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Document and Entity Information
6 Months Ended
Jun. 30, 2011
Aug. 04, 2011
Document Information [Line Items]
Document Type 10-Q
Amendment Flag false
Document Period End Date Jun 30, 2011
Document Fiscal Year Focus 2011
Document Fiscal Period Focus Q2
Trading Symbol LIWA
Entity Registrant Name LIHUA INTERNATIONAL INC.
Entity Central Index Key 0001399521
Current Fiscal Year End Date --12-31
Entity Filer Category Accelerated Filer
Entity Common Stock, Shares Outstanding 30,032,450
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CONDENSED CONSOLIDATED BALANCE SHEETS (USD  $)
Jun. 30, 2011
Dec. 31, 2010
CURRENT ASSETS
Cash and cash equivalents  $ 98,729,038  $ 90,609,340
Bills receivable, net 528,576
Accounts receivable, net 23,811,515 32,973,704
Prepayments for raw material purchases 23,594,404
Other receivables and current assets 548,468 21,967
Prepaid land use right - current portion 394,350 211,499
Deferred income tax assets 149,849 127,317
Inventories 17,845,910 16,155,862
Total current assets 165,073,534 140,628,265
OTHER ASSETS
Property, plant and equipment, net 18,021,183 18,189,255
Construction in progress 7,344,878 916,782
Prepaid land use right - long-term portion 18,604,728 18,546,744
Intangible assets 1,897 3,547
Total non-current assets 43,972,686 37,656,328
Total assets 209,046,220 178,284,593
CURRENT LIABILITIES
Short term bank loans 2,317,819 2,264,937
Accounts payable 8,692,421 6,012,035
Other payables and accruals 3,044,274 3,186,174
Due to a related party 140,000
Income taxes payable 4,727,549 4,981,383
Warrant liabilities 1,145,000 8,682,441
Total current liabilities 20,067,063 25,126,970
Total liabilities 20,067,063 25,126,970
STOCKOLDERS' EQUITY
Preferred stock:  $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding    
Common stock,  $0.0001 par value: 75,000,000 shares authorized, 30,032,450 and 29,385,326 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively 3,003 2,938
Additional paid-in capital 78,312,835 71,251,843
Treasury stock, at cost, 264,047 shares and nil, as of June 30,2011 and December 31, 2010, respectively (2,126,597)
Statutory reserves 8,869,528 7,556,187
Retained earnings 92,655,810 67,091,089
Accumulated other comprehensive income 11,264,578 7,255,566
Total stockholders' equity 188,979,157 153,157,623
Total liabilities and stockholders' equity  $ 209,046,220  $ 178,284,593
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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD  $)
Jun. 30, 2011
Dec. 31, 2010
Preferred stock, par value  $ 0.0001  $ 0.0001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
Common stock, par value  $ 0.0001  $ 0.0001
Common stock, shares authorized 75,000,000 75,000,000
Common stock, shares issued 30,032,450 29,385,326
Common stock, shares outstanding 30,032,450 29,385,326
Treasury stock, shares 264,047  
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (USD  $)
3 Months Ended 6 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Jun. 30, 2011
Jun. 30, 2010
Revenue  $ 167,012,527  $ 75,502,350  $ 303,943,623  $ 138,723,052
Cost of goods sold (147,365,064) (61,002,044) (267,388,087) (112,401,462)
Gross profit 19,647,463 14,500,306 36,555,536 26,321,590
Selling expenses (668,366) (570,420) (1,191,402) (1,021,297)
General and administrative expenses (1,339,062) (1,484,893) (2,912,374) (2,778,496)
Income from operations 17,640,035 12,444,993 32,451,760 22,521,797
Other income (expenses):
Interest income 136,941 61,065 270,046 94,416
Interest expenses (49,014) (40,288) (70,480) (69,458)
Gain on extinguishment of warrant liabilities 26,531 87,255 135,369
Change in fair value of warrants 1,179,151 888,975 2,554,252 2,234,829
Other income (expenses) 23,879 (68,397) 99,830 (68,397)
Total other income (expenses), net 1,317,488 841,355 2,940,903 2,326,759
Income before income tax 18,957,523 13,286,348 35,392,663 24,848,556
Provision for income tax (4,591,447) (3,388,056) (8,514,601) (6,093,706)
