NOTE 11 - STATUTORY RESERVE
In accordance with the laws and regulations
of the PRC, a wholly-owned Foreign Invested Enterprises income, after the payment of the PRC income taxes, shall be allocated to
the statutory surplus reserves and statutory public welfare fund. Prior to January 1, 2006 the proportion of allocation
for reserve was 10 percent of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair
fund. The public welfare fund reserve was limited to 50 percent of the registered capital. Effective January
1, 2006, there is now only one fund requirement. The reserve is 10 percent of income after tax, not to exceed 50 percent
of registered capital.
Statutory Reserve funds are restricted
for set off against losses, expansion of production and operation or increase in register capital of the respective company. Statutory
public welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves
are not transferable to the Company in the form of cash dividends, loans or advances. These reserves are therefore not
available for distribution except in liquidation. As at September 30, 2012 and December 31, 2011, the Company had allocated
$810,540 to these non-distributable reserve funds.