Noncontrolling Interest

6 Months Ended

Jun. 30, 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 June 30, 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 six months ended June 30, 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	$	7,510,614		$	6,387,265
Cost of Revenue		(4,215,028	)		(3,663,910	)
Gross Profit		3,295,586			2,724,355
Operating expenses		28,075			10,907
Income from operations		3,267,511			2,713,448
Non-operating income (expense)		(2,361,930	)		4,477
Income tax expense		(226,395	)		(679,481	)
Net Income	$	679,186		$	2,038,444

The following is a reconciliation of net income per Chinese GAAP to net income per US GAAP for the six months ended June 30, 2012 and 2011:

	2012			2011
Net income per Chinese GAAP	$	679,186		$	2,038,444
Adjustments under US GAAP:
Revenue per sales-type lease		(7,134,477	)		5,125,394
Cost of revenue		4,190,397			(5,072,460	)
Income from operation		(2,264,894	)		2,091,378
Interest income		3,703,026			1,785,208
Income before income tax		1,438,132			3,876,586
Deferred income tax expense		(193,443	)		(460,095	)
Net income per US GAAP	$	1,244,689		$	3,416,491

The following is an unaudited balance sheet of Erdos TCH, prepared under Chinese GAAP as of June 30, 2012 and December 31, 2011:

	2012		2011
Assets
Cash and equivalents	$	19,676	$	78,243
Other current assets		1,275,179		-
Property and equipment		47,575,714		49,069,745
Construction in process		23,413,713		23,481,662
Total Assets	$	72,284,282	$	72,629,650
Liabilities
Accounts payable	$	39,526	$	442,080
Other current liabilities		4,644,682		5,009,894
Long term loan		41,858,369		42,017,808
Total liabilities		46,542,577		47,469,782
Equity
Paid in capital		17,573,578		17,573,578
Statutory reserve		570,094		570,094
Other comprehensive income		1,616,665		1,714,014
Retained earnings		5,981,368		5,302,182
Total stockholders’ equity		25,741,705		25,159,868
Total liabilities and stockholders’ equity	$	72,284,282	$	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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