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Note 1 – Description of Business and Basis of Presentation DESCRIPTION OF BUSINESS China Valves Technology, Inc. (the “Company”), was incorporated in Nevada in August 1997. Through its direct and indirect subsidiaries, the Company focuses primarily on the development, manufacture and sale of high-quality metal valves for the electricity, petroleum, chemical, water, gas and metal industries in the People’s Republic of China (the “PRC”). The Company’s operations are headquartered in Zhengzhou, Henan Province, PRC. THE REPORTING ENTITIES The accompanying consolidated financial statements include the following subsidiaries: <div> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> Name of entity </td> <td align="center" nowrap="nowrap" width="17%"> Place of incorporation </td> <td align="center" nowrap="nowrap" width="17%"> Ownership </td> <td align="center" nowrap="nowrap" width="17%"> Principle business </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="middle"> China Valves Technology (Changsha) Valve Co., Ltd. </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> PRC </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> Manufacturing </td> </tr> <tr valign="top"> <td align="left" valign="middle"> Yangzhou Rock Valve Lock Technology Co., Ltd. (“Yangzhou Rock”) </td> <td align="center" valign="middle" width="17%"> PRC </td> <td align="center" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" valign="middle" width="17%"> Manufacturing </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="middle"> Henan Kai Feng High Pressure Valve Co., Ltd. (“Kaifeng Valve”) </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> PRC </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> Manufacturing </td> </tr> <tr valign="top"> <td align="left" valign="middle"> Zhengzhou City ZhengDie Valve., Ltd. (“ZD Valve”) </td> <td align="center" valign="middle" width="17%"> PRC </td> <td align="center" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" valign="middle" width="17%"> Manufacturing </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="middle"> Tai Zhou Tai De Valve Co., Ltd. (“Taide Valve”) </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> PRC </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> Manufacturing </td> </tr> <tr valign="top"> <td align="left" valign="middle"> Shanghai Pudong Hanwei Valve Co., Ltd. (“Hanwei Valve”) </td> <td align="center" valign="middle" width="17%"> PRC </td> <td align="center" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" valign="middle" width="17%"> Manufacturing </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="middle"> Henan Tonghai Fluid Equipment Co., Ltd. </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> PRC </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> Holding Company </td> </tr> <tr valign="top"> <td align="left" valign="middle"> Shanghai Hanhuang Valve Co., Ltd. * </td> <td align="center" valign="middle" width="17%"> PRC </td> <td align="center" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" valign="middle" width="17%"> Holding Company </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="middle"> Get Success Investment Limited * </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> Hong Kong </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> 100% Indirectly </td> <td align="center" bgcolor="#e6efff" valign="middle" width="17%"> Holding Company </td> </tr> <tr valign="top"> <td align="left" valign="middle"> China Valves Technology Holdings Co., Ltd. (formerly China Fluid Equipment Holdings Limited) (“Changsha Valve”) </td> <td align="center" valign="middle" width="17%"> Hong Kong </td> <td align="center" valign="middle" width="17%"> 100% Directly </td> <td align="center" valign="middle" width="17%"> Holding Company </td> </tr> </table> </div> * Shanghai Han Huang Valve Co., Ltd. was dissolved on October 19, 2011and Get Success Investment Limited was dissolved on September 16, 2011. CHANGE IN FISCAL YEAR In August 2011, the Company changed its fiscal year end to September 30 from December 31. The Company made this change to better align its financial reporting period, as well as its annual planning and budgeting process. As a result of this change, the Consolidated Financial Statements include the Company’s financial results for the nine months transition period of January 1, 2011 through September 30, 2011 and the unaudited comparative information for the nine months ended September 30, 2010. The years ended December 31, 2010 and 2009 reflect the twelve-month results of the respective calendar year. BASIS OF PRESENTATION The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). In the opinion of management, the accompanying balance sheets, and statements of income and other comprehensive income, shareholders’ equity and cash flows include all adjustments, consisting only of normal recurring items, considered necessary to give a fair presentation of operating results for the periods presented. All material inter-company transactions and balances have been eliminated in consolidation. The Renminbi (“RMB”) of the People’s Republic of China has been determined to be the Company’s functional currency. The balance sheets were translated at year end exchange rates. Expenses were translated at moving average exchange rates in effect during the periods. The effects of rate changes on assets and liabilities are recorded as accumulated other comprehensive income.

