19. COMMITMENTS

Lease Commitment

On March 5, 2010, Xi’an TCH leased its office under a two year operating lease that expired March 4, 2012. The Company renewed the lease for two years until March 4, 2014, and it can be renewed with the monthly payment increasing by 8% after March 5, 2014. Currently, the monthly rental payment is $18,000. In March 2013 Xi’an TCH leased an office in Jinan for three years until March 22, 2016, with a monthly payment of $3,800. The rents will be increased at 5% each year. For the six months ended June 30, 2013 and 2012, the rental expense of Xi’an TCH was $148,100 and $100,507, respectively; for the three months ended June 30, 2013 and 2012, the rental expense was $93,566 and $50,250, respectively.

In November 2012, Sifang Holding renewed its office in Beijing for monthly rent of $1,900 expiring on December 18, 2013. Sifang was required to pay in advance for the first six months rent for $11,450 at the beginning of the lease. The lease will be automatically renewed when it expires.

Future minimum annual rental payments required under operating leases as of June 30, 2013 were as below (by year):

2014	$	293,000
2015		311,000
2016		288,000
2017		305,000
2018		305,000
Total	$	1,502,000

Shanxi Datong Coal Group Power Generation Projects

In February 2011, Xi’an TCH signed a contract with Shanxi Datong Coal Group Steel Co., Ltd (the “Shanxi Datong”) to recycle gas and steam from groups of blast-furnaces and converter of Shanxi Datong’s metal refining plants to generate power. According to the contract, Xi’an TCH will install two 3MW BPRT, one 15MW WGPG and two 1MW steam power generation systems, with a total of 23MW power capacity for an estimated total investment of $27.45 million (RMB 180 million). The lease term is 30 years. During the term of the lease, Shanxi Datong will pay service fee to Xi’an TCH. The service fee is based on an average of 8,000 electricity-generating hours per year and $0.05 (RMB 0.33) per kilowatt hour (“kWh”) for the first 5 years from the completion of each power generation station. For each of the leases, at the 6th year, 11th year and 21st year thereafter, the rate will be RMB 0.3 kWh, 0.27 kWh and 0.25 kWh, respectively. After 30 years, the units will be transferred to Shanxi Datong without any charge.

As of June 30, 2013, the two 3 MW BPRT systems were completed, and the Company paid $13.22 million for the remaining Shanxi Datong Coal Group Power Generation project. The Company is committed to pay an additional $5.50 million for the Shanxi Datong Coal Group Power Generation project. The Company expects to complete the project by the end of 2013.

Jilin Ferroalloys Power Generation Projects

In May 2013, Xi’an TCH signed a contract with Sinosteel Jilin Ferroalloys Co., Ltd. (“Jitie”) to build furnace gas waste heat power generation systems for electricity generation from recycled heat and steam from groups of ferroalloy furnaces and electric furnaces (“Jitie project”). According to the contract, Xi’an TCH will install a 7.5 MW and a 3 MW turbine power generation system, with a total of 10.5 MW power capacity for an estimated total investment of $9.71 million (RMB 60 million). The lease term is 24 years. During the term of the lease, Jitie will a pay service fee to Xi’an TCH based on the actual generating capacity with the minimum service fee per month of $0.3 million (RMB 1.8 million). The actual generating capacity is based on an average of 7,200 and 5,760 electricity-generating hours per year for 7.5 MW and 3 MW systems, respectively, and $0.07 (RMB 0.42) per kilowatt hour (“kWh”) as settlement price. Xi’an TCH will be responsible for the systems operation and have the ownership of power generation systems. On May 12, 2013, Xi’an TCH entered into an agreement with Xi’an Huaxin Energy Tech Co., Ltd (the contractor for construction) for constructing the Jitie project. The project was scheduled to be completed 12 months from construction commencement and will be done according to the model of Energy Management Contract” (EMC). Xi’an has paid $4.86 million and is committed to pay additional $4.86 million for the Jitie project, by the end of May 2014.