STATUTORY RESERVES - Note 23

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

STATUTORY RESERVES - Note 23

NOTE 23 - STATUTORY RESERVES

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

i) Making up cumulative prior years' losses, if any;

ii) Allocations to the "Statutory surplus reserve" of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital;

iii) Allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Company's "Statutory common welfare fund", which is established for the purpose of providing employee facilities and other collective benefits to the Company's employees; and Statutory common welfare fund is no longer required per the new cooperation law executed in 2006.

iv) Allocations to the discretionary surplus reserve, if approved in the shareholders' general meeting.

In accordance with Chinese Company Law, the Company allocated 10% of its net income to surplus. For the nine months ended September 30, 2012 and 2011, the Company appropriated $19,996 and $3,667 to statutory surplus reserve respectively. As of September 30, 2012 and December 31, 2011, the Company's statutory surplus reserve was $702,524 and $682,528 respectively.