Note 2 – Summary of significant accounting policies PRINCIPLES OF CONSOLIDATION China Valves Technology, Inc. is a holding company which conducts its business through its operating subsidiaries. The consolidated financial statements include the accounts of the Company and the Company’s wholly indirectly owned subsidiaries. All intercompany transactions have been eliminated. The results of companies acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the allowance for doubtful accounts; the fair value determination of financial and equity instruments, realizability of inventories; the recoverability of goodwill, intangible assets, land use right, plant and equipment; and accruals for income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions. REVENUE RECOGNITION The Company’s revenue recognition policies are in accordance with U.S. generally accepted accounting principles regarding revenue recognition. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of delivery for domestic sales when risk of loss and title passes to the customer. For international sales, the revenue recognition criteria are generally satisfied under Free on Board (“FOB”) terms, in which the Company’s responsibility ends once the goods clear the port of shipment. The Company recognizes revenue when the goods are delivered and title has passed. Sales revenue represents the invoiced value of goods, net of a value-added tax (“VAT”). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price or at a rate approved by the Chinese local government. This VAT may be offset by the VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company allows its customers to retain 5% to 10% of the contract prices as retainage during the warranty period, usually 12 or 24 months, to guarantee product quality. Retainage is considered as a payment term included as a part of the contract price, and recognized as revenue based upon shipment of products. Due to nature of the retainage, the Company’s policy is to take into revenue the full value of the contract without VAT, including any retainage, as it performs against the contact since the Company has experienced insignificant warranty claims historically resulting in the Company having to repair or exchange a defective product. Due to the infrequency and insignificant amount of warranty claims, the ability to collect retainage is reasonably assured and is recognized at the time of shipment. The Company also provides services to some of its sales agents and distributors. The Company recognizes revenue on these services once a contract is signed and the services have been rendered. WARRANTIES The Company typically provides warranty for all of its products and provides replacement or credit to its customers who are not satisfied with the products for a period of one year from the date of shipment. The Company has not established reserve funds for potential customer claims because, historically, the Company has not experienced significant customer complaints about its products. The Company believes that its customer support teams, quality assurance team and manufacturing monitoring procedures will continue to keep claims at a level that does not support a need for a reserve. The Company reviews customer returns on a monthly basis and may establish a reserve when necessary. COST OF GOODS SOLD Cost of goods sold consists primarily of direct material costs, direct labor costs, direct depreciation and related direct expenses attributable to the production of the products. Inbound shipping and handling costs and purchasing are included in direct material costs. Manufacturing overhead includes expenses such as indirect labor, depreciation as it relates to the cost of production, rent, utilities, receiving costs, and equipment maintenance and repairs. SHIPPING AND HANDLING Shipping and handling costs incurred for shipping of valves and other products to customers are included in selling expense and totaled $529,756 for the nine months ended September 30, 2011, and $1,131,575 and $386,929 for the years ended December 31, 2010 and 2009, respectively. SELLING EXPENSE Selling expense includes transportation expense, advertising, salaries, conference fees, sales commissions, and shipping and handling. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses include insurance expense, administrative and management salaries, bad debt expense, depreciation, rent, travel expense, welfare expense, office expenses, meal and entertainment expense, conference expense, and repairs and maintenance expense. ADVERTISING Advertising costs are expensed when incurred and are included in selling, general and administrative expenses, which amounted to $53,991 for the nine months ended September 30, 2011, and $153,159 and $36,834 for the years ended December 31, 2010 and 2009, respectively. FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME The reporting currency of the Company is the US dollar. The functional currency of the Company and the local currency of its operating subsidiaries is RMB. For those entities whose currency is other than the US dollar, all assets and liabilities are translated into U.S. dollars at the exchange rate on the balance sheet date; shareholders’ equity is translated at historical rates and items in the statements of income and of cash flows are translated at the average rate for the period. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported in the statement of cash flows will not necessarily agree with changes in the corresponding balances in the balance sheet. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The balance sheet amounts with the exception of equity at September 30, 2011 and December 31, 2010 were translated at 6.39 and 6.59 RMB to $1.00. The average translation rates applied to the statements of operations and cash flows were 6.50 RMB to $1.00 for the nine months ended September 30, 2011, and 6.78 RMB and 6.82 RMB to $1.00 for the years ended December 31, 2010 and 2009, respectively. PLANT AND EQUIPMENT Plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated life of the asset, ranging from five to thirty years. Construction in progress represents direct costs of construction as well as acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. Interest incurred during the period required to complete the construction is capitalized into construction in progress. All other interest is expensed as incurred. No depreciation is provided until construction is completed and the asset is ready for its intended use. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Major additions and betterments to property and equipment are capitalized. INTANGIBLE ASSETS Intangible assets consist of patents, software and land use rights. Patents are being amortized over 5-20 years as management believes those are the estimated useful life of the patents currently owned by the Company. Land use rights are carried at cost and charged to expense on a straight-line basis over the period the rights are granted, 46.4 – 50.0 years. Software is amortized over 10 years, its estimated useful life. GOODWILL Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is not amortized, but is instead tested for impairment. Goodwill is reviewed for impairment at internal reporting unit - individual operating subsidiary basis in accordance with U.S. GAAP. The Company determines the reporting units based on following factors: a. it engages in business activities from which it may earn revenues and incur expenses; b. its operating results are regularly reviewed by the Company’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance; and c. its discrete financial information is available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include current period operating or cash flow losses combined with a historical of operating or cash flow losses, a projection or forecast that demonstrates continuing operating or cash flow losses, a significant adverse change in AR collection and unanticipated technology revolution in valves industry, among others. The Company performs its annual impairment review of goodwill every year at September 30 and when a triggering event occurs between annual impairment tests. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit, and the Company must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. In additional to cash flow projections, management also considers if the change of stock price representing of a triggering event for an impairment evaluation. The Company believes that the current decline in its stock price is temporary due to the negative publicity about Chinese companies going public in the United States through reverse merger transactions. The fundamentals of the Company’s business remain strong as evidenced by over $30.0 million of net income over the past nine months. The Company does not believe impairing its goodwill is necessary at this time just because its stock price has temporarily dropped while the fundamentals of the business remain strong. The Company has acquired several entities resulting in the recording of intangible assets, including goodwill, which represents the excess of the purchase price over the fair value of the net assets of businesses acquired. The Company has six operating subsidiaries as reporting units included in continuing operations as of September 30, 2011, among which three reporting units had goodwill. The following table represents goodwill of the three subsidiaries as of September 30, 2011 and December 31, 2010, respectively. <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> (in thousands) </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Kaifeng Valve </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  10,783 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  10,783 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Zhengdie Valve </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 10,029 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 10,029 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Hanwei Valve </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 11,046 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 11,046 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Foreign currency translation adjustment </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 2,118 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 1,097 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">               Total </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  33,976 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  32,955 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table> No impairment loss was incurred for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009 based on the Company’s annual impairment test. LONG-LIVED ASSETS Long lived assets, including buildings and improvements, equipment and intangible assets are reviewed if events and changes in circumstances indicate that its carrying amount may not be recoverable, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. For the nine months ended September 30, 2011, the Company determined that $110,096 equipment was impaired due to the carrying value could not be recoverable. This is because the products manufactured by certain equipment did not meet the customer’s needs any more. The Company determined that the equipment was technically obsolete and needed to be replaced with new equipment to meet the customer’s current and future needs. INVENTORIES The Company’s aggregate inventories are carried at cost or, if lower, net realizable value determined on the weighted average method. The Company provides a reserve for estimated inventory obsolescence or excess quantities on hand equal to the difference between the cost of the inventory and its estimated realizable value. The future estimated realizable value of inventory is generally based on the historical usage of such inventory. The Company ages its inventory with no recent demand and applies various valuation factors based on the last demand from customers for such material. If future conditions cause a reduction in the Company’s current estimate of realizable value, due to a decrease in customer demand, a drop in commodity prices or other market-related factors that may influence demand for particular products, additional provisions may be required. In addition, the Company also reviews most recent quotes from vendors and compares with the carrying value of its inventory. If carrying amount of raw materials exceeds prices available at the balance sheet date, then the excess amount is directly written off and included in cost of the goods sold. As of September 30, 2011 and December 31, 2010, the Company reserved $2,394,319 and $1,148,663 in allowance due to slow moving inventory, most of which are commodity valves whose technical specification no longer matched customers’ demand. Commodity valves are universal products we produce to meet general needs. $71,521, $1,177,692 and $0 were directly written off and included in cost of goods sold after comparing the carrying value of inventory and recent market prices for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. Semi-finished products are work-in-process (“WIP”) inventory at the finishing stages of production. These products that are awaiting final assembly have similar physical shape to finished goods. The Company differentiates these products from WIP for inventory management purposes. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities and which have alternative future uses, either in research and development, marketing, or sales, are classified as property and equipment and depreciated over their estimated useful lives. RETIREMENT BENEFIT COSTS Amounts payable to the PRC state managed retirement benefit programs are expensed in the financial statements following the accrual basis of accounting. INCOME TAXES The Company applies the accounting standard regarding accounting for income taxes and the accounting standard regarding accounting for uncertainty in income taxes for income taxes. This accounting standard requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. The charge for taxation is based on the results for the year as adjusted for items that are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxes are accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Under the accounting standard regarding accounting for uncertainty in income taxes, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. No significant penalties or interest relating to income taxes have been incurred during the nine months ended September 30, 2011. U.S. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of cash in banks and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. RESTRICTED CASH The Company’s restricted cash consists of cash in the bank as security for its exported products, security deposits for contract performance, notes payable and cash held in escrow to pay for certain investor relations expenses. For restricted cash held in bank, the restriction is released after the customers have received and inspected the products. The Company has notes payable outstanding with various banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. Cash held in escrow is expensed as incurred. Restricted cash amounted to $2,344,276 and $1,164,598 as of September 30, 2011 and December 31, 2010, respectively. <div> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="80%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Employee housing fund </td> <td align="left" bgcolor="#e6efff" width="1%">$</td> <td align="right" bgcolor="#e6efff" width="12%"> 163,936 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%">$</td> <td align="right" bgcolor="#e6efff" width="12%"> 153,278 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Cash held for sales covenants </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 2,180,340 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 1,011,320 </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Total restricted cash </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  2,344,276 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  1,164,598 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="2%"> </td> </tr> </table> </div> CONCENTRATION RISKS The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, restrictions on currency conversion and remittance abroad, and rates and methods of taxation, among other things. Certain financial instruments may subject the Company to concentration of credit risk. The Company maintains bank deposits within state-owned banks within the PRC, Hong Kong and the United States. Balances at financial institutions of state owned banks within the PRC are not covered by insurance. As of September 30, 2011 and December 31, 2010, the Company’s cash and restricted cash balances, totaling $29,508,367 and $26,596,872 respectively at those dates, were not covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. Five major customers represented approximately 14%, 9% and 11% of the Company’s total sales for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. The five major customers accounted for 6% and 5% of total accounts receivable as of September 30, 2011 and December 31, 2010, respectively Five major suppliers, including one related party, represented approximately 18%, 24% and 17% the Company’s total purchases for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively, and accounted 5% and 13% of total accounts payable as of September 30, 2011 and December 31, 2010, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS The accounting standards regarding disclosures about fair value of financial instruments defines financial instruments and required fair value disclosure of those instruments. This accounting standard defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. Receivables, investments, payables, short and long term debt and warrant liabilities qualified as financial instruments. Management believes the carrying amounts of receivables, payables and debt are a reasonable estimate of fair value because of the short period of time between the origination of such instruments, their expected realization, and if applicable, their stated interest rate is equivalent to interest rates currently available. The three levels are defined as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. The Company analyzes all financial instruments with features of both liabilities and equity under the accounting standards regarding accounting for certain financial instruments with characteristics of both liabilities and equity, accounting for derivative instruments and hedging activities, accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and the accounting standard regarding determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The accounting standard specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. This standard provides a two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for this accounting standard scope exception. All warrants issued by the Company are denominated in USD; because the Company’s functional currency is the RMB, the Company accounts for these warrants as derivative instrument liabilities and marks them to market each period. Because there is no quoted or observable market price for the warrants, the Company used level 3 inputs for its valuation methodology. A discussion of the valuation technique used to measure the fair value of the warrant liabilities is provided in Note 13. <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" nowrap="nowrap" width="10%"> Carrying Value as of </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" colspan="7" nowrap="nowrap" width="36%"> Fair Value Measurements at September 30, 2011 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" colspan="7" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="36%"> using Fair Value Hierarchy </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="left" width="10%"> </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="center" width="10%"> Level 1 </td> <td align="center" width="2%"> </td> <td align="center" width="1%"> </td> <td align="center" width="10%"> Level 2 </td> <td align="center" width="2%"> </td> <td align="center" width="1%"> </td> <td align="center" width="10%"> Level 3 </td> <td align="left" width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="10%"> </td> <td width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Warrant liabilities </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="left" bgcolor="#e6efff" width="10%"> </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="left" bgcolor="#e6efff" width="10%"> </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table> Except for the warrant liabilities, the Company did not identify any other asset and liability that are measured at fair value on a recurring basis in accordance with the accounting standard. Level 3 Valuation Reconciliations: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" nowrap="nowrap" width="12%"> Warrant </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> liabilities </td> <td align="left" width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td nowrap="nowrap" width="12%"> </td> <td width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, December 31, 2010 </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  880,565 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Issuance of new warrants </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 110,815 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Warrants expired reclassified to APIC </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> (1,349 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left"> Current period fair value change of exercised warrants </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> - </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Current period fair value change </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (990,031 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left"> Balance, September 30, 2011 </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  - </td> <td align="left" width="2%"> </td> </tr> </table> RECEIVABLES The Company’s business operations are conducted in the PRC by selling on various credit terms. Management reviews its receivables on a quarterly basis to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is recorded when collection of the full amount is no longer probable. Known bad debts are written off against the allowance for doubtful accounts when identified. The Company’s existing reserve is consistent with its historical experience and considered adequate by management. EARNINGS PER SHARE The Company reports earnings per share in accordance with the provisions of the accounting standard regarding "Earnings per Share." This accounting standard requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution (using the treasury stock method) that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date. OTHER INVESTMENTS The Company invested in China Perfect Machinery Industry Co., Ltd. in 1996 and Kaifeng Commercial Bank in 1997. The Company owns approximately 0.0955% of China Perfect Machinery Industry Co. Ltd. and approximately 1.6% of Kaifeng Commercial Bank. The Company does not have the ability to exercise control over the investee companies and the investments have been recorded under the cost method. These long-term investments amounted to $815,066 and $790,572 as of September 30, 2011 and December 31, 2010, respectively. There has been no change in the carrying value since initial investment, other than the effects of translation difference. The Company evaluates potential impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. For investments carried at cost, the Company recognizes impairment in the event that the carrying value of the investment exceeds the Company’s proportionate share of the net book value of the investee. As of September 30, 2011, management believes no impairment charge is necessary. CUSTOMER DEPOSITS Customer deposits represent amounts advanced by customers on product orders. The product normally is shipped within six months after receipt of the advance payment and the related sale is recognized in accordance with the Company’s revenue recognition policy. As of September 30, 2011 and December 31, 2010, customer deposits amounted to $11,139,936 and $6,499,833, respectively. STOCK COMPENSATION The Company applies the accounting standard regarding accounting for stock-based compensation, which defines a fair-value-based method of accounting for stock based employee compensation and transactions in which an entity issues its equity instruments to acquire goods and services from employees and non-employees. Stock compensation for stock granted to non-employees has been determined in accordance with this accounting standard and the accounting standard regarding accounting for equity instruments that are issued to non-employees for acquiring, or in conjunction with selling goods or services, as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. This accounting standard allows the “simplified” method to determine the term of employee options when other information is not available. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2011, the FASB issued ASU No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03), intended to improve financial reporting of repurchase agreements and refocus the assessment of effective control on a transferor’s contractual rights and obligations rather than practical ability to perform those rights and obligations. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The Company does not expect the adoption of ASU 2011-03 to have a significant impact on its consolidated financial statements. In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the FASB and the International Accounting Standards Board (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and early application is not permitted. The Company is evaluating the impact adoption of ASU 2011-04 and does not expect the adoption of ASU 2011-04 will have significant impact on its consolidated financial statements. In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all non-owner changes in stockholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. Amendments under ASU 2011-05 for public entities should be applied retrospectively for fiscal years, and interim periods within those years, beginning December 15, 2011. The Company is evaluating the impact adoption of ASU 2011-05 and does not expect the adoption of ASU 2011-05 will have significant impact on its consolidated financial statements. In July 2011, the FASB issued accounting guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The guidance expands disclosures for the allowance for credit losses and financing receivables by requiring entities to disclose information at disaggregated levels. It also requires disclosure of credit quality indicators, past due information and modifications of financing receivables. The Company does not expect the adoption of this guidance to have a significant impact on its consolidated financial statements. In September 2011, the FASB issued Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment (ASU No. 2011-08), which amends ASC 350 to first assess qualitative factors before performing the quantitative goodwill impairment testing. The ASU provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative analysis indicate it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test, which is required under current U.S. GAAP, would not be necessary. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The implementation of the ASU is not expected to have a material impact on the Company’s financial statements. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. These classifications have no effect on net income.

