NOTE 23

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 15).

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, 2013 and 2012, 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,
	2013		2012
ASSETS
Current assets:
Cash and cash equivalents	$	43,010	$	64,015
Other receivables		16,333		15,843
Prepayments		136,500		162,000
Total current assets		195,843		241,858
Investments in subsidiaries		345,837,229		279,044,337
Total assets	$	346,033,072	$	279,286,195

LIABILITIES
Current liabilities:
Warrant liabilities	$	33,262	$	354,000
Total liabilities		33,262		354,000

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, 30,295,955 shares issued and 30,031,908 shares outstanding as of December 31, 2013 (2012: 30,084,883 shares issued and 29,820,836 shares outstanding), respectively		3,029		3,008
Additional paid-in capital		80,627,496		79,257,921
Treasury stock, at cost, 264,047 shares and 264,047 as of December 31, 2013 and 2012, respectively		(2,126,597)		(2,126,597)
Retained earnings		240,889,416		184,729,966
Accumulated other comprehensive income		26,606,466		17,067,897
Total stockholders' equity		345,999,810		278,932,195
Total liabilities and stockholders' equity	$	346,033,072	$	279,286,195

Condensed Statements of Income

	Year ended December 31,
	2013		2012		2011

Administrative expenses	$	(2,818,130)	$	(3,397,929)	$	(2,267,880)
Other expenses:
Change in fair value of warrant		(106,536)		(124,000)		3,062,575
Gain (Loss) on extinguishment of warrant liabilities		(8,369)		73,291		88,777
Equity in income of subsidiaries		59,092,485		61,390,641		52,250,061
Net income	$	56,159,450	$	57,942,003	$	53,133,533

Condensed Statements of Cash Flows

	Year ended December 31,
	2013		2012		2011

Net cash used in operating activities	$	(2,818,130)	$	(3,333,914)	$	(2,267,880)
Net cash provided by (used in) investing activities		2,206,684		4,390,775		2,496,427
Net cash (used in) provided by financing activities		590,461		(992,846)		(228,547)
Cash, beginning of year		64,015		-		-
Cash, end of year	$	43,010	$	64,015	$	-