | cost-effective
                                                                                                               supply chain management
                                                                                                               and production;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | access to financing
                                                                                                               for capital expenditures
                                                                                                               and working capital;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | overall management
                                                                                                               capability.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



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



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

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

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



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



Regulation



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



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



Seasonality



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



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



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



| | D. | Property, Plants and Equipment
| | -- | ------------------------------



There is no private ownership of land in China and all land
ownership is held by the government of China, its agencies, and collectives.  In the case of land used for business
purposes, land use rights can be obtained from the government for a period up to 50 years, and are typically renewable.  Land
use rights can be transferred upon approval by the land administrative authorities of China (State Land Administration Bureau)
upon payment of the required land transfer fee.



31







Our manufacturing facilities are located in Zhengzhou, Henan
Province, China.  The total land area is approximately 1,194,000 square feet, which we lease from Zhengzhou Company
(a related party).  Our facilities have a total area of approximately 264,000 square feet, of which 226,000 square feet
is devoted to production facilities, 9,000 square feet is raw material warehouse space, 6,300 square feet is finished product
warehouse space and 22,700 square feet is an office building.  The lease is for a 20-year term, which began on January
1, 2008 and terminates on December 31, 2027.  During 2009, the annual rent under the lease was $8,916.  In
2010, the annual rent under the lease became subject to an annual 10% increase and was approximately $9,909 for that year. In
2011, the annual rent was approximately $11,428.  The lessor has pledged the land and buildings to guarantee our obligations
under certain of our short-term bank loans.



Zhengzhou Company owns a land use right with respect to 24.94
acres (151.4 Chinese mu). We currently lease a part of the land use right for 6.69 acres (40.60 Chinese mu) from Zhengzhou Company.
Our existing production lines and warehouses are located on this parcel of land. For operation risk mitigation purpose, we have
started the process of title transfer of the existing land use right to 24.94 acres (151.4 Chinese mu) from Zhengzhou Company.
To facilitate Zhengzhou Company’s negotiation with local regulatory authorities on the transfer and in anticipation of the
upfront payments associated with the transaction, we prepaid as of December 31, 2011 $12,710,719 to Zhengzhou Company. The final
transfer price is to be further determined based on market-based valuation of the land value and calculation of associated value-added
tax.



As of December 31, 2011, our facilities had an annual cold
rolling steel processing capacity of approximately 400,000 metric tons and an annual chromium coating capacity of approximately
250,000 metric tons.



We also have obtained land use rights and permission to construct
facilities on additional land of approximately 2,152,780 square feet, adjacent to our present facilities, from the Zhengzhou local
government.



We have completed and, after testing and optimization, plan
to launch production operation of another 100,000 metric tons of cold-rolled steel capacity by the third quarter of 2012.  We
have pledged the land use rights for this property to the lenders of certain of our short-term bank loans to secure our obligations
under these loans.



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



| | ITEM 4A. | UNRESOLVED STAFF COMMENTS
| | -------- | -------------------------



None.



| | ITEM 5. | Operating and Financial
                                                                                                       Review and Prospects
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------



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



Operating Results



Overview



We are a leading China-based, non-state-owned contract manufacturer
of high precision cold-rolled steel products.  We convert steel manufactured by third parties into thin steel sheets
and strips according to our customers’ specifications.  We produce precision ultra-thin, high-strength cold-rolled
steel products, with thicknesses starting from 0.05mm, width up to 1,200 mm and tolerance +/- 0.003mm.  We sell our
products to domestic Chinese customers who primarily operate in the food and industrial packaging, construction and household
decorations materials, electrical appliances, and telecommunications wires and cables industries.



Our PRC manufacturing facility is located in Zhengzhou, Henan
Province.  We currently operate eight sets of cold-rolled steel production lines with a current annual steel processing
capacity of approximately 400,000 metric tons and two chromium-plating production lines with total annual processing capacity
of approximately 250,000 metric tons. We have constructed an additional 100,000 metric tons of cold-rolled steel processing capacity,
which we expect to commence operation in the third quarter of 2012.  This expansion will increase our product offerings,
which we believe will increase our profit margin.



32







Our revenue has increased from $218.9 million in 2009 to $253.9
million in 2010 and to $341.8 million in 2011, representing CAGR of approximately 16.0% from 2009 to 2011.  Our
net income increased from $43.4 million in 2009 to $47.1 million in 2010 and to $57.6 million in 2011, representing a CAGR of
9.9% from 2009 to 2011.



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



Principal Factors Affecting Our Financial Performance



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



Factors Specific to Our Business



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



| | · | Growth in
                                                                                                               the Chinese Economy.  We
                                                                                                               operate our manufacturing
                                                                                                               facilities in China
                                                                                                               and derive almost
                                                                                                               all of our revenues
                                                                                                               from sales to customers
                                                                                                               in China. Economic
                                                                                                               conditions in China,
                                                                                                               therefore, affect
                                                                                                               virtually all aspects
                                                                                                               of our operations,
                                                                                                               including the demand
                                                                                                               for our products,
                                                                                                               the availability
                                                                                                               and prices of our
                                                                                                               raw materials and
                                                                                                               our other expenses.
                                                                                                               China is expected
                                                                                                               to experience continued
                                                                                                               growth in all areas
                                                                                                               of investment and
                                                                                                               consumption, even
                                                                                                               in the face of
                                                                                                               a global economic
                                                                                                               recession. However,
                                                                                                               China has been
                                                                                                               affected by the
                                                                                                               global economic
                                                                                                               slowdown since
                                                                                                               2008. and has experienced
                                                                                                               a modest slowdown
                                                                                                               of its growth rate.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | · | Recent Economic
                                                                                                               Events.  Despite
                                                                                                               the recent global
                                                                                                               economic crisis
                                                                                                               and market turmoil,
                                                                                                               we have experienced
                                                                                                               continued growth
                                                                                                               during 2011, albeit
                                                                                                               at a less rapid
                                                                                                               pace than in recent
                                                                                                               years. Although
                                                                                                               some uncertainty
                                                                                                               can be expected
                                                                                                               in demand for 2012
                                                                                                               due to the general
                                                                                                               slowdown in China’s
                                                                                                               economy, we
                                                                                                               believe that we
                                                                                                               will continue to
                                                                                                               experience strong
                                                                                                               demand over the
                                                                                                               next 12 months,
                                                                                                               i.e., if we continue
                                                                                                               to produce innovative,
                                                                                                               high quality products
                                                                                                               that meet our customers’
                                                                                                               demands.
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33







| | · | PRC Economic
                                                                                                               Stimulus Plans.In
                                                                                                               2009, the PRC government
                                                                                                               issued a policy
                                                                                                               entitled “Central
                                                                                                               Government Policy
                                                                                                               On Stimulating
                                                                                                               Domestic Consumption
                                                                                                               To Counter The
                                                                                                               Damage Result From
                                                                                                               Export Business
                                                                                                               Of The Country.” 
                                                                                                               Under this policy,
                                                                                                               the PRC Central
                                                                                                               Government is dedicating
                                                                                                               approximately $580
                                                                                                               billion to stimulate
                                                                                                               domestic consumption.
                                                                                                               Companies that
                                                                                                               are either directly
                                                                                                               or indirectly related
                                                                                                               to construction,
                                                                                                               building material,
                                                                                                               electrical household
                                                                                                               appliances and
                                                                                                               telecommunication
                                                                                                               are expected to
                                                                                                               benefit. An executive
                                                                                                               order has been
                                                                                                               announced that
                                                                                                               the PRC Central
                                                                                                               Government will
                                                                                                               improve the living
                                                                                                               standard in the
                                                                                                               country’s
                                                                                                               rural areas by
                                                                                                               subsidizing the
                                                                                                               purchase of any
                                                                                                               electric household
                                                                                                               appliance for every
                                                                                                               household in the
                                                                                                               rural area. In
                                                                                                               addition, the
                                                                                                               policy indicates
                                                                                                               a strong determination
                                                                                                               to improve telecommunication
                                                                                                               in all rural areas.
                                                                                                               We expect to continue
                                                                                                               benefiting from
                                                                                                               order growth due
                                                                                                               to this economic
                                                                                                               stimulus plan.
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Factors Specific to Our Industry



| | · | Cyclicality.The
                                                                                                               steel industry
                                                                                                               is highly cyclical
                                                                                                               and significantly
                                                                                                               affected by general
                                                                                                               economic conditions
                                                                                                               and other factors,
                                                                                                               such as worldwide
                                                                                                               production capacity,
                                                                                                               fluctuations in
                                                                                                               imports and exports,
                                                                                                               fluctuations in
                                                                                                               metal purchase
                                                                                                               prices and tariffs.
                                                                                                               Recently, the global
                                                                                                               steel markets have
                                                                                                               been experiencing
                                                                                                               larger and more
                                                                                                               pronounced cyclical
                                                                                                               fluctuations, primarily
                                                                                                               driven by slower
                                                                                                               global economic
                                                                                                               growth and the
                                                                                                               increase in Chinese
                                                                                                               production and
                                                                                                               consumption.  This
                                                                                                               trend, combined
                                                                                                               with the upward
                                                                                                               pressure on costs
                                                                                                               of key inputs,
                                                                                                               comprising mainly
                                                                                                               metals, energy
                                                                                                               and transportation
                                                                                                               and logistics costs,
                                                                                                               presents increasing
                                                                                                               uncertainty and
                                                                                                               challenge for steel
                                                                                                               producers on a
                                                                                                               worldwide basis.
                                                                                                               However, processed
                                                                                                               steel demand and
                                                                                                               prices for the
                                                                                                               precision steel
                                                                                                               products, like
                                                                                                               those we manufacture,
                                                                                                               are driven by and
                                                                                                               sensitive to other
                                                                                                               factors, such as
                                                                                                               product differentiation,
                                                                                                               customer service
                                                                                                               and cost reductions
                                                                                                               through improved
                                                                                                               efficiencies and
                                                                                                               economies of scale.
                                                                                                               Therefore we are
                                                                                                               comparatively less
                                                                                                               affected by cyclicality
                                                                                                               than other companies
                                                                                                               within our industry.
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| | · | Raw Materials
                                                                                                               Prices.  The
                                                                                                               market for our
                                                                                                               principal raw material,
                                                                                                               hot-rolled steel,
                                                                                                               is price sensitive
                                                                                                               and has experienced
                                                                                                               significant volatility
                                                                                                               since 2008 as a
                                                                                                               result of worldwide
                                                                                                               economic recession,
                                                                                                               an increase of
                                                                                                               iron ore cost,
                                                                                                               excess inventory
                                                                                                               build-up by Chinese
                                                                                                               crude steel producers,
                                                                                                               consolidation in
                                                                                                               the hot-rolled
                                                                                                               steel industry,
                                                                                                               and other factors.  Since
                                                                                                               2010, due in part
                                                                                                               to the gradual
                                                                                                               recovery of the
                                                                                                               world economy,
                                                                                                               prices for this
                                                                                                               material have increased.
                                                                                                               Consequently, our
                                                                                                               cost of sales has
                                                                                                               also increased
                                                                                                               but we have passed
                                                                                                               the increase, for
                                                                                                               the most part,
                                                                                                               onto our customers.  While
                                                                                                               we frequently prepay
                                                                                                               suppliers for our
                                                                                                               raw materials in
                                                                                                               order to ensure
                                                                                                               an ample supply
                                                                                                               of raw materials,
                                                                                                               pricing of our
                                                                                                               orders is not established
                                                                                                               until the order
                                                                                                               and physical delivery
                                                                                                               are confirmed,
                                                                                                               at which time the
                                                                                                               price is confirmed
                                                                                                               at the then-current
                                                                                                               market price. We
                                                                                                               account for inventory
                                                                                                               at cost and any
                                                                                                               adjustment required
                                                                                                               to value inventory
                                                                                                               at the lower of
                                                                                                               cost or market
                                                                                                               is made at
                                                                                                               the year-end and
                                                                                                               not at interim
                                                                                                               periods. Because
                                                                                                               of the relatively
                                                                                                               short periods during
                                                                                                               which inventory
                                                                                                               is kept on hand,
                                                                                                               we believe that
                                                                                                               differences between
                                                                                                               cost and market
                                                                                                               are not significant.
                                                                                                               Other than hot-rolled
                                                                                                               steel, no other
                                                                                                               raw materials are significantly
                                                                                                               used in our manufacturing
                                                                                                               processes.
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| | · | Steel prices.  Demand
                                                                                                               for steel in China
                                                                                                               has played a major
                                                                                                               role in the movement
                                                                                                               of international
                                                                                                               steel prices. The
                                                                                                               price of steel
                                                                                                               rose on a global
                                                                                                               basis from 2004
                                                                                                               to June 2008 before
                                                                                                               declining sharply
                                                                                                               in the second half
                                                                                                               of 2008 in response
                                                                                                               to the global economic
                                                                                                               crisis. Steel prices
                                                                                                               appear to have
                                                                                                               been slowly rising
                                                                                                               since 2010, although
                                                                                                               they have remained
                                                                                                               significantly below
                                                                                                               their peak in 2008.
                                                                                                               Any fluctuations
                                                                                                               in the cost of
                                                                                                               hot-rolled steel
                                                                                                               affect our operating
                                                                                                               costs and the prices
                                                                                                               that we charge
                                                                                                               our customers.
                                                                                                               We generally pass
                                                                                                               onto our customers
                                                                                                               most of the cost
                                                                                                               increase of raw
                                                                                                               material hot-rolled
                                                                                                               steel. For this
                                                                                                               reason, our revenue
                                                                                                               and cost of sales
                                                                                                               are directly related
                                                                                                               to the market price,
                                                                                                               demand and supply
                                                                                                               of steel.
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| | · | Product
                                                                                                               mix and effect
                                                                                                               on gross margin.Our gross
                                                                                                               margin is primarily
                                                                                                               affected by our
                                                                                                               product mix. For
                                                                                                               the years ended
                                                                                                               December 31, 2011,
                                                                                                               2010 and 2009,
                                                                                                               our gross margins
                                                                                                               were 29.7%, 29.9%
                                                                                                               and 30.1%, respectively.
                                                                                                               Fluctuations in
                                                                                                               our gross margin
                                                                                                               were primarily
                                                                                                               driven by changes
                                                                                                               in our product
                                                                                                               mix.  Our
                                                                                                               production costs
                                                                                                               are generally higher
                                                                                                               in early phases
                                                                                                               of product introduction
                                                                                                               due to higher start-up
                                                                                                               costs and low production
                                                                                                               yield rate. Over
                                                                                                               time we typically
                                                                                                               improve our manufacturing
                                                                                                               efficiency. 
                                                                                                               Furthermore, we
                                                                                                               have been able
                                                                                                               to price our finished
                                                                                                               products by using
                                                                                                               a cost-plus pricing
                                                                                                               strategy. Our value-add
                                                                                                               chromium plated
                                                                                                               products have a
                                                                                                               higher gross margin
                                                                                                               than that of our
                                                                                                               unplated products
                                                                                                               and constituted
                                                                                                               about 22.3% of
                                                                                                               total output in
                                                                                                               2011. By increasing
                                                                                                               our operational
                                                                                                               plating capacity
                                                                                                               to 50% of total
                                                                                                               output in 2012,
                                                                                                               we expect to generate
                                                                                                               higher overall
                                                                                                               gross margin in
                                                                                                               the future.
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| | · | Inventory
                                                                                                               Revaluation.Inventory
                                                                                                               revaluation arises
                                                                                                               from a de-valuation
                                                                                                               of our inventory
                                                                                                               and results in
                                                                                                               (1) a write-down
                                                                                                               of the inventory
                                                                                                               as inventory is
                                                                                                               valued at lower
                                                                                                               of actual cost
                                                                                                               or market value;
                                                                                                               and (2) a charge
                                                                                                               to net income as
                                                                                                               a result of the
                                                                                                               write-down.  Under
                                                                                                               our procurement
                                                                                                               policy, we do not
                                                                                                               carry material
                                                                                                               amounts of raw
                                                                                                               material inventory
                                                                                                               without confirmed
                                                                                                               purchase orders
                                                                                                               with a predetermined
                                                                                                               sales price and
                                                                                                               delivery schedule.
                                                                                                               Thus, we were not
                                                                                                               negatively affected
                                                                                                               by the inventory
                                                                                                               revaluation as
                                                                                                               a result of the
                                                                                                               general decline
                                                                                                               in steel prices
                                                                                                               from late 2008
                                                                                                               to 2011.
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34







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



For the years ended December 31, 2011, 2010 and 2009, our gross
margin was 29.7%, 29.9% and 30.1%, respectively.  Our direct costs of manufacturing are generally high when we first
introduce a new product due to higher start-up costs and higher raw material consumption rate.  As production volumes
increase, we typically improve our manufacturing efficiency and are able to strengthen our purchasing power by buying raw
materials in greater quantities. In addition, our recently-launched wide-strip cold-rolled steel production actual output will
tend to be relatively thick during its initial stage of production, thus generating a relatively lower average selling price and
margin. As utilization of this production capacity continues to increase, the average thickness of finished products is expected
to more closely reflect the designed average thickness of the new capacity; at that point we expect an increase in gross margin
due to greater cost efficiencies.



Changes in our gross margin are primarily driven by changes
in our product mix and other strategic operating decisions. Our high-end, value-added products generally tend to have higher profit
margins and we have moved to emphasize these products in our mix.  Further, general economic conditions and our response
to them, cost of raw materials as well as supply and demand of steel finishing fabrication products within our markets influence
sales prices.



To gain market penetration, we price our products at levels
that we believe are competitive compared to imported products. Through our continuous efforts to improve manufacturing efficiency
and reduce production costs, we believe that we are able to offer products of comparable quality to our Chinese state-owned competitors
and international competitors at more competitive prices. Our sales prices are influenced by general economic conditions, cost
of raw materials as well as supply and demand of steel finishing fabrication products within our markets. Our high-end, value-added
products generally tend to have higher profit margin.



Taxation



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



Hong Kong. We did not have any assessable profits
subject to the Hong Kong profits tax from 2009 to 2011. We do not anticipate having any income subject to income taxes in Hong
Kong in the foreseeable future.



PRC.  In 2007, the PRC government promulgated
the EIT Law and the relevant implementing rules, which became effective on January 1, 2008.  Under the EIT Law and its
implementing rules, all domestic and foreign investment companies became subject to a uniform enterprise income tax at the rate
of 25%, effective January 1, 2008.  As a result, our PRC subsidiary, Henan Green, was subject to an enterprise income
tax at the rate of 25% in 2009, 2010, and 2011.  Under the EIT Law, dividends from PRC subsidiaries to their non-PRC
shareholders became subject to a withholding tax at a rate of 20%, which is further reduced to 10% by the implementing rules,
if the non-PRC shareholder is considered to be a non-PRC tax resident enterprise without any establishment or place within China
or if the dividends payable has no connection with the non-PRC shareholder’s establishment or place within China, unless
any such non-PRC shareholder’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding
arrangement. In addition, pursuant to the EIT Law, enterprises established under the laws of non-PRC jurisdictions, but whose
“de facto management body” is located in the PRC, should be treated as resident enterprises for PRC tax purposes.
However, it is currently uncertain whether we may be deemed a resident enterprise, or how to interpret whether any income or gain
is derived from sources within China. See Item 3 “Key information— Risk Factors—Risks Related to Doing Business
in China—Under the Enterprise Income Tax Law, we may be classified as a ‘resident enterprise’ of China. Such
classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.” If we, as a BVI company
with substantially all of our management located in China, were treated as a resident enterprise for PRC tax purposes, we
will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which would have an impact on our effective tax
rate.



35







Critical Accounting Policies



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



Revenue Recognition



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



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



Accounts Receivables



Most of our sales were conducted on pre-payment or COD basis.  However,
during the normal course of business, we extend to some of our customers interest-free unsecured credit for a term of 30 days
depending on a customer’s credit history, as well as local market practices.  We reviewed our accounts receivables
quarterly and determined the amount of allowances, if any, necessary for doubtful accounts. Historically, we have not had any
bad debt write-offs and, as such, we do not provide an arbitrary reserve amount for possible bad debts based upon a percentage
of sales or accounts receivable balances.  Rather, we review our accounts receivable balances to determine whether specific
reserves are required due to such issues as disputed balances with distributors, declines in distributors’ credit worthiness,
or unpaid balances exceeding agreed-upon terms.  Based upon the results of these reviews, we determine whether a specific
provision should be made to provide a reserve for possible bad debt write-offs.  We have provided 2% allowances for
doubtful accounts in 2010; 10% allowance has been provided for specific doubtful accounts in 2011.  As of December 31,
2011, we communicate with our distributors each month to identify any potential issues and reassess our credit limits and terms
with some of them based on their prior payment history and practice. We also plan to continue building upon our existing relationships
and history with each of our customers to assist us in the full and timely collection of outstanding payments.



As of December 31, 2011 and 2010, we had outstanding accounts
receivable totaling $6.4 million, $4.1 million and $4.8 million, respectively.  We believe that these outstanding amounts
will be collected pursuant to the terms, conditions, and within the time frames agreed upon with our customers.  During
the reported periods, we did not experience any material problems relating to distributor payments and had no bad debt write-offs.
In terms of our liquidity, we reflect the extended interest-free unsecured credit in our cash flows for the reported periods.
Therefore, we anticipate no changes from past cash flow patterns.



Inventories



We value inventories, consisting of work in process and raw
materials, at the lower of cost or market.  Cost of material is determined on the weighted average cost method. Cost
of work in progress includes direct materials, direct production cost and an allocated portion of production overhead.  We
evaluate inventory periodically for possible obsolescence of our raw materials to determine if a provision for obsolescence is
necessary.  Due to the durable nature of our raw materials which primarily consist of hot-rolled steel sheet, we had
no reserve obsolescence at December 31, 2011.  Our estimates for determining the provision for obsolescence may be affected
by technological changes and developments to our product offerings and changes in governmental regulations.



36







As of December 31, 2011 and 2010, we had an inventory balance
of $24.5 million and $7.0 million, respectively.



Recently Issued Accounting Standards



We describe below recent pronouncements that have had or may
have a significant effect on our financial statements.  We do not discuss recent pronouncements that are not anticipated
to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.



In June 2011, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No.2011-05, “Comprehensive Income (Topic 220).” This newly
issued accounting standard (1) eliminates the option to present the components of other comprehensive income as part of the statement
of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive
income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other
comprehensive income to net income. The amendments’ in this ASU do not change the items that must be reported in other comprehensive
income or when an item of other comprehensive income must be reclassified to net income not do the amendments affect how earnings
per share is calculated or presented. This ASU applied retrospectively and is effective for fiscal years and interim periods within
years beginning after December 15, 2011, which for the Group means January 1, 2012. As this accounting standard only requires
enhanced disclosure, the adoption of this standard will not impact the Group’s financial position or results of operations.



