NONCONTROLLING INTEREST

9 Months Ended

Sep. 30, 2011

10. NONCONTROLLING INTEREST

“Non-controlling interest” was a 7% equity interest of Erdos JV 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 a complete return on its investment. Xi’an TCH and Erdos will then receive 60% and 40% of the profit from the JV, respectively.

As of September 30, 2011, the total registered capital of Erdos JV is RMB 120,000,000 ($17.55 million), of which, $16.37 million (RMB112 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 Chinese GAAP. The main difference between US GAAP and Chinese GAAP with respect to Erdos is that the Erdos agreement is treated as a sales-type lease under US GAAP and as an operating lease under Chinese GAAP. The following is the profit and loss statement of Erdos TCH, prepared under Chinese GAAP for the nine months ended September 30, 2011:

Net Revenue	$	9,978,008
Cost of Revenue		(5,726,613	)
Gross Profit		4,251,395
Operating expenses		15,859
Income from operations		4,235,536
Non-operating income		6,612
Income tax expense		(1,060,537	)
Net Income	$	3,181,611

The following is a reconciliation of net income per Chinese GAAP to net income per US GAAP:

Net income per Chinese GAAP	$	3,181,611
Adjustments under US GAAP:
Revenue per sales-type lease		1,684,857
Cost of revenue		(3,072,599	)
Income from operation		1,793,869
Interest income		2,758,928
Income before income tax		4,552,797
Deferred income tax expense		(696,444	)
Net income per US GAAP	$	3,856,353

The following is the balance sheet of Erdos TCH, prepared under Chinese GAAP at September 30, 2011:

Assets
Cash and equivalents	$	3,390,779
Other current assets		4,364,407
Property and equipment		49,303,067
Construction in process		21,989,258
Total Assets	$	79,047,511
Liabilities
Accounts payable	$	2,324,978
Other current liabilities		5,757,271
Long term loan		47,207,667
Total liabilities		55,289,916
Equity
Paid in capital		17,573,578
Statutory reserve		153,147
Other comprehensive income		1,480,109
Retained earnings		4,550,761
Total stockholders’ equity		23,757,595
Total liabilities and stockholders’ equity	$	79,047,511

- Definition

The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.

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