Net income 14,366,076 9,898,292 26,878,062 18,754,850
Other comprehensive income:
Foreign currency translation adjustment 2,344,495 698,345 4,009,012 746,801
Comprehensive income  $ 16,710,571  $ 10,596,637  $ 30,887,074  $ 19,501,651
Earnings per share
Basic  $ 0.48  $ 0.35  $ 0.9  $ 0.7
Diluted  $ 0.48  $ 0.34  $ 0.89  $ 0.68
Weighted average number of shares outstanding
Basic 29,872,934 28,484,091 29,865,896 26,625,272
Diluted 30,111,142 29,326,571 30,200,087 27,477,388
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD  $)
Total
Common Stock
Additional Paid-in Capital
Treasury Stock
Statutory Reserves
Retained Earnings
Accumulated Other Comprehensive Income
Beginning Balance at Dec. 31, 2010  $ 153,157,623  $ 2,938  $ 71,251,843  $ 7,556,187  $ 67,091,089  $ 7,255,566
Beginning Balance (in shares) at Dec. 31, 2010 29,385,326
Net income 26,878,062 26,878,062
Foreign currency translation adjustment 4,009,012 4,009,012
Comprehensive income 30,887,074
Exercise of warrants (in shares) 647,124
Exercise of warrants 6,793,983 65 6,793,918
Repurchase of common stock (2,126,597) (2,126,597)
Share-based payments to employees and directors 267,074 267,074
Appropriation of statutory reserves 1,313,341 (1,313,341)
Ending Balance at Jun. 30, 2011  $ 188,979,157  $ 3,003  $ 78,312,835  $ (2,126,597)  $ 8,869,528  $ 92,655,810  $ 11,264,578
Ending Balance (in shares) at Jun. 30, 2011 30,032,450
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD  $)
6 Months Ended
Jun. 30, 2011
Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income  $ 26,878,062  $ 18,754,850
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 1,289,649 1,009,020
Loss on disposal of fixed assets 123,182
Share-based compensation 267,074 201,953
Gain on extinguishment of warrant liabilities (87,255) (135,369)
Change in fair value of warrants (2,554,252) (2,234,829)
Deferred income tax benefits (19,351) 59,020
(Increase) decrease in assets:
Accounts receivable 9,826,535 (6,112,822)
Bills receivable 535,170
Prepayments for raw material purchases (23,343,711)
Other receivables and current assets (525,338) 274,600
Trade receivable from a related company (228,887)
Inventories (1,298,889) 2,232,887
Increase (decrease) in liabilities:
Accounts payable 2,513,027 2,382,124
Other payables and accruals (430,361) 446,769
Income taxes payable (366,207) 1,693,808
Net cash provided by operating activities 12,684,153 18,466,306
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (506,313) (1,067,485)
Addition to construction in progress (6,120,004)
Net cash used in investing activities (6,626,317) (1,067,485)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of common stock, net of expenses of  $2,430,489 32,069,517
Release of restricted cash related to private placement 575,000
Repurchase of common stock (2,126,597)
Proceeds from a related party 140,000
Proceeds from exercise of warrants 1,898,049 2,450,000
Net cash (used in) provided by financing activities (88,548) 35,094,517
Foreign currency translation adjustment 2,150,410 491,718
INCREASE IN CASH AND CASH EQUIVALENTS 8,119,698 52,985,056
CASH AND CASH EQUIVALENTS, at the beginning of the period 90,609,340 34,614,838
CASH AND CASH EQUIVALENTS, at the end of the period 98,729,038 87,599,894
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Share-based compensation costs to employees and directors 267,074 201,953
Issue of common stock to settle warrant liabilities, net of cash received 4,895,934 4,766,160
SUPPLEMENTAL DISCLOSURE INFORMATION
Cash paid for interest 70,480 69,458
Cash paid for income taxes  $ 8,835,772  $ 4,340,878
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD  $)
6 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Proceeds from public offering of common stock, expenses  $ 0  $ 2,430,489
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DESCRIPTION OF BUSINESS AND ORGANIZATION
6 Months Ended
Jun. 30, 2011
DESCRIPTION OF BUSINESS AND ORGANIZATION
NOTE 1
DESCRIPTION OF BUSINESS AND ORGANIZATION
 