In May 2011, the FASB amended ASC 820, "Fair Value Measurement."
This amendment is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”)
requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value
measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The
amendment is effective for interim and annual periods beginning after December 15, 2011. The adoption of this amendment will not
have a material impact on the Company's consolidated financial statements.



Management does not believe that any other recently issued,
but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.



Results of Operations



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



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



|                                    |  | Year Ended December
    31, |         
|----------------------------------- |  | --------------------------- | --------
|                                    |  | 2011                        |         
|                                    |  | USD                         |         
|Revenue                             |  | $                           | 341,778 
|                                    |  |                             |         
|Cost of revenue                     |  |                             | (240,200
|                                    |  |                             |         
|Gross profit                        |  |                             | 101,578 
|                                    |  |                             |         
|Operating expenses:                 |  |                             |         
|General and administrative expenses |  |                             | (10,707 
|Selling and marketing expenses      |  |                             | (1,634  
|Warrant compensation expenses       |  |                             | (5,700  
|Total operating expenses            |  |                             | (18,041 
|                                    |  |                             |         
|Operating income                    |  |                             | 83,537  
|                                    |  |                             |         
|Other income and (expense):         |  |                             |         
|Interest income                     |  |                             | 1,913   
|Interest expenses                   |  |                             | (6,470  
|Sundry income                       |  |                             | 602     
|                                    |  |                             |         
|Income before income taxes          |  |                             | 79,582  
|                                    |  |                             |         
|Income tax expense                  |  |                             | (21,961 
|Net Income                          |  | $                           | 57,621  



37







Comparison of Fiscal Years Ended December 31, 2011 and
2010



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



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



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



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



Selling Expenses.  Our selling expenses
consist primarily of compensation and benefits to our sales and marketing staff, sales commission, cost of advertising, promotion,
business travel, after-sale support, transportation costs and other sales related costs.  Our selling expenses increased
by $0.4 million, or 30.6%, to $1.6 million in 2011 from $1.2 million in 2010.  As a percentage of revenue, our selling
expenses were 0.5% in 2011, the same as for 2010.  The increase was mostly attributable to increased sales staff traveling
expenses and other costs relating to selling activities.



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



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



38







Interest Expense.  Interest expense
is primarily interest expense on notes payable and short term loans related to our daily business operations.  Our interest
expense increased by $1.2 million, or 22.4%, to $6.5 million in 2011 from $5.3 million in 2010.  The
increase was attributable to the increased bank facilities we secured in 2011 in anticipation of our increased working capital
needs relating to our expected expansion of production line capacity.



Income Taxes.  We incurred income tax
expense of $22.0 million and $15.9 million in 2011 and 2010, respectively.  The effective corporate income tax rates
were 27.6% and 25.3% in 2011 and 2010, respectively. The increase was due to the loss of China Gerui which was not subject to
tax.



Net Income.  Our net income increased by
$10.5 million, or 22.4%, to $57.6 million in 2011 from $47.1 million in 2010, and diluted earnings per share increased by $0.01,
or 1.0%, to $1.02 in 2011 from $1.01 in 2010 as a result of the cumulative effect of the factors described above. Basic earnings
per share decreased by $0.05, or 4.7%, to $1.02 in 2011 from $1.07 in 2010, due to the increase in the number of outstanding shares
resulting from the exercise of our public warrants during the first quarter of fiscal year 2011.



Comparison of Fiscal Years Ended December 31, 2010 and
2009



Revenue.  Our revenue increased by
$35.0 million, or 16.0%, to $253.9 million in 2010 from $218.9 million in 2009.  During 2010, our sales volume was up
by 20.0% to 299.8 metric tons from 249.9 metric tons during 2009.  However, our average selling price was down from
$876 per metric ton during 2009 to $847 per metric ton during 2010 as a result of our strategic decision to increase capacity
utilization and sales volume to generate greater revenue growth in 2010, which was partially offset by overall price reductions
based on product and market demand.



Cost of Revenue.   Our cost of revenue
increased by $24.8 million, or 16.2%, to $177.9 million in 2010 from $153.1 million in 2009.  The increases were primarily
due to (i) higher costs associated with the overall increase in the volume of products sold including raw materials, labor, energy
and other costs, which we believe were in line with our increased sales and (ii) other production capacity-related factors such
as additional depreciation resulting from newly acquired equipment and direct labor input which contributed to the increased level
of manufacturing overhead.



Gross Profit.  Our gross profit increased
by $10.2 million to $76.0 million in 2010 from $65.8 million in 2009.  Gross profit as a percentage of revenue (gross
margin) was 29.9% in 2010, reflecting almost no change in 2010 compared to 30.1% in 2009.



General and Administrative Expenses.  Our
general and administrative expenses increased by $3.2 million to $7.8 million in 2010 from $4.6 million in 2009.  As
a percentage of revenue, general and administrative expenses were 3.1% of revenue in 2010 as compared to 2.1% in 2009.  The
increase was primarily attributable to additional salary and training expenses from employee hiring in anticipation of the opening
of our new production facility and additional expenses incurred in 2010 related to being a public company, such as legal and other
professional service fees.



Selling Expenses. Our selling expenses increased
by $0.3 million, or 36.1%, to $1.3 million in 2010 from $0.9 million in 2009.  As a percentage of revenue, our selling
expenses were 0.5% in 2010, as compared to 0.3% in 2009.  The increase was mostly attributable to increased sales staff
traveling expenses and other costs relating to selling activities.



Interest and Other Income. Our interest and other
income increased by $0.3 million, or 31.1%, to $1.1 million in 2010 from $0.8 million in 2009.  The increase was attributable
to interest earned on a higher average balance of restricted cash, which was deposited with local banks as a cash guarantee for
the notes payable that these banks issued to our raw material suppliers, as well as higher average bank account balances in 2010
as compared to 2009.



Interest Expense.  Our interest expense
increased by $2.0 million, or 63.3%, to $5.3 million in 2010 from $3.2 million in 2009.  The increase
was attributable to the increased bank facilities we secured in 2010 in anticipation of our increased working capital needs relating
to our expected expansion of production line capacity.



Income Taxes.  We incurred income tax
expense of $15.9 million and $14.8 million in 2010 and 2009, respectively.  The effective EIT rates were 25% and 25%
respectively in the two aforesaid years.



Net Income.  Our net income increased by
$3.6 million, or 8.4%, to $47.1 million in 2010 from $43.4 million in 2009, as a result of the cumulative effect of the factors
described above. Basic earnings per share decreased by $0.22, or 17.1%, to $1.07 in 2010 from $1.29 in 2009 due to a private placement
and the exercise of public warrants during 2010, and diluted earnings per share decreased by $0.14, or 12.2%, to $1.01 in 2010
from $1.15 in 2009, due to the private placement.



39







Liquidity and Capital Resources



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



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



|                                                    |  | Year Ended December 31, |         
|--------------------------------------------------- |  | ----------------------- | --------
|                                                    |  | 2011                    |         
|Net cash provided by operating activities           |  | $                       | 56,248  
|Net cash provided by (used in) investing activities |  |                         | (102,824
|Net cash provided by (used in) financing activities |  |                         | 165,974 
|Net cash inflow                                     |  |                         | 119,398 



Intra-Company Transfers



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



Our PRC subsidiary, Henan Green, may generally only obtain
cash investments from its shareholder, Wealth Rainbow, by way of a shareholder loan or increase of the registered capital of Henan
Green. Therefore, in order for us to transfer cash to Henan Green, we must generally transfer the cash to Wealth Rainbow first
and have Wealth Rainbow make a loan or contribute the registered capital to Henan Green. There are no PRC tax consequences from
such transfers. Henan Green may only obtain a shareholder loan up to the amount equal to the difference between its total investment
amount and its registered capital. The total investment amount refers to the amount of funds required for operation of the company,
which consists of initial investment, the working capital, and subsequent additions to inventory and equipment necessary for a
fully operational and profitable company; and the registered capital refers to the capital contribution of the shareholders that
is registered with the governmental agency. A shareholder loan must also be registered with the local SAFE office within 15 days
after the signing of the relevant loan documents. The repayment and interest incurred on such loan may be legally remitted to
the offshore company without additional PRC legal requirements. Henan Green may increase its registered capital during its operation
period, but the increase must receive shareholder approval and the approval of the relevant PRC authorities.



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



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



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



40







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



As of December 31, 2011, the Company’s cash balance,
including both unrestricted and restricted cash, in RMB or other currency, totaled $367,908,849, of which 96.8% (approximately
$356,086,434) was held in RMB form by the banks in China whereas the remaining 3.2%, or $11,822,415, were held in U.S. dollars
with banks or brokers located in Hong Kong or the United States.



Operating Activities



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



Net cash provided by operating activities was $36.5 million
in 2010, as compared to $33.8 million in 2009, an increase of 8.0%.  The increase primarily resulted from reduced
inventory of raw materials and work-in-progress, improved credit management resulting in declining accounts receivable balance,
reduced customer deposits as a result of revenue recognition, and reduction of accrued liabilities and other payables, which was partially
offset by an increase in prepaid expenses  and accounts payable balance.



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



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



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



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



Investing Activities



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



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



Net cash used in investing activities was $84.1 million in
2010, as compared to $31.3 million net cash provided by investing activities in 2009.  The change mainly resulted from
(1) increased capital expenditures from the newly completed 50,000-metric-ton chromium-plating line as well as other expenditures
relating to our capacity expansion program; (2) increased restricted cash levels as a result of our increased use of bank financing
in 2010 and (3) payment for the land use rights related to the additional land purchased and reserved for our capacity expansion
program.



We paid $30.0 million in 2011, $65.1 million in 2010 and $5.2
million in 2009 to acquire capital equipment.  Restricted cash had an increase of $47.2 million in 2011, an increase
of $29.0 million in 2010 and an increase of $12.8 million in 2009.



41







Financing Activities



Cash used in financing activities mainly consists of dividends
paid, distributions to shareholders, repayment of bank loans, withdrawal and repayment of borrowings from related parties.



We paid dividends of $0 in 2011, $0 in 2010 and $9.6 million
in 2009.



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



Net cash provided by financing activities was $84.0 million
in 2010, as compared to $34.5 million net cash used in financing activities in 2009.  The increase in cash provided
by financing activities was primarily due to the proceeds from additional bank loans that we secured from local banks, proceeds
from our private placement of ordinary shares in June 2010 and increased notes receivable financing.



We repaid short-term loans of $45.8 million in 2011, $46.0
million in 2010 and $37.3 million in 2009, while incurring new short-term borrowings of $43.8 million in 2011, $56.1 million in
2010 and $40.6 million in 2009.  We increased our notes payable financing by $111.7 million in 2011, $45.2 million
in 2010 and $14.1 million in 2009.



Capital Expenditures



We believe that our future capital expenditures will be incurred
primarily in connection with (i) purchases of property, plant and equipment and construction of our facilities, (ii) leasehold
improvements, (iii) investment in equipment, technology and operating systems, (iv) capitalized interest, and (v) acquisition
of land use rights.  Our planned capital expenditures of approximately $25 million for 2012 are for (i) the testing
and optimization of 100,000 metric tons of processing capacity by the third quarter of 2012, resulting in total and operational
capacity of 500,000 metric tons of cold-rolled steel processing, out of which 50% can be further plated with chromium, zinc or
tin; (ii) upgrade our existing narrow strip acid pickling line for acid regeneration and environment control; (iii) technical
upgrades to existing capacity in an effort to further optimize the Company’s product mix, (iv) potential acquisitions or
strategic partnership initiatives, and (v) the acquisition of land use rights ownership over our facilities.  We expect
to finance these capital expenditures from cash on hand, future internal cash flows, short-term bank borrowings, and funds raised
from capital markets.



Loan Facilities



We believe that we currently maintain a good business relationship
with many banks.  As of December 31, 2011, our outstanding bank loans were as follows:



(All Amounts in U.S. Dollars)



|Bank                              |  | Amount |           
|--------------------------------- |  | ------ | ----------
|Bank of Zhengzhou                 |  | $      | 7,626,431 
|Shanghai Pu Dong Development Bank |  |        | 11,121,880
|China Merchants Bank              |  |        | 7,944.200 
|China Citic Bank                  |  |        | 3,177,680 
|Bank of Xuchang                   |  |        | 4,766,520 
|Bank of Luoyang                   |  |        | 9,533,040 
|Total                             |  | $      | 44,169,751



42







As of December 31, 2011 and 2010, our outstanding notes payable
were as follows:



(All Amounts in U.S. Dollars)



|                                      |  | 2011 |             |  | 2010 |  
|------------------------------------- |  | ---- | ----------- |  | ---- | -
|                                      |  |      |             |  |      |  
|Classified by financial institutions: |  |      |             |  |      |  
|China Citic Bank                      |  | $    | 42,580,912  |  |      | $
|Bank of Zhengzhou                     |  |      | 9,533,040   |  |      |  
|Minsheng Bank of China                |  |      | 24,229,810  |  |      |  
|Guangdong Development Bank            |  |      | 14,299,560  |  |      |  
|Shanghai Pudong Development Bank      |  |      | 15,888,400  |  |      |  
|China Merchants Bank                  |  |      | 16,523,936  |  |      |  
|China Everbright Bank                 |  |      | 19,066,080  |  |      |  
|Bank of Luoyang                       |  |      | 24,627,020  |  |      |  
|Bank of Communications                |  |      | 12,710,720  |  |      |  
|Bank of Pingdingshan                  |  |      | 25,421,438  |  |      |  
|Bank of Xuchang                       |  |      | -           |  |      |  
|                                      |  | $    | 204,880,916 |  |      | $



All of the above term loans are of fixed term with a period
of 12 months or less.  For those loan facilities obtained from banks, all these term loans are either guaranteed and
secured by our fixed assets, including buildings, machinery and land use rights, or guaranteed by third parties and a related
party and the lessor of our land and buildings, Zhangzhou Company. Zhengzhou Company has pledged its land use rights and buildings
under its guarantee. As of December 31, 2011, all of our credit facilities were fully used.



We had the following contingencies and
commitments as of December 31, 2011:



On June 28, 2011, our subsidiary, Henan
Green, entered into a mutual financial guarantee agreement with Henan Xinye Textile Co., Ltd., a non-related company. Under the
agreement, both companies are contingent as guarantor with a maximum potential amount of future payment of approximately $4.8
million, plus interest accrued, legal fee, disbursement and any other compensation expense accrued. The guarantee is effective
through December 31, 2012.



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



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



We believe that Zhengzhou Aluminium Industry Co., Ltd. experienced
financial difficulties in 2011 and may not be able to perform on its payments under its loans and guarantees. If Zhengzhou Aluminium
Industry Co., Ltd. is unable to repay its debt or guarantees, we may be required to pay up to $6.4 million related to its debt
and guarantees. No provision has been made in our financial statements for this obligation as we have not been called upon to date
to perform under our guarantee.





As of December 31,
2011 and 2010, we have evaluated all such proceedings and claims, and determined that we were not subject to any loss contingencies
either for legal proceedings or claims. In addition, we have not become aware of any product liability claims arising during the
years ended December 31, 2011 and 2010; therefore, we have not recognized a liability for product liability claims.



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



The Company was not in compliance with certain financial covenants
under loan agreements, due to making advances or providing guarantees to other unrelated parties without prior notices made to
the bank during the year ended December 31, 2011 and as of the balance sheet date. No action or penalty has been taken by the
local PRC banks during the year and subsequent to the year ended, all notes payable agreements and term loan agreements were still
enforceable.



43







During the three-year period from 2009 to 2011, our cash, restricted
cash, notes payable and term loans balances steadily increased.  As discussed in further detail below, this increase
was due to our expectations of our cash needs for each year.  We accumulated increasing cash from operations, short-term
loans and notes payable to ensure that we would have sufficient cash on hand for our projected cash needs relating to increased
sales and corresponding raw material purchases, our capacity expansion program, potential strategic acquisitions, and as security
for our notes payable.



As of December 31, 2011, 2010 and 2009, we maintained restricted
cash of $118.1 million, $66.5 million and $37.5 million, respectively, non-restricted cash of $246.6 million, $119.5 million and
$79.6 million, respectively, notes payable in the amount of $204.9 million, $86.2 million and $41.0 million, respectively, and
short-term loans in the amount of $44.2 million, $44.1 million and $34.0 million, respectively.  Our total cash balance
and our short-term loans and notes payable balances increased each year as compared to the prior year.  These changes
were the result of the nature of our projected and actual cash needs and the limitations and requirements of our creditors.



Our net cash provided by operating activities during 2009,
2010 and 2011 was expected to be from $30 million to $35 million, from $35 millionto $40 million and from $55 million
to $65 million per year in 2009, 2010 and 2011, respectively, in line with actual net cash provided by operating activities consisting
of approximately $33.8 million, $36.5 million and $56.2 million in 2009, 2010 and 2011, respectively. Net cash was not allocated
for use in repaying our debt because it was reserved for our projected needs for increasing capital expenditures, potential strategic
acquisition costs, or restricted cash security underlying increasing notes payable expenses relating to short-term working capital
needs, which are discussed below.



The capital expenditure requirements of our capacity expansion
program and land use rights acquisition led us to project that our capacity expansion costs would be from $5 million to $10 million,
from $60 millionto $70 million and from $25 million to $30 million per year in 2009, 2010 and 2011, respectively,
which were in line with our actual capital expenditures for property, plant and equipment of approximately $5.2 million, $65.1
million and $30.0 million in 2009, 2010 and 2011, respectively, and for land use rights acquisitions of approximately $nil, $4.0
million and $19.3 million in 2009, 2010 and 2011, respectively.



Further, the uncertainty and volatility of prices of our principal
raw material, i.e., hot rolled steel coil, and our past expectation that our raw material purchases would generally increase to
meet rising demand, caused us to maintain increasing cash balances in 2009, 2010 and 2011 to ensure that there would be sufficient
cash to protect against increased prices.



Additionally, a component of our growth strategy is to invest
in or acquire businesses complementary to ours or to form strategic partnerships with industry leaders that would enable us, among
other things, to expand the products we offer to our existing target customer base, and that would provide opportunities to expand
into new markets.  As a result, we maintained our cash balance in part to enable us to capitalize on potential attractive
growth opportunities in this respect that we believed would enhance shareholder value, which we anticipated would require up to
$10 million, $35 million and $90 million of additional capital requirements in 2009, 2010 and 2011, respectively.



During 2009, 2010 and 2011, we expected that long-term loan
facilities from Chinese banks would be generally unavailable to non-state-owned companies.  We also expected the relatively
weak state of the U.S. capital markets to limit our ability to raise capital.  We likewise expected short-term bank
loans to be available only in limited amounts for non-state-owned companies like ours, and that they could be used only for short-term
working capital needs.  In order to obtain sufficient cash to meet our cash requirements, we therefore used notes payable
issued by banks to our raw materials suppliers, a commonly-used financing alternative for non-state-owned companies in China.  The
issuing banks in turn required that we maintain 50-100% of the principal amounts as restricted cash, which in turn necessitated
that we maintain a substantial amount of restricted cash on hand and maintain notes payable balances that exceeded our actual
cash needs in 2009, 2010 and 2011, respectively.



As a result of our cash management strategy, our actual interest
expense cash payment increased by $2.0 million, or 63.3%, to $5.3 million in 2010 from $3.2 million in 2009. In 2011,
our interest expense cash payment increased by $1.2 million, or 22.4%, to $6.5 million.



We believe that our currently available working capital, including
anticipated cash flow from operations and available credit facilities referred to above are adequate to finance our operations
at current levels through at least the next twelve months.  In this regard, we are not experiencing any difficulties
in the acquisition and rollover of our short term credit facilities that fund our daily operations.  We anticipate rollovers
of all current facilities coming due in the 2012 operating year and do not foresee a squeeze on the availability of credit to
fund our operations and meet our growth objectives.



44







Research and Development, Patents and Licenses, Etc.



During 2009, 2010 and 2011, we continuously reviewed our in-house
cold-rolled steel production and chromium-plating process for further improvement of quality of existing lines of products, our
ability to customize to customers’ unique needs, and operation efficiency. We also worked with external consultants from
universities and steel industry associations to evaluate and test new products to allow us to optimize our product mix at higher
profitability levels.



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



We have registered the trademark for the logo  with
the Trademark Office of the State Administration for Industry and Commerce of China.  We use our trademark for the sales
and marketing of our products.  Our trademark expires on November 27, 2012 and may be continually renewed thereafter.



Trend Information



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



Off-Balance Sheet Arrangements



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



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



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



On June 28, 2011, we entered into a mutual
financial guarantee agreement with Henan Xinye Textile Co., Ltd., a non-related company. Under the agreement, both companies are
contingent as guarantor with maximum potential amount of future payment approximately of $4.8 million, plus interest accrued,
legal fee, disbursement and any other compensation expense accrued. The guarantee is effective through December 31, 2012.



On October 31, 2011, we entered
into a financial guarantee agreement with Zhengzhou Aluminium Industry Co., Ltd., a non-related party, arranged by China
Citic Bank. Under the agreement, Henan Green acts as a guarantor for Zhengzhou Aluminium Industry Co., Ltd. Under the
agreement, Henan Green is contingent as guarantor with maximum potential amount of future payment approximately $2.4 million,
plus interest accrued, legal fee, disbursement and any other compensation expense accrued. The guarantee is effective through
September 7, 2014. We believe that Zhengzhou Aluminium Industry Co., Ltd. experienced financial difficulties in 2011 and
may not be able to perform on its payments under its loans and guarantees. If Zhengzhou Aluminium Industry Co., Ltd. is unable
to repay its debt or guarantees, we may be required to pay up to $6.4 million related to its debt and guarantees. No provision
has been made in our financial statements for this obligation as we have not been called upon to date to perform under our guarantee.



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



45











On January 13, 2012, we entered into a financial guarantee agreement
with Bank of Communications, a non-related party. Under the agreement, we act as a guarantor for Henan Xinye Textile Co., Ltd.,
also a non-related party. Under the agreement, we are contingent as guarantor with a maximum potential amount of future payment
of approximately $4.8 million. The guarantee is effective through two years after the loan period.





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



We have assessed the contingent liabilities arising from the
above-described guarantees and have considered them immaterial to the consolidated financial statements. Therefore, no liabilities
in respect of the guarantees were recognized as of December 31, 2011.



