NONCONTROLLING INTEREST

3 Months Ended

Mar. 31, 2013

Noncontrolling Interest [Abstract]

NONCONTROLLING INTEREST

10. NONCONTROLLING INTEREST

“Non-controlling interest” is a 7% equity interest of Erdos TCH owned by Erdos Metallurgy Co., Ltd.  According to Xi’an TCH and Erdos’ agreement on profit distribution, Xi’an TCH and Erdos will receive 80% and 20% of the profit from the JV, respectively, until Xi’an TCH has received the complete return of its investment. Xi’an TCH and Erdos will then receive 60% and 40% of the profit from the JV, respectively.

As of March 31, 2013, the total registered capital of Erdos TCH was $17.55 million (RMB 120,000,000), of which, $16.37 million (RMB 112 million) was contributed by Xi’an TCH, and $1.18 million (RMB 8 million) was from Erdos. Erdos TCH engages in a business similar to that of Xi’an TCH.

Erdos TCH allocates its income to Xi’an TCH and Erdos at a proportion of 80% and 20% based on net income calculated under PRC GAAP.  The main difference between US GAAP and PRC GAAP with respect to Erdos TCH is that the Erdos agreement is treated as a sales-type lease under US GAAP and as an operating lease under PRC GAAP.  The following is an unaudited profit and loss statement of Erdos TCH, prepared under PRC GAAP for the three months ended March 31, 2013 and 2012 (note: Erdos TCH’s US GAAP basis financial statements are part of the Company’s consolidated financial statements discussed in Note 2 – Basis for Consolidation):

	2013			2012
Net Revenue	$	3,758,993		$	3,711,425
Cost of Revenue		(2,116,686	)		(2,105,057	)
Gross Profit		1,642,307			1,606,368
Operating expenses		37,977			15,506
Income from operations		1,604,330			1,590,862
Non-operating income (expense)		(1,085,990	)		-
Income tax expense		(129,585	)		(397,716	)
Net Income (loss)	$	388,755		$	1,193,146

The following is a reconciliation of net income per PRC GAAP to net income per US GAAP for the three months ended March 31, 2013 and 2012:

	2013			2012
Net income per PRC GAAP	$	388,755		$	1,193,146
Adjustments under US GAAP:
Revenue per sales-type lease		(3,583,659	)		(3,567,238	)
Cost of revenue		2,055,270			2,095,199
Loss from operations		(1,528,389	)		(1,472,039	)
Operating income (expense)		(44	)		137
Interest income		1,832,757			673,934
Income (loss) before income tax		304,324			(797,968	)
Deferred income tax benefit (expense)		(88,474	)		199,492
Net adjustments		215,850			(598,476	)
Net income per US GAAP	$	604,605		$	594,670

The following is an unaudited balance sheet of Erdos TCH, prepared under PRC GAAP as of March 31, 2013 and December 31, 2012:

	2013		2012
Assets
Cash and equivalents	$	10,529	$	12,411
Other current assets		15,390,766		12,774,129
Property and equipment		46,071,286		46,558,041
Construction in process		-		-
Total Assets	$	61,472,581	$	59,344,581
Liabilities
Accounts payable	$	-	$	39,774
Other current liabilities		1,999,030		376,649
Long term loan		38,882,420		38,779,731
Total liabilities		40,881,450		39,196,154
Equity
Paid in capital		17,573,578		17,573,578
Statutory reserve		570,094		570,094
Other comprehensive income		1,807,908		1,753,959
Retained earnings		639,551		250,796
Total stockholders’ equity		20,591,131		20,148,427
Total liabilities and stockholders’ equity	$	61,472,581	$	59,344,581