Lihua International, Inc. (“Lihua” or the “Company”) was incorporated in the State of Delaware on January 24, 2006 under the name Plastron Acquisition Corp.  On September 22, 2008, the Company changed its name from Plastron Acquisition Corp. to Lihua International, Inc. The Company conducts its business through two operating subsidiaries, Danyang Lihua Electron Co., Ltd. and Jiangsu Lihua Copper Industry Co., Ltd.

On September 4, 2009, the Company’s common stock began trading on the NASDAQ Capital Market under the symbol LIWA.

As of June 30, 2011, details of the subsidiaries of the Company are as follows:

Subsidiaries’ names
 
Domicile and date of
incorporation
 
Paid-up capital
   
Effective
ownership
   
Principal activities
                     
Ally Profit Investments Limited (“Ally Profit”)
 
British Virgin Islands
March 12, 2008
 
 $
100
     
100
 
Holding company of other subsidiaries
                         
Lihua Holdings Limited (“Lihua Holdings”)
 
Hong Kong
April 17, 2008
 
HK $
100
     
100
%
 
Holding company of other subsidiaries
                         
Danyang Lihua Electron Co., Ltd. (“Lihua Electron”)
 
People’s Republic of China (“PRC”)
December 30, 1999
 
 $
10,500,000
     
100
 
Manufacturing and sales of copper wire and bimetallic composite conductor wire such as copper clad aluminum (CCA) wire and enameled CCA wire
                         
Jiangsu Lihua Copper Industry Co., Ltd. (“Lihua Copper”)
 
PRC
August 31, 2007
 
 $
46,000,000
     
100
 
Manufacturing and sales of refined copper
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principle of consolidation
These condensed consolidated financial statements include the financial statements of Lihua International, Inc. and its subsidiaries.  All significant inter-company balances or transactions have been eliminated on consolidation.

Basis of preparation
These interim condensed consolidated financial statements are unaudited.  In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included.  The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The (a) condensed consolidated balance sheet as of December 31, 2010, which was derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended December 31, 2010.

Use of estimates
The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Accordingly, actual results may differ from these estimates under different assumptions or conditions.

Cash and cash equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less.  Because of the short maturity of these investments, the carrying amounts approximate their fair value.  Restricted cash is excluded from cash and cash equivalents.

Accounts and bills receivables
Accounts and bills receivables are stated at cost, net of an allowance for doubtful accounts.   The Company maintains allowances for doubtful accounts for estimated losses, if any, resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and provides allowances where there is doubt as to the collectibility of individual balances. In evaluating the collectibility of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends.

Inventories
Inventories are stated at the lower of cost, determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management will write down the inventories to market value if it is below cost. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.

Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of buildings, machinery and equipment are capitalized. These capitalized costs may include structural improvements, equipment and fixtures. All ordinary repair and maintenance costs are expensed as incurred.

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets as follows:

   
Useful Life
 
   
(In years)
 
Buildings
 
20
 
Machinery
 
10
 
Office equipment & motor vehicles
 
5
 

The carrying value of property, plant and equipment is assessed annually and when factors indicating impairment are present, the carrying value of the fixed assets is reduced by the amount of the impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the net asset carrying value. An impairment loss, if it exists, is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Construction in progress
Construction in progress includes direct costs of construction of buildings, equipment and other assets.  Interest incurred during the period of construction, if material, is capitalized. Construction in progress is not depreciated until such time as the assets are completed and put into service.

Prepaid land use right
Lease prepayments represent lump sum payments for land use rights in the PRC.  The amount is expensed over the period of land use rights of 50 years.

Impairment of long-lived assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups.

Revenue recognition
Revenue is recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

Sales revenue is recognized net of value added tax, sales discounts and returns at the time when the merchandise is sold to the customer. Based on historical experience, management estimates that sales returns are immaterial and has not made allowance for estimated sales returns.

Research and development costs
Research and development costs are expensed as incurred, and charged to general and administrative expense. For the six months ended June 30, 2011 and 2010, research and development costs were  $99,493 and  $69,703, respectively. For the three months ended June 30, 2011 and 2010, research and development costs were  $55,003 and  $34,860, respectively.
 
Advertising costs
The Company expenses all advertising costs as incurred.  The total amount of advertising costs charged to general and administrative expense was  $13,759 and  $1,465 for the six months ended June 30, 2011 and 2010, and  $13,759 and  $733 for the three months ended June 30, 2011 and 2010, respectively.
 