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



Tabular Disclosure of Contractual Obligations



The table below shows our contractual obligations as of December
31, 2011.



|                                    |  | Payments Due by Period |            
|----------------------------------- |  | ---------------------- | -----------
|Contractual Obligations             |  | Total                  |            
|Operating lease obligations         |  | $                      | 812,526    
|Notes payable                       |  |                        | 204,880,916
|Term loans                          |  |                        | 44,169,751 
|Plant                               |  |                        | 301,880    
|Future land use right acquisition   |  |                        | 7,131,796  
|Purchase of machinery and equipment |  |                        | 9,753,549  
|Land use right acquisition          |  |                        | 1,404,926  
|Employment agreements with officers |  |                        | 820,000    
|Total                               |  | $                      | 269,273,345



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



Safe Harbor



See the section headed “Forward-Looking
Information.”



| | ITEM 6. | Directors, Senior Management
                                                                                                       and Employees
| | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | A. | Directors and Senior Management
| | -- | -------------------------------



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



46







|NAME            |  | AGE |  | POSITION                                                      
|--------------- |  | --- |  | --------------------------------------------------------------
|Mingwang Lu     |  | 59  |  | Chairman of the Board of Directors and Chief Executive Officer
|Edward Meng     |  | 44  |  | Chief Financial Officer                                       
|Yi Lu           |  | 36  |  | Director                                                      
|Harry Edelson   |  | 78  |  | Director                                                      
|J.P. Huang      |  | 51  |  | Director                                                      
|Kwok Keung Wong |  | 63  |  | Director                                                      
|Yunlong Wang    |  | 49  |  | Director                                                      
|Maotong Xu      |  | 72  |  | Director                                                      



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



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



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



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



47







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



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



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



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



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



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



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



Non-Equity Compensation of Directors and Senior Management



In 2011, we paid an aggregate of $1.1 million in cash compensation
to our directors and senior management as a group.  We do not set aside or accrue any amounts for pension, retirement
or other benefits for our directors and senior management. However, we reimburse our directors for out-of-pocket expenses incurred
in connection with their services in such capacity.



48







Employment Agreements



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



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



Equity Incentive Plan



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



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



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



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



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



49







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



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



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



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



| | · | cash or check;
| | - | --------------



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



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



50







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



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



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



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



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



51







Share Options



As of December 31, 2011, no options to purchase our ordinary
shares had been granted under the 2010 Plan.



Restricted Share Grants



As of December 31, 2011, no restricted ordinary shares had
been granted under the 2010 Plan.



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



Terms of Directors and Executive Officers



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



| | · | in the class
                                                                                                               to stand for reelection
                                                                                                               in 2012: Mingwang
                                                                                                               Lu, Yi Lu and Yunlong
                                                                                                               Wang;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



Board Composition and Committees



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



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



Audit Committee



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



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



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



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



52







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



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



| | · | monitoring
                                                                                                               the independence
                                                                                                               of the independent
                                                                                                               auditor;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



Compensation Committee



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



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



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



| | · | approving and
                                                                                                               overseeing the
                                                                                                               compensation for
                                                                                                               our executive officers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



Nominating and Corporate Governance Committee



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



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



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



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



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



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



53







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



We had 1,070,840 and 627 full-time employees as of December 31, 2011, 2010 and 2009, respectively. The following table sets forth the number
of our employees for each of our areas of operations as of December 31, 2011, 2010 and 2009:



|Category                                         |  | Number of Employees     |      
|------------------------------------------------ |  | ----------------------- | -----
|                                                 |  | As of December 31, 2011 |      
|Manufacturing                                    |  |                         | 939  
|Sales and Marketing                              |  |                         | 31   
|General Administration, Purchasing and Logistics |  |                         | 72   
|Technology and Research & Development            |  |                         | 28   
|Total                                            |  |                         | 1,070



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



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



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



The following table sets forth information regarding beneficial
ownership of each class of our voting securities as of March 26, 2012 (i) by each person who is known by us to beneficially own
more than 5% of our voting securities; (ii) by each of our officers and directors; and (iii) by all of our officers and directors
as a group.



|Name of Beneficial Owner                                     |  | Office, If Any          |  | Title of Class  |  | Amount and
    Nature of
    Beneficial
    Ownership(1) |     |  | Percent of
    Class(2) |  
|------------------------------------------------------------ |  | ----------------------- |  | --------------- |  | -------------------------------------------------------- | --- |  | ----------------------- | -
|Officers and Directors                                       | 
|Mingwang Lu                                                  |  | Chairman and CEO        |  | Ordinary Shares |  | 15,438,637                                               | (3) |  | 26.5                    | %
|Edward Meng                                                  |  | Chief Financial Officer |  | Ordinary Shares |  | -                                                        |     |  | -                       |  
|Yi Lu                                                        |  | Director                |  | Ordinary Shares |  | 3,022,200                                                | (4) |  | 5.2                     | %
|Harry Edelson                                                |  | Director                |  | Ordinary Shares |  | 6,741,221                                                | (5) |  | 11.6                    | %
|J.P. Huang                                                   |  | Director                |  | Ordinary Shares |  | -                                                        |     |  | -                       |  
|Kwok Keung Wong                                              |  | Director                |  | Ordinary Shares |  | 6,760,913                                                | (6) |  | 11.6                    | %
|Yunlong Wang                                                 |  | Director                |  | Ordinary Shares |  | -                                                        |     |  | -                       |  
|Maotong Xu                                                   |  | Director                |  | Ordinary Shares |  | -                                                        |     |  | -                       |  
|All officers and directors as a group (8persons named above) |  |                         |  | Ordinary Shares |  | 25,221,750                                               |     |  | 43.3                    | %
|5% Security Holders                                          | 
|Mingwang Lu                                                  |  |                         |  | Ordinary Shares |  | 15,438,637                                               | (3) |  | 26.5                    | %
|Meg Champ Limited                                            |  |                         |  | Ordinary Shares |  | 12,088,800                                               | (3) |  | 20.7                    | %
|Victor Trait Limited                                         |  |                         |  | Ordinary Shares |  | 3,349,837                                                | (3) |  | 5.7                     | %
|Yi Lu                                                        |  |                         |  | Ordinary Shares |  | 3,022,200                                                | (4) |  | 5.2                     | %
|Lok Tai Limited                                              |  |                         |  | Ordinary Shares |  | 3,022,200                                                | (4) |  | 5.2                     | %
|Harry Edelson                                                |  |                         |  | Ordinary Shares |  | 6,741,221                                                | (5) |  | 11.6                    | %
|Kwok Keung Wong                                              |  |                         |  | Ordinary Shares |  | 6,760,913                                                | (6) |  | 11.6                    | %
|Honest Joy Group Limited                                     |  |                         |  | Ordinary Shares |  | 6,741,221                                                | (6) |  | 11.6                    | %
|Yuying Lu                                                    |  |                         |  | Ordinary Shares |  | 6,741,221                                                | (7) |  | 11.6                    | %



54







|Name of Beneficial Owner        |  | Office, If Any |  | Title of Class  |  | Amount and
    Nature of
    Beneficial
    Ownership(1) |     |  | Percent of
    Class(2) |  
|------------------------------- |  | -------------- |  | --------------- |  | -------------------------------------------------------- | --- |  | ----------------------- | -
|Oasis Green Investments Limited |  |                |  | Ordinary Shares |  | 6,741,221                                                | (7) |  | 11.6                    | %
|Plumpton Group Limited          |  |                |  | Ordinary Shares |  | 6,741,221                                                | (8) |  | 11.6                    | %
|Wenxian Li                      |  |                |  | Ordinary Shares |  | 4,212,523                                                | (9) |  | 7.2                     | %



* Less than 1%



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



| | (2) | Based on 58,311,076 ordinary shares issued and outstanding as of
                                                          March 26, 2012. For each beneficial owner’s percent of class,
                                                          any options exercisable within 60 days have been included in both the
                                                          numerator and denominator.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes 12,088,800 ordinary shares held
                                                          by Meg Champ Limited, or Meg Champ, and 3,349,837 ordinary shares held
                                                          by Victor Trait Limited, or Victor Trait, both of which are wholly-owned
                                                          by Mr. Mingwang Lu.  Mr. Mingwang Lu may be deemed to be a
                                                          beneficial owner of the ordinary shares held by each of Meg Champ and
                                                          Victor Trait.  Meg Champ, Victor Trait, and Mr. Mingwang Lu’s
                                                          percentage of beneficial ownership of our ordinary shares all changed
                                                          from 0% to 20.3%, 5.6% and 26.0%, respectively as a result of the receipt
                                                          of 12,088,800 of our ordinary shares by Meg Champ and 3,349,837 ordinary
                                                          shares by Victor Trait from a transfer for no consideration by Oasis
                                                          in March 2011.  As of December
                                                          31, 2011 andMarch 26, 2012, Mr. Mingwang
                                                          Lu, Meg Champ and Victor Trait’s percentage of beneficial ownership
                                                          of our outstanding ordinary shares was 26.5%, 20.7% and 5.7%, respectively,
                                                          based on 58,311,076 ordinary shares
                                                          outstanding.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Includes 3,022,200 ordinary shares held
                                                          by Lok Tai Limited, or Lok Tai, which is wholly-owned by Mr. Yi Lu.  Mr.
                                                          Yi Lu may be deemed to be a beneficial owner of the ordinary shares
                                                          held by Lok Tai.  Lok Tai and Mr. Yi Lu’s percentage
                                                          of beneficial ownership of our ordinary shares both changed from 0%
                                                          to 5.1% as a result of the receipt of 3,022,200 of our ordinary shares
                                                          by Lok Tai in March 2011. Mr. Yi Lu is the son of our Chairman and CEO,
                                                          Mr. Mingwang Lu, but does not live in the same household. As of December
                                                          31, 2011 andMarch 26, 2012,, each
                                                          of Mr. Yi Lu and Lok Tai’s percentage of beneficial ownership
                                                          of our outstanding ordinary shares was 5.2%, based on58,311,076
                                                          ordinary shares outstanding.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Includes 3,086,581 ordinary shares held by Mr. Edelson, 1,026,640ordinary shares held by Oasis, 985,500 ordinary shares held by
                                                          Honest Joy and 1,642,500 ordinary shares held by Plumpton, pursuant
                                                          to the Voting Agreement.  Mr. Edelson’s
                                                          percentage of beneficial ownership of our ordinary shares was 0% prior
                                                          to March 2009.  In March 2009, Mr. Edelson acquired 1,609,621
                                                          ordinary shares and 1,666,667 warrants to purchase ordinary shares pursuant
                                                          to the Merger Agreement; as a result of Mr. Edelson’s entry into
                                                          the Voting Agreement, Mr. Edelson may also be deemed to have acquired
                                                          beneficial ownership of 27,600,000 ordinary shares held by Oasis, 1,500,000
                                                          ordinary shares held by Plumpton, and 900,000 ordinary shares held by
                                                          Honest Joy.  As a result, in March 2009, Mr. Edelson’s
                                                          percentage of beneficial ownership of our ordinary shares increased
                                                          to 103.2% based on 32,245,723 ordinary shares outstanding as of March
                                                          17, 2009, including ordinary shares contained in our outstanding public
                                                          units. This percentage was greater than 100.0% due to the Mr. Edelson’s
                                                          beneficial ownership of 1,666,667 ordinary shares underlying warrants.  In
                                                          October 2009, we issued an aggregate of 2,850,000 ordinary shares to
                                                          Oasis, Honest Joy and Plumpton, pursuant to the Settlement Agreement,
                                                          resulting in an increase of Mr. Edelson’s beneficial ownership
                                                          to 36,126,288 ordinary shares.  As of December 31, 2009, Mr.
                                                          Edelson’s percentage of beneficial ownership of our ordinary shares
                                                          was 88.8%, based on 40,692,323 ordinary shares outstanding (including
                                                          ordinary shares included in our public units).  As of December
                                                          31, 2010, Mr. Edelson’s percentage of beneficial ownership of
                                                          our outstanding ordinary shares was 78.3%, based on 46,139,053 ordinary
                                                          shares outstanding (including ordinary shares included in our public
                                                          units). In March 2011 and July 2011, Oasis transferred 26,595,360 and
                                                          2,600,000 ordinary shares, respectively, to certain persons that were
                                                          not parties to the Voting Agreement. In March 2011, Mr. Edelson exercised
                                                          1,476,960 warrants for the same number of ordinary shares and sold 189,707
                                                          warrants. As of December 31, 2011 andMarch 26,
                                                          2012, Mr. Edelson’s percentage of beneficial ownership of our
                                                          outstanding ordinary shares was 11.6%, based on58,311,076 ordinary
                                                          shares outstanding.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Includes 19,692 ordinary shares held by Mr. Wong, 985,500 ordinary
                                                          shares held by Honest Joy, 3,086,581 ordinary shares held by Mr.
                                                          Edelson, 1,026,640 ordinary shares
                                                          held by Oasis and 1,642,500 ordinary shares held by Plumpton.  Mr.
                                                          Wong may be deemed to be a beneficial owner of the ordinary shares beneficially
                                                          held by Honest Joy, which is wholly-owned by Mr. Wong, including the
                                                          ordinary shares held by each of Oasis, Plumpton and Mr. Edelson as a
                                                          result of the Voting Agreement.  In
                                                          September 2008, we granted Honest Joy 3 ordinary shares.  As
                                                          a result, Honest Joy and Mr. Wong may be deemed to have beneficially
                                                          owned 3.0% of our ordinary shares, based on 100 ordinary shares then
                                                          outstanding.  In March 2009 and prior to the Merger, Honest
                                                          Joy received 899,997 ordinary shares as result of a 300,000-for-1
                                                          stock split of our ordinary shares, resulting in its holding 900,000
                                                          of our ordinary shares.  In March 2009, as a result of Honest
                                                          Joy’s entry into the Voting Agreement, Honest Joy may be deemed
                                                          to have acquired beneficial ownership of 27,600,000 ordinary shares
                                                          held by Oasis, 1,500,000 ordinary shares held by Plumpton, and 1,609,621
                                                          ordinary shares and 1,666,667 warrants to purchase ordinary shares held
                                                          by Mr. Edelson.  After such acquisitions, each of Honest Joy
                                                          and Mr. Wong may be deemed to have had beneficial ownership of 103.2%
                                                          based on 32,245,723 ordinary shares outstanding as of March 17, 2009,
                                                          including ordinary shares contained in our outstanding public units.  In
                                                          October 2009, we issued an aggregate of 2,850,000 ordinary shares to
                                                          Oasis, Honest Joy and Plumpton in October 2009, including 85,500 to
                                                          Honest Joy, pursuant to the Settlement Agreement, resulting in an increase
                                                          of each of Mr. Wong and Honest Joy’s beneficial ownership to 36,126,288
                                                          ordinary shares.  As of December 31, 2009, each of Honest
                                                          Joy and Mr. Wong’s percentage of beneficial ownership of our ordinary
                                                          shares was 88.8%, based on 40,692,323 ordinary shares outstanding
                                                          (including ordinary shares included in our public units), reflecting
                                                          the transactions described above as well as increases in the number
                                                          of outstanding ordinary shares due to other issuances.  As
                                                          of December 31, 2010, each of Honest Joy and Mr. Wong’s percentage
                                                          of beneficial ownership of our outstanding ordinary shares was 78.3%,
                                                          based on 46,139,053 ordinary shares outstanding (including ordinary
                                                          shares included in our public units). In March 2011 and July 2011, Oasis
                                                          transferred 26,595,360 and 2,600,000 ordinary shares, respectively,
                                                          to certain persons that were not parties to the Voting Agreement. In
                                                          March 2011, Mr. Wong purchased and sold securities for a net acquisition
                                                          of19,692 ordinary shares.As
                                                          of December 31, 2011 andMarch 26,
                                                          2012, Mr. Wong and Honest Joy’s percentage of beneficial ownership
                                                          of our outstanding ordinary shares were each 11.6% based on58,311,076
                                                          ordinary shares outstanding.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



55







| | (7) | Includes 1,026,640 ordinary shares
                                                          held by Oasis, 985,500 ordinary shares held by Honest Joy, 3,086,581 ordinary
                                                          shares held by Mr. Edelson and 1,642,500 ordinary shares held by Plumpton.  Ms.
                                                          Lu may be deemed to be a beneficial owner of the ordinary shares beneficially
                                                          held by Oasis, which is wholly-owned by Ms. Lu, including the ordinary
                                                          shares held by each of Honest Joy, Plumpton and Mr. Edelson as a result
                                                          of the Voting Agreement. Ms. Lu is the daughter of our Chairman
                                                          and CEO, Mr. Mingwang Lu, but does not live in the same household. In
                                                          August 2008, Ms. Lu was granted 100% ownership of our ordinary shares
                                                          by our issuance to her of our only outstanding ordinary share.  In
                                                          September 2008, Ms. Lu transferred this ordinary share to Oasis.  At
                                                          the same time, we granted Oasis 91 ordinary shares and an aggregate
                                                          of 8 ordinary shares to other shareholders.  As a result,
                                                          as of September 2008, Oasis and Ms. Lu each beneficially owned 91.0%
                                                          of a total of 100 outstanding ordinary shares.  In March 2009
                                                          and prior to the Merger, Oasis received 27,599,908 ordinary shares
                                                          as result of a 300,000-for-1 stock split of our ordinary shares, resulting
                                                          in its holding 27,600,000 of our ordinary shares.  In March
                                                          2009, as a result of Oasis’s entry into the Voting Agreement,
                                                          Oasis may be deemed to have acquired beneficial ownership of 1,500,000
                                                          ordinary shares held by Plumpton, 900,000 ordinary shares held by Honest
                                                          Joy, and 1,609,621 ordinary shares and 1,666,667 warrants to purchase
                                                          ordinary shares held by Mr. Edelson.  After such acquisitions,
                                                          each of Oasis and Ms. Lu may be deemed to have had beneficial ownership
                                                          of 103.2% based on 32,245,723 ordinary shares outstanding as of March
                                                          17, 2009, including ordinary shares contained in our outstanding public
                                                          units.  In October 2009, we issued an aggregate of 2,850,000
                                                          ordinary shares to Oasis, Honest Joy and Plumpton in October 2009, including
                                                          2,622,000 to Oasis, pursuant to the Settlement Agreement, resulting
                                                          in an increase of each of Oasis and Ms. Lu’s beneficial ownership
                                                          to 36,126,288 ordinary shares.  As of December 31, 2009, each
                                                          of Oasis and Ms. Lu’s percentage of beneficial ownership of our
                                                          ordinary shares was 88.8%, based on 40,692,323 ordinary shares
                                                          outstanding (including ordinary shares included in our public units).  As
                                                          of December 31, 2010, each of Oasis and Ms. Lu’s percentage of
                                                          beneficial ownership of our outstanding ordinary shares was 78.3%, based
                                                          on 46,139,053 ordinary shares outstanding (including ordinary shares
                                                          included in our public units).  In March 2011 and July 2011,
                                                          Oasis transferred 26,595,360 and 2,600,000 ordinary shares, respectively,
                                                          to certain persons that were not parties to the Voting Agreement. As
                                                          of December 31, 2011 andMarch 26,
                                                          2012, each of Oasis and Ms. Lu’s percentage of beneficial ownership
                                                          of our outstanding ordinary shares was 11.6%, based on58,311,076
                                                          ordinary shares outstanding.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Includes 1,642,500 ordinary shares
                                                             held by Plumpton, 1,026,640 ordinary shares held by Oasis, 985,500
                                                             ordinary shares held by Honest Joy, and 3,086,581 ordinary shares
                                                             held by Mr. Edelson.  Plumpton’s three members own
                                                             or control 47.5%, 47.5%, and 5% of the shares of Plumpton, respectively.  Plumpton’s
                                                             three members collectively control Plumpton in proportion to their
                                                             share ownership.  In September 2008, we granted Plumpton
                                                             5 ordinary shares. In March 2009 and prior to the Merger, Plumpton
                                                             received 1,499,995 ordinary shares as result of a 300,000-for-1
                                                             stock split of our ordinary shares.  As a result, as of
                                                             September 2008, Plumpton beneficially owned 5.0% of a total of 100
                                                             outstanding ordinary shares; as a result of Plumpton’s entry
                                                             into the Voting Agreement, Plumpton may be deemed to have acquired
                                                             beneficial ownership of 900,000 ordinary shares held by Honest Joy,
                                                             1,609,621 ordinary shares and 1,666,667 warrants to purchase ordinary
                                                             shares held by Mr. Edelson, and 27,600,000 ordinary shares held by
                                                             Oasis.  After such acquisitions, Plumpton may be deemed
                                                             to have had beneficial ownership of 103.2% based on 32,245,723 ordinary
                                                             shares outstanding as of March 17, 2009, including ordinary shares
                                                             contained in our outstanding public units.  In October
                                                             2009, we issued an aggregate of 2,850,000 ordinary shares to Oasis,
                                                             Honest Joy and Plumpton in October 2009, including 142,500 to Plumpton,
                                                             pursuant to the Settlement Agreement, resulting in an increase of
                                                             Plumpton’s beneficial ownership to 36,126,288 ordinary shares.  As
                                                             of December 31, 2009, Plumpton’s percentage of beneficial ownership
                                                             of our ordinary shares was 88.8%, based on 40,692,323 ordinary
                                                             shares outstanding (including ordinary shares included in our public
                                                             units), reflecting the transactions described above as well as increases
                                                             in the number of outstanding ordinary shares due to other issuances.  As
                                                             of December 31, 2010, Plumpton’s percentage of beneficial ownership
                                                             of our outstanding ordinary shares was 78.3%, based on 46,139,053
                                                             ordinary shares outstanding (including ordinary shares included in
                                                             our public units).  In March 2011 and July 2011, Oasis
                                                             transferred 26,595,360 and 2,600,000 ordinary shares, respectively,
                                                             to certain persons that were not parties to the Voting Agreement.
                                                             As of December 31, 2011 andMarch 26,
                                                             2012, Plumpton’s percentage of beneficial ownership of our
                                                             outstanding ordinary shares was 11.6%, based on58,311,076
                                                             ordinary shares outstanding.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Mr. Wenxian Li holds 4,212,523 ordinary
                                                             shares.  Mr. Li received these ordinary shares in March 2011.  Previously,
                                                             Mr. Li owned 0% of our outstanding ordinary shares. As of December
                                                             31, 2011 andMarch 26, 2012, Mr.
                                                             Li’s percentage of beneficial ownership of our outstanding
                                                             ordinary shares was 7.2%, based on58,311,076 ordinary
                                                             shares outstanding.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



56







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



See Item 6 “Directors, Senior Management and Employees—Compensation—Share
Options” for a description of our 2010 Plan.



| | ITEM 7. | Major Shareholders
                                                                                                       and Related Party Transactions
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | A. | Major Shareholders
| | -- | ------------------