Note 3 – Accounts receivable, net Accounts receivable consists of the following: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Total accounts receivable </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  134,290,696 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  89,897,470 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Accounts receivable – related party </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> - </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 200,185 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">        Allowance for bad debts </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (4,052,398 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (998,739 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left"> Accounts receivable, net </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 130,238,298 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 89,098,916 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">        Accounts receivable – non-current retainage </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (5,724,024 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (4,751,605 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left"> Accounts receivable (including related party) – current </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  124,514,274 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  84,347,311 </td> <td align="left" width="2%"> </td> </tr> </table> Retainage represents 5% to 10% of the contract prices held by customers to guarantee product quality ranging from 12-18 months after shipment of products. Retainage is considered as a payment term included as a part of the contract price, and recognized as revenue based upon shipment of products. Due to the nature of the retainage, the Company’s policy is to take into revenue the full value of the contract, including any retainage, as it performs against the contact since the Company has experienced insignificant warranty claims historically resulting in the Company having to repair or exchange a defective product. Due to the infrequency and insignificant amount of warranty claims, the ability to collect retainage is reasonably assured and is recognized at the time of shipment. As of September 30, 2011 and December 31, 2010, retainage held by customers included in the Company’s accounts receivable is as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Retainage </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="left" bgcolor="#e6efff" width="12%"> </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="left" bgcolor="#e6efff" width="12%"> </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left">    Current </td> <td align="left" width="1%"> $ </td> <td align="right" width="12%">  13,854,814 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> $ </td> <td align="right" width="12%">  7,754,714 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">    Non-current </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 5,724,024 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 4,751,605 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left">              Total retainage </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  19,578,838 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  12,506,319 </td> <td align="left" width="2%"> </td> </tr> </table> The following represents the changes in the allowance for doubtful accounts: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, beginning of the period </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  998,739 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  908,338 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Additions to the allowance </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 2,974,399 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 353,036 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Recovery of amounts previously reserved </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> (295,200 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left"> Foreign currency translation adjustment </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 79,260 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 32,565 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, end of the period </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  4,052,398 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  998,739 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table>

Note 4 – Inventories, net <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Raw materials </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  5,438,464 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  4,742,643 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Work-in-progress </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 9,088,975 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 3,764,667 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Finished goods </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 8,613,573 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 7,810,526 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Semi-finished products </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 1,417,185 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 1,082,765 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Inventory in transit </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 1,705,007 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left">      Total </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 26,263,204 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 17,440,601 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Less: Inventory Allowance </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (2,394,319 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (1,148,663 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left">      Inventories, net </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  23,868,885 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  16,251,938 </td> <td align="left" width="2%"> </td> </tr> </table> The Company values its inventories at the lower of cost or market, determined on a weighted average method, or net realizable value. Management determined the carrying amount of inventory exceeded net realizable value; therefore, $71,521, $1,177,692 and $0 have been written down and included in cost of goods sold for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional costs of goods sold. The Company recorded additional $1,190,725 and $681,989 inventory allowance for the nine months ended September 30, 2011 and for the year ended December 31, 2010 respectively. Inventory allowance amounted to $2,394,319 and $1,148,663 as of September 30, 2011 and December 31, 2010, respectively.

Note 5 –Plant and equipment, net Plant and equipment consist of the following: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Buildings and improvements </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  23,592,085 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  22,043,897 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Machinery and equipment </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 27,934,105 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 26,569,403 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Motor vehicles </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 2,925,919 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 2,701,563 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Office equipment </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 1,665,384 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 1,473,776 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Construction in progress </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 165,511 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 497,652 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left">      Total </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 56,283,004 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 53,286,291 </td> <td align="left" width="2%"> </td> </tr> <tr> <td align="left" bgcolor="#e6efff"> Less: Accumulated depreciation   </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (16,090,368 </td> <td align="left" bgcolor="#e6efff" width="2%"> )   </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (12,512,729 </td> <td align="left" bgcolor="#e6efff" width="2%"> )  </td> </tr> <tr> <td align="left">      Plant and equipment, net   </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  40,192,636  </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  40,773,562  </td> <td align="left" width="2%"> </td> </tr> </table> The Company has no major capital commitments as of September 30, 2011. Depreciation expenses were $3,644,599, $4,167,004 and $1,694,674 for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. Capitalized interest amounted to $8,292, $60,152 and $147,537 for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. For the nine months ended September 30, 2011, the Company impaired long lived assets in the amount of $110,096 which was included in Other Expense. This is because the products manufactured by certain equipment did not meet customer needs any more. The Company determined that the equipment was technically obsolete and needed to be replaced with new equipment to meet customer’s current and future needs. For the year ended December 31, 2010, the Company changed estimate of useful lives for certain equipment and recorded additional depreciation amounted $1,341,962, which was included in cost of goods sold.

Note 6 – Goodwill The Company accounts for business combinations using the purchase method of accounting. The total consideration paid in an acquisition is allocated to the fair value of the acquired company’s identifiable assets and liabilities. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. In 2004, the Company acquired two companies engaged in the production of valves. The Company recorded goodwill representing the fair value of the assets acquired over the cost of the assets acquired. On April 8, 2010, the Company acquired 100% of Hanwei Valve with a total cash consideration of approximately $19.5 million. The fair value of the assets of Hanwei Valve was valued at approximately $8.5 million on the acquisition date; the Company recognized approximately $11.0 million goodwill through said acquisition. The goodwill recognized in conjunction with the acquisition of Hanwei Valve represents intangible values that Hanwei Valve has built over its more than 16 years of history, which do not qualify for separate recognition. These values include but are not limited to: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="5%"> i) </td> <td> Expected synergies from combining operations of the Company’s operating subsidiaries and Hanwei Valve; </td> </tr> <tr> <td width="5%"> </td> <td valign="top" width="5%"> ii) </td> <td> The experienced work force; </td> </tr> <tr> <td width="5%"> </td> <td valign="top" width="5%"> iii) </td> <td> Proprietary technologies related to certain products; and </td> </tr> <tr> <td width="5%"> </td> <td valign="top" width="5%"> iv) </td> <td> The proprietary manufacturing processes. </td> </tr> </table> As of September 30, 2011 and December 31, 2010, the carrying value of goodwill amounted to $33,976,186 and $32,955,163, respectively. The following table reconciles the beginning and ending balance of goodwill: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> Goodwill </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, December 31, 2009 </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  20,811,767 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Goodwill purchased </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 11,046,074 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Foreign currency translation adjustment </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 1,097,322 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Balance, December 31, 2010 </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">  32,955,163 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Goodwill purchased </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Foreign currency translation adjustment </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 1,021,023 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, September 30, 2011 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  33,976,186 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table>

