The Company is required to make
appropriations to reserves funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus
reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the Peoples
Republic of China (the PRC GAAP). Appropriation to the statutory surplus reserve should be at least 10% of
the after-tax net income determined in accordance with the PRC GAAP until the reserve is equal to 50% of the Companys registered
capital. Appropriation to the statutory public welfare fund is 10% of the after-tax net income determined in accordance
with the PRC GAAP. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors.
The statutory public welfare fund is established for providing employee facilities and other collective benefits to the employees
and is non-distributable other than in liquidation. The Company made no appropriations to the statutory reserve, as it did
not have a pre-tax profit.