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



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



The following includes a summary of transactions since the
beginning of the 2011 fiscal year between us and certain related persons.  We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available
or the amounts that would be paid or received, as applicable, in arm’s-length transactions.



| | · | In August 2011,
                                                                                                               pursuant to the
                                                                                                               resolutions of
                                                                                                               the board of directors
                                                                                                               of Henan Green,
                                                                                                               we transferred
                                                                                                               $5
                                                                                                               million into a
                                                                                                               bank account under
                                                                                                               the name of our
                                                                                                               chairman, Mr. Lu,
                                                                                                               in a solely custodial
                                                                                                               capacity in connection
                                                                                                               with a potential
                                                                                                               joint venture between
                                                                                                               Henan Green and
                                                                                                               a prospective partner
                                                                                                               outside China for
                                                                                                               this purpose. The
                                                                                                               funds were deposited
                                                                                                               in this account
                                                                                                               to demonstrate
                                                                                                               Henan Green’s
                                                                                                               interest in the
                                                                                                               joint venture and
                                                                                                               to provide funds
                                                                                                               promptly due to
                                                                                                               regulations in
                                                                                                               the prospective
                                                                                                               partner’s
                                                                                                               country regarding
                                                                                                               the establishment
                                                                                                               of bank accounts
                                                                                                               by corporate entities.
                                                                                                               In December 2011,
                                                                                                               negotiations with
                                                                                                               the prospective
                                                                                                               partner substantially
                                                                                                               ceased, and the
                                                                                                               funds were returned
                                                                                                               to the Company.
| | - | 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-------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Oasis
                                                                                                               is wholly owned
                                                                                                               by Ms. Yuying Lu.  Ms.
                                                                                                               Lu is the daughter
                                                                                                               of our Chairman
                                                                                                               and CEO, Mingwang
                                                                                                               Lu, but does not
                                                                                                               live in the same
                                                                                                               household.  Ms.
                                                                                                               Lu may be deemed
                                                                                                               to be a beneficial
                                                                                                               owner of the shares
                                                                                                               held by Oasis.As
                                                                                                               a result of Oasis’s
                                                                                                               majority ownership
                                                                                                               of our ordinary
                                                                                                               shares, it may
                                                                                                               be considered to
                                                                                                               have owned or controlled
                                                                                                               us during the period
                                                                                                               covered by this
                                                                                                               report.  Oasis’s
                                                                                                               percentage ownership
                                                                                                               of our outstanding
                                                                                                               ordinary shares
                                                                                                               declined from 65.5%
                                                                                                               as of January 1,
                                                                                                               2011 to11.6%
                                                                                                               as of March 26,
                                                                                                               2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Before
                                                                                                               2007, Zhengzhou
                                                                                                               Company was one
                                                                                                               of the owners of
                                                                                                               Henan Green with
                                                                                                               76.93% of the total
                                                                                                               ownership.  In
                                                                                                               December 2006,
                                                                                                               Zhengzhou Company
                                                                                                               sold all of its
                                                                                                               ownership to our
                                                                                                               Chairman and CEO,
                                                                                                               Mingwang Lu and
                                                                                                               others, whereby
                                                                                                               Mr. Lu became a
                                                                                                               major owner holding
                                                                                                               40% of the total
                                                                                                               ownership.  In
                                                                                                               2008, the holders
                                                                                                               transferred their
                                                                                                               ownership interests
                                                                                                               in Henan Green
                                                                                                               to China Gerui.  Mingwang
                                                                                                               Lu was a common
                                                                                                               owner of Henan
                                                                                                               Green and Zhengzhou
                                                                                                               Company. Zhengzhou
                                                                                                               Company engaged
                                                                                                               in the same type
                                                                                                               of industry as
                                                                                                               Henan Green but
                                                                                                               ceased its processing
                                                                                                               and selling of
                                                                                                               steel operation
                                                                                                               in 2003 and its
                                                                                                               principal business
                                                                                                               activity after
                                                                                                               the cessation of
                                                                                                               its steel operations
                                                                                                               is receiving rental
                                                                                                               income from its
                                                                                                               investments.  In
                                                                                                               2004, we entered
                                                                                                               into a rental agreement
                                                                                                               for land use rights
                                                                                                               with Zhengzhou
                                                                                                               Company with the
                                                                                                               term from January
                                                                                                               1, 2005 to December
                                                                                                               30, 2014.  In
                                                                                                               December 2008,
                                                                                                               we entered into
                                                                                                               a new lease with
                                                                                                               the related party
                                                                                                               lessor, which replaces
                                                                                                               the 2004 rental
                                                                                                               agreement.  The
                                                                                                               new lease term
                                                                                                               commenced on January
                                                                                                               1, 2008 and terminates
                                                                                                               on December 31,
                                                                                                               2027.  Rent
                                                                                                               paid to Zhengzhou
                                                                                                               Company for the
                                                                                                               fiscal year ended
                                                                                                               December 31, 2011
                                                                                                               was $11,428.  Rent
                                                                                                               payable under the
                                                                                                               lease increases
                                                                                                               by 10% annually
                                                                                                               starting from 2010.  Zhengzhou
                                                                                                               Company also guarantees
                                                                                                               our obligations
                                                                                                               under short term
                                                                                                               bank loans.  We
                                                                                                               do not pay any
                                                                                                               consideration to
                                                                                                               this related guarantor
                                                                                                               for guaranteeing
                                                                                                               our obligations.
| | - | 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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Zhengzhou
                                                                                                               Company owns a
                                                                                                               land use right
                                                                                                               with respect to
                                                                                                               24.94 acres (151.4
                                                                                                               Chinese mu). We
                                                                                                               currently lease
                                                                                                               a part of the land
                                                                                                               use right for 6.69
                                                                                                               acres (40.60 Chinese
                                                                                                               mu) from Zhengzhou
                                                                                                               Company. Our existing
                                                                                                               production lines
                                                                                                               and warehouses
                                                                                                               are located on
                                                                                                               this parcel of
                                                                                                               land. For operation
                                                                                                               risk mitigation
                                                                                                               purpose, we have
                                                                                                               started the process
                                                                                                               of title transfer
                                                                                                               of the existing
                                                                                                               land use right
                                                                                                               to 24.94 acres
                                                                                                               (151.4 Chinese
                                                                                                               mu) from Zhengzhou
                                                                                                               Company. To facilitate
                                                                                                               Zhengzhou Company’s
                                                                                                               negotiation with
                                                                                                               local regulatory
                                                                                                               authorities on
                                                                                                               the transfer and
                                                                                                               in anticipation
                                                                                                               of the upfront
                                                                                                               payments associated
                                                                                                               with the transaction,
                                                                                                               we prepaid as of
                                                                                                               December 31, 2011
                                                                                                               $12,710,719 to
                                                                                                               Zhengzhou Company.
                                                                                                               The final transfer
                                                                                                               price is to be
                                                                                                               further determined
                                                                                                               based on market-based
                                                                                                               valuation of the
                                                                                                               land value and
                                                                                                               calculation of
                                                                                                               associated value-added
                                                                                                               tax.
| | - | 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----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57







| | · | Under
                                                                                                               the Merger Agreement,
                                                                                                               Oasis and Plumpton
                                                                                                               were entitled to
                                                                                                               receive an aggregate
                                                                                                               of $5 million in
                                                                                                               the event that
                                                                                                               at least 75% of
                                                                                                               our outstanding
                                                                                                               warrants were exercised
                                                                                                               at an exercise
                                                                                                               price not less
                                                                                                               than $5.00 per
                                                                                                               share.  In
                                                                                                               such an event,
                                                                                                               we would receive
                                                                                                               at least approximately
                                                                                                               $64.8 million and
                                                                                                               we would be obligated
                                                                                                               to pay $5 million
                                                                                                               in the aggregate
                                                                                                               to Oasis, one of
                                                                                                               our Original Shareholders
                                                                                                               and which is owned
                                                                                                               by Ms. Yuying Lu,
                                                                                                               the daughter of
                                                                                                               our Chairman and
                                                                                                               CEO, Mr. Mingwang
                                                                                                               Lu, and Plumpton,
                                                                                                               also one of our
                                                                                                               Original Shareholders.
                                                                                                               During our fiscal
                                                                                                               quarter ended March
                                                                                                               31, 2011, at least
                                                                                                               75% of our public
                                                                                                               warrants were exercised.  Oasis
                                                                                                               and Plumpton therefore
                                                                                                               received the above
                                                                                                               payments, with
                                                                                                               Oasis receiving
                                                                                                               $1.5 million and
                                                                                                               Plumpton receiving
                                                                                                               $3.5 million pursuant
                                                                                                               to Section 1.15
                                                                                                               and Schedule 1.15
                                                                                                               of the Merger Agreement.  We
                                                                                                               also recognized
                                                                                                               and accrued $700,000
                                                                                                               in fees and expenses
                                                                                                               payable to certain
                                                                                                               professional service
                                                                                                               providers that
                                                                                                               assisted with the
                                                                                                               warrant exercises.  We
                                                                                                               agreed to the payment
                                                                                                               obligation under
                                                                                                               the Merger Agreement
                                                                                                               as an incentive
                                                                                                               to Oasis and Plumpton
                                                                                                               to execute the
                                                                                                               Merger Agreement
                                                                                                               and approve the
                                                                                                               related merger
                                                                                                               between us and
                                                                                                               COAC.
| | - | 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| | · | On March 17,
                                                                                                               2011, Mr. Harry
                                                                                                               Edelson, one of
                                                                                                               our directors,
                                                                                                               exercised 1,476,960
                                                                                                               warrants to purchase
                                                                                                               the same number
                                                                                                               of Ordinary Shares.
                                                                                                               Mr. Edelson exercised
                                                                                                               his warrants at
                                                                                                               a price of $5.00
                                                                                                               per warrant, therefore
                                                                                                               making aggregate
                                                                                                               cash payments to
                                                                                                               us of $7,384,800.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



Not applicable.



| | ITEM 8. | Financial Information
| | ------- | ---------------------



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



Financial Statements



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



Legal Proceedings



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



Dividend Policy



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



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



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



58







| | ITEM 9. | The Offer and Listing
| | ------- | ---------------------



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



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



|                             |  | High |       |  | Low |  
|---------------------------- |  | ---- | ----- |  | --- | -
|Annual Market Prices         |  |      |       |  |     |  
|2007                         |  | $    | 5.76  |  |     | $
|2008                         |  |      | 5.86  |  |     |  
|2009                         |  |      | 10.00 |  |     |  
|2010                         |  |      | 8.20  |  |     |  
|2011                         |  |      | 6.33  |  |     |  
|                             |  |      |       |  |     |  
|Quarterly Market Prices      |  |      |       |  |     |  
|1st Quarter 2010             |  | $    | 8.20  |  |     | $
|2nd Quarter 2010             |  |      | 7.92  |  |     |  
|3rd Quarter 2010             |  |      | 6.09  |  |     |  
|4th Quarter 2010             |  |      | 6.46  |  |     |  
|1st Quarter 2011             |  |      | 6.33  |  |     |  
|2nd Quarter 2011             |  |      | 5.29  |  |     |  
|3rd Quarter 2011             |  |      | 4.40  |  |     |  
|4th Quarter 2011             |  |      | 4.00  |  |     |  
|1st Quarter 2012             |  |      | 4.24  |  |     |  
|                             |  |      |       |  |     |  
|Monthly Market Prices        |  |      |       |  |     |  
|November 2011                |  | $    | 4.00  |  |     | $
|December 2011                |  |      | 3.92  |  |     |  
|January 2012                 |  |      | 4.20  |  |     |  
|February 2012                |  |      | 4.24  |  |     |  
|March 2012                   |  |      | 4.05  |  |     |  
|April 2012                   |  |      | 3.75  |  |     |  
|May 2012 (up to May 4, 2012) |  |      | 2.96  |  |     |  



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



Not applicable.



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



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



| | 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.



59







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



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



Register



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



Objects and Purposes



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



Directors



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



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



Rights and Obligations of Shareholders



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



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



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



60







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



Changes in Rights of Shareholders



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



Meetings



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



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



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



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



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



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



61







Limitations on Ownership of Securities



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



Change in Control of Company



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



Ownership Threshold



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



Changes in Capital



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



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



Differences in Corporate Law



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



Protection for Minority Shareholders



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



Powers of Directors



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



Conflict of Interests



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



62







Written Consent and Cumulative Voting



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



Redemption



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



Takeover Provisions



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



Shareholder’s Access to Corporate Records



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



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



Indemnification



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



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



63







Mergers and Similar Arrangements



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



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



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



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



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



Dissenter Rights



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



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



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



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



64







Shareholders’ Suits



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



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



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



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



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



| | D. | Exchange Controls
| | -- | -----------------



BVI Exchange Controls



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



Exchange Controls in China



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



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



65







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



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



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



BVI Taxation



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



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



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



Taxation in China



In 2007, the PRC government promulgated the EIT Law and the
relevant implementing rules, which became effective on January 1, 2008. Under the EIT Law and its implementing rules, all domestic
and foreign investment companies will be subject to a uniform enterprise income tax at the rate of 25% and dividends from PRC
subsidiaries to their non-PRC shareholders will be subject to a withholding tax at a rate of 20%, which is further reduced
to 10% by the implementing rules, if the non-PRC shareholder is considered to be a non-PRC tax resident enterprise without any
establishment or place within China or if the dividends payable has no connection with the non-PRC shareholder’s establishment
or place within China, unless any such non-PRC shareholder’s jurisdiction of incorporation has a tax treaty with China that
provides for a different withholding arrangement. In addition, pursuant to the EIT Law, enterprises established under the laws
of non-PRC jurisdictions, but whose “de facto management body” is located in the PRC, should be treated as resident
enterprises for PRC tax purposes. However, it is currently uncertain whether we may be deemed a resident enterprise, or how to
interpret whether any income or gain is derived from sources within China.  See Item 3 “Key information—Risk
Factors—Under the Enterprise Income Tax Law, we may be classified as a ‘resident enterprise’ of China. Such
classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.”  If we,
as a BVI company with substantially all of our management located in China, were treated as a resident enterprise for PRC
tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which would have an impact on
our effective tax rate.



66







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



U.S. Federal Income Taxation



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



| | · | financial institutions;
| | - | -----------------------

| | · | brokers;
| | - | --------

| | · | dealers in
                                                                                                               securities and
                                                                                                               commodities;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | certain former
                                                                                                               U.S. citizens or
                                                                                                               long-term residents;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | regulated investment
                                                                                                               companies or real
                                                                                                               estate investment
                                                                                                               trusts;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | tax-exempt
                                                                                                               organizations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| | · | persons that
                                                                                                               are not U.S. persons
                                                                                                               for U.S. federal
                                                                                                               income tax purposes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | persons that
                                                                                                               directly, indirectly
                                                                                                               or constructively
                                                                                                               own 10% or more
                                                                                                               of the equity of
                                                                                                               the Company;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | persons that
                                                                                                               acquire their shares
                                                                                                               in connection with
                                                                                                               employment or other
                                                                                                               performance of
                                                                                                               personal services;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | persons subject
                                                                                                               to the alternative
                                                                                                               minimum tax;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | persons that
                                                                                                               are, or that hold
                                                                                                               their shares through,
                                                                                                               partnerships or
                                                                                                               other pass-through
                                                                                                               entities;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | · | persons that
                                                                                                               hold shares as
                                                                                                               part of a straddle,
                                                                                                               hedge, conversion,
                                                                                                               synthetic security
                                                                                                               or constructive
                                                                                                               sale transaction
                                                                                                               for U.S. federal
                                                                                                               income tax purposes.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have not requested and will not request a ruling from the
IRS with respect to any of the federal income tax issues discussed below.



PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS
ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES.



For purposes of this discussion, a “U.S. Holder”
means a beneficial owner of ordinary shares in the Company that, for U.S. federal income tax purposes, is:



| | · | a citizen or
                                                                                                               resident of the
                                                                                                               United States;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | a corporation
                                                                                                               (including an entity
                                                                                                               treated as a corporation
                                                                                                               for U.S. federal
                                                                                                               income tax purposes)
                                                                                                               created or organized
                                                                                                               in or under the
                                                                                                               laws of the United
                                                                                                               States, any of
                                                                                                               its states or the
                                                                                                               District of Columbia;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | an estate the
                                                                                                               income of which
                                                                                                               is subject to U.S.
                                                                                                               federal income
                                                                                                               taxation, regardless
                                                                                                               of its source;
                                                                                                               or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



67







| | · | a trust if
                                                                                                               (A) a U.S. court
                                                                                                               is able to exercise
                                                                                                               primary supervision
                                                                                                               over the administration
                                                                                                               of such trust and
                                                                                                               one or more U.S.
                                                                                                               persons have the
                                                                                                               authority to control
                                                                                                               all substantial
                                                                                                               decisions of the
                                                                                                               trust, or (B) the
                                                                                                               trust has a valid
                                                                                                               election in effect
                                                                                                               to be treated as
                                                                                                               a U.S. person.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a partnership, including an entity or arrangement that is
treated as a partnership for U.S. federal income tax purposes, is a beneficial owner of ordinary shares, the treatment of a partner
in the partnership will generally depend on the status of the partner and the activities of the partnership. Holders that are
partnerships holding ordinary shares (and partners in such partnerships) should consult their tax advisors.



Passive Foreign Investment Company Considerations



Based on the price of our ordinary shares during 2011 and the
composition of our assets (in particular, the retention of a large amount of cash), we believe that for our taxable year ended
December 31, 2011, it is likely that we were classified as a PFIC for United States federal income tax purposes, and we will
likely be a PFIC for our current taxable year ending December 31, 2012 unless our share value increases and/or we invest a substantial
amount of the cash we hold in assets that do not produce and are not held for the production of passive income.



This expectation is based, in part, on our estimates of the
fair market value of our assets (including goodwill), in part, as determined by the market price of our ordinary shares during
2012 as reported by The Nasdaq Stock Market. However, the PFIC test is an annual test that, as discussed below, depends upon the
composition of our gross income for the year and the percentage, based on a quarterly average for the year, of our gross assets
that constitutes “passive” assets. Accordingly, it is not possible to determine whether or not we will be classified
as a PFIC for our tax year ending December 31, 2012 until after the year has ended. In addition, even if we are not classified
as a PFIC for our taxable year ending December 31, 2012, because the PFIC test is annual, we cannot assure you that we will not
be a PFIC for any following tax year. Our special U.S. counsel expresses no opinion with respect to our expectations contained
in this paragraph.



A non-U.S. corporation is considered to be a PFIC for any taxable
year if either:



| | · | at least 75%
                                                                                                               of its gross income
                                                                                                               is passive income,
                                                                                                               or;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | at least 50%
                                                                                                               of the value of
                                                                                                               its assets (based
                                                                                                               on an average of
                                                                                                               the quarterly values
                                                                                                               of the assets during
                                                                                                               the taxable year)
                                                                                                               is attributable
                                                                                                               to assets that
                                                                                                               produce or are
                                                                                                               held for the production
                                                                                                               of passive income.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We will be treated as owning our proportionate share of the
gross assets and earning our proportionate share of the gross income of any other corporation in which we own, directly or indirectly,
at least 25% (by value) of the stock. Subject to various exceptions, passive income generally includes dividends, interest, rents,
royalties and gains from the disposition of assets that produce or are held for the production of passive income.



Any year during which we are a PFIC and you hold ordinary shares
or any other equity interest in the Company, you generally will continue to be treated as owning ordinary shares in a PFIC for
all succeeding years during which you hold ordinary shares even if we do not satisfy the PFIC income or assets test for any particular
succeeding taxable year. However, if we cease to satisfy the PFIC income and assets test for a particular succeeding taxable year,
you may be able to avoid some of the adverse effects of the PFIC regime by making a “purging” election with respect
to the ordinary shares.



If we are a PFIC for any taxable year during which you hold
ordinary shares, dividends paid by us to you that year and the following year will not be eligible for the reduced rate of taxation
applicable to non-corporate U.S. Holders, including individuals.  See “— Taxation of Distributions”
below. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the 15% maximum
rate applicable to qualified dividend income. Instead, you must include the gross amount of any such dividend paid by us out of
our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) in your gross income, and
it will be subject to tax at rates applicable to ordinary income.  Additionally, you will be subject to special tax
rules with respect to any “excess distributions” that you receive and any gain you realize from a sale, exchange or
other taxable disposition (including a pledge) of the ordinary shares, unless a “mark-to-market” election is timely
made, as discussed below. Special rules apply for purposes of determining whether a disposition of shares in a PFIC constitutes
a taxable disposition. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions
you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares and any gain
from a sale or other disposition (including certain pledges) will generally be treated as an excess distribution. Under these
special tax rules:



| | · | the excess
                                                                                                               distribution will
                                                                                                               be allocated ratably
                                                                                                               over your holding
                                                                                                               period for the
                                                                                                               ordinary shares,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



68







| | · | the amount
                                                                                                               allocated to the
                                                                                                               current taxable
                                                                                                               year, and any taxable
                                                                                                               year prior to the
                                                                                                               first taxable year
                                                                                                               in your holding
                                                                                                               period in which
                                                                                                               we became a PFIC,
                                                                                                               will be treated
                                                                                                               as ordinary income,
                                                                                                               and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the amount
                                                                                                               allocated to each
                                                                                                               other year will
                                                                                                               be subject to the
                                                                                                               highest applicable
                                                                                                               tax rate in effect
                                                                                                               for that year and
                                                                                                               the interest charge
                                                                                                               generally applicable
                                                                                                               to underpayments
                                                                                                               of tax will be
                                                                                                               imposed on the
                                                                                                               resulting tax attributable
                                                                                                               to each such year.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The tax liability for amounts allocated to years prior to the
year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains
(but not losses) realized on the sale of the ordinary shares cannot be treated as capital gains, even if you hold the ordinary
shares as capital assets.



If we are a PFIC for any taxable year and any of our non-U.S.
subsidiaries is also a PFIC, a U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier
PFIC for purposes of the application of the PFIC rules, and could incur liability for the deferred tax and interest charge pursuant
to the excess distribution rules described above if either (1) we receive a distribution from, or dispose of all or part of our
interest in, the lower-tier PFICs or (2) you dispose of all or part of your ordinary shares. If any of our subsidiaries are or
become PFICs, the mark-to-market election (discussed below) will likely not be available with respect to the shares of such subsidiaries
that are treated as owned by you. Consequently, you could be subject to the PFIC rules with respect to income of the lower-tier
PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments. You should consult your
tax advisors regarding the application of the PFIC rules to any of our subsidiaries.