Note 7 - Intangible assets, net Intangible assets consist of the following: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Patents </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  2,765,836 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  2,682,719 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Software </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 1,850,982 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 2,014,267 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Land use rights* </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 20,019,196 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 19,417,596 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left">        Total </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 24,636,014 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 24,114,582 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Less: Accumulated amortization </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (1,722,006 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> (1,086,702 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left">        Intangibles, net </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  22,914,008 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  23,027,880 </td> <td align="left" width="2%"> </td> </tr> </table> * Land use rights consist of land use rights of $817,567 acquired as part of the acquisition of Taide Valve; $1,129,427 was acquired as part of the acquisition of Yangzhou Rock, $6,104,542, acquired as part of the acquisition of Changsha Valve, $3,903,744 acquired as part of the acquisition of Hanwei Valve and land use rights of $8,063,916 acquired by Kaifeng Valve by issuing 2,750,000 shares of common stock of the Company. The gross amount of the intangible assets amounted to $24,636,014 and $ 24,114,582 as of September 30, 2011 and December 31, 2010, respectively. The remaining weighted average amortization period is 38.3 years. Amortization expense was $592,019, $703,168 and $261,050 for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" nowrap="nowrap" width="11%"> Estimated </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" nowrap="nowrap" width="11%"> </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" nowrap="nowrap" width="11%"> Amortization </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" nowrap="nowrap" width="11%"> Net </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> For the years ended September 30, </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" bgcolor="#e6efff" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="11%"> Expense </td> <td align="center" bgcolor="#e6efff" nowrap="nowrap" width="2%"> </td> <td align="center" bgcolor="#e6efff" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" bgcolor="#e6efff" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="11%"> carrying Amount </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> 2012 </td> <td align="left" width="1%"> $ </td> <td align="right" width="11%">  789,359 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> $ </td> <td align="right" width="11%">  22,124,649 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> 2013 </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="11%"> 789,359 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="11%"> 21,335,290 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> 2014 </td> <td align="left" width="1%"> </td> <td align="right" width="11%"> 789,359 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="11%"> 20,545,931 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> 2015 </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="11%"> 789,359 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="11%"> 19,956,572 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> 2016 </td> <td align="left" width="1%"> </td> <td align="right" width="11%"> 789,359 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="11%"> 18,967,213 </td> <td align="left" width="2%"> </td> </tr> <tr> <td bgcolor="#e6efff"> </td> <td bgcolor="#e6efff" width="1%"> </td> <td bgcolor="#e6efff" width="11%"> </td> <td bgcolor="#e6efff" width="2%"> </td> <td bgcolor="#e6efff" width="1%"> </td> <td bgcolor="#e6efff" width="11%"> </td> <td bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Thereafter </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="11%"> 18,967,213 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> $ </td> <td align="right" width="11%">  - </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Total </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="11%">  22,914,008 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="left" bgcolor="#e6efff" width="11%"> </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table>

Note 8 – Loans <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> SHORT TERM LOANS: </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31, 2010 </td> <td align="left" width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" nowrap="nowrap"> Communications Bank of China, Changsha branch, due December 2011, annum      interest at 6.1% , pledged by Changsha Valve’s land use rights </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%">  625,600 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%">  758,500 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" nowrap="nowrap"> China Everbright Bank – Changsha branch, due June 2012, 7.6% annum interest      rate, pledged by Changsha Valve’s land use rights </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 938,400 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> - </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" nowrap="nowrap"> China Citic Bank, Zhengzhou branch Due December 2011 annum interest at 6.7%, ,      guaranteed by Kaifeng Cast Iron Co., Ltd. </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> 3,128,000 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> 3,034,000 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" nowrap="nowrap"> Unrelated third parties, due on demand, non-interest bearing and unsecured </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 982,511 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 1,017,393 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" nowrap="nowrap"> Local Bureau of Finance, Kaifeng City, due on demand, non-interest bearing and       unsecured </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 839,299 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 838,901 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Total short term loans </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="12%">  6,513,810 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="12%">  5,648,794 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> </table> Interest expense incurred for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009 amounted to $216,203, $127,113 and $138,562, respectively. Capitalized interest amounted to $8,292, $60,152 and $147,537 for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. As of September 30, 2011, there are no restrictive covenants related to the loans stated above.

Note 9 - Taxes Income Taxes The Company and its subsidiaries file separate income tax returns. The United States of America The Company is incorporated in the State of Nevada in the U.S. and is subject to a graduated U.S. federal corporate income tax of 15% to 34%. The State of Nevada does not impose any corporate state income tax. Hong Kong The Company’s subsidiary, China Valves Holdings is incorporated in Hong Kong. China Valves Holdings did not earn any income that was derived in Hong Kong for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009 and therefore was not subject to Hong Kong Profit Tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax. PRC The Company conducts all its operating business through its operating subsidiaries in the PRC. The operating subsidiaries are governed by the income tax laws of the PRC, the company do not have any deferred tax assets or deferred tax liabilities because there are no temporary differences between financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company’s operating subsidiaries: Kaifeng Valve, Changsha Valve, Taide Valve, and Yangzhou Rock are subject to an income tax at an effective rate of 25%. Hanwei Valve is subject to a preferential income tax at rate of 15%. ZD Valve received the National High-Tech Enterprise status and thus became entitled to a preferential tax rate of 15% as well. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. No significant penalties or interest relating to income taxes have been incurred during the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009. The following table reconciles the U.S. statutory rate to the Company’s effective tax rate: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> For the nine months ended </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" colspan="4" nowrap="nowrap" valign="bottom" width="23%"> For the years ended December 31, </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2009 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> U.S. Statutory rate </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 34.0% </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 34.0% </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 34.0% </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Foreign income not recognized in USA </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> (34.0 </td> <td align="left" valign="bottom" width="2%"> ) </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> (34.0 </td> <td align="left" valign="bottom" width="2%"> ) </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> (34.0 </td> <td align="left" valign="bottom" width="2%"> ) </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Non-deductible expenses (1) </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 1.3 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 7.1 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 1.8 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> China income taxes </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 25.0 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 25.0 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 25.0 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> China income tax exemption </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> (2.1 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> (7.0 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> - </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom">      Total provision for income taxes </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%"> 24.2% </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%"> 25.1% </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%"> 26.8% </td> <td align="left" valign="bottom" width="2%"> </td> </tr> </table> (1) The 1.3% , 7.1% and 1.8% represents net expenses incurred by the Company that are not deductible for PRC income tax purpose for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. The estimated tax savings due to the reduced tax rate are $2,177,023, $1,827,508 and $0 for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. The net effect on basic and diluted earnings per share if the income tax had been applied would decrease earnings per dilutive share by $0.06, $0.05 and $0 for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. The Company has cumulative undistributed earnings of foreign subsidiaries of around $142.3 million as of September 30, 2011, is included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future. Value Added Tax VAT on sales and VAT on purchases in the PRC amounted to $26,225,634 and $15,656,180 for the nine months ended September 30, 2011, respectively. VAT on sales and VAT on purchases in China amounted to $30,738,159 and $9,119,027 for the year ended December 30, 2010, and $14,902,035 and $5,870,603 for the year ended December 31, 2009, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday. Taxes payable consisted of the following: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> December 31, 2010 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> VAT </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%">  1,775,373 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%">  2,505,802 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Income tax </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 3,694,160 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 4,013,347 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Other taxes </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 321,907 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 308,969 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom">      Total taxes payable </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="12%">  5,791,440 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="12%">  6,828,118 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> </table>

Note 10 – Statutory reserves The laws and regulations of the PRC require that before a foreign invested enterprise can legally distribute profits, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations, in proportions determined at the discretion of the board of directors, to the statutory reserve. The statutory reserves include the surplus reserve fund. The Company is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company ’ s registered capital. The transfer to this reserve must be made before distribution of any dividends to shareholders. The Company had $11,224,490 and $10,046,713 statutory reserves as of September 30, 2011 and December 31, 2010, respectively, and the remaining reserve to fulfill the 50% registered capital requirement amounted approximately $27.0 million and $27.8 million. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 50% of the registered capital.

