NONCONTROLLING INTEREST

3 Months Ended

Mar. 31, 2012

10. NONCONTROLLING INTEREST

“Non-controlling interest” was a 7% equity interest of Erdos TCH owned by Erdos Metallurgy Co., Ltd. According to Xi’an TCH and Erdos’ agreement on profit distribution, Xi’an TCH and Erdos will receive 80% and 20% of the profit from the JV, respectively, until Xi’an TCH has received the complete return of its investment. Xi’an TCH and Erdos will then receive 60% and 40% of the profit from the JV, respectively.

As of March 31, 2012, the total registered capital of Erdos TCH is $17.55 million (RMB 120,000,000), of which, $16.37 million (RMB 112 million) was contributed by Xi’an TCH and $1.18 million (RMB 8 million) was from Erdos. Erdos TCH engages in a business similar to that of Xi’an TCH.

Erdos TCH allocates its income to Xi’an TCH and Erdos at a proportion of 80% and 20% based on net income calculated under Chinese GAAP. The main difference between US GAAP and Chinese GAAP with respect to Erdos TCH is that the Erdos agreement is treated as a sales-type lease under US GAAP and as an operating lease under Chinese GAAP. The following is an unaudited profit and loss statement of Erdos TCH, prepared under Chinese GAAP for the three months ended March 31, 2012 and 2011 (note: Erdos TCH’s US GAAP basis financial statements are part of the Company’s consolidated financial statements discussed in Note 2 – Basis for Consolidation):

	2012			2011
Net Revenue	$	3,711,425		$	2,834,715
Cost of Revenue		(2,105,057	)		(1,626,852	)
Gross Profit		1,606,368			1,207,863
Operating expenses		15,506			8,251
Income from operations		1,590,862			1,199,612
Non-operating income		-			1,057
Income tax expense		(397,716	)		(300,167	)
Net Income	$	1,193,146		$	900,502

The following is a reconciliation of net income per Chinese GAAP to net income per US GAAP:

	2012			2011
Net income per Chinese GAAP	$	1,193,146		$	900,502
Adjustments under US GAAP:
Revenue per sales-type lease		(3,567,238	)		8,498,505
Cost of revenue		2,095,199			(7,408,919	)
Operating income		137			-
Income from operation		(278,756	)		2,350,088
Interest income		673,934			808,888
Income before income tax		395,178			3,158,976
Deferred income tax expense		199,492			(563,287	)
Net income per US GAAP	$	594,670		$	2,595,689

The following is an unaudited balance sheet of Erdos TCH, prepared under Chinese GAAP as of March 31, 2012 and December 31, 2011:

	2012		2011
Assets
Cash and equivalents	$	36,283	$	78,243
Other current assets		2,182,749		-
Property and equipment		48,464,101		49,069,745
Construction in process		24,734,863		23,481,662
Total Assets	$	75,417,996	$	72,629,650
Liabilities
Accounts payable	$	39,718	$	442,080
Other current liabilities		6,934,533		5,009,894
Long term loan		42,061,865		42,017,808
Total liabilities		49,036,116		47,469,782
Equity
Paid in capital		17,573,578		17,573,578
Statutory reserve		570,094		570,094
Other comprehensive income		1,742,879		1,714,014
Retained earnings		6,495,329		5,302,182
Total stockholders’ equity		26,381,880		25,159,868
Total liabilities and stockholders’ equity	$	75,417,996	$	72,629,650

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

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