Commitments and contingencies

9 Months Ended

Sep. 30, 2011

Commitments and contingencies

17. Commitments and contingencies

Operating lease arrangements

The Company leases office premises and showrooms under various operating lease agreements that expire at various dates through years 2011 to 2015. The minimum future commitments payable under non-cancellable agreements as of September 30, 2011 was $67,521 which fall due within one year.

Rental expenses under operating leases were $331,229 and $366,607 for the nine months ended September 30, 2011 and 2010 respectively.

Contingencies

In accordance with the PRC tax regulations, the Company’s sales are subject to value added tax (“VAT”) at 17% upon the issuance of VAT invoices to its customers. When preparing these financial statements, the Company recognized revenue when goods were delivered, and made full tax provision in accordance with relevant national and local laws and regulations of the PRC.

The Company follows the practice of reporting its revenue for PRC tax purposes when invoices are issued. In the local statutory financial statements prepared under the PRC GAAP, the Company recognized revenue on an “invoice basis” instead of when goods are delivered. Accordingly, despite the fact that the Company has made full tax provision in these condensed consolidated financial statements, the Company may be subject to a penalty for the deferred reporting of tax obligations. The exact amount of penalty cannot be estimated with any reasonable degree of certainty. The management considers it is very unlikely that the tax penalty will be imposed.