Note 11 – Commitments and contingencies The Company’s subsidiary, ZhengDie Valve entered into a lease agreement for a manufacturing plant and office space with ZhengZhou Cheng Long Corporation, a related party, from January 1, 2008 to December 31, 2008. The lease agreement was subsequently extended to December 31, 2012. In 2009, ZhengDie Valve made leasehold improvements to its leased manufacturing plant in the amount of $615,260, which is used as rental payments for the following two years. As of September 30, 2011, prepaid rental of $19,941 remains to be amortized as rental expense. The Company’s subsidiary, Tonghai entered into a lease agreement for an office space with Jia Hong Yao, an unrelated party, from September 20, 2009 to September 19, 2014 with annual lease payments of $227,549. For the nine months ended September 30, 2011, total lease expense, including rental expense under cost of sales, was $406,778. Total lease expense, including expense under cost of sales, for the years ended December 31, 2010 and 2009 was $482,030 and $350,336, respectively. The future minimum lease payments at September 30, 2011, are as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> For the years ended September 30, </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> Amount </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> 2012 </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="12%">  609,059 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> 2013 </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 350,061 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> 2014 </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> 258,567 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> 2015 </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 170,662 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Thereafter </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Total </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  1,388,349 </td> <td align="left" width="2%"> </td> </tr> </table> Make Good Escrow Agreement In connection with the Company’s private placement on August 26, 2008, the Company entered into a Make Good Escrow Agreement (the “Escrow Agreement”), under which the 12,583,032 shares of the Company’s common stock held by Bin Li, the Company’s major shareholder, were placed in escrow. Of these shares, 12,150,000 are the subject of the Earn-In Agreement between Bin Li and Siping Fang and Bin Li entered into the Escrow Agreement on behalf of Siping Fang. For each of the calendar years 2008, 2009 and 2010, 4,194,344 shares would be released to the investors or returned to Bin Li, depending on the fulfillment of specified earnings targets. The specified earnings target for calendar 2008 was net income of $10,500,000, for calendar 2009 the target is net income of $23,000,000 and fully diluted earnings per share of $0.738 and for calendar 2010 the target is net income of $31,000,000 and fully diluted earnings per share of $0.994. On August 14, 2009, the parties to the Escrow Agreement entered into an amendment pursuant to which for calendar 2009 the target was amended to $21,000,000 and fully diluted earnings per share of $0.668 and for calendar 2010 the target was amended to net income of $34,000,000 and fully diluted earnings per share of $1.082. The Company met the specified earnings targets and accordingly, 4,194,344 shares were released from escrow and returned to Bin Li for each of the years ended December 31, 2009 and 2008, respectively. The Company has also met the specified earnings target for the year ended December 31, 2010 and thus 4,194,344 was released from escrow on March 24, 2011. Net income target required by the Escrow Agreement for calendar year of 2010 was $34,000,000, and the target for fully diluted earnings per share was $1.082. If the Company had not acquired Changsha Valve, the consolidated net income for the calendar year 2010 would be $34,303,537, which was slightly higher than the net income target; the fully diluted earnings per share would be $0.99, $0.092 less than the target. If the Company had not acquired Hanwei Valve, the consolidated net income for the calendar year of 2010 would be $34,034,935, which was also slightly higher than the net income target, and fully diluted earnings per share would be $0.98, $0.102 less than the target. If the Company had not acquired Changsha Valve and Hanwei Valve, the Company would not be able to meet the targets for net income and fully diluted earnings per share. Please also refer to the table below for the impacts of the acquisitions of Changsha Valve and Hanwei Valve. <div> <table border="1" cellpadding="3" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> US$ </td> <td align="left" width="15%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> 2010 Net income target pursuant to the Escrow Agreement </td> <td align="right" bgcolor="#e6efff" width="15%"> 34,000,000 </td> </tr> <tr valign="top"> <td align="left"> 2010 Diluted Earnings Per Share target pursuant to the Escrow Agreement </td> <td align="right" width="15%"> 1.082 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Consolidated net income for the calendar year of 2010 </td> <td align="right" bgcolor="#e6efff" width="15%"> 43,197,529 </td> </tr> <tr valign="top"> <td align="left"> Weighted average number of shares </td> <td align="right" width="15%"> 34,695,639 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Diluted Earnings Per Share </td> <td align="right" bgcolor="#e6efff" width="15%"> 1.25 </td> </tr> <tr valign="top"> <td align="left"> Net income of Changsha Valve for the calendar year of 2010 </td> <td align="right" width="15%"> 8,893,992 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Consolidated net income for the calendar year of 2010 without Changsha Valve </td> <td align="right" bgcolor="#e6efff" width="15%"> 34,303,537 </td> </tr> <tr valign="top"> <td align="left"> Diluted Earnings Per Share without Changsha Valve </td> <td align="right" width="15%"> 0.99 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Net income of Hanwei Valve for the calendar year of 2010 </td> <td align="right" bgcolor="#e6efff" width="15%"> 9,162,594 </td> </tr> <tr valign="top"> <td align="left"> Consolidated net income for the calendar year of 2010 without Hanwei Valve </td> <td align="right" width="15%"> 34,034,935 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Diluted Earnings Per Share without Hanwei Valve for the calendar year of 2010 </td> <td align="right" bgcolor="#e6efff" width="15%"> 0.98 </td> </tr> <tr valign="top"> <td align="left"> Consolidated net income for the calendar year of 2010 without Changsha Valve and Hanwei Valve </td> <td align="right" width="15%"> 25,140,943 </td> </tr> <tr> <td align="left" bgcolor="#e6efff"> Diluted Earnings Per Share without Changsha Valve and Hanwei Valve </td> <td align="right" bgcolor="#e6efff" width="15%"> 0.72  </td> </tr> </table> </div> Restricted Share Grant Agreements On May 16, 2011, the Company entered into Restricted Stock Grant Agreements (the “Stock Grant Agreement”) with three officers of the Company. Pursuant to the Stock Grant Agreement, the Company granted 500,000 shares of restricted stock to Mr. Jianbao Wang, the Company’s Chief Executive Officer, 250,000 shares to Mr. Gang Wei, the Company’s Chief Financial Officer, and 125,000 shares to Mr. Renrui Tang, the Company’s Vice President of Finance. 125,000 shares of Mr. Jianbao Wang’s restricted stock vested immediately on May 16, 2011. The remaining shares for Mr. Jianbao Wang and all restricted shares for Mr. Gang Wei and Mr. Renrui Tang will vest in three equal installments over a three-year period starting from January 1, 2012, subject to performance criteria set forth by the Board and the Compensation Committee. Contingency On February 4, 2011, a plaintiff filed a purported class action naming the Company, its Chairman and certain present and former senior executives as defendants, asserting claims for certain violations of the securities laws and seeking unspecified damages. The complaint, which was styled Donald Foster, et al. v. China Valves Technology, Inc., et al. , was filed in the U.S. District Court for the Southern District of New York. Several substantially identical complaints were subsequently filed in the same court. On or about June 29, 2011, the Court consolidated the three cases referenced above and appointed Bristol Investment Fund, LTD (“Bristol”) as lead plaintiff. In the consolidation order the Court renamed the case In re China Valves Technology Securities Litigation . On August 29, 2011, Bristol filed a consolidated class action complaint, which named additional defendants including an individual shareholder of the Company and the Company’s auditor. The Company and the individual defendants intend to file a motion to dismiss the consolidated complaint on November 21, 2011. The consolidated complaint purports to assert claims on behalf of a purported class of persons and entities who purchased shares of the Company’s common stock at allegedly artificially high prices during the period between December 1, 2009 and January 13, 2011 and who suffered damages as a result of such purchases. The allegations in the consolidated complaint relate to the Company’s acquisitions of Able Delight and Hanwei Valves and include allegations regarding the Company’s financial statements and press releases. The complaint alleges, among other things, that the Company’s statements about the nature and quality of the Company’s acquisition of Able Delight were materially false and misleading and that the Company’s statements failed to describe the role in the transaction of an alleged related party. In addition, the complaint alleges that the Company’s statements about the Hanwei Valves acquisition were materially false and misleading because they failed to disclose the alleged involvement of certain related parties and allegedly misdescribed the transaction as a purchase of assets rather than as a purchase of an entity. The Company intends to contest the allegations and to defend itself vigorously. On September 14, 2011, a plaintiff filed an action, derivatively and on behalf of the Company, naming its Chairman and certain senior executives as defendants, and naming the Company as a nominal defendant. The complaint, which is styled Gervat v. Fang et al. , was filed in the U.S. District Court for the Southern District of New York, and asserts claims for breach of fiduciary duty, gross mismanagement, and other common law claims, and seeks unspecified damages. On October 11, 2011, the plaintiff filed an Amended Complaint with substantially similar claims. The parties have stipulated to a scheduling order that would stay all proceedings in the derivative action pending resolution by the Court of the defendants’ motion to dismiss the class action consolidated complaint. Nevertheless, there is possibility that a loss may have been incurred from above class actions. In accordance with ASC Topic 450, no loss contingency was accrued as of September 30, 2011 since the possible loss or range of loss cannot be reasonable estimated.