Shipping and handling costs
Substantially all costs of shipping and handling of products to customers are included in selling expense.  Shipping and handling costs for the six months ended June 30, 2011 and 2010 were  $990,014 and  $810,943, and for the three months ended June 30, 2011 and 2010 were  $559,257 and  $453,406, respectively.
 
Foreign currency
The Company uses the United States dollar (“U.S. Dollar” or “US $” or “ $”) for financial reporting purposes.  The PRC subsidiaries of the Company maintain their books and records in their functional currency, Chinese Renminbi (“RMB”), being the lawful currency in the PRC.  Assets and liabilities of the PRC subsidiaries are translated from RMB into US Dollars using the applicable exchange rates prevailing at the balance sheet date.  Items on the statement of operations are translated at average exchange rates during the reporting period.  Equity accounts are translated at historical rates.  Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income. 

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements are based on the rates as published on the website of People’s Bank of China and are as follows:

 
June 30, 2011
 
December 31, 2010
Balance sheet items, except for equity accounts
US $1=RMB 6.4716
 
US $1=RMB6.6227
       
 
Three months ended June 30,
 
2011
 
2010
Items in the statements of income and cash flows
US $1=RMB 6.5011
 
US $1=RMB6.8235
       
 
Six months ended June 30,
 
2011
 
2010
Items in the statements of income and cash flows
US $1=RMB 6.5411
 
US $1=RMB6.8252

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the above rates. The value of RMB against U.S. dollars and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of U.S. dollar reporting.

Recent accounting pronouncements
In January 2011, the FASB issued ASU No. 2011-01- Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. This deferral will have no material impact on the Company’s consolidated financial statements.

In January 2011, the FASB issued ASU No. 2011-02- Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this update provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring.  For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption within those annual periods. Early application is permitted. The adoption of the provisions in ASU 2011-02 will have no material impact on the Company’s consolidated financial statements.
 
In May 2011, the FASB issued ASU No. 2011-04 - Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRSs. The amendments in this update intend to converge requirements for how to measure fair value and for disclosing information about fair value measurements in US GAAP with International Financial Reporting Standards. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of the provisions in ASU 2011-04 will have no material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05 -Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments in this update require (i) that all non-owner changes in stockholders’ equity he presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements (the current option to present components of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity is eliminated); and (ii) presentation of reclassification adjustments from OCI to net income on the face of the financial statements. For public entities, the amendments in this ASU are effective for years, and interim periods within those years, beginning after December 15, 2011. The amendments in this update should be applied retrospectively. Early adoption is permitted. The adoption of the provisions in ASU 2011-05 will have no material impact on the Company’s consolidated financial statements.
 
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
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FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
6 Months Ended
Jun. 30, 2011
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
NOTE 3 
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

 
·
Level one — Quoted market prices in active markets for identical assets or liabilities;
 
·
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
 
·
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
 
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

 
Assets and liabilities measured at fair value on a recurring basis using significant observable inputs (Level 2) from January 1, 2011 to June 30, 2011 are summarized as follows:

   
Warrant
Liability
 
Balance at January 1, 2011
 
 $
8,682,441
 
Exercise of warrants
   
(4,983,189
)
Change in fair value included in earnings
   
(2,554,252
)
Balance at June 30, 2011
 
 $
1,145,000
 
 
The Company did not identify any other assets and liabilities that are required to be presented on the condensed consolidated balance sheets at fair value in accordance with the relevant accounting standards.
 
The carrying values of cash and cash equivalents, trade receivables and payables, and short-term bank loans and debts approximate their fair values due to the short maturities of these instruments.
   
Derivative Instruments – Warrants
 
The Company’s warrants have been classified as derivatives in accordance with the guidance provided in FASB ASC 815-40-15-7I, because they are denominated in U.S. dollars, which is different from the Company’s functional currency (Renminbi).
 
