11. 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 would 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 would then receive 60% and 40% of the profit from the JV, respectively.

As of June 15, 2013, the total registered capital of Erdos TCH was $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. On June 15, 2013, Xi’an and Erdos Metallurgy entered into a share purchase agreement. Xi’an will pay Erdos Metallurgy $1.29 million (RMB 8 million) for the 7% equity interest of Erdos TCH and then become 100% owner of Erdos TCH. In addition, Erdos TCH will distribute 20% of the accumulated profit (calculated under PRC GAAP) to Erdos Metallurgy. For convenience of reporting, June 30, 2013 was designated as the ownership transfer date. In July 2013, Xi’an paid $1.29 million (RMB 8 million) to Erdos Metallurgy, and had outstanding $227,901 accumulated profits to be paid to the minority interest..

Erdos TCH allocated 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 six months ended June 30, 2013 and 2012 (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):

	2013		2012
Net Revenue	$	7,512,597	$	7,510,614
Cost of Revenue		4,256,260		4,215,028
Gross Profit		3,256,337		3,295,586
Operating expenses		58,517		28,075
Income from operations		3,197,820		3,267,511
Non-operating income expense		(2,187,350)		(2,361,930)
Income tax expense		(252,617)		(226,395)
Net Income	$	757,853	$	679,186

The following is a reconciliation of net income (loss) per Chinese GAAP to net income per US GAAP for the six months ended June 30, 2013 and 2012:

	2013		2012
Net income per Chinese GAAP	$	757,853	$	679,186
Adjustments under US GAAP:
Revenue per sales-type lease		(7,210,036)		(7,134,477)
Cost of revenue		4,185,610		4,190,397
Loss from operation		(3,024,426)		(2,944,080)
Operating income (loss)		(69)		-
Interest income		3,678,975		3,703,026
Income before income tax		654,480		758,946
Deferred income tax expense		(175,912)		(193,443)
Net adjustment		478,568		565,503
Net income per US GAAP	$	1,236,421	$	1,244,689

The following is an unaudited balance sheet of Erdos TCH, prepared under PRC GAAP as of June 30, 2013 and December 31, 2012:

	2013		2012
Assets
Cash and equivalents	$	11,851	$	12,411
Other current assets		17,352,763		12,774,129
Property and equipment		46,073,830		46,558,041
Total Assets	$	63,438,444	$	59,344,581
Liabilities
Accounts payable	$	113,697	$	39,774
Other current liabilities		2,612,474		376,649
Long term loan		39,450,046		38,779,731
Total liabilities		42,176,217		39,196,154
Equity
Paid in capital		17,573,578		17,573,578
Statutory reserve		570,094		570,094
Other comprehensive income		2,109,907		1,753,959
Retained earnings		1,008,648		250,796
Total stockholders’ equity		21,262,227		20,148,427
Total liabilities and stockholders’ equity	$	63,438,444	$	59,344,581