If the Company is classified as a PFIC, a U.S. Holder may generally
elect out of the treatment described above by making a timely mark-to-market election if our ordinary shares meet certain regular
trading requirements. If you make a valid mark-to-market election for our ordinary shares, you will include in income each year
an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of your taxable year over
your adjusted tax basis in such ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted tax basis
of the ordinary shares over their fair market value as of the close of the taxable year to the extent of any net mark-to-market
gains on the ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market
election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary
loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss
realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed
the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted
to reflect any such income or loss amounts. If you make such a mark-to-market election, tax rules that apply to distributions
by corporations which are not PFICs would apply to distributions by us (except that the lower applicable capital gains rate would
not apply). It should be noted that the special excess distribution regime and other adverse tax consequences described above
applicable to holders that do not make a mark-to-market election may continue to apply on a limited basis if the U.S. Holder makes
the mark-to-market election after such holder’s holding period for the PFIC mark-to-market shares has begun if the foreign
corporation was a PFIC for any taxable year during such holding period prior to the first taxable year for the which the mark-to-market
election is effective.



The mark-to-market election is available only for “marketable
stock” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter
(“regularly traded”) on a qualified exchange or other market, as defined in applicable Treasury regulations. We expect
that the ordinary shares will continue to be listed on the NASDAQ Stock Market, which is a qualified exchange for these purposes,
and, consequently, assuming that the ordinary shares are regularly traded, if you are a holder of ordinary shares, it is expected
that the mark-to-market election would be available to you. However, as noted above, in such a case, if any of our subsidiaries
are or become PFICs, the mark-to-market election will likely not be available with respect to the shares of such subsidiaries
that are treated as owned by you. Consequently, you could be subject to the PFIC rules with respect to income of the lower-tier
PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments. U.S. Holders should consult
their tax advisors on the availability and advisability of a mark-to-market election for taxable years that we are classified
as a PFIC with respect to that holder. U.S Holders should also consult with their tax advisors on the time and manner of making
a mark-to-market election, including, if available, a late mark-to-market election. U.S. Holders should consult their tax advisors
with respect to the special rules that apply if a PFIC for which a mark-to-market election has timely been made ceases to be a
PFIC or if the stock in a PFIC ceases to be marketable stock.



In any year in which we are a PFIC and you hold ordinary shares,
you will be required to file U.S. IRS Form 8621 regarding distributions received on the ordinary shares, any gain realized on
the disposition of the ordinary shares, in order to make a mark-to-market election, and to reflect application of the mark-to-market
regime, if elected. It should be noted that we do not currently intend to prepare or provide the information that would enable
you to make a “qualified electing fund” election in years that we are classified as a PFIC.



69







In addition, under recently enacted U.S. tax legislation and
subject to future guidance, in years that we are a PFIC, U.S. Holders will be required to file an annual information return with
the IRS (also on IRS Form 8621) relating to their ownership of our ordinary shares. Pursuant to Notice 2011-55, the IRS has suspended
this new filing requirement for U.S. Holders that are not otherwise required to file the current version of the IRS Form 8621
until the IRS releases a subsequent revision of IRS Form 8621, modified to reflect the recently enacted legislation. Guidance
has not yet been issued regarding the information required to be included on such form. Prior to filing their annual income tax
returns, U.S. Holders should consult their tax advisors regarding whether additional guidance has been issued with respect to
this reporting requirement, and if so, how to comply with such guidance.



You should consult your tax advisor with respect to the application
of the PFIC rules to your investment in our ordinary shares.



Taxation of Distributions



As described above under “Passive Foreign Investment
Company Considerations,” we believe that we were a PFIC for United States federal income tax purposes for our taxable year
ended December 31, 2011 and may be classified as a PFIC for our taxable year ended December 31, 2012. The following rules are
subject to the special rules applicable to dividends and other distributions from a PFIC described in “Passive Foreign Investment
Company Considerations” above, and will only apply if our Company is not a PFIC and, subject to certain exceptions, has
not been a PFIC for any taxable year included in a U.S. Holder’s holding period for our ordinary shares.



If we make distributions on our ordinary shares, the gross
amount of any such distributions, other than certain pro rata distributions of stock, generally will be treated as dividend income
for U.S. federal income tax purposes if the distributions are made from our current or accumulated earnings and profits, calculated
according to U.S. federal income tax principles. Dividends will be included in a U.S. Holder’s income on the date of such
U.S. Holder’s receipt of the dividend. Corporate U.S. Holders will not be entitled to claim a dividends-received deduction
with respect to distributions paid by us.



If you are a non-corporate U.S. Holder, subject to applicable
limitations (including certain holding period requirements), you may be eligible to be taxed at a maximum rate of 15% in respect
of dividends received in taxable years beginning before January 1, 2013 provided our ordinary shares are readily tradable on The
Nasdaq Stock Market or other established securities market in the United States.  Dividends received by a non-corporate
U.S. Holder in taxable years beginning after December 31, 2012 will be subject to tax at the holder’s regular tax rates
applicable to ordinary income. You should consult your tax advisors to determine whether you are subject to any special rules
that limit your ability to be taxed at this favorable rate.



To the extent, if any, that the amount of any distribution
by us on ordinary shares exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax
principles, it will be treated first as a tax-free return of the U.S. Holder’s adjusted tax basis in its ordinary shares
and thereafter as gain from the sale or exchange of such shares (see “— Taxation of Dispositions” below).  However,
we do not intend to calculate our earnings and profits according to U.S. federal income tax principles.  Accordingly,
distributions on our ordinary shares, if any, will be reported to you as dividend distributions for U.S. income tax purposes.



If we make distributions on the ordinary shares in a foreign
currency, you will generally be required, for purposes of applying the foregoing rules, to translate the foreign currency into
U.S. dollars at the spot rate on the date the distribution is included in income (which is generally the date of receipt), whether
or not you actually convert the foreign currency into U.S. dollars on such date. To the extent you convert such foreign currency
into U.S. dollars at an exchange rate that differs from such spot rate, you may realize foreign currency gain or loss. Any such
foreign currency gain or loss generally will be treated as U.S. source ordinary income or loss. U.S. Holders should consult their
own tax advisors on the U.S. federal income tax issues relating to the receipt and disposition of non-functional currency.



Any dividends that we pay will generally be treated as foreign
source income for foreign tax credit purposes.  In the event that we are deemed to be a Chinese “resident enterprise”
under PRC tax law, you may be subject to PRC withholding taxes on distributions paid to you with respect to the ordinary shares.  Subject
to certain conditions and limitations, a U.S. Holder may be able to claim a foreign tax credit in respect of any such PRC withholding
taxes. Alternatively, a U.S. Holder generally will be entitled to claim a deduction in computing its U.S. federal taxable income.
If a U.S. Holder elects to claim a deduction rather than a foreign tax credit, for a particular taxable year, such election will
apply to all foreign taxes paid by or on behalf of the U.S. Holder in the particular year. The rules governing the foreign tax
credit are complex.  You should consult your tax advisors regarding the availability of the foreign tax credit in light
of your particular circumstances.



70







It should be noted that we do not anticipate paying cash dividends
on our ordinary shares for the foreseeable future.



Taxation of Dispositions



As described above under “Passive Foreign Investment
Company Considerations,” we believe that we were a PFIC for United States federal income tax purposes for our taxable year
ended December 31, 2011 and may be classified as a PFIC for our taxable year ended December 31, 2012. The following rules are
subject to the special rules applicable to dispositions of ordinary shares of a PFIC described in “Passive Foreign Investment
Company Considerations” above, and will only apply if our Company is not a PFIC and, subject to certain exceptions, has
not been a PFIC for any taxable year included in a U.S. Holder’s holding period for our ordinary shares.



Upon a sale, exchange or other taxable disposition of ordinary
shares, a U.S. Holder will generally recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to
the difference between such holder’s adjusted tax basis in the shares sold or disposed of and the amount realized on such
sale, exchange or other taxable disposition.  Such gain or loss will generally be long-term capital gain or loss if
the U.S. Holder has held the shares for more than one year at the time of the sale, exchange or other taxable disposition. Long-term
capital gain of non-corporate U.S. Holders is currently subject to a preferential rate of federal income tax. The ability of corporate
and non-corporate taxpayers to offset ordinary income with capital losses is subject to limitations. Subject to the discussion
in the following paragraph, such gain or loss generally will be U.S. source gain or loss for foreign tax credit purposes.



If we are deemed to be a Chinese “resident enterprise”
under PRC tax law, gains on disposal may be subject to PRC tax.  In that event, a U.S. Holder that is eligible for the
benefits of the income tax treaty between the United States and the PRC may, subject to certain conditions and limitations, be
able to treat such gain as PRC source income and claim a foreign tax credit in respect of any such PRC tax. Alternatively,
a U.S. Holder generally will be entitled to claim a deduction in computing its U.S. federal taxable income. If a U.S. Holder elects
to claim a deduction rather than a foreign tax credit, for a particular taxable year, such election will apply to all foreign
taxes paid by or on behalf of the U.S. Holder in the particular year. The rules governing the foreign tax credit are complex.
You should consult your tax advisors regarding the tax consequences if a foreign tax is imposed on gain on a sale, exchange or
other taxable disposition of the ordinary shares, including the availability of the foreign tax credit in light of your particular
circumstances.



Information Reporting and Backup Withholding



Payment of dividends and sales proceeds that are made within
the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and
to backup withholding unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding,
the U.S. Holder provides a correct taxpayer identification number and certifies that backup withholding does not apply.



Backup withholding is not an additional tax.  The
amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S.
federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished
to the IRS.



New Legislation Regarding Medicare Tax



For taxable years beginning after December 31, 2012, certain
U.S. Holders that are individuals, estates or trusts will be subject to a 3.8% tax on all or a portion of their "net investment
income," which may include all or a portion of their dividends and net gains from the sale or other disposition of ordinary
shares. If you are a U.S. Holder that is an individual, estate or trust, you should consult your tax advisors regarding the applicability
of the Medicare tax to your income and gains in respect of your investment in our ordinary shares.



Information with Respect to
Foreign Financial Assets



Individuals (or, to the extent provided in future guidance,
a domestic entity) who own “specified foreign financial assets” with an aggregate value in excess of $50,000 are required
to file an information report with respect to such assets with their tax returns on IRS Form 8938. “Specified foreign financial
assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but
only if they are not held in accounts maintained byfinancial institutions: (i) stocks and
securities issued by non-U.S. persons (such as our Company), (ii) financial instruments and contracts held for investment that
have non-U.S. issuers or counterparties and (iii) interests in foreign entities. U.S. Holders that are individuals are urged to
consult their tax advisors regarding the application of this reporting requirement to their ownership of ordinary shares.



71







| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by Experts
| | -- | --------------------



Not applicable.



| | H. | Documents on Display
| | -- | --------------------



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



We are subject to the informational requirements of the Exchange
Act as a foreign private issuer and file reports and other information with the SEC.  Reports and other information
filed by us with the SEC, including this Annual Report on Form 20-F, may be inspected and copied at the public reference room
of the SEC at 100 F Street, N.E., Washington D.C. 20549.  You can also obtain copies of this Annual Report on Form 20-F
by mail from the Public Reference Section of the SEC, 100 F. Street, N.E., Washington D.C. 20549, at prescribed rates.  Additionally,
copies of this material may be obtained from the SEC’s Internet site at http://www.sec.gov.  The SEC’s
telephone number is 1-800-SEC-0330.



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



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



Not applicable.



| | ITEM 11. | Quantitative and Qualitative
                                                                                                        Disclosures About Market
                                                                                                        Risk
| | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Interest Rate Risk



We are exposed to interest rate risk primarily with respect
to our short-term bank loans.  Although the interest rates, which are based on the banks’ prime rates with respect
to our short-term loans are fixed for the terms of the loans, the terms are typically three to twelve months for short-term bank
loans and interest rates are subject to change upon renewal.  There were no material changes in interest rates for short-term
bank loans renewed during the fiscal year ended December 31, 2011.



A hypothetical 1.0% increase in the annual interest rates for
all of our credit facilities under which we had outstanding borrowings as of December 31, 2011, would decrease net income before
provision for income taxes by approximately $0.4 million for the fiscal year ended December 31, 2011.  Management monitors
the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative
to other sources of funds.  We have not entered into any hedging transactions in an effort to reduce our exposure to
interest rate risk.



Foreign Exchange Risk



While our reporting currency is the U.S. Dollar, substantially
all of our consolidated revenues and consolidated costs and expenses are denominated in RMB.  All of our assets are
denominated in RMB except for cash.  As a result, we are exposed to foreign exchange risk as our revenues and results
of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB.  If the RMB depreciates
against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. Dollar financial statements
will decline.  Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses
are translated at the average exchange rates and shareholders’ equity is translated at historical exchange rates.  Any
resulting translation adjustments are not included in determining net income but are included in determining other comprehensive
income, a component of shareholders’ equity.  An average appreciation (depreciation) of the RMB against the U.S.
dollar of 5% would increase (decrease) our comprehensive income by $3.4 million based on our outstanding revenues, costs and expenses,
assets, and liabilities denominated in RMB as of December 31, 2011.  We have not entered into any hedging transactions
in an effort to reduce our exposure to foreign exchange risk.



72







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



Inflation



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



| | ITEM 12. | Description of Securities
                                                                                                        Other Than Equity Securities
| | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Debt Securities



Not applicable.



Warrants and Rights



Not applicable.



Other Securities



Not applicable.



American Depositary Shares



We do not have any American Depositary Shares.



PART II



| | ITEM 13. | Defaults, Dividend
                                                                                                        Arrearages and DELINQUENCIES
| | -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------



None.



| | ITEM 14. | Material Modifications
                                                                                                        ot the Rights of Securities
                                                                                                        HOlders and Use of Proceeds
| | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



None.



| | ITEM 15. | Controls and Procedures
| | -------- | -----------------------



Disclosure Controls and Procedures



We maintain disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed
in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer
and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.



73







As required by Rule 13a-15 under the Exchange Act, our management,
including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of December 31, 2011.  Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that as of December 31, 2011, our disclosure controls and procedures were effective.



Management’s Annual Report on
Internal Control Over Financial Reporting



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



| | · | Pertain to
                                                                                                               the maintenance
                                                                                                               of records that
                                                                                                               in reasonable detail
                                                                                                               accurately and
                                                                                                               fairly reflect
                                                                                                               the transactions
                                                                                                               and dispositions
                                                                                                               of the assets of
                                                                                                               the Company;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Provide reasonable
                                                                                                               assurance that
                                                                                                               transactions are
                                                                                                               recorded as necessary
                                                                                                               to permit preparation
                                                                                                               of financial statements
                                                                                                               in accordance with
                                                                                                               U.S. GAAP, and
                                                                                                               that our receipts
                                                                                                               and expenditures
                                                                                                               are being made
                                                                                                               only in accordance
                                                                                                               with authorizations
                                                                                                               of our management
                                                                                                               and directors;
                                                                                                               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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2011. In making this assessment, management used the framework set forth in the report
entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission,
or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the
control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based
on our assessment we determined that, as of December 31, 2011, our internal control over financial reporting is effective based
on those criteria.



Attestation Report of the
Independent Registered Public Accounting Firm



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



We have audited China Gerui Advanced Materials Group Limited’s
and its subsidiaries’ (collectively the “Company”) internal control over financial reporting as of December
31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting, appearing in Item 15. Our responsibility is to
express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.



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



74







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



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



In our opinion, China Gerui Advanced Materials Group Limited
and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December
31, 2011, based on the criteria established in internal control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).



We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2011 and 2010,
and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows of China Gerui
Advanced Materials Group Limited and its subsidiaries and our report dated May 4, 2012 expressed an unqualified opinion.



/s/ UHY VOCATION
HK CPA LIMITED

UHY VOCATION HK CPA LIMITED

Certified Public Accountants

Hong Kong, the People’s Republic of China,

May 4, 2012



Changes in Internal Control Over Financial
Reporting



There have been no changes in our internal control over financial
reporting during the fiscal year ended December 31, 2011 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



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



| | ITEM 16A. | Audit Committee Financial Expert
| | --------- | --------------------------------



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



| | ITEM 16B. | Code of Ethics
| | --------- | --------------



On July 10, 2009, our Board of Directors adopted a code of
ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial
officer, and principal accounting officer or controller, or persons performing similar functions.  The code of ethics
addresses, among other things, ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including
disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations
of the code.  A copy of the code of ethics has been attached as Exhibit 14.1 to our Annual Report on Form 20-F, filed
with the SEC on July 15, 2009.  We have also posted our code of ethics on our Internet website at http://www.geruigroup.com/Code%20of%20Ethics.html.



75







| | ITEM 16C. | Principal Accountant Fees and Services
| | --------- | --------------------------------------



The following table sets forth the aggregate fees within the
categories specified below in connection with services rendered by UHY Vocation HK CPA Limited, our independent registered public
accounting firm, for the periods indicated.



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



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



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



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



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



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



| | ITEM 16D. | Exemptions for the Listing Standards for Audit Committees
| | --------- | ---------------------------------------------------------



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



| | ITEM 16E. | Purchases of Equity Securities by the Issuer and
                                                                      Affiliated Purchasers
| | --------- | --------------------------------------------------------------------------------------------------------------------------------------------

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



|Period                                 |  | Total
                                                                                      Number of
                                                                                                                                                                                                     Shares Purchased(1) |         |  | Average Price Paid
    Per Share |   |      | Total Number of Shares
    Purchased as Part of Publicly Announced Plans or Programs |  |  | Maximum Number (or
    Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | 
|-------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------- |  | -------------------------------- | - | ---- | ------------------------------------------------------------------------------------ |  |  | ---------------------------------------------------------------------------------------------------------------- | 
|January 1, 2011 – January 31, 2011     |  |                                                                                                                                                                                                                                                                                                                                | -       |  |                                  |   | -    |                                                                                      |  |  | -                                                                                                                | 
|February 1, 2011 – February 28, 2011   |  |                                                                                                                                                                                                                                                                                                                                | -       |  |                                  |   | -    |                                                                                      |  |  | -                                                                                                                | 
|March 1, 2011 – March 31, 2011         |  |                                                                                                                                                                                                                                                                                                                                | -       |  |                                  |   | -    |                                                                                      |  |  | -                                                                                                                | 
|April 1, 2011 – April 30, 2011         |  |                                                                                                                                                                                                                                                                                                                                | -       |  |                                  |   | -    |                                                                                      |  |  | -                                                                                                                | 
|May 1, 2011 – May 31, 2011             |  |                                                                                                                                                                                                                                                                                                                                | 309,490 |  |                                  | $ | 4.60 |                                                                                      |  |  | 309,490                                                                                                          | 
|June 1, 2011 – June 30, 2011           |  |                                                                                                                                                                                                                                                                                                                                | 470,783 |  |                                  | $ | 3.31 |                                                                                      |  |  | 470,783                                                                                                          | 
|July 1, 2011 – July 31, 2011           |  |                                                                                                                                                                                                                                                                                                                                | 183,070 |  |                                  | $ | 4.03 |                                                                                      |  |  | 183,070                                                                                                          | 
|August 1, 2011 – August 31, 2011       |  |                                                                                                                                                                                                                                                                                                                                | 117,280 |  |                                  | $ | 3.80 |                                                                                      |  |  | 117,280                                                                                                          | 
|September 1, 2011 – September 30, 2011 |  |                                                                                                                                                                                                                                                                                                                                | 42,129  |  |                                  | $ | 3.69 |                                                                                      |  |  | 42,129                                                                                                           | 
|October 1, 2011 – October 31, 2011     |  |                                                                                                                                                                                                                                                                                                                                | -       |  |                                  |   | -    |                                                                                      |  |  | -                                                                                                                | 
|November 1, 2011 – November 30, 2011   |  |                                                                                                                                                                                                                                                                                                                                | -       |  |                                  |   | -    |                                                                                      |  |  | -                                                                                                                | 
|December 1, 2011 – December 31, 2011   |  |                                                                                                                                                                                                                                                                                                                                | 54,146  |  |                                  | $ | 3.64 |                                                                                      |  |  | 54,146                                                                                                           | 



76







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



| | ITEM 16F. | Change in Registrant’s Certifying Accountant
| | --------- | --------------------------------------------



None.



| | ITEM 16G. | Corporate Governance
| | --------- | --------------------



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



| | ITEM 16H. | Mine Safety Disclosure
| | --------- | ----------------------



Not applicable.



PART III



| | ITEM 17. | Financial Statements
| | -------- | --------------------



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



| | ITEM 18. | Financial Statements
| | -------- | --------------------



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



| | ITEM 19. | Exhibits
| | -------- | --------



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





77







SIGNATURE



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



|Date: May 7, 2012 | CHINA GERUI ADVANCED MATERIALS
        GROUP LIMITED
|----------------- | ----------------------------------------------------
|                  |                                                     
|                  | /s/ Mingwang Lu                                     
|                  | Mingwang Lu                                         
|                  | Chief Executive Officer                             



78







CHINA GERUI ADVANCED MATERIALS
GROUP LIMITED



CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER
31, 2011, 2010 AND 2009











CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009



|CONTENTS                                                   |  | Pages     
|---------------------------------------------------------- |  | ----------
|                                                           |  |           
|Report of Independent Registered Public Accounting Firm    |  | F-1       
|                                                           |  |           
|Consolidated Balance Sheets                                |  | F-2       
|                                                           |  |           
|Consolidated Statements of Income                          |  | F-3       
|                                                           |  |           
|Consolidated Statements of Comprehensive Income            |  | F-4       
|                                                           |  |           
|Consolidated Statements of Changes in Stockholders’ Equity |  | F-5       
|                                                           |  |           
|Consolidated Statements of Cash Flows                      |  | F-6 - F-7 
|                                                           |  |           
|Notes to the Consolidated Financial Statements             |  | F-8 - F-40











REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM



TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF

CHINA GERUI ADVANCED MATERIALS GROUP
LIMITED



We have audited the accompanying
consolidated balance sheets of China Gerui Advance Materials Group Limited. and its subsidiaries (collectively the
“Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income and comprehensive
income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011.
The Company’s management is responsible for these financial statements. 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 Accounting Oversight 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. 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 financial statements
referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31,
2011 and 2010, and the results of its consolidated income and its cash flows for each of the years in the three-year period ended
December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.





We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 4, 2012, expressed an unqualified opinion.



/s/ UHY VOCATIONHK CPA LIMITED

UHY VOCATION HK CPA LIMITED

Certified Public Accountants



Hong Kong, the People’s Republic
of China,

May 4, 2012.