The Company estimates the fair value of its warrants as of June 30, 2011 using the Black-Scholes option pricing model using the following assumptions:

Market price of common stock:
 
 $
6.09
   
 $
6.09
 
Exercise price:
 
 $ 
3.50
   
 $
4.80
 
Remaining contractual life (years):
   
2.33
     
3.18
 
Dividend yield:
   
     
 
Expected volatility:
   
32.36
%
   
43.80
%
Risk-free interest rate:
   
0.57
%
   
0.88
%
 
During the six months ended June 30, 2011, 542,300 warrants were exercised at  $3.50 each in cash and 174,664 warrants were exercised on a cashless basis to purchase 104,824 shares of common stock. The Company accounted for the exercise of these warrants as extinguishment of debts in accordance with ASC 815-10-40-1, “Derivatives and Hedges – Derecognition”. In accordance with ASC 470-50-40, “Debt – Modification and Extinguishments – Derecognition”, an aggregate gain of  $60,724 was recognized.  For details, please refer to the following table.

 
Exercise date:
 
January 14,
   
March 3,
   
March 14,
   
March 17,
   
April 7,
 
Market price of common stock:
   $ 10.64      $ 10.98      $ 10.19      $ 9.79      $ 8.39  
Exercise warrants:
    549,300       20,000       28,814       74,000       44,850  
Exercise price:
   $ 3.50      $ 3.50      $ 4.80      $ 3.50      $ 4.80  
Remaining contractual life (years):
    2.79       2.66       3.47       2.62       3.41  
Dividend yield:
                             
Expected volatility:
    46.34 %     48.00 %     44.05 %     48.54 %     44.05 %
Risk-free interest rate:
    0.90 %     1.09 %     1.27 %     0.86 %     1.46 %
Fair values:
   $ 7.2301      $ 7.7083      $ 6.0599      $ 6.5324      $ 4.4485  
Gain on extinguishment of warrant liabilities
   $ 48,210      $ 8,153      $ 5,722      $ (1,361 )    $ 26,531
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ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE, NET
6 Months Ended
Jun. 30, 2011
ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE, NET
NOTE 4
ACCOUNTS RECEIVABLE AND BILLS RECEIVABLE, NET

Accounts receivable consisted of the following:
   
June 30,
   
December 31,
 
   
2011
   
2010
 
             
Accounts receivable
 
 $
23,811,515
   
 $
32,973,704
 
Less: Allowance for doubtful debts
   
-
     
-
 
                 
Accounts receivable, net
 
 $
23,811,515
   
 $
32,973,704
 

Bills receivable arose from sale of goods and represented commercial drafts issued by customers to the Company that were guaranteed by customers’ bank.  Bills receivable are interest-free with maturity dates of 3 to 6 months from date of issuance. Bills receivable consisted of the following:
   
June 30,
   
December 31,
 
   
2011
   
2010
 
             
Bills receivable
 
 $
-
   
 $
528,576
 
Less: Allowance for doubtful debts
   
-
     
-
 
                 
Bills receivable, net
 
 $
-
   
 $
528,576
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PREPAYMENTS, OTHER RECEIVABLES AND CURRENT ASSETS
6 Months Ended
Jun. 30, 2011
PREPAYMENTS, OTHER RECEIVABLES AND CURRENT ASSETS
NOTE 5
PREPAYMENTS, OTHER RECEIVABLES AND CURRENT ASSETS
 
In the second quarter of 2011, the Company initiated purchases of scrap copper from overseas via a third-party import-export company.  Pursuant to the terms of the Company’s purchase agreements with that third-party, the Company was required to make prepayments in advance of delivery of the purchased scrap copper to the Company’s production facilities. As of June 30, 2011, such prepayments were  $23,594,404.
 
Other receivables and current assets consisted of the following:
   
June 30,
   
December 31,
 
   
2011
   
2010
 
             
Prepaid insurance
 
 $
369,750
   
 $
-
 
Other prepayments
   
59,895
     
-
 
Other receivables
   
118,823
     
21,967
 
Less: Allowance for valuation and doubtful debts
   
-
     
-
 
                 
   
 $
548,468
   
 $
21,967
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INVENTORIES
6 Months Ended
Jun. 30, 2011
INVENTORIES
NOTE 6
INVENTORIES

Inventories by major categories are summarized as follows:
   
June 30,
   
December 31,
 
   
2011
   
2010
 
                 
Raw materials
 
 $
9,023,460
   
 $
9,177,495
 
Work in progress
   
1,958,028
     
531,616
 
CCA and copper wire
   
3,868,511
     
4,372,682
 
Copper rod and anode
   
2,995,911
     
2,074,069
 
                 
   
