NOTE 24

RESTRICTED NET ASSETS

The Company’s operations are substantially conducted through Lihua Electron and Lihua Copper. Lihua Electron and Lihua Copper may only pay dividends out of its retained earnings determined in accordance with the accounting standards and regulations in the PRC and after it has met the PRC requirements for appropriation to statutory reserves (see Note 16).

In addition, Lihua Electron and Lihua Copper’s business transactions and assets are primarily denominated in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. These currency exchange control measures imposed by the PRC government may restrict the ability of Lihua Electron and Lihua Copper to transfer their net assets to the Company through loans, advances or cash dividends. The net assets of Lihua Electron and Lihua Copper in aggregate exceeded 25% of the Company’s consolidated net assets. Accordingly, condensed parent company financial statements have been prepared in accordance with Rule 5.04 and Rule 12-04 of SEC Regulation S-X.

The Company records its investment in subsidiaries under the equity method of accounting. Such investment and long-term loans to subsidiaries are presented on the balance sheet as “Investments in subsidiaries” and the income of the subsidiaries is presented as “Equity in income of subsidiaries” on the statement of income.

These supplemental condensed parent company financial statements should be read in conjunction with the notes to the Company’s Consolidated Financial Statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

As of December 31, 2011 and 2010, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately disclosed in the Consolidated Financial Statements, if any.

Supplemental Parent Company Financial Information – Lihua International, Inc.

Condensed Balance Sheets

	As of December 31,
	2011			2010
ASSETS
Current assets:
Prepayments	$	123,250		$	-
Total current assets		123,250			-
Investments in subsidiaries		221,121,236			162,020,064
Total assets	$	221,244,486		$	162,020,064

LIABILITIES
Current liabilities:
Accrued expenses	$	-		$	180,000
Dividend payable		992,846			-
Warrant liabilities		615,000			8,682,441
Total liabilities		1,607,846			8,862,441

Stockholders’ equity
Preferred stock: $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $0.0001 par value: 75,000,000 shares authorized, 30,036,481 and 29,385,326 shares issued and outstanding as of December 31, 2011 and 2010, respectively		3,003			2,938
Treasury stock, at cost, 264,047 shares and nil as of December 31,2011 and 2010, respectively		(2,126,597	)		-
Additional paid-in capital		78,564,128			71,251,843
Retained earnings		126,787,963			74,647,276
Accumulated other comprehensive income		16,408,143			7,255,566
Total stockholders' equity		219,636,640			153,157,623
Total liabilities and stockholders' equity	$	221,244,486		$	162,020,064

Condensed Statements of Income

	Year ended December 31,
	2011			2010			2009

Administrative expenses	$	(2,267,880	)	$	(2,911,720	)	$	(2,024,833	)
Other expenses:
Changes in fair value of warrant liabilities		3,062,575			(1,448,819	)		(11,877,341	)
Gain/(loss) on extinguishment of warrant liabilities		88,777			186,897			(398	)
Equity in income of subsidiaries		52,250,060			42,639,617			27,635,270
Net income	$	53,133,533		$	38,465,975		$	13,732,698

Condensed Statements of Cash Flows

	Year ended December 31,
	2011			2010			2009

Net cash used in operating activities	$	(2,267,880	)	$	(2,911,720	)	$	(1,773,393	)
Net cash provided by (used in) investing activities		2,496,427			(32,959,097	)		(7,391,257	)
Net cash (used in) provided by financing activities		(228,547	)		35,870,817			9,164,650
Cash, beginning of year		-			-			-
Cash, end of year	$	-		$	-		$	-