NOTE 16

STATUTORY RESERVES

The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the entities’ registered capital or members’ equity. Appropriations to the statutory public welfare fund are at a minimum of 5% of the after tax net income determined in accordance with PRC GAAP. Commencing on January 1, 2006, the new PRC regulations waived the requirement for appropriating retained earnings to a welfare fund. In accordance with the Chinese Company Law, the Company allocated 10% of income after taxes to the statutory surplus reserve for the years ended December 31, 2011, 2010 and 2009. For the years ended December 31, 2011, 2010 and 2009, statutory reserve activity is as follows:

Balance – January 1, 2009	$	2,603,444
Addition to statutory reserves		2,797,550
Balance – December 31, 2009		5,400,994
Addition to statutory reserves		2,155,193
Balance – December 31, 2010		7,556,187
Addition to statutory reserves		2,862,289
Balance – December 31, 2011	$	10,418,476