F-1











CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)



|                                                                                                                                                                                                                 |  | December 31, 2011 |             |   | December 31, 2010 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|Assets                                                                                                                                                                                                           |  |                   |             |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Current assets                                                                                                                                                                                                   |  |                   |             |   |                   |  
|Cash                                                                                                                                                                                                             |  | $                 | 246,600,917 |   |                   | $
|Restricted cash                                                                                                                                                                                                  |  |                   | 118,130,253 |   |                   |  
|Accounts receivable, net                                                                                                                                                                                         |  |                   | 6,382,630   |   |                   |  
|Notes receivable                                                                                                                                                                                                 |  |                   | 568,328     |   |                   |  
|Inventories                                                                                                                                                                                                      |  |                   | 24,463,142  |   |                   |  
|Prepaid purchases                                                                                                                                                                                                |  |                   | 45,805,423  |   |                   |  
|Prepaid expenses and other deposits                                                                                                                                                                              |  |                   | 385,131     |   |                   |  
|Other receivables                                                                                                                                                                                                |  |                   | 2,850,601   |   |                   |  
|Total current assets                                                                                                                                                                                             |  |                   | 445,186,425 |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Non-current assets                                                                                                                                                                                               |  |                   |             |   |                   |  
|Property, plant and equipment, net                                                                                                                                                                               |  |                   | 122,695,246 |   |                   |  
|Land use right, net                                                                                                                                                                                              |  |                   | 13,807,056  |   |                   |  
|Deposit on acquisition of future land use right                                                                                                                                                                  |  |                   | 12,710,719  |   |                   |  
|Other receivable                                                                                                                                                                                                 |  |                   | 3,499,083   |   |                   |  
|Certificates of deposit                                                                                                                                                                                          |  |                   | 3,177,679   |   |                   |  
|Total non-current assets                                                                                                                                                                                         |  |                   | 155,889,783 |   |                   |  
|Total assets                                                                                                                                                                                                     |  | $                 | 601,076,208 |   |                   | $
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Liabilities and stockholders' equity                                                                                                                                                                             |  |                   |             |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Current Liabilities                                                                                                                                                                                              |  |                   |             |   |                   |  
|Accounts payable                                                                                                                                                                                                 |  | $                 | 8,074,432   |   |                   | $
|Notes payable                                                                                                                                                                                                    |  |                   | 204,880,916 |   |                   |  
|Term loans                                                                                                                                                                                                       |  |                   | 44,169,751  |   |                   |  
|Land use right payable                                                                                                                                                                                           |  |                   | 1,404,926   |   |                   |  
|Income tax payable                                                                                                                                                                                               |  |                   | 5,458,482   |   |                   |  
|Customers deposits                                                                                                                                                                                               |  |                   | 23,383,849  |   |                   |  
|Accrued liabilities and other payables                                                                                                                                                                           |  |                   | 15,276,016  |   |                   |  
|Total current liabilities                                                                                                                                                                                        |  |                   | 302,648,372 |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Total liabilities                                                                                                                                                                                                |  |                   | 302,648,372 |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Stockholders' equity                                                                                                                                                                                             |  |                   |             |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Common stock,                                                                                                                                                                                                    |  |                   |             |   |                   |  
|Common stock, 100,000,000 shares authorized with no par value; 59,428,578 and 46,139,053 shares issued, 58,251,680 and 46,139,053 shares outstanding as of December 31, 2011 and December 31, 2010, respectively |  |                   | 140,418,118 |   |                   |  
|Additional paid-in capital                                                                                                                                                                                       |  |                   | 6,930,944   |   |                   |  
|Treasury stock, at cost, 1,176,898 shares, as of December 31, 2011, none as of December 31, 2010                                                                                                                 |  |                   | (4,516,744  | ) |                   |  
|Retained earnings                                                                                                                                                                                                |  |                   | 137,142,958 |   |                   |  
|Accumulated comprehensive income                                                                                                                                                                                 |  |                   | 18,452,560  |   |                   |  
|Total stockholders' equity                                                                                                                                                                                       |  |                   | 298,427,836 |   |                   |  
|                                                                                                                                                                                                                 |  |                   |             |   |                   |  
|Total liabilities and stockholders' equity                                                                                                                                                                       |  | $                 | 601,076,208 |   |                   | $



See notes to financial statements.



F-2







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED STATEMENTS OF INCOME

(IN US DOLLARS)



|                                           |  | For the Year Ended |             
|------------------------------------------ |  | ------------------ | ------------
|                                           |  | December 31,       |             
|                                           |  | 2011               |             
|                                           |  |                    |             
|Revenue                                    |  | $                  | 341,778,295 
|                                           |  |                    |             
|Cost of revenue                            |  |                    | (240,199,678
|                                           |  |                    |             
|Gross Profit                               |  |                    | 101,578,617 
|                                           |  |                    |             
|Operating expenses:                        |  |                    |             
|General and administrative expenses        |  |                    | (10,707,418 
|Selling and marketing expenses             |  |                    | (1,634,232  
|Warrant compensation expenses              |  |                    | (5,700,000  
|Total operating expenses                   |  |                    | (18,041,650 
|                                           |  |                    |             
|Operating income                           |  |                    | 83,536,967  
|                                           |  |                    |             
|Other income and (expense):                |  |                    |             
|Interest income                            |  |                    | 1,913,091   
|Interest expenses                          |  |                    | (6,470,126  
|Sundry income                              |  |                    | 602,247     
|                                           |  |                    |             
|Income before income taxes                 |  |                    | 79,582,179  
|                                           |  |                    |             
|Income tax expense                         |  |                    | (21,961,627 
|                                           |  |                    |             
|Net income                                 |  |                    | 57,620,552  
|                                           |  |                    |             
|Earnings per share                         |  |                    |             
|- Basic                                    |  | $                  | 1.02        
|                                           |  |                    |             
|- Diluted                                  |  | $                  | 1.02        
|                                           |  |                    |             
|Weighted average common shares outstanding |  |                    |             
|- Basic                                    |  |                    | 56,297,652  
|                                           |  |                    |             
|- Diluted                                  |  |                    | 56,297,652  



See notes to financial statements.



F-3







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN US DOLLARS)



|                                  |  | For the Year Ended |           
|--------------------------------- |  | ------------------ | ----------
|                                  |  | December 31,       |           
|                                  |  | 2011               |           
|                                  |  |                    |           
|Net income                        |  | $                  | 57,620,552
|                                  |  |                    |           
|Other comprehensive income        |  |                    |           
|Foreign currency translation gain |  |                    | 11,038,151
|Total comprehensive income        |  | $                  | 68,658,703



See notes to financial statements.



F-4







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND
2009

(IN US DOLLARS)



|                                                                                                |  | Common Stock, with
    no Par Value |            |   | Treasury
                                                                                                                                                                                                                           Stock,
                                                                                                                                                                                                                           at
                                                                                                                                                                                                                           cost |   |             | Additional |  |  |            |   |  | Accumulated |            |   |              |   |           |               | 
|----------------------------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ---------- |  |  | ---------- | - |  | ----------- | ---------- | - | ------------ | - | --------- | ------------- | 
|                                                                                                |  | Number of                           |            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |             | Number of  |  |  |            |   |  | Paid-in     |            |   | Subscription |   |           | Comprehensive | 
|                                                                                                |  | Shares                              |            |   | Amount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |             | Shares     |  |  | Amount     |   |  | Capital     |            |   | receivable   |   |           | Income        | 
|Balance, December 31, 2008                                                                      |  |                                     | 30,000,000 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 300         |            |  |  | -          |   |  | $           | -          |   |              | $ | 6,930,944 |               | 
|Net income                                                                                      |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Foreign currency translation gain                                                               |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Subscription receivable settlement                                                              |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Issuance of shares in
    connection  with recapitalization                                     |  |                                     | 2,245,723  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 1,955,386   |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Issuance of shares in
    connection with earn-out share agreement  accounted for as a dividend |  |                                     | 2,850,000  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 18,525,000  |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Issuance of shares for
    offering net of expenses amounting to $2,914,056)                    |  |                                     | 4,800,000  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 21,085,944  |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Issuance of over allotment
    shares (net of expenses amounting to $288,000)                   |  |                                     | 720,000    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 3,312,000   |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Shares issuance for warrant conversion                                                          |  |                                     | 76,600     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 383,000     |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Balance at December 31, 2009                                                                    |  |                                     | 40,692,323 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 45,261,630  |            |  |  | -          |   |  | $           | -          |   |              | $ | 6,930,944 |               | 
|Net income                                                                                      |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Foreign currency translation gain                                                               |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Shares issued for warrant conversion                                                            |  |                                     | 2,142,959  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 10,714,795  |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Shares
    issued in private placement  net of offering fees of $863,676                        |  |                                     | 3,303,771  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 17,967,818  |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Balance at December 31, 2010                                                                    |  |                                     | 46,139,053 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 73,944,243  |            |  |  | -          |   |  | $           | -          |   |              | $ | 6,930,944 |               | 
|Net income                                                                                      |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Foreign currency translation gain                                                               |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Shares issued for warrant conversion                                                            |  |                                     | 13,294,775 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 66,473,875  |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Adjustment from separation and creation of units                                                |  |                                     | (5,250     | ) |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | -          |   |  |             | -          |   |              |   | -         |               | 
|Purchase of treasury stock                                                                      |  |                                     | -          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | -           |            |  |  | (1,176,898 | ) |  |             | (4,516,744 | ) |              |   | -         |               | 
|Balance at December 31, 2011                                                                    |  |                                     | 59,428,578 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 140,418,118 |            |  |  | (1,176,898 | ) |  | $           | (4,516,744 | ) |              | $ | 6,930,944 |               | 





See notes to financial statements.



F-5







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS



(IN US DOLLARS)



|                                                                                  |  | For the year ended December 31 |             
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------------
|                                                                                  |  | 2011                           |             
|                                                                                  |  |                                |             
|Cash flows from operating activities:                                             |  |                                |             
|                                                                                  |  |                                |             
|Net income                                                                        |  | $                              | 57,620,552  
|                                                                                  |  |                                |             
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |             
|Depreciation of property, plant and equipment                                     |  |                                | 7,994,638   
|Loss on disposal of property, plant and equipment                                 |  |                                | 12,726      
|Warrant compensation expense                                                      |  |                                | 5,700,000   
|Amortization of land use right                                                    |  |                                | 322,638     
|                                                                                  |  |                                |             
|Changes in assets and liabilities:                                                |  |                                |             
|Accounts receivable, net                                                          |  |                                | (2,046,819  
|Notes receivable, net                                                             |  |                                | (554,789    
|Inventories                                                                       |  |                                | (16,712,453 
|Prepaid expenses and other deposits                                               |  |                                | 621,611     
|Prepaid purchases                                                                 |  |                                | (16,284,440 
|Other receivables                                                                 |  |                                | (697,676    
|Accounts payable                                                                  |  |                                | 5,168,689   
|Income tax payable                                                                |  |                                | 1,078,582   
|Customers deposit                                                                 |  |                                | 12,911,217  
|Accrued liabilities and other payables                                            |  |                                | 1,113,651   
|Net cash provided by operating activities                                         |  |                                | 56,248,127  
|                                                                                  |  |                                |             
|Cash flows from investing activities:                                             |  |                                |             
|Cash paid for property, plant and equipment                                       |  |                                | (29,816,858 
|Proceeds from disposal of property, plant and equipment                           |  |                                | 9,655       
|Payment of purchases of land use right                                            |  |                                | (9,073,284  
|Payment of acquisition of future land use right                                   |  |                                | (10,213,261 
|Cash deposit – potential business initiative program – related party              |  |                                | (5,000,000  
|                                                                                  |  |                                |             
|Cash deposit refunded – related party                                             |  |                                | 5,000,000   
|Advance to unrelated third party                                                  |  |                                | (3,415,724  
|                                                                                  |  |                                |             
|Investment in certificates of deposit                                             |  |                                | (3,101,978  
|Changes in restricted cash                                                        |  |                                | (47,212,098 
|Changes in prepaid machinery deposits                                             |  |                                | -           
|Net cash used in investing activities                                             |  |                                | (102,823,548



F-6







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS)



|                                                                       |  | For the year ended December 31 |            
|---------------------------------------------------------------------- |  | ------------------------------ | -----------
|                                                                       |  | 2011                           |            
|Cash flows from financing activities:                                  |  |                                |            
|Repayment of term loans                                                |  |                                | (45,831,718
|Proceeds from term loans                                               |  |                                | 43,815,432 
|Proceeds from notes payable, net                                       |  |                                | 111,733,230
|Proceeds received from common stock issued and warrant conversion, net |  |                                | -          
|Proceeds received from exercise of warrants                            |  |                                | 66,473,875 
|Warrant compensation expense                                           |  |                                | (5,700,000 
|Purchase of treasury stock                                             |  |                                | (4,516,744 
|Repayment of subscription receivable                                   |  |                                | -          
|Land use right payable                                                 |  |                                | -          
|Due to former minority shareholders                                    |  |                                | -          
|Dividends paid                                                         |  |                                | -          
|Net cash provided by financing activities                              |  |                                | 165,974,075
|                                                                       |  |                                |            
|Net increase in cash                                                   |  |                                | 119,398,654
|                                                                       |  |                                |            
|Effect on change of exchange rates                                     |  |                                | 7,724,965  
|                                                                       |  |                                |            
|Cash as of January 1                                                   |  |                                | 119,477,298
|                                                                       |  |                                |            
|Cash as of December 31                                                 |  | $                              | 246,600,917
|                                                                       |  |                                |            
|Supplemental disclosures of cash flow information:                     |  |                                |            
|                                                                       |  |                                |            
|Cash paid during the year for:                                         |  |                                |            
|Interest paid                                                          |  | $                              | 6,254,304  
|Income tax paid                                                        |  | $                              | 20,883,046 
|                                                                       |  |                                |            
|Non-cash paid during the year for:                                     |  |                                |            
|Dividend paid                                                          |  | $                              | -          



See notes to financial statements.



F-7







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)





| | 1. | DESCRIPTION OF BUSINESS AND ORGANIZATION
| | -- | ----------------------------------------



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



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







F-8









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)





| | 2. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | --------------------------------------------------------------------



| | (a) | Basis of presentation
| | --- | ---------------------



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



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



| | (b) | Foreign currency translation
| | --- | ----------------------------



The Group uses United States
dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The Company maintains
its books and records in its functional currency, U.S. dollars. Each of the Company's subsidiaries, Wealth Rainbow and Henan Green,
maintains its books and records in its respective functional currency, Hong Kong dollars (“HK$”) and Chinese Renminbi
(“RMB”), being the lawful currency in Hong Kong and the PRC, respectively.



Assets and liabilities of foreign
operation are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the
average rate of exchange prevailing during the year. The year-end rates for December 31, 2011, 2010 and 2009 of Renminbi to one
US dollar were 6.2939, 6.6000 and 6.8270 respectively; average rates for the year-end December 31, 2011, 2010 and 2009 were 6.4475,
6.7604 and 6.8303 respectively. The related translation adjustments are reflected in "Accumulated comprehensive income"
in the stockholder's equity section of the balance sheet. As of December 31, 2011, 2010 and 2009, the accumulated foreign currency
translation gain was $18,452,560, $7,414,409 and $2,411,301 respectively. Foreign currency gains and losses resulting from transactions
are included in earnings.



The year-end rates for December
31, 2011, 2010 and 2009 of Hong Kong dollar to one US dollar were 7.7663, 7.7810 and 7.7543 respectively; average rates for the
year-end December 31, 2011, 2010 and 2009 were 7.7793, 7.7700 and 7.7515 respectively.



| | (c) | Cash
| | --- | ----



Cash represents cash in banks
and cash on hand.



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



F-9









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (d) | Accounts receivable
| | --- | -------------------



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



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



| | (e) | Notes receivable
| | --- | ----------------



As of December 31, 2011, the
Company received $568,328 in notes receivable in full payment of outstanding accounts receivable. The notes vary in maturity from
six months to one year. All notes are non-interest bearing. In management's opinion, the remaining balance is fully collectible.



| | (f) | Inventories
| | --- | -----------



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



F-10









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (g) | Property, plant and equipment
| | --- | -----------------------------



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



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



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



The estimated useful lives of
the assets are as follows:



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



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



| | (h) | Land use right
| | --- | --------------



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



F-11









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (i) | Impairment of long-lived assets
| | --- | -------------------------------



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



China
Gerui has one and only operating entity, i.e., Henan Green, whose sole business is high-end cold-rolled steel processing. 
The company produces products by utilizing its facilities and equipment at one location in Zhengzhou, Henan Province, China.  The
company offers chromium-plating as value-add service to its customers but chromium-plating is an integral part of the whole production
process of the Company rather than a stand-alone service.  As a result, the Group determined that the impairment review is
appropriately evaluated at the entity level.  Based on the Group’s assessment, no impairment was recognized as of December
31, 2011 and 2010.



| | (j) | Fair value measurements
| | --- | -----------------------



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



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



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



F-12









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (j) | Fair value measurements (.../Cont’d)
| | --- | ----------------------------------



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



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



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



| | (k) | Revenue recognition
| | --- | -------------------



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



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



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



F-13









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



(l)	Income
taxes



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



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



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



The Group recognizes interest
and penalty related to income tax matters as income tax expense. As of December 31, 2011 and 2010, there was no penalty or interest
recognized as income tax expenses.



| | (m) | Commitments and contingencies
| | --- | -----------------------------



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



F-14









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (n) | Earnings per share
| | --- | ------------------



Basic earnings per share are
computed on the basis of the weighted-average number of shares of our common stock outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted-average number of shares of our common stock plus the effect of dilutive potential
common shares outstanding during the period using the treasury method. As of December 31, 2011, the Company had a total of 144,000
warrants outstanding which were granted to its underwriter during November 2009 in connection with the sale of 4,800,000 ordinary
shares. The warrants may be exercised on or after August 9, 2010 and until November 9, 2014. As of December 31, 2011, all such
warrants are deemed to be anti-dilutive since their exercise price is higher than the fair value the Company's common stock.



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



|                                                                |  | For the Year ended |           
|--------------------------------------------------------------- |  | ------------------ | ----------
|                                                                |  | 2011               |           
|                                                                |  |                    |           
|Net income                                                      |  | $                  | 57,620,552
|                                                                |  |                    |           
|Weighted average outstanding shares of common stock             |  |                    | 56,297,652
|Dilutive effect of Warrants                                     |  |                    | -         
|Dilutive effect of Unit Purchase Option granted to underwriters |  |                    | -         
|Diluted weighted average outstanding shares                     |  |                    | 56,297,652
|                                                                |  |                    |           
|Earnings per common stock:                                      |  |                    |           
|Basic                                                           |  | $                  | 1.02      
|Diluted                                                         |  | $                  | 1.02      





F-15

















CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (o) | Segment information
| | --- | -------------------



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



| | (p) | Economic and political risks
| | --- | ----------------------------



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



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



| | (q) | Recently issued accounting standards not yet adopted
| | --- | ----------------------------------------------------



We describe below recent pronouncements
that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not
anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.



In September 2011, the Financial
Accounting Standards Board ("FASB") amended Accounting Standards Codification ("ASC") 350, "Intangibles—Goodwill
and Other". Under the amendment, an entity may assess qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount, including goodwill. If determined to be necessary, the
two-step impairment test shall be used to identify potential goodwill impairment and measure the amount of a goodwill impairment
loss to be recognized, if any. The amendment is effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. The adoption of this amendment will not have a material impact on the Company's consolidated
financial statements.



F-16









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



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



| | (r) | Recently issued accounting standards not yet adopted (.../Cont’d)
| | --- | ---------------------------------------------------------------



In June 2011, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2011-05, “Comprehensive Income
(Topic 220).” This newly issued accounting standard (1) eliminates the option to present the components of other comprehensive
income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement
of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of
the financial statements from other comprehensive income to net income. The amendments’ in this ASU do not change the items
that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income
not do the amendments affect how earnings per share is calculated or presented. This ASU applied retrospectively and is effective
for fiscal years and interim periods within years beginning after December 15, 2011, which for the Group means January 1, 2012.
As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Group’s
financial position or results of operations.



In May 2011, the FASB amended
ASC 820, "Fair Value Measurement." This amendment is intended to result in convergence between U.S. GAAP and International
Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. This guidance
clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for
fair value measurements and disclosures. The amendment is effective for interim and annual periods beginning after December 15,
2011. The adoption of this amendment will not have a material impact on the Company's consolidated financial statements.



| | (s) | Reclassifications
| | --- | -----------------



Certain reclassifications have been made to the
financial statement presentations as of December 31, 2010 and for the year ended to correspond to the current year’s format.
Total equity and net income are unchanged due to these reclassifications.



F-17







CHINA GERUI ADVANCED
MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)





| | 3. | CASH
| | -- | ----



Cash represents cash in bank and cash on hand. Cash
as of December 31, 2011 and 2010 consists of the following:



|                             |  | 2011 |              |   | 2010 |  
|---------------------------- |  | ---- | ------------ | - | ---- | -
|                             |  |      |              |   |      |  
|Bank balances and cash (a)   |  | $    | 364,731,170  |   |      | $
|Less: Restricted cash (b)    |  |      | (118,130,253 | ) |      |  
|                             |  | $    | 246,600,917  |   |      | $
|Non-current portion          |  |      |              |   |      |  
|Certificates of deposit (c ) |  | $    | 3,177,679    |   |      | $



| | (a) | Bank balances and cash
| | --- | ----------------------



Unrestricted cash as of December
31, 2011 and 2010 was $246,600,917 and $119,477,298, respectively. As of December 31, 2011 and 2010, unrestricted cash of $234,778,502
and $113,719,383 was held respectively, in Renminbi on deposit with banks located in the PRC. Renminbi is not a freely convertible
currency and the remittance of funds out of the PRC is subject to the exchange restrictions imposed by the PRC government.



| | (b) | Restricted cash
| | --- | ---------------



As of December 31, 2011 and
2010 the Group's cash amounting to $118,130,253 and $66,530,303 respectively, were restricted and deposited in certain banks as
security for notes payable to the banks.



| | (c) | Certificates of deposit
| | --- | -----------------------



As of December 31, 2011, the
Certificates of deposit were held in Renminbi on deposit with bank located in the PRC. The annual interest rate is 5%. The Certificates
of deposit matures on December 12, 2014.



