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NONCONTROLLING INTEREST
 12 Months Ended
Dec. 31, 2012
Noncontrolling Interest [Abstract]  
NONCONTROLLING INTEREST

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 December 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 PRC GAAP.  The main difference between US GAAP and PRC 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 PRC GAAP.  The following is an unaudited profit and loss statement of Erdos TCH, prepared under PRC GAAP for the years ended December 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   $ 15,041,035     $ 13,664,259  
Cost of Revenue     (8,425,034 )     (7,818,027 )
Gross Profit     6,616,001       5,846,232  
Operating expenses     64,695       29,990  
Income from operations     6,551,306       5,816,242  
Non-operating income (expense)     (11,275,169 )     10,473  
Income tax expense     (327,524 )     (1,456,679 )
Net Income (loss)   $ (5,051,386 )   $ 4,370,036  

 

The following is a reconciliation of net income per PRC GAAP to net income per US GAAP for the years ended December 31, 2012 and 2011: 

 

    2012     2011  
Net income (loss) per PRC GAAP   $ (5,051,386 )   $ 4,370,036  
Adjustments under US GAAP:                
Revenue per sales-type lease     (14,257,426 )     (1,788,667 )
Cost of revenue     8,374,023       (1,044,251 )
    Loss from operations     (5,883,403 )     (2,832,918 )
Operating expense     (3,587,774 )     -  
Interest income     7,369,626       3,331,647  
Income before income tax     5,073,997       498,729  
Deferred income tax expense     (945,064 )     (127,958 )
Net adjustments     4,128,933       370,771  
Net income (loss) per US GAAP   $ (922,453 )   $ 4,740,807  

 

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

 

    2012     2011  
Assets                
Cash and equivalents   $ 12,411     $ 78,243  
Other current assets     12,774,129       -  
Property and equipment     46,558,041       49,069,745  
Construction in process     -       23,481,662  
Total Assets   $ 59,344,581     $ 72,629,650  
Liabilities                
Accounts payable   $ 39,774     $ 442,080  
Other current liabilities     376,649       5,009,894  
Long term loan     38,779,731       42,017,808  
Total liabilities     39,196,154       47,469,782  
Equity                
Paid in capital     17,573,578       17,573,578  
Statutory reserve     570,094       570,094  
Other comprehensive income     1,753,959       1,714,014  
Retained earnings     250,796       5,302,182  
Total stockholders’ equity     20,148,427       25,159,868  
Total liabilities and stockholders’ equity   $ 59,344,581     $ 72,629,650