NONCONTROLLING INTEREST

12 Months Ended

Dec. 31, 2011

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, 2011, 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 years ended December 31, 2011 and 2010 (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):

		2011			2010
Net Revenue	$	13,664,259		$	4,735,846
Cost of Revenue		(7,818,027	)		(2,682,829	)
Gross Profit		5,846,232			2,053,017
Operating expenses		29,990			20,014
Income from operations		5,816,242			2,033,003
Non-operating income		10,473			8,961
Income tax expense		(1,456,679	)		(510,491	)
Net Income	$	4,370,036		$	1,531,473

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

		2011			2010
Net income per Chinese GAAP	$	4,370,036		$	1,531,473
Adjustments under US GAAP:
Revenue per sales-type lease		(1,788,667	)		36,952,170
Cost of revenue		(1,044,251	)		(29,299,172	)
Operating income		-			2,133
Income from operation		1,537,118			9,186,604
Interest income		3,331,647			2,260,621
Income before income tax		4,868,765			11,447,225
Deferred income tax expense		(127,958	)		(2,479,864	)
Net income per US GAAP	$	4,740,807		$	8,967,361

The following is an unaudited balance sheet of Erdos TCH, prepared under Chinese GAAP as of December 31, 2011 and 2010:

		2011		2010
Assets
Cash and equivalents	$	78,243	$	2,250,638
Other current assets		-		45,380
Property and equipment		49,069,745		40,317,773
Construction in process		23,481,662		25,635,027
Total Assets	$	72,629,650	$	68,428,818
Liabilities
Accounts payable	$	442,080	$	1,528,757
Other current liabilities		5,009,894		1,745,863
Long term loan		42,017,808		45,298,745
Total liabilities		47,469,782		48,573,365
Equity
Paid in capital		17,573,578		17,573,578
Statutory reserve		570,094		153,147
Other comprehensive income		1,714,014		579,578
Retained earnings		5,302,182		1,369,150
Total stockholders’ equity		25,159,868		19,675,453
Total liabilities and stockholders’ equity	$	72,629,650	$	68,248,818

- 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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