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



|               |  | Bank balances |             |  |                 |   |             | Certificates of |  |   |           | 
|-------------- |  | ------------- | ----------- |  | --------------- | - | ----------- | --------------- |  | - | --------- | 
|               |  | and cash      |             |  | Restricted Cash |   |             | deposit         |  |   | 2011      | 
|               |  |               |             |  |                 |   |             |                 |  |   |           | 
|Hong Kong      |  | $             | 8,339,234   |  |                 | $ | -           |                 |  | $ | -         | 
|United States  |  |               | 3,483,181   |  |                 |   | -           |                 |  |   | -         | 
|Mainland China |  |               | 234,778,502 |  |                 |   | 118,130,253 |                 |  |   | 3,177,679 | 
|               |  | $             | 246,600,917 |  |                 | $ | 118,130,253 |                 |  | $ | 3,177,679 | 



F-18









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)





| | 3. | CASH (.../Cont’d)
| | -- | ---------------



As of December 31, 2010, cash
is classified by geographical areas is set out as follows:



|              |  | Bank balances and |             |  |                 |   |            | Certificates of |  |   |      | 
|------------- |  | ----------------- | ----------- |  | --------------- | - | ---------- | --------------- |  | - | ---- | 
|              |  | cash              |             |  | Restricted Cash |   |            | deposit         |  |   | 2010 | 
|              |  |                   |             |  |                 |   |            |                 |  |   |      | 
|Hong Kong     |  | $                 | 5,757,915   |  |                 | $ | -          |                 |  | $ | -    | 
|United States |  |                   | -           |  |                 |   | -          |                 |  |   | -    | 
|MainlandChina |  |                   | 113,719,383 |  |                 |   | 66,530,303 |                 |  |   | -    | 
|              |  | $                 | 119,477,298 |  |                 | $ | 66,530,303 |                 |  | $ | -    | 



Maximum exposure to credit
risk:



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



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



As of December
31, 2010, cash is denominated in the following currencies:



|    |  | Bank balances and |             |  |                 |   |            | Certificates of |  |   |      | 
|--- |  | ----------------- | ----------- |  | --------------- | - | ---------- | --------------- |  | - | ---- | 
|    |  | cash              |             |  | Restricted Cash |   |            | deposit         |  |   | 2010 | 
|    |  |                   |             |  |                 |   |            |                 |  |   |      | 
|USD |  | $                 | 5,744,923   |  |                 | $ | -          |                 |  | $ | -    | 
|RMB |  |                   | 113,719,383 |  |                 |   | 66,530,303 |                 |  |   | -    | 
|HKD |  |                   | 12,992      |  |                 |   | -          |                 |  |   | -    | 
|    |  | $                 | 119,477,298 |  |                 | $ | 66,530,303 |                 |  | $ | -    | 



F-19









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 4. | ACCOUNTS RECEIVABLE
| | -- | -------------------



The Group performs ongoing credit
evaluations of its customers' financial conditions. The Group generally encourages its customers to use its products and settle
the outstanding balance within credit terms. As of December 31, 2011 and 2010, the provision on accumulated allowance for doubtful
accounts was $124,715 and $32,528 respectively.





| | 5. | INVENTORIES
| | -- | -----------



Inventories as of December
31, 2011 and 2010 consist of the following:



|                |  | 2011 |            |  | 2010 |  
|--------------- |  | ---- | ---------- |  | ---- | -
|                |  |      |            |  |      |  
|Raw materials   |  | $    | 10,967,758 |  |      | $
|Work-in-process |  |      | 3,007,200  |  |      |  
|Finished goods  |  |      | 10,488,184 |  |      |  
|                |  | $    | 24,463,142 |  |      | $



| | 6. | PREPAID PURCHASES
| | -- | -----------------



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



F-20









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 7. | OTHER RECEIVABLES
| | -- | -----------------



Other receivables as of December 31, 2011 and 2010
consist of the following:



|                                         |  | 2011 |           |  | 2010 |  
|---------------------------------------- |  | ---- | --------- |  | ---- | -
|                                         |  |      |           |  |      |  
|Advances to staff                        |  | $    | 254,229   |  |      | $
|Loan advanced to unrelated third parties |  |      | 2,198,359 |  |      |  
|Standby guarantee fund                   |  |      | -         |  |      |  
|Warrant consideration receivable         |  |      | -         |  |      |  
|Others                                   |  |      | 398,013   |  |      |  
|                                         |  | $    | 2,850,601 |  |      | $
|                                         |  |      |           |  |      |  
|Non-current portion (a)                  |  | $    | 3,499,083 |  |      | $



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



As of December 31, 2011, $2,198,359
represented loans to unrelated third parties. There were no agreement signed with the third parties and the funds are non-interest
bearing. The directors of the Group believe the outstanding balance
is recoverable and that no allowance is considered necessary.



As of December 31, 2011, no
cash was retained by the Company's warrant agent. $1,352,180 cash was retained by the Company’s warrant agent for 270,436
warrants exercised as of December 31, 2010.



| | (a) | As of December 31, 2011, $3,499,083 represented funds held by unrelated third parties to provide
a standby guarantee for Henan Green to obtain additional bank loans. There was no agreement signed with the third parties and the
funds are non-interest bearing. During 2012, additional $3.2M were advanced and $3.7M was repaid and the outstanding balance was
$3,007,301 at March 31, 2012.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-21









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 8. | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



Property, plant and equipment
as of December 31, 2011 and 2010 consist of the following:



|                               |  | 2011 |             |   | 2010 |  
|------------------------------ |  | ---- | ----------- | - | ---- | -
|                               |  |      |             |   |      |  
|Buildings                      |  | $    | 24,781,774  |   |      | $
|Leasehold land improvement     |  |      | 21,878      |   |      |  
|Machinery and equipment        |  |      | 104,318,990 |   |      |  
|Vehicles                       |  |      | 3,261,984   |   |      |  
|Office equipment               |  |      | 387,815     |   |      |  
|Construction in progress       |  |      | 14,696,770  |   |      |  
|                               |  |      | 147,469,211 |   |      |  
|Less: Accumulated depreciation |  |      | (24,773,965 | ) |      |  
|                               |  | $    | 122,695,246 |   |      | $



During the year, the Company's
new production lines and plant which amounted $49,383,663 and $11,656,184 respectively were transferred to fixed assets from Construction
in progress, these production lines and plant were placed in use in July 2011.



Depreciation expense for the
years ended December 31, 2011, 2010 and 2009 was $7,994,638, $3,149,314 and $2,792,547 respectively.



Construction in progress consists
of the construction of a plant and production lines on 300 acres of land and the improvement project on the 300,000 tones production
lines and plant facilities. The total construction in progress as at December 31, 2011 and 2010 was $14,696,770 and $49,199,036
respectively.



|                 |  |                              |            |  | Estimated cost                      |   |         |                            | 
|---------------- |  | ---------------------------- | ---------- |  | ----------------------------------- | - | ------- | -------------------------- | 
|                 |  | Balance at December 31, 2011 |            |  | to complete as of December 31, 2012 |   |         | Estimated time to complete | 
|                 |  |                              |            |  |                                     |   |         |                            | 
|Production lines |  | $                            | 13,664,024 |  |                                     | $ | -       |                            | 
|Plant            |  |                              | 1,032,746  |  |                                     |   | 301,880 |                            | 
|                 |  | $                            | 14,696,770 |  |                                     | $ | 301,880 |                            | 



The Company's subsidiary, Henan
Green, signed an agreement to construct additional 100,000 metric tons of cold-rolled steel production capacity Construction and
equipment installation was completed in the first quarter of 2012 . The new production line is subject to further testing and technical
upgrades until the third quarter of 2012 when official production will be launched. Plant includes the decoration expenses incurred
for the new plant and electricity system installation. It is expected to be completed before December 2012.



No depreciation has been provided
for construction in progress.



F-22









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 9. | LAND USE RIGHT
| | -- | --------------



Land use right as of December
31, 2011 and 2010 consist of the following:



|                    |  | 2011 |            |  | 2010 |  
|------------------- |  | ---- | ---------- |  | ---- | -
|                    |  |      |            |  |      |  
|Land use right, net |  | $    | 13,807,056 |  |      | $



Land use right represents the
value of land approved to the Company for industrial production purpose by the local government in Zhengzhou, People's Republic
of China. The right will expire between June 30, 2053 to June 30, 2054 for the land with 58.6 acres (351.61 Chinese mu) and 50
acres (300 Chinese mu) respectively. Land use right payable for the 58.6 acres as of December 31, 2011 and 2010 was $1,404,926
and $10,203,404 respectively.



Buildings of staff accommodation
and the R & D center are located on the land with 50 acres (300 Chinese mu). Payment of the land use right for the 50 acres
was fully settled in 2009.



The Company acquired the land
use right of 58.6 acres (351.61 Chinese mu) in February 2010. Although there is no payment schedule to settle the outstanding amount
of $1,404,926 until the Company receives notification from the local government, the Company expects to fully settle the outstanding
amount within 12 months.



Land use right is amortized
using the straight-line method over the lease term of 43 to 50 years. The amortization expense for the years ended December 31,
2011, 2010 and 2009 were $322,638, $259,438 and $30,827 respectively. The total future amortization is as follows:



|December 31, |  |   |            | 
|------------ |  | - | ---------- | 
|2012         |  | $ | 330,458    | 
|2013         |  |   | 330,458    | 
|2014         |  |   | 330,458    | 
|2015         |  |   | 330,458    | 
|2016         |  |   | 330,458    | 
|Over 5 years |  |   | 12,154,766 | 
|             |  | $ | 13,807,056 | 



F-23









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 10. | DEPOSIT ON ACQUISITION OF FUTURE LAND USE RIGHT
| | --- | -----------------------------------------------



Deposit on acquisition of future
land use right as of December 31, 2011 and 2010 consist of the following:



|                                                |  | 2011 |            |  | 2010 |  
|----------------------------------------------- |  | ---- | ---------- |  | ---- | -
|                                                |  |      |            |  |      |  
|Deposit on acquisition of future land use right |  | $    | 12,710,719 |  |      | $



The Company’s related
party, Zhengzhou No. 2 Iron and Steel Company Limited ("Zhengzhou Company") owns a land use right with total 24.94 acres
(151.4 Chinese mu). The Company's subsidiary, Henan Green, currently leases a part of the land use rights for 6.69 acres (40.60
Chinese mu) from Zhengzhou Company which was the former owner of Henan Green. The Company's existing production lines and warehouses
are located on this parcel of land. For operation risk mitigation purpose, the Company has started the process of transferring
the title of the land use right for the 24.94 acres (151.4 Chinese mu) from Zhengzhou Company.



To facilitate Zhengzhou Company's
negotiation with local regulatory authorities on the transfer and in anticipation of the upfront payments associated with the transaction.
On May 9, 2011, the Company passed a resolution to purchase the land use right from Zhengzhou Company with a total estimated consideration
of $19.6 million. The final transfer price is to be further determined based on market-based valuation of the land value and calculation
of associated value-added tax. As of December 31, 2011, the Company prepaid $12,710,719 to Zhengzhou Company. The remaining balance
$6.9 million plus applicable taxes estimated at $242,300 will be paid after the transfer of title of land use right is completed.



No amortization has been provided
for deposit on acquisition of future land use right as the application on transfer of the title of land use right has not been
completed as of December 31, 2011. When title is transferred the annual amortization is estimated at $431,000 (RMB 2,711,000)
per year.



| | 11. | NOTES PAYABLE
| | --- | -------------



Notes payable as of December
31, 2011 and 2010 consist of the following:



|                                      |  | 2011 |             |  | 2010 |  
|------------------------------------- |  | ---- | ----------- |  | ---- | -
|                                      |  |      |             |  |      |  
|Classified by financial institutions: |  |      |             |  |      |  
|China Citic Bank                      |  | $    | 42,580,912  |  |      | $
|Bank of Zhengzhou                     |  |      | 9,533,040   |  |      |  
|Minsheng Bank of China                |  |      | 24,229,810  |  |      |  
|Guangdong Development Bank            |  |      | 14,299,560  |  |      |  
|Shanghai Pudong Development Bank      |  |      | 15,888,400  |  |      |  
|China Merchants Bank                  |  |      | 16,523,936  |  |      |  
|China Everbright Bank                 |  |      | 19,066,080  |  |      |  
|Bank of Luoyang                       |  |      | 24,627,020  |  |      |  
|Bank of Communications                |  |      | 12,710,720  |  |      |  
|Bank of Pingdingshan                  |  |      | 25,421,438  |  |      |  
|Bank of Xuchang                       |  |      | -           |  |      |  
|                                      |  | $    | 204,880,916 |  |      | $



F-24









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 11. | NOTES PAYABLE (.../Cont’d)
| | --- | ------------------------



|                                            |  | 2011 |             |   | 2010 |  
|------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Additional information:                     |  |      |             |   |      |  
|Maximum balance outstanding during the year |  | $    | 204,880,916 |   |      | $
|Interest expense                            |  | $    | 3,342,011   |   |      | $
|Finance charge per contract                 |  |      | 0.05%-0.5%  |   |      |  
|Weighted average interest rate              |  |      | 1.29        | % |      |  



All notes payable are
secured by from 30% to  100% corresponding restricted cash. When the restricted cash is not covered the note, inventories and
third parties guarantees are further requested. As of December 31, 2011 and 2010, the Group's cash of $118,130,253 and
$66,530,303 respectively were restricted for such purpose. All the notes payable have terms of six months. Local PRC banks
had imposed few covenants on the Company’s subsidiary, Henan Green, which required the Company to notify the banks if
the Company was not in compliance. The Company was not in compliance with its financial covenants during 2011. The terms of
the Notes prohibit making advances or providing guarantees to other unrelated parties without prior consent of the bank. The
bank may call the Notes since the Company was not in compliance with its financial covenants. The Banks have not called the
Notes or assessed a penalty on the Company for these violations. The Company does not believe that any penalty will be
assessed by the Banks for these covenant violations.



| | 12. | TERM LOANS
| | --- | ----------



In order to provide working
capital for operations, the Group entered into the following short term loan agreements as of December 31, 2011 and 2010:



|                                            |  | 2011 |                 |   | 2010 |  
|------------------------------------------- |  | ---- | --------------- | - | ---- | -
|                                            |  |      |                 |   |      |  
|Classified by financial institutions:       |  |      |                 |   |      |  
|China Citic Bank                            |  | $    | 3,177,680       |   |      | $
|China Merchants Bank                        |  |      | 7,944,200       |   |      |  
|Bank of Zhengzhou                           |  |      | 7,626,431       |   |      |  
|Shanghai Pudong Development Bank            |  |      | 11,121,880      |   |      |  
|Zhengzhou City Rural Credit Cooperative     |  |      | -               |   |      |  
|Bank of Communications                      |  |      | -               |   |      |  
|Bank of Luoyang                             |  |      | 9,533,040       |   |      |  
|Bank of Xuchang                             |  |      | 4,766,520       |   |      |  
|                                            |  | $    | 44,169,751      |   |      | $
|                                            |  |      |                 |   |      |  
|Additional information:                     |  |      |                 |   |      |  
|Maximum balance outstanding during the year |  | $    | 44,884,729      |   |      | $
|Interest expense                            |  | $    | 2,912,292       |   |      | $
|Range of interest rate                      |  |      | 0.347% - 0.868% |   |      |  
|Weighted average interest rate              |  |      | 3.27            | % |      |  



F-25









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 12. | TERM LOANS (.../Cont'd)
| | --- | ---------------------



All term loans are fixed term
loans with a period of 12 months or less. Local PRC banks had imposed covenant on the Company’s subsidiary, Henan Green For
those loan facilities obtained from banks, all these terms loans are either guaranteed and secured by Henan Green's fixed assets,
including its machinery and land use right, or guaranteed and secured by a related party, Zhengzhou Company's land and plant properties,
or guaranteed by Henan Green’s director or other third parties. The Company was not in compliance with its financial covenants
during 2011. The terms of the bank loans prohibit making advances or providing guarantees to other unrelated parties without prior
consent of the bank. The bank may call the loans since the Company was not in compliance with its financial covenants. The Banks
have not called the loans or assessed a penalty on the Company for these violations. The Company does not believe that any penalty
will be assessed by the Banks for these covenant violations.



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



|                                 |  |                                                                            |  |                                          |  | Principal payment |           |  | Total outstanding |  
|-------------------------------- |  | -------------------------------------------------------------------------- |  | ---------------------------------------- |  | ----------------- | --------- |  | ----------------- | -
|Name of bank                     |  | Collateral                                                                 |  | Term of loans                            |  | due during 2011   |           |  | loan amount       |  
|                                 |  |                                                                            |  |                                          |  |                   |           |  |                   |  
|China Citic Bank                 |  | Secured by Henan Green's fixed assets                                      |  | July 15, 2011 to Apr 14, 2012            |  | $                 | 794,420   |  |                   | $
|China Citic Bank                 |  | Secured by Henan Green's fixed assets                                      |  | August 2, 2011 to Apr 14, 2012           |  |                   | 794,420   |  |                   |  
|China Citic Bank                 |  | Secured by Henan Green's fixed assets                                      |  | October 27, 2011 to May 16, 2012         |  |                   | 1,588,840 |  |                   |  
|China Merchants Bank             |  | Guaranteed by third party and Mingwang Lu                                  |  | September 21, 2011 to September 21, 2012 |  |                   | 3,177,680 |  |                   |  
|China Merchants Bank             |  | Guaranteed by third party and Mingwang Lu                                  |  | September 29, 2011 to September 29, 2012 |  |                   | 4,766,520 |  |                   |  
|Bank of Zhengzhou                |  | Guaranteed by Zhengzhou  No. 2 Iron and Steel Company Limited, Mingwang Lu |  | August 31,2011 to August 31, 2012        |  |                   | 4,766,520 |  |                   |  
|Bank of Zhengzhou                |  | Secured by Henan Green's fixed asset                                       |  | August 31,2011 to August 31, 2012        |  |                   | 2,859,911 |  |                   |  
|Shanghai Pudong Development Bank |  | Secured by Henan Green's land                                              |  | March 16, 2011 to March 15, 2012         |  |                   | 1,588,840 |  |                   |  
|Shanghai Pudong Development Bank |  | Guaranteed by third party                                                  |  | November 29, 2011 to November 28, 2012   |  |                   | 4,766,520 |  |                   |  



F-26









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 12. | TERM LOANS (.../Cont'd)
| | --- | ---------------------



|Name of bank                     |  | Collateral                                 |  | Term of loans                             |  | Principal payment due during 2011 |            |  | Total outstanding loan amount |  
|-------------------------------- |  | ------------------------------------------ |  | ----------------------------------------- |  | --------------------------------- | ---------- |  | ----------------------------- | -
|                                 |  |                                            |  |                                           |  |                                   |            |  |                               |  
|Shanghai Pudong Development Bank |  | Secured by Henan Green's land, Mingwang Lu |  | December 1, 2011 to November 30, 2012     |  |                                   | 4,766,520  |  |                               |  
|Bank of Luoyang                  |  | Guaranteed by third party                  |  | May 13 , 2011 to  May 12, 2012            |  |                                   | 4,766,520  |  |                               |  
|Bank of Luoyang                  |  | Guaranteed by third party                  |  | September 14, 2011  to September 13, 2012 |  |                                   | 4,766,520  |  |                               |  
|Bank of Xuchang                  |  | Guaranteed by third party                  |  | May 6, 2011 to  April 25, 2012            |  |                                   | 4,766,520  |  |                               |  
|                                 |  |                                            |  |                                           |  | $                                 | 44,169,751 |  |                               | $



| | 13. | ACCRUED LIABILITIES AND OTHER PAYABLES
| | --- | --------------------------------------



Accrued liabilities and other
payables as of December 31, 2011 and 2010 consist of the following:



|                   |  | 2011 |            |  | 2010 |  
|------------------ |  | ---- | ---------- |  | ---- | -
|                   |  |      |            |  |      |  
|Accrued expenses   |  | $    | 4,019,395  |  |      | $
|Other payables     |  |      | 10,600,561 |  |      |  
|Other tax payables |  |      | 656,060    |  |      |  
|                   |  | $    | 15,276,016 |  |      | $



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



Other payables represent payables
to purchase of machinery and equipment of fixed assets and other payables. Payables to purchase of machinery and equipment were
$9,753,549 as of December 31, 2011.



F-27









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 14. | STOCKHOLDERS’ EQUITY
| | --- | --------------------



| | (a) | Capital
| | --- | -------



The Company was established in
the British Virgin Islands ("BVI") on March 11, 2008 as a limited liability company. During March 2009, the Company amended
its memorandum of association by effecting a stock split resulting in the issuance of 29,999,999 shares and increasing the total
authorized shares to 100,000,000. Accordingly, immediately after this amendment of its memorandum of association, the Company had
30,000,000 shares outstanding.



A unit purchase option to purchase
600,000 units, each at $6.60 consisting of one share of common stock and two warrants see the table included in this note. The
unit purchase option was not exercised and expired on March 21, 2011.



During the year ended December
31, 2010, 2,142,959 warrants were exercised, for which the Company received proceeds of $10,714,795.



From January 1 to March 31, 2011,
13,294,775 warrants were exercised, for which the Company received proceeds of $66,473,875.



On June 4, 2010, the Company completed
a private placement in which the Company sold to certain investors 3,303,771 ordinary shares at a price per share of $5.70, for
an aggregate purchase price of $18,831,495, pursuant to a securities purchase agreement dated the same date. The foregoing issuance
was made in reliance upon exemptions provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving
a public offering and Regulation D promulgated thereunder. The Company netted proceeds amounting to $17,967,818, offering fees
and other fees amounted to $863,676.



The Board of Directors and the
Compensation Committee of the Company adopted the China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan (the "Plan")
on November 16, 2010. The Plan became effective on the date of its adoption, subject to approval by the Company’s shareholders
within 12 months. At the Company’s annual shareholders meeting hold on December 8, 2010, the Company’s shareholders
approved the adoption of the 2010 Plan.



Up to 3,500,000 of the Company’s
ordinary shares may be issued under the Plan (subject to adjustment as described in the Plan). The Plan permits the grant of Nonqualified
Share Options and Restricted Share Awards to employees, directors, and consultants of the Company and its affiliates.



In connection with the adoption
of the Plan, the Board of Directors and Compensation Committee also approved forms of Share Option Agreement for employees and
directors (collectively, the “-Forms of Option Agreement-”) and form of Restricted Share Award Agreement (the “-Form
of Share Award Agreement-”) that will be utilized by the Company to grant options and restricted shares under the Plan.



No Options were exercisable, and
no Share Awards or ordinary shares were issuable under the Plan unless and until the Plan was approved by the shareholders of the
Company. In the event that the shareholders of the Company had not approved the Plan within such 12 months period, the Plan and
any previously granted Option would have terminated.