Note 12 – Related party transactions The Company had the following significant related party balances as of September 30, 2011 and December 31, 2010, respectively: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="center" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="12%"> September 30, </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="12%"> December 31, </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="center" valign="bottom"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 2011 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> 2010 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Accounts Receivable – related party; receivable from Zhengzhou Tonghai Trade (2) </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%">  - </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%">  200,185 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Other receivable – related party: receivable from Zhengzhou Tonghai Trade, unsecured, interest-free. </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> - </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 152,179 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr> <td align="left" bgcolor="#e6efff" valign="bottom"> Advance to inventory purchase – related party, the Casting Company (1) </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> 1,552,123 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> 917,202  </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr> <td align="left" valign="bottom"> Accounts payable – related party, payable to Zhengzhou Tonghai Trade (2) </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> (783,148 </td> <td align="left" valign="bottom" width="2%"> ) </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> (2,382,906 </td> <td align="left" valign="bottom" width="2%"> )  </td> </tr> <tr> <td align="left" bgcolor="#e6efff" valign="bottom"> Accounts payable – related party: Kaifeng Zhenghe Northern Song Porcelain Art Co., Ltd. (3) </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> (3,323 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> -   </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr> <td align="left" valign="bottom"> Other payables – related parties: cash advance from officers, unsecured, interest-free, due on demand (4) </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> (94,226 </td> <td align="left" valign="bottom" width="2%"> ) </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="12%"> (1,899,627 </td> <td align="left" valign="bottom" width="2%"> )  </td> </tr> <tr> <td align="left" bgcolor="#e6efff" valign="bottom"> Total </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="12%">  671,426 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="12%">  (3,012,967 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> )  </td> </tr> </table> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr> <td width="5%"> </td> <td valign="top" width="5%"> (1) </td> <td> On August 26, 2008, Kaifeng Valve purchased some land use rights and real estate from Kaifeng High-Pressure Valve Steel Casting Co., Ltd, a company controlled by the Company’s chairmen, Mr. Siping Fang,through the issuance of 2,750,000 shares of the Company’s common stock at $3.576 per share. On April 11, 2009, Kaifeng Valve and the Casting Company entered into a leasing agreement pursuant to which the Casting Company leased back the portion of the Real Estate used at an annual rental of $400,000 for a period of two years starting on April 1, 2009. The lease agreement was automatically extended for one more year when no disagreement was raised as of April 1, 2011. For the nine months ended September 30, 2011, total rental income from the Casting Company amount to $300,000. For the years ended December 31, 2010 and 2009, total rental income from the Casting Company amount to $400,000 and $400,000, respectively. The Company also purchases raw material, such as castings, from and sells scrap metals and valves to the Casting Company. Total raw material purchases from the related party amounted to $2.5 million for the nine months ended September 30, 2011, and $4.1 million and $4.4 million for the years ended December 30, 2010 and 2009, respectively. The Company also sold a total of $0.1 million scrap metals valves to the Casting Company for the nine months ended September 30, 2011, and sold a total of $0.15 million of valves to the related party for the year ended December 31, 2010. For the nine months ended September 31, 2011, the Company also received $12.1 million from the Casting Company in excess of the sales related cash receipts for cash flow purposes and made payments to the related party in the amount of $ 15.5 million. As of September 30, 2011 and December 31, 2010, the Company's advance for purchase to the Casting Company amounted to $1.6 million and $0.9 million, respectively. </td> </tr> <tr> <td width="5%"> </td> <td width="5%"> </td> <td> </td> </tr> <tr> <td width="5%"> </td> <td valign="top" width="5%"> (2) </td> <td> The Company makes finished goods and raw material purchases from and valve sales to related party -Zhengzhou Tonghai Trade Co., Ltd, which is established by an officer. Total purchases from Zhengzhou Tonghai Trade Co., Ltd amounted to $2.5 million for the nine months ended September 30, 2011, and $4.6 million and $0.02 for the years ended December 31, 2010 and 2009, respectively. Total valve sales to Zhengzhou Tonghai Trade Co., Ltd amounted to $0.03 million and $0.47 million for the nine months ended September 30, 2011 and for the year ended December 31, 2010, respectively. During the nine months ended September 30, 2011, the Company also received $0.86 million from Zhengzhou Tonghai Trade in excess of the sales related cash receipts for cash flow purposes and made payments to Zhengzhou Tonghai Trade in the amount of $ 4.6 million. As of September 30, 2011 and December 31, 2010, the Company had payable to the related party in the amount of $0.8 million and $2.2 million (net of accounts receivable balance as of December 31, 2010), respectively. </td> </tr> <tr> <td width="5%"> </td> <td width="5%"> </td> <td> </td> </tr> <tr> <td width="5%"> </td> <td valign="top" width="5%"> (3) </td> <td> Kaifeng Zhenghe Northern Song Porcelain Art Co., Ltd. is a related party established by the Company's Chairman, Mr. Siping Fang. For the nine months ended September 30, 2011, the Company purchased porcelain from the related party in the amount of $0.02 million and made payment of $0.02 million. The Company did not have any transaction with the related party in 2010 or 2009. As of September 30, 2011 and December 31, 2010, the Company had payable to the related party in the amount of $3,323 and $0, respectively. </td> </tr> <tr> <td width="5%"> </td> <td width="5%"> </td> <td> </td> </tr> <tr> <td width="5%"> </td> <td valign="top" width="5%"> (4) </td> <td> Other payable to officers are expenses the officers paid on Company's behalf or the Company sometimes make short term advances to the officers for business purposes. For the nine months ended September 30, 2011, the Company repaid the amount owed to officers in the amount of $1.9 million that was outstanding as of December 31, 2010. The Company also made short term advances to officers in the amounts of $2.3 million of which $0.6 million was for business reimbursements and $1.7 million was paid back by the officers. </td> </tr> </table> As discussed in note 11 above, the Company’s subsidiary, ZD Valve leases its manufacturing plant and office space from ZhengZhou Cheng Long Corporation, a company owned by relatives of the Company’s chairman. ZD Valve made leasehold improvements to its leased manufacturing plant in the amount of $615,260, which is used as rental payments for the two years ended December 31, 2011. As of September 30, 2011, prepaid rental of $19,941 remains to be amortized as rental expense and the Company has incurred $238,832 rental expense associated with the lease agreement. During the nine months ended September 30, 2011, the Company also made advance to and received repayment from Cheng Long in the amount of $0.9 million. As of September 30, 2011 and December 31, 2010, the Company did not have remaining balances with the related party.

Note 13 – Shareholders’ equity Registered Direct Offerings In January 2011, the Company entered into a Securities Purchase Agreement with certain purchasers pursuant to which the Company sold a total of 1,000,000 shares of common stock, par value $0.001 per share, for an aggregate purchase price of $10,000,000. Subtracting placement agent fees, legal and other expenses, net proceeds amounted to $9,391,482. The shares were priced at $10.00 per share. The Purchasers also received warrants to purchase an aggregate of 250,000 shares of Common Stock (subject to adjustment in certain circumstances) at an exercise price of $10.00 per share. The Warrant was exercisable for 180 days beginning on the date of the initial issuance of the Warrant. Warrants In January 2011, the Company issued common stock purchase warrants to acquire 250,000 shares of common stock. The warrants have a strike price equal to $10.00 and a term of 180 days. The shares underlying the warrants will have registration rights. The warrants contain a standard anti-dilution provision for stock dividends, stock splits, stock combination, recapitalization and a change of control transaction. Because the warrants are denominated in U.S. dollars and the Company’s functional currency is the Renminbi, they do not meet the requirements of the accounting standard to be indexed only to the Company’s stock. Accordingly, they are accounted for at fair value as derivative liabilities and marked to market each period. The initial value of the warrants was determined using the Cox-Ross-Rubinstein binomial model using the following assumptions: <ul style="text-align: justify;"> <li> Expected volatility of 34.03% </li> <li> Expected dividend yield of 0% </li> <li> Risk-free interest rate of 0.190% </li> <li> Expected lives of 180 days </li> <li> Market price at issuance date of $8.85 </li> <li> Strike price of $10.00 </li> </ul> The value of the warrants was based on the Company’s common stock price of $8.85 on the date the warrants were issued. The warrants were valued at $110,815 when they were issued on January 11, 2011 and expired on July 10, 2011. <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left">  </td> <td align="left" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Average </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Average </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left">  </td> <td align="left" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Warrants </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Remaining </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left">  </td> <td align="left" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Exercise </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Contractual </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left">  </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> Outstanding </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> Price </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> Life </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, December 31, 2010 </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> 142,131 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  4.29 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> 0.66 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> <tr valign="top"> <td align="left"> Granted </td> <td align="left" width="1%">  </td> <td align="right" width="10%"> 250,000 </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="right" width="10%"> 10.00 </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="right" width="10%"> 0.50 </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Expired </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> (392,131 </td> <td align="left" bgcolor="#e6efff" width="2%"> ) </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> <tr valign="top"> <td align="left"> Exercised </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> - </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="left" width="10%">  </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="left" width="10%">  </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, September 30, 2011 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%">  </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="10%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> </table> No warrants were outstanding as of September 30, 2011. 142,131 shares of warrants issued to placement agent in connection with the 2008 securities purchase agreement and 250,000 shares of warrants issued in connection with the 2011 registered direct offering were expired in July 2011 and August 2011, respectively $1,349 warrant liability as of June 30, 2011 was reclassified back to additional paid-in capital upon expiration of the warrants. As of September 30, 2011 and December 31, 2010, warrant liabilities amount to null and $880,565, respectively. The Company recorded a total income of $990,031 and a total loss of $785,350 and $1,508,997 in the Company’s statements of income related to the change in fair value of warrants for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. Stock Compensation On May 28, 2010, the Company’s CFO resigned and the 50,000 options granted to her were forfeited. In February, 2011, the Company issued 5,000 vested shares of common stock to a director pursuant to his Stock Grant Agreement dated June 29, 2009. On April 27, 2011, the Compensation Committee of the Board of Directors approved the grant of restricted stock to three directors and three officers of the Company. On May 1, 2011, the Company entered into a restricted stock grant agreement with each of the directors. Pursuant to the Stock Grant Agreement, the Company granted 25,000 shares of restricted stock to each of Mr. William Haus, Mr. Peter Li and Mr. Zengbiao Yu, independent directors of the Company. The restricted stock granted vested immediately on May 1, 2011. On May 16, 2011, the Company entered into the Stock Grant Agreement with three officers of the Company. Pursuant to the Stock Grant Agreement, the Company granted 500,000 shares of restricted stock to Mr. Jianbao Wang, the Company’s Chief Executive Officer, 250,000 shares to Mr. Gang Wei, the Company’s Chief Financial Officer, and 125,000 shares to Mr. Renrui Tang, the Company’s Vice President of Finance. 125,000 shares of Mr. Jianbao Wang’s restricted stock vested immediately on May 16, 2011. The remaining shares for Mr. Jianbao Wang and all restricted shares for Mr. Gang Wei and Mr. Renrui Tang will vest in three equal installments over a three-year period starting from January 1, 2012, subject to performance criteria set forth by the Board and the Compensation Committee. For the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, $793,972, $56,019 and $47,057 were recorded as compensation expense in the Company’s income statements, respectively. <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> The following is a summary of the stock options activity: </td> <td align="left" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Weighted- </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%">  </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left">                                                                                                                                                     </td> <td align="left" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Number of </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Average </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Aggregate </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left">                                                                                                                                               </td> <td align="left" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Options </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Exercise </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="10%"> Intrinsic </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left">                                                                                                                                                     </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> Outstanding </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> Price </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> Value </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, January 1, 2011 </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> 50,000 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  6.90 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  179,000 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> <tr valign="top"> <td align="left">            Granted </td> <td align="left" width="1%">  </td> <td align="right" width="10%"> - </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="left" width="10%">  </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="left" width="10%">  </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">            Forfeited </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="left" bgcolor="#e6efff" width="10%">  </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="left" bgcolor="#e6efff" width="10%">  </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> <tr valign="top"> <td align="left">            Exercised </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> - </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="left" width="10%">  </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="left" width="10%">  </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Balance, September 30, 2011 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%">  </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="10%"> 50,000 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> 6.90 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="10%"> - </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> </table> Following is a summary of the status of options outstanding at September 30, 2011: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" colspan="6" style="border-bottom: 1px solid rgb(0, 0, 0);"> Outstanding Options </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">  </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="left" colspan="7" style="border-bottom: 1px solid rgb(0, 0, 0);" width="45%"> Exercisable Options </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">  </td> </tr> <tr> <td nowrap="nowrap">  </td> <td nowrap="nowrap" width="1%">  </td> <td nowrap="nowrap" width="13%">  </td> <td nowrap="nowrap" width="2%">  </td> <td nowrap="nowrap" width="1%">  </td> <td nowrap="nowrap" width="13%">  </td> <td nowrap="nowrap" width="2%">  </td> <td nowrap="nowrap" width="1%">  </td> <td nowrap="nowrap" width="13%">  </td> <td nowrap="nowrap" width="2%">  </td> <td nowrap="nowrap" width="1%">  </td> <td nowrap="nowrap" width="13%">  </td> <td nowrap="nowrap" width="2%">  </td> <td nowrap="nowrap" width="1%">  </td> <td nowrap="nowrap" width="13%">  </td> <td width="2%">  </td> </tr> <tr valign="top"> <td align="left" nowrap="nowrap">  </td> <td align="left" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Average </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Average </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Average </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" nowrap="nowrap">  </td> <td align="left" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Remaining </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Remaining </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" nowrap="nowrap"> Exercise Price </td> <td align="left" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Number </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Contractual </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Exercise </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Number </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" width="13%"> Contractual Life </td> <td align="left" width="2%">  </td> </tr> <tr valign="top"> <td align="left" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);">  </td> <td align="left" nowrap="nowrap" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> Life </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> Price </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%">  </td> <td align="center" nowrap="nowrap" width="2%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%">  </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">                    $6.00 </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="13%"> 27,500 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="13%"> 2.75 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="13%">  6.00 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="13%"> 27,500 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" width="13%"> 1.51 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> </tr> <tr valign="top"> <td align="left">                    $8.00 </td> <td align="left" width="1%">  </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> 22,500 </td> <td align="left" width="2%">  </td> <td align="left" width="1%">  </td> <td align="right" width="13%"> 2.15 </td> <td align="left" width="2%">  </td> <td align="left" width="1%"> $ </td> <td align="right" width="13%">  8.00 </td> <td align="left" width="2%">  </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> 22,500 </td> <td align="left" width="2%">  </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">  </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> 0.97 </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">  </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Total </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="13%"> 50,000 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="left" bgcolor="#e6efff" width="13%">  </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" width="1%">  </td> <td align="left" bgcolor="#e6efff" width="13%">  </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%">  </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="13%"> 50,000 </td> <td align="left" bgcolor="#e6efff" width="2%">  </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%">  </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="13%"> 2.48 </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="2%">  </td> </tr> </table> There is no aggregate intrinsic value of exercisable shares as of September 30, 2011.