 $
17,845,910
   
 $
16,155,862
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INTANGIBLE ASSETS
6 Months Ended
Jun. 30, 2011
INTANGIBLE ASSETS
NOTE 7
INTANGIBLE ASSETS

   
June 30,
   
December 31,
 
   
2011
   
2010
 
                 
Computer software, cost
 
 $
11,379
   
 $
11,120
 
Less: Accumulated amortization
   
(9,482
   
(7,573
                 
   
 $
1,897
   
 $
3,547
 

Amortization expense for the six months ended June 30, 2011 and 2010 was  $1,836 and  $1,486, respectively. Amortization expense for the three months ended June 30, 2011 and 2010 was  $985 and  $821, respectively .The estimated amortization expense of intangible assets for the remainder of the fiscal year ending December 31, 2011 will be  $1,897.
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PREPAID LAND USE RIGHTS
6 Months Ended
Jun. 30, 2011
PREPAID LAND USE RIGHTS
NOTE 8
PREPAID LAND USE RIGHTS

The Company has recorded as prepaid land use rights the lump sum payments paid to acquire long-term interests to utilize the land underlying its building and production facility.  This type of arrangement is common for the use of land in the PRC.  The prepaid land use rights are expensed on the straight-line basis over the term of the land use rights of 50 years. 

The amounts expensed on prepaid land use right were  $195,041 and  $86,316 for the six months ended June 30, 2011 and 2010, and  $98,144 and  $43,179 for the three months ended June 30, 2011 and 2010, respectively.  The estimated expense of the prepaid land use rights over each of the next five years and thereafter is  $394,350 per annum.

As of June 30, 2011, prepaid land use rights included RMB32,399,100 ( $5,006,351) representing payments made by Lihua Copper to a local authority to acquire a 50-year right to use a parcel of land which will be used for expansion of its manufacturing facilities. As of June 30, 2011, RMB2,399,100 ( $370,712) remained unpaid and no land use right certificate had been issued and the relevant formalities were not completed. Apart from the payment of  $5,006,351 to the local authority, the Company also paid  $5,606,162 to various local authorities primarily as compensation to the local communities in connection with the Company’s acquisition of these land use rights.
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PROPERTY, PLANT AND EQUIPMENT, NET
6 Months Ended
Jun. 30, 2011
PROPERTY, PLANT AND EQUIPMENT, NET
NOTE 9
PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:

   
June 30,
   
December 31,
 
   
2011
   
2010
 
             
Cost:
           
Buildings
   $ 10,558,397      $ 10,026,230  
Office equipment
    356,568       348,433  
Motor vehicles
    618,991       604,869  
Machinery
    13,005,364       12,499,837  
                 
Total cost
    24,539,320       23,479,369  
Less: Accumulated depreciation
    (6,518,137 )     (5,290,114 )
                 
Net book value
   $ 18,021,183      $ 18,189,255  

Depreciation expense was  $1,092,772 and  $921,218 for the six months ended June 30, 2011 and 2010, and  $567,765 and  $471,421 for the three months ended June 30, 2011 and 2010, respectively.
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CONSTRUCTION IN PROGRESS
6 Months Ended
Jun. 30, 2011
CONSTRUCTION IN PROGRESS
NOTE 10
CONSTRUCTION IN PROGRESS

Construction in progress consisted of the following:

   
June 30,
   
December 31,
 
   
2011
   
2010
 
             
Construction of equipment
   $ 533,555      $ 164,038  
Construction of buildings
    6,811,323       752,744  
                 
     $ 7,344,878      $ 916,782
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SHORT TERM BANK LOANS
6 Months Ended
Jun. 30, 2011
SHORT TERM BANK LOANS
NOTE 11
SHORT TERM BANK LOANS

Short-term bank loans consisted of the following:

   
June 30,
   
December 31,
 
   
2011
   
2010
 
             
Bank loan of RMB15,000,000 granted by Agricultural Bank of China, Danyang Branch with an interest rate of 6.31% p.a., guaranteed by Mr. Jianhua Zhu and Tianyi Telecom and matures on April 20, 2012
   $ 2,317,819      $ 2,264,937  
                 