F-28









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 14. | STOCKHOLDERS’
                                                                       EQUITY
| | --- | -------------------------------------------------------------------------------------------



| | (a) | Capital
                                                                                          (.../Cont’d)
| | --- | ------------------------------------------------------------------------------------------------------------



The Company also granted in connection
with its November 2009 public offering the Underwriter Representative (and its designees) a warrant (the “Underwriter Representative
Warrant”) for the purchase of an aggregate of 144,000 ordinary shares (the “Warrant Shares”) for an aggregate
purchase price of $100.00. The Underwriter Representative Warrant may be exercised in full or part to purchase Warrant Shares
at an initial exercise price of $6.00 per share. The Underwriter Representative Warrant is exercisable from August 9, 2010 to
November 9, 2014. The fair value of warrants amounted to approximately $108,878 which was calculated by using Black Scholes Option
Calculator. Such amount has been recorded through the equity accounts having to impact on stockholders' equity. The fair value
of each of warrant was estimated using the following assumptions:



A summary of all warrants outstanding
as of December 31, 2011 and 2010 and actions relating thereto during the years then ended is presented below:



|                         |  | 2011 |       |   | 2010 | 
|------------------------ |  | ---- | ----- | - | ---- | 
|                         |  |      |       |   |      | 
|Expected volatility      |  |      | 60.00 | % |      | 
|Expected term (in years) |  |      | 2.9   |   |      | 
|Risk free rate           |  |      | 0.36  | % |      | 



A summary of all warrants outstanding
as of December 31, 2011 and 2010 are presented below:



|                                    |  | Warrants |             |   | Exercise Price |   |      | Terms | 
|----------------------------------- |  | -------- | ----------- | - | -------------- | - | ---- | ----- | 
|                                    |  |          |             |   |                |   |      |       | 
|Issued on March 17, 2009            |  |          | 17,266,667  |   |                | $ | 5.00 |       | 
|Granted                             |  |          | 144,000     |   |                |   | 6.00 |       | 
|Exercised                           |  |          | (76,600     | ) |                |   | 5.00 |       | 
|Outstanding as of December 31, 2009 |  |          | 17,334,067  |   |                |   |      |       | 
|Exercised                           |  |          | (2,142,959  | ) |                |   | 5.00 |       | 
|Outstanding as of December 31, 2010 |  |          | 15,191,108  |   |                |   |      |       | 
|Exercised                           |  |          | (13,294,775 | ) |                |   | 5.00 |       | 
|Expired                             |  |          | (1,752,333  | ) |                |   |      |       | 
|Outstanding as of December 31, 2011 |  |          | 144,000     |   |                |   | 6.00 |       | 



During the year ended December
31, 2011, the Company issued 13,294,775 shares in connection with the exercise of 13,294,775 warrants which yielded net proceeds
to the Company of $66,473,875.



On April 1, 2011, the Company's
Board of Directors passed a board resolution and announced that the Company would repurchase its shares in the open market. From
May to December, 2011, the Company repurchased 1,176,898 shares at a cost of $4,516,744.



F-29









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 14. | STOCKHOLDERS’ EQUITY (.../Cont’d)
| | --- | -------------------------------



| | (b) | Retained Earnings
| | --- | -----------------



Retained
earnings as of December 31, 2011 and 2010 consist of the following



|                           |  | 2011 |             |  | 2010 |  
|-------------------------- |  | ---- | ----------- |  | ---- | -
|                           |  |      |             |  |      |  
|Retained earnings          |  | $    | 128,896,723 |  |      | $
|Statutory surplus reserves |  |      | 8,246,235   |  |      |  
|                           |  | $    | 137,142,958 |  |      | $



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



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



As of December 31, 2011, the Group's
subsidiary, Henan Green, allocated $6,663,333 which was the 10% of net profits of the year ended December 31, 2011 to the statutory
surplus reserves.



A supplemental information of
the movement of statutory surplus reserves and registered capital of Henan Green as of December 31, 2011 and 2010 are as follow:



|                                                        |  | Statutory surplus |           |  | Registered |   |            | Percentage | 
|------------------------------------------------------- |  | ----------------- | --------- |  | ---------- | - | ---------- | ---------- | 
|                                                        |  | reserves          |           |  | capital    |   |            | Reached    | 
|                                                        |  |                   |           |  |            |   |            |            | 
|At December 31, 2010                                    |  | $                 | 1,582,902 |  |            | $ | 43,605,726 |            | 
|                                                        |  |                   |           |  |            |   |            |            | 
|Increase in registered capital                          |  |                   | -         |  |            |   | 39,998,218 |            | 
|Statutory surplus reserves transferred from net profits |  |                   | 6,663,333 |  |            |   | -          |            | 
|At December 31, 2011                                    |  | $                 | 8,246,235 |  |            | $ | 83,603,944 |            | 



F-30









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 15. | INCOME TAXES
| | --- | ------------



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



|                           |  | For the Year ended |           
|-------------------------- |  | ------------------ | ----------
|                           |  | 2011               |           
|                           |  |                    |           
|Current income tax expense |  | $                  | 21,961,627



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



A reconciliation of the expected
income tax expense to the actual income tax expense for the years ended December 31, 2011, 2010 and 2009 are as follow:



|                                                             |  | For the Year ended |           
|------------------------------------------------------------ |  | ------------------ | ----------
|                                                             |  | 2011               |           
|                                                             |  |                    |           
|Income before tax                                            |  | $                  | 79,582,179
|                                                             |  |                    |           
|Expected PRC income tax expense at statutory tax rate of 25% |  |                    | 19,895,544
|                                                             |  |                    |           
|Income not subject to PRC tax                                |  |                    | -         
|                                                             |  |                    |           
|Non deductible tax expenses                                  |  |                    | 2,066,083 
|Actual income tax expense                                    |  | $                  | 21,961,627



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



The new PRC income tax law
imposes a 10% withholding income tax, subject to reduction based on tax treaty where applicable, for dividends distributed by a
foreign invested enterprise to its immediate holding company outside China (5% withholding income tax for dividends paid to HK
companies). Such dividends were exempted from PRC tax under the previous income tax law and regulations. The foreign investment
enterprises are subject to the withholding tax beginning January 1, 2008. All of the Group’s income is generated in the PRC,
through Henan Green. The Company considers undistributed earnings of Henan Green as of December 31, 2011, to be permanently reinvested
in the PRC. As a result, no deferred tax expense and deferred liability recorded for dividend withholding tax.



F-31









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 15. | INCOME TAXES (.../Cont’d)
| | --- | -----------------------



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



For the year ended December
31, 2011, 2010 and 2009, there was no unrecognized tax benefit. Management does not anticipate any potential future adjustments
in the next twelve months which would result in a material change to its financial tax position. As of December 31, 2011 and 2010,
the Group did not accrue any interest and penalties.





| | 16. | SUNDRY INCOME
| | --- | -------------



Sundry income for the years
ended December 31, 2011, 2010 and 2009 consist of the following:



|                                                                             |  | For the Year ended |        
|---------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                             |  | 2011               |        
|                                                                             |  |                    |        
|Local government subsidies                                                   |  | $                  | 449,786
|Transferred from receipts in advance, accounts payable and other receivables |  |                    | 11,835 
|Subcontracting income                                                        |  |                    | 19,565 
|Others                                                                       |  |                    | 121,061
|                                                                             |  | $                  | 602,247



During the years ended December
31, 2011, 2010 and 2009 the Group received special one time subsidies from local government of Zhengzhou, China amounting to $449,786,
$227,797 and $87,844 for its advance technology in manufacturing precision steel mill flat-rolled products. The subsidy is not
a continuing nature and depends on the local government's policy announced within a valid period.

F-32









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 17. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



The Company’s subsidiary,
Henan Green, entered into a rental agreement for land use right with Zhengzhou Company, the former owner of Henan Green, from January
1, 2008 to December 31, 2027. Rental paid to Zhengzhou Company for the years ended December 31, 2011, 2010 and 2009 were $11,428,
$9,909 and $8,916 respectively.



The Company’s related party,
Zhengzhou Company owns a land use right with total 24.94 acres (151.4 Chinese mu), the Company currently leases a part of the land
use right for 6.69 acres (40.60 Chinese mu) from Zhengzhou Company. The Company's existing production lines and warehouses are
located on this parcel of land. For operation risk mitigation purpose, the Company has started the process of title transfer of
the existing land use right to 24.94 acres (151.4 Chinese mu) from Zhengzhou Company. To facilitate Zhengzhou Company's negotiation
with local regulatory authorities on the transfer and in anticipation of the upfront payments associated with the transaction,
the Company prepaid $12,710,719 to Zhengzhou Company as of December 31, 2011. The final transfer price is to be further determined
based on market-based valuation of the land value and calculation of associated value-added tax.



On August 24, 2011, the subsidiary
Henan Green Complex Materials Co., Ltd (“Henan Green”) entered into a Memorandum of Understanding (MOU) with a potential
joint venture partner located outside of China. In connection with the MOU the Board authorized the Company to deposit $5,000,000
as a good faith deposit. The funds were deposited in August, 2011 with an overseas bank in the name of the Company’s CEO.
The $5,000,000 was returned to the Company on December 13, 2011 since it was decided not to pursue such joint venture arrangement.



| |  | In March,
                                                             2011, the Company paid $1.5 million and $3.5 million to Oasis Green
                                                             Investments Limited and Plumpton Group Limited, respectively, in
                                                             accordance with the Company’s original Merger Agreement and
                                                             following the exercise of aggregate over 96% of the public warrants. 
                                                             Under the Merger Agreement,
                                                             Oasis, one of the Original Shareholders and which is owned by Ms.
                                                             Yuying Lu, the daughter of our Chairman and CEO, Mr. Mingwang Lu,
                                                             and Plumpton, also one of the Original Shareholders, were entitled
                                                             to receive an aggregate of $5 million in the event that at least
                                                             75% of the outstanding warrants were exercised at an exercise price
                                                             not less than $5.00 per share.  It was agreed to the payment
                                                             obligation under the Merger Agreement as an incentive to Oasis and
                                                             Plumpton to execute the Merger Agreement and approve the related
                                                             merger between the Company and COAC. The remaining $0.7 million
                                                             of that $5.7 million warrant expense was the professional fees paid
                                                             during the warrant exercise.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-33







CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 18. | SIGNIFICANT CONCENTRATIONS
| | --- | --------------------------



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



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





| | 19. | FOREIGN OPERATIONS
| | --- | ------------------



Operations



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



Dividends and reserves



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



The registered capital of the
Company's subsidiary, Henan Green, has been increased to $83.6 million as of December 31, 2011, according to the PRC law, Henan
Green is required to transfer 10% of its net profit to the statutory surplus reserve till reaches 50% of its total registered capital
(i.e approximately $41.8 million).



F-34









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 20. | OPERATING LEASE COMMITMENTS
| | --- | ---------------------------



Rental expense for obligations
under operating leases was $26,938 (RMB173,689) and $24,701 (RMB166,990) for the years ended December 31, 2011 and 2010 respectively.
The total future minimum lease payments under non-cancellable operating leases with respect to premises as of December 31, 2011
are payable as follows:



|Years Ended     |  |           |         |  |                  |   |         |       | 
|--------------- |  | --------- | ------- |  | ---------------- | - | ------- | ----- | 
|December 31,    |  | Leasehold |         |  | Reservoir rental |   |         | Total | 
|2012            |  | $         | 12,879  |  |                  | $ | 15,888  |       | 
|2013            |  |           | 14,167  |  |                  |   | 15,888  |       | 
|2014            |  |           | 15,583  |  |                  |   | 15,888  |       | 
|2015            |  |           | 17,142  |  |                  |   | 15,888  |       | 
|2016            |  |           | 18,856  |  |                  |   | 15,888  |       | 
|Over five years |  |           | 384,363 |  |                  |   | 270,096 |       | 
|                |  | $         | 462,990 |  |                  | $ | 349,536 |       | 



Land use right is granted by Zhengzhou
No.2 Iron and Steel Company Limited, who sub-lets a part of its land with 6.69 acres (40.60 Chinese mu) to Henan Green for use.
The rental period is from January 1, 2008 to December 31, 2027. Annual rental paid for the land use right is about $8,781 (RMB
60,900) for the period of January 1, 2005 to December 31, 2009. The rental payment will increase by 10% annually from 2010 onwards
(RMB 66,990 for 2010). Such related party commitments are included in the above table.



| | 21. | SUBSEQUENT EVENTS
| | --- | -----------------



One new financial guarantee
agreement



On January 13, 2012, the Company's
subsidiary, Henan Green, signed a financial guarantee agreement with Bank of communications. Under the agreement, Henan Green acting
as a guarantor for Henan Xinye Textile Co., Ltd., a non-related company of the Group. Under the agreement, Henan Green is contingent
as guarantor with maximum potential amount of future payment approximately $4.8 million. The guarantee is effective through 2 years
after the loan period.

F-35









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 22. | CONTINGENCIES AND COMMITMENTS
| | --- | -----------------------------



The Group had the following
contingencies and commitments as of December 31, 2011:



Guarantee



On June 28, 2011, the Company's
subsidiary, Henan Green, entered into a mutual financial guarantee agreement with Henan Xinye Textile Co., Ltd., a non-related
company. Under the agreement, both companies are contingent as guarantor with maximum potential amount of future payment approximately
of $4.8 million, plus interest accrued, legal fee, disbursement and any other compensation expense accrued. The guarantee is effective
through December 31, 2012.



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



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



The Company believes that Zhengzhou
Aluminium Industry Co.Ltd. has expierenced financial difficulties in 2011 and may not be able to perform on either its payments
to the bank or its guarantees. If Zhengzhou Aluminium Industry Co. Ltd is unable to repay its debt or guarantee The Company may
be required to pay up to $6.4 million related to those debts. No provision has been made in these financial statements for this
obligation as the Company has not been called upon to date to perform under its guarantee.



Legal proceedings or
claims

As of December 31, 2011 and
2010, the Group’s management has evaluated all such proceedings and claims, and determined that the Group was not subject
to any loss contingencies either for legal proceedings or claims. In addition, the management has not become aware of any product
liability claims arising during the years ended December 31, 2011 and 2010; therefore, the Group has not recognized a liability
for product liability claims.



Employment Agreements

The Company has entered into
employment agreements with three executive officers. Annual minimum compensation for the terms of the employment agreements is
as follows:





|2012  |  | $ | 820,000 | 
|----- |  | - | ------- | 
|Total |  | $ | 820,000 | 



F-36









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



If
an executive’s employment is terminated for any reason prior to the expiration of the employment term,he shall be
entitled to payment of (i) any earned but unpaid portion of the Base Salary, (ii) any unpaid Bonus that the Company has been declared
to be payable in respect of a fiscal year prior to the year in which the Date of Termination occurs, (iii) any amounts due and
payable under the Company’s existing benefits plans, (iv) unreimbursed business expenses, in each case with respect to the
period ending on the Date of Termination, and (v) severance payment in cash which is equal to six (6) month of Base Salary at the
then current Base Salary rate.



Total compensation charged to
operations during the years ended December 31, 2011, 2010, and 2009 related to these employment contracts were $735,000, $675,000,
and $135,000, respectively.



F-37









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 23. | CONDENSED PARENT COMPANY FINANCIAL INFORMATION
| | --- | ----------------------------------------------



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



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



As of December 31, 2011, there
were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately
disclosed in the Company’s Consolidated Financial Statements, if any.



|CONDENSED BALANCE SHEETS                   |  |              |             |   |      |  
|------------------------------------------ |  | ------------ | ----------- | - | ---- | -
|                                           |  | December 31, |            
|                                           |  | 2011         |             |   | 2010 |  
|Assets                                     |  |              |             |   |      |  
|Cash                                       |  | $            | 11,621,907  |   |      | $
|Prepayment                                 |  |              | -           |   |      |  
|Other receivables                          |  |              | -           |   |      |  
|Investments in subsidiaries                |  |              | 286,912,377 |   |      |  
|Total assets                               |  | $            | 298,534,284 |   |      | $
|                                           |  |              |             |   |      |  
|Liabilities and Stockholders'' Equity      |  |              |             |   |      |  
|Current liabilities                        |  |              |             |   |      |  
|Accrued liabilities and other payables     |  | $            | 106,448     |   |      | $
|Total liabilities                          |  |              | 106,448     |   |      |  
|                                           |  |              |             |   |      |  
|Stockholders' Equity                       |  |              |             |   |      |  
|Common stock                               |  |              | 140,418,118 |   |      |  
|Additional paid in capital                 |  |              | 6,930,944   |   |      |  
|Treasury stock                             |  |              | (4,516,744  | ) |      |  
|Retained earnings                          |  |              | 137,142,958 |   |      |  
|Subscriptions receivable                   |  |              | -           |   |      |  
|Accumulated other comprehensive income     |  |              | 18,452,560  |   |      |  
|Total stockholders' equity                 |  |              | 298,427,836 |   |      |  
|Total liabilities and stockholders' equity |  | $            | 298,534,284 |   |      | $



F-38









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 23. | CONDENSED PARENT COMPANY
                                                                   FINANCIAL INFORMATION (.../Cont’d)
| | --- | ----------------------------------------------------------------------------------------------------------------------------



CONDENSED STATEMENT OF INCOME



|                                    |  | For the Year ended |           
|----------------------------------- |  | ------------------ | ----------
|                                    |  | December 31,       |           
|                                    |  | 2011               |           
|                                    |  |                    |           
|General and administrative expenses |  | $                  | (9,439,791
|Equity income of subsidiaries       |  |                    | 67,060,343
|Net income                          |  | $                  | 57,620,552



CONDENSED STATEMENT OF CASH FLOWS



|                                          |  | For the Year ended |            
|----------------------------------------- |  | ------------------ | -----------
|                                          |  | December 31,       |            
|                                          |  | 2011               |            
|                                          |  |                    |            
|Net cash used in operating activities     |  | $                  | (7,887,611 
|Net cash used in investing activities     |  |                    | (48,000,000
|Net cash provided by financing activities |  |                    | 61,957,131 
|Cash as of January 1                      |  |                    | 5,552,387  
|Cash as of December 31                    |  | $                  | 11,621,907 



F-39









CHINA GERUI ADVANCED MATERIALS GROUP LIMITED



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



(IN US DOLLARS)



| | 24. | QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
| | --- | -------------------------------------------------



|                                               |  | 2011     |            
|---------------------------------------------- |  | -------- | -----------
|                                               |  | March 31 |            
|                                               |  |          |            
|Revenue:                                       |  |          |            
|Steel mill flat-rolled products                |  | $        | 62,676,359 
|Cost of revenue                                |  |          | (44,713,355
|Gross Profit                                   |  |          | 17,963,004 
|                                               |  |          |            
|Operating expenses:                            |  |          |            
|General and administrative expenses            |  |          | (1,915,297 
|Selling and marketing expenses                 |  |          | (308,134   
|Warrant compensation expenses                  |  |          | (5,700,000 
|Total operating expenses                       |  |          | (7,923,431 
|                                               |  |          |            
|Operating income                               |  |          | 10,039,573 
|                                               |  |          |            
|Other income (expenses)                        |  |          |            
|Interest income                                |  |          | 255,573    
|Interest expenses                              |  |          | (2,839,082 
|Sundry income                                  |  |          | 11,957     
|                                               |  |          | 7,468,021  
|Income tax expense                             |  |          | (3,472,797 
|                                               |  |          |            
|Net income attributable to common stockholders |  | $        | 3,995,224  
|                                               |  |          |            
|Net income per share                           |  |          |            
|- Basic                                        |  | $        | 0.08       
|                                               |  |          |            
|- Diluted                                      |  | $        | 0.08       
|                                               |  |          |            
|Weighted average common shares outstanding     |  |          |            
|- Basic                                        |  |          | 49,121,935 
|                                               |  |          |            
|- Diluted                                      |  |          | 49,121,935 





F-40









EXHIBIT INDEX



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1         |  | Amended and Restated Memorandum and Articles of Association, adopted on March 17, 2009 [incorporated
    by reference to Exhibit 3.1 to the registrant’s Amendment No. 1 to Form 20-F filed on March 23, 2009]                                                                                                                                    
|2.1         |  | Form of Underwriter Representative Warrant [incorporated by reference to Exhibit 4.4 of Amendment
    No. 3 to the registrant’s Registration Statement on Form F-1 (File No. 333-161924) filed on November 5, 2009]                                                                                                                               
|4.1         |  | Form of Voting Agreement [incorporated by reference to Exhibit 10.15 to the registrant’s
    Registration Statement on Form S-4 filed on November 12, 2008 in commission file number 333-155312-01]                                                                                                                                               
|4.2         |  | Form of Agreement, dated as of September 15, 2009, by and among the registrant, Oasis Green
    Investments Limited, Plumpton Group Limited, and Honest Joy Group Limited.[incorporated by reference to Exhibit 10.16 to the
    registrant’s Registration Statement on Form F-1 filed on September 15, 2009 in commission file number 333-161924]
|4.3         |  | Underwriting Agreement, dated November 9, 2009 [incorporated by reference to Exhibit 1.1
    to the registrant’s Report on Form 6-K/A filed on November 10, 2009]                                                                                                                                                                                 
|4.4         |  | Form of Registration Rights Agreement, by and among the registrant and the purchasers named
    therein, dated June 4, 2010 [incorporated by reference to Exhibit 4.1 to the registrant’s Report on Form 6-K filed on
    June 7, 2010]                                                                                                           
|4.5         |  | Form of Securities Purchase Agreement, by and among the registrant and the purchasers named
    therein, dated June 4, 2010 [incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K filed
    on June 7, 2010]                                                                                                          
|4.6         |  | China Gerui Advanced Materials Group Limited 2010 Share Incentive Plan [incorporated by reference
    to Exhibit 10.1 to the registrant’s Report on Form 6-K filed on November 16, 2010]                                                                                                                                                          
|4.7         |  | Form of Share Option Agreement for Employees relating to China Gerui Advanced Materials Group
    Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.2 to the registrant’s Report on Form 6-K
    filed on November 16, 2010]                                                                                             
|4.8         |  | Form of Share Option Agreement for Directors relating to China Gerui Advanced Materials Group
    Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.3 to the registrant’s Report on Form 6-K
    filed on November 16, 2010]                                                                                             
|4.9         |  | Form of Restricted Share Award Agreement relating to China Gerui Advanced Materials Group
    Limited 2010 Share Incentive Plan [incorporated by reference to Exhibit 10.4 to the registrant’s Report on Form 6-K
    filed on November 16, 2010]                                                                                                 
|8.1         |  | List of the registrant’s subsidiaries [incorporated by reference to Exhibit 8.1 to
    the registrant’s Annual Report on Form 20-F filed on July 15, 2009]                                                                                                                                                                                        
|11.1        |  | Code of Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Annual
    Report on Form 20-F filed on July 15, 2009]                                                                                                                                                                                                              
|12.1*       |  | Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)                                                                                                                                                                                                                                                             
|12.2*       |  | Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)                                                                                                                                                                                                                                                             
|13.1*       |  | Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                                                           
|13.2*       |  | Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                                                           










*Filed herewith.