Note 14 - Earnings per Share The following is a reconciliation of the basic and diluted earnings per share computation for: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="center" colspan="4" valign="bottom" width="23%"> Nine months ended September 30, </td> <td align="center" valign="bottom" width="2%"> </td> <td align="center" valign="bottom" width="1%"> </td> <td align="center" colspan="4" valign="bottom" width="23%"> Years ended December 31, </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Basic earnings per share </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2011 </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2009 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="left" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> (Unaudited) </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="left" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="left" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Net income attributable to holders of common shares </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  29,558,348 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  36,789,370 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  43,197,529 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  23,353,093 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Basic weighted average number of common shares outstanding </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 35,654,398 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 34,513,314 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 34,547,224 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 30,771,356 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr> <td align="left" bgcolor="#e6efff" valign="bottom"> Basic earnings per share </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  0.83 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  1.07 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  1.25 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  0.76   </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> </table>   <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="center" colspan="4" valign="bottom" width="23%"> Nine months ended September 30, </td> <td align="center" valign="bottom" width="2%"> </td> <td align="center" valign="bottom" width="1%"> </td> <td align="center" colspan="4" valign="bottom" width="23%"> Years ended December 31, </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Dilutive earnings per share </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2011 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2009 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="left" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> (Unaudited) </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="left" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="left" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Net income attributable to holders of common shares </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  29,558,348 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  36,789,370 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  43,197,529 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  23,353,093 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Basic weighted average number of common shares outstanding </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 35,654,398 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 34,513,314 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 34,547,224 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 30,771,356 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Warrants </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 23,475 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 180,004 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 118,821 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 160,110 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Stock compensation </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> - </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 34,305 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 29,594 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 14,926 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Dilutive weighted average number of common shares outstanding </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 35,677,873 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 34,727,623 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 34,695,639 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 30,946,392 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr> <td valign="bottom"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> <td valign="bottom" width="1%"> </td> <td valign="bottom" width="10%"> </td> <td valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Dilutive earnings per share </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  0.83 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  1.06 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  1.25 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  0.75 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> </table> The Company granted its independent directors and officer restricted common stocks of 5,000 shares vesting in 2011 and 100,000 option shares on June, 2009. The stock compensation is included in the diluted earnings per share for the periods ended December 31, 2010 and 2009 due to its dilutive nature. The 50,000 option shares granted to its independent directors was anti-dilutive for the nine months ended September 30, 2011. The warrants issued in 2008 with an exercise price of $4.29 and expired on August 2011 was included in the diluted earnings per share for the period ended September 30, 2011. The warrants issued in 2008 with an exercise price of $4.29, 50,000 warrants issued in 2007 with an exercise price of $6.00, and investor warrants issued in 2009 and 2010 have been included in the diluted earnings per share calculation for the period ended September 30, 2011 and for the year ended December 31, 2010, and warrants issued in 2008 and 2009 have been included in the diluted earnings per share calculation for the year ended December 31, 2009 due to their dilutive nature.

Note 15 - Geographic and product lines The Company sells valves which are used by customers in various industries. The production process, class of customer, selling practice and distribution process are the same for all valves. The Company’s chief operating decision-makers (i.e. chief executive officer and his direct reports) review financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by product lines for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Based on qualitative and quantitative criteria established by the accounting standard regarding “Disclosures about Segments of an Enterprise and Related Information”, the Company considers itself to be operating within one reportable segment. In accordance with the enterprise-wide disclosure requirements of the accounting standard, the Company ’ s net revenue from external customers by main product lines (based upon primary markets defined by the Chinese Valve Industry Association) and by geographic areas is as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" valign="bottom"> (in thousands) </td> <td align="left" valign="bottom" width="1%"> </td> <td align="center" colspan="4" valign="bottom" width="23%"> Nine Months Ended September 30, </td> <td align="center" valign="bottom" width="2%"> </td> <td align="center" valign="bottom" width="1%"> </td> <td align="center" colspan="4" valign="bottom" width="23%"> Years Ended December 31, </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2011 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 2009 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> (Unaudited) </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" valign="bottom" width="10%"> </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Power Supply </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  48,814 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  38,798 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  51,963 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%">  28,206 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Petrochemical and Oil </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 51,007 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 37,346 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 55,635 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 16,250 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Water Supply </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 33,408 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 34,548 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 43,626 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="10%"> 28,301 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Metallurgy </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 6,581 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 6,236 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 8,999 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="10%"> 6,173 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff" valign="bottom"> Other </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 21,585 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 14,439 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 23,473 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" valign="bottom" width="10%"> 16,440 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" valign="bottom"> Total sales revenue </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  161,395 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  131,367 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  183,696 </td> <td align="left" valign="bottom" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" valign="bottom" width="10%">  95,370 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> </table> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> (in thousands) </td> <td align="left" width="1%"> </td> <td align="center" colspan="4" width="23%"> Nine Months Ended September 30, </td> <td align="center" width="2%"> </td> <td align="center" width="1%"> </td> <td align="center" colspan="4" width="23%"> Years Ended December 31, </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 2010 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 2009 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" nowrap="nowrap" width="10%"> </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" nowrap="nowrap" width="10%"> (Unaudited) </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" nowrap="nowrap" width="10%"> </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" nowrap="nowrap" width="10%"> </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Domestic sales in the PRC </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  153,223 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  126,856 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  177,006 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="10%">  89,538 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> International sales </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 8,172 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 4,511 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 6,690 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="10%"> 5,832 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Total sales revenue </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="10%">  161,395 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="10%">  131,367 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="10%">  183,696 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="10%">  95,370 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table>

Note 16 – Business combinations Effective January 1, 2009, the Company adopted the accounting standard regarding business combinations. This standard retains the fundamental requirements that the acquisition method of accounting (which this standard called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This standard requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This replaces the old accounting standard’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. If the fair value of the identifiable assets and liabilities is still greater than the consideration transferred, then the acquirer is to recognize a gain for the difference on the acquisition date. China’s valve industry is highly fragmented in terms of geography and industries served. The Company has been planning to consolidate the industry and expand its products portfolio. Yangzhou Rock is the only Chinese company to produce valve locks. It has a number of invention patents. Changsha Valve produces large size butterfly valves for the hydropower industry. Hanwei valve manufactures ball valves for the petro-chemical industry, and is also one of only two companies in the world that can produce the 24-way rotary valve. Yangzhou Rock acquisition In January, 2010, a subsidiary of the Company completed the acquisition of Yangzhou Rock for a total cash consideration of $7.2 million from an unaffiliated third party. The acquisition was accounted as a business combination in accordance to the terms of the purchase agreement and no contingent consideration arrangements were associated with the acquisition. The Company assumed the following net assets: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" width="59%"> Yangzhou Rock </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="16%"> Fair Value </td> <td align="center" nowrap="nowrap" width="3%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="17%"> Assumed by the Company </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Inventory </td> <td align="left" bgcolor="#e6efff" width="2%"> $ </td> <td align="right" bgcolor="#e6efff" width="16%">  1,734,593 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="17%">  1,734,593 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Buildings and Equipment </td> <td align="left" width="2%"> </td> <td align="right" width="16%"> 3,350,119 </td> <td align="left" width="3%"> </td> <td align="left" width="1%"> </td> <td align="right" width="17%"> 3,350,119 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Intangible Assets </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="16%"> 3,111,580 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="17%"> 3,111,580 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Total assets </td> <td align="left" width="2%"> </td> <td align="right" width="16%"> 8,196,292 </td> <td align="left" width="3%"> </td> <td align="left" width="1%"> </td> <td align="right" width="17%"> 8,196,292 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Total liabilities </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="16%"> - </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="17%"> - </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Net assets </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="2%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="16%">  8,196,292 </td> <td align="left" width="3%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="17%">  8,196,292 </td> <td align="left" width="2%"> </td> </tr> </table> The Company allocated the purchase price based on the fair value of the assets acquired and recorded a gain of approximately $1.0 million in other income in the current period. Changsha Valve acquisition In February 2010, the Company acquired all the equity interests in Able Delight (Changsha) Valve Co, Ltd., formerly an indirect subsidiary of Watts Water Technologies, Inc. (‘Watts”), and later known as Changsha Valve, for a purchase price of $12.12 million plus certain assumed obligations and acquisition expenses of $2.81 million, or an aggregate expenditure of approximately $15 million. Changsha Valve was purchased from Able Delight Investment, Ltd.(“Able Delight”), which had acquired Changsha Valve from Watts in January 2010 with $6.07 million from funds loaned to it by the Company. The Company directly paid the balance of $8.93 million to other parties as disclosed in 8-KA released on November 18, 2010. Able Delight had been formed in November 2009 by Qing Lu, the wife of Bin Li, a 34% stockholder of the Company, in order to facilitate the Company’s purchase of Changsha Valve. The Company’s purchase price included the discharge of the loan, payments to certain of Watt’s subsidiaries, and certain other financial obligations of Changsha Valve. The formation of Able Delight Investment was required by Watts Regulator. Watts Regulator required, as a condition of the sale of Changsha Valve, that the purchasing party be a company whose registered owner was not the Company, a direct competitor of Watts Regulator. It also required the purchasing party to be a wholly foreign owned entity outside China to ensure that Changsha Valve would maintain its status as a wholly foreign owned enterprise in China after the acquisition. Mr. Siping Fang, the then CEO of the Company asked Qing Lu to form Able Delight because Qing Lu is a Canadian citizen and would be qualified to set up such a wholly foreign owned entity, be it in Hong Kong or the British Virgin Islands, or somewhere else outside China. In addition, Qing Lu is a trusted relative of Mr. Siping Fang. Therefore, Able Delight was formed in November 2009 after the Company entered into serious negotiations with Watts Regulator to facilitate the acquisition of Changsha Valve. Changsha Valve is a manufacturer of butterfly and other valves used by hydro, thermal and nuclear power plants and in water and sewage treatment applications. The acquisition of Changsha Valve was a two step process. Because Watts (the owner of Changsha Valve) preferred not to sell Changsha Valve to a public company, Able Delight was set up as an intermediary to facilitate the transaction. Able Delight signed a loan agreement with the Company to acquire Changsha Valve from Watts. Then Able Delight acquired Changsha Valve on behalf of the Company, and then transferred its ownership to the Company on February 3, 2010. Pursuant to the purchase agreement between Able Delight and Watts, Able Delight paid $6 million to Watts. Pursuant to email communications, Able Delight, the Company and Watts agreed that as a post-closing condition to the agreement between Watts and Able Delight, the Company would pay $8.93 million to Watts in order to settle certain liabilities of Changsha Valve concurrently, including vendor payables, unpaid salaries and sales commissions, severance payments and etc, besides the cash consideration paid by the Company through Able Delight to Watts. Although the Company purchased Changsha Valve through Able Delight, the essence of the transaction was that the Company purchased Changsha Valve from Watts in an arm-length transaction. As mentioned above, the acquisition was a two step process to satisfy the seller requirement that Changsha Valve would not be sold to a publicly traded company. The Company acquired Changsha Valves through the formation of a new corporation, Able Delight. Although in form the creation of a new company to effect the business combination is different than a business combination between the separate companies, in substance the transaction is no different from a transaction in which one of the combining entities directly acquires the other. Therefore, the transaction should be accounted for as if one of the combining entities directly acquires the other and the acquisition method is applied to each of the combining entities. Net assets acquired included the following: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left" width="65%"> Changsha Valve </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> Fair Value </td> <td align="center" nowrap="nowrap" width="3%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> Assumed by the Company </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Cash </td> <td align="left" bgcolor="#e6efff" width="2%"> $ </td> <td align="right" bgcolor="#e6efff" width="13%">  8,740 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" width="14%">  8,740 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Receivables </td> <td align="left" width="2%"> </td> <td align="right" width="13%"> 3,454,156 </td> <td align="left" width="3%"> </td> <td align="left" width="1%"> </td> <td align="right" width="14%"> 3,454,156 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Inventory </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="right" bgcolor="#e6efff" width="13%"> 4,954,596 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="14%"> 4,954,596 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Buildings and equipment </td> <td align="left" width="2%"> </td> <td align="right" width="13%"> 4,595,254 </td> <td align="left" width="3%"> </td> <td align="left" width="1%"> </td> <td align="right" width="14%"> 4,595,254 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Intangible Assets </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> 5,490,873 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> 5,490873 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Total assets </td> <td align="left" width="2%"> </td> <td align="right" width="13%"> 18,503,619 </td> <td align="left" width="3%"> </td> <td align="left" width="1%"> </td> <td align="right" width="14%"> 18,503,619 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Payables </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> 3,703,845 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> 3,703,845 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Total liabilities </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="13%"> 3,703,845 </td> <td align="left" width="3%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="14%"> 3,703,845 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Net assets </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="2%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="13%">  14,799,774 </td> <td align="left" bgcolor="#e6efff" width="3%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="14%">  14,799,774 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table> The Company allocated the purchase price based on the fair value of the assets acquired and liabilities assumed and recorded a gain of approximately $2.68 million in other income in the current period. Hanwei Valve acquisition On April 8, 2010, the Company acquired, from certain unaffiliated individuals, 100% of equity interests in the two entities that were owners of the joint venture that in turn owned Hanwei Valve. Together with certain intangible assets used in the operation of Hanwei Valve, Hanwei Valve was acquired for an aggregate of $19.5 million. Hanwei Valve is a manufacturer of various valve products and the sole producer in China of the fully-welded ball valve used in long distance gas pipelines and the 24-way rotary valve used in the petrochemical industry. Net assets of Hanwei Valve acquired at the acquisition date were as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" nowrap="nowrap" width="12%"> </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" width="1%"> </td> <td align="center" nowrap="nowrap" width="12%"> Assumed by the </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Hanwei Valve </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> Fair Value </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> Company </td> <td align="left" width="2%"> </td> </tr> <tr bgcolor="#E6EFFF" valign="top"> <td align="left"> Inventory </td> <td align="left" width="1%"> $ </td> <td align="right" width="12%">  1,802,490 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> $ </td> <td align="right" width="12%">  1,802,490 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Buildings and Equipment </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 2,526,087 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 2,526,087 </td> <td align="left" width="2%"> </td> </tr> <tr bgcolor="#E6EFFF" valign="top"> <td align="left"> Intangible Assets </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 4,121,271 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 4,121,271 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Total assets </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 8,449,848 </td> <td align="left" width="2%"> </td> <td align="left" width="1%"> </td> <td align="right" width="12%"> 8,449,848 </td> <td align="left" width="2%"> </td> </tr> <tr bgcolor="#E6EFFF" valign="top"> <td align="left"> Total liabilities </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> - </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> - </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Net assets </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">  8,449,848 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">  8,449,848 </td> <td align="left" width="2%"> </td> </tr> <tr bgcolor="#E6EFFF"> <td> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Consideration paid </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 19,495,922 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> 19,495,922 </td> <td align="left" width="2%"> </td> </tr> <tr bgcolor="#E6EFFF" valign="top"> <td align="left"> Goodwill </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  11,046,074 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  11,046,074 </td> <td align="left" width="2%"> </td> </tr> </table> The Company allocated the purchase price based on the fair value of the assets acquired and recorded goodwill of approximately $11.0 million in the current period. The goodwill recognized in conjunction with the acquisition of Hanwei represents intangible values that Hanwei has built over its more than 16 years of history, which do not qualify for separate recognitions. These values include, but are not limited to: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr> <td valign="top" width="5%"> v) </td> <td> Expected synergies from combining operations of the Company’s operating subsidiaries and Hanwei Valve; </td> </tr> <tr> <td valign="top" width="5%"> vi) </td> <td> The experienced work force; </td> </tr> <tr> <td valign="top" width="5%"> vii) </td> <td> Proprietary technologies related to certain products; and </td> </tr> <tr> <td valign="top" width="5%"> viii) </td> <td> The proprietary manufacturing processes. </td> </tr> </table> Pursuant to Regulation Section 197(c)(1), amortization under Section 197 is not available for the cost of acquiring stock. Thus, no goodwill would be deductible for tax purposes in connection with the Hanwei acquisition. Pro Forma The following unaudited pro forma condensed income statement for the fiscal years ended, September 30, 2011 and December 31, 2010 were prepared under generally accepted accounting principles, as if the acquisitions of Hanwei Valve, Yangzhou Rock and Changsha Valve had occurred as of the first day of the respective periods. The pro forma information may not be indicative of the results that actually would have occurred if the acquisition had been in effect from and on the date indicated. <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse;" width="100%"> <tr> <td align="left"> </td> <td align="left" width="1%"> </td> <td align="center" colspan="4" nowrap="nowrap" width="27%"> Pro forma </td> <td align="left" width="2%"> </td> </tr> <tr> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> For the nine months ended    </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> For the years ended,    </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> September 30, 2011 </td> <td align="center" nowrap="nowrap" width="2%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td> <td align="center" nowrap="nowrap" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> December 31 2010 </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff"> Revenue </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  245,684,743 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" bgcolor="#e6efff" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  186,157,313 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> Net income </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  53,835,263 </td> <td align="left" width="2%"> </td> <td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%"> $ </td> <td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">  43,284,793 </td> <td align="left" width="2%"> </td> </tr> </table>