Total
   $ 2,317,819      $ 2,264,937
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OTHER PAYABLES AND ACCRUALS
6 Months Ended
Jun. 30, 2011
OTHER PAYABLES AND ACCRUALS
NOTE 12
OTHER PAYABLES AND ACCRUALS

Other payables and accruals consisted of the following:

   
June 30,
   
December 31,
 
    2011,     2010,  
                 
Accrued staff costs
   $ 479,871      $ 564,943  
Accrued expenses
    3,656       183,341  
Other taxes payable
    1,925,750       1,838,501  
Other payables
    634,997       599,389  
                 
     $ 3,044,274      $ 3,186,174
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COMMON STOCK COMMON STOCK PURCHASE WARRANTS AND TREASURY STOCK
6 Months Ended
Jun. 30, 2011
COMMON STOCK COMMON STOCK PURCHASE WARRANTS AND TREASURY STOCK
NOTE 13
COMMON STOCK COMMON STOCK PURCHASE WARRANTS AND TREASURY STOCK
 
During the six months ended June 30, 2011, 542,300 shares of common stock were issued for cash upon exercise of 542,300 warrants at an exercise price of  $3.50 per share, 101,000 warrants were exercised on a cashless basis to purchase 67,632 shares of common stock at an exercise price of  $3.50 per share, and  73,664  warrants were exercised on a cashless basis to purchase 37,192 shares of common stock at an exercise price of  $4.80 per share.
 
Warrants issued and outstanding at June 30, 2011, and changes during the six months then ended, are as follows:

   
Warrants Outstanding
   
Warrants Exercisable
 
   
Number of
underlying
shares
   
Weighted
Average
Exercise
Price
   
Average
Remaining
Contractual
Life (years)
   
Number of
underlying
shares
   
Weighted
Average
Exercise
Price
   
Average
Remaining
Contractual
Life (years)
 
Balance, December 31, 2010
    1,138,420      $ 3.62       2.91       1,138,420      $ 3.62       2.91  
Granted / Vested
    -                                          
Forfeited
    -                                          
Exercised
    (716,964 )     3.63                                  
                                                  
Balance, June 30, 2011
    421,456      $ 3.59       2.39       421,456      $ 3.59       2.39  
 
On January 24, 2011, the Board of Directors approved a one-year share repurchase program of up to  $15 million of the Company’s common stock, pursuant to which the Company was authorized to repurchase its outstanding common stock from time to time, depending on market conditions, share price and other factors, on the open market or in privately negotiated transactions. Repurchased shares may be retired immediately and will resume the status of authorized but unissued shares or they may be held by the Company as treasury stock. The repurchase authorization may be modified, suspended, or discontinued by the Board of Directors at any time. During the six months ended June 30, 2011, the Company repurchased 264,047 shares of its common stock under the share repurchase authorization at a weighted-average price of  $8.05 per share for an aggregate purchase cost of  $2,126,597. As of June 30, 2011, the Company had approximately  $12.9 million available under the existing  $15 million share repurchase authorization.
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SHARE-BASED COMPENSATION
6 Months Ended
Jun. 30, 2011
SHARE-BASED COMPENSATION
NOTE 14
SHARE-BASED COMPENSATION
 
Common Stock awarded to Employees by a Majority Shareholder
 
The Company recognized compensation expense of  $127,125 and  $63,562, related to the restricted shares granted by a principal stockholder to Mr. Yang “Roy” Yu, the Company’s Chief Financial Officer (CFO), based on the grant-date fair value of the Company’s common stock of  $2.26 per share, for the six and three months ended June 30, 2011, respectively.
 
Options granted to Independent Directors and Employees
 
On January 14, 2011, the Company granted options to one of its independent directors, Mr. Kelvin Lau to purchase 15,000 shares of the Company’s common stock at a strike price of  $10.64 per share, in consideration of his services to the Company. The option vests and becomes exercisable in equal installments on December 3, 2010, January 16, 2011, March 1, 2011 and April 14, 2011 and will expire 10 years from the date of grant.
 
On June 3, 2011, the Company granted options to each of its independent directors, Mr. Robert Bruce, Mr. Jonathan Serbin and Mr. Kelvin Lau to purchase 20,000 shares of the Company’s common stock at a strike price of  $6.49 per share, in consideration of their services to the Company. The options vest and become exercisable in equal installments on July 14, 2011, October 14, 2011, January 14, 2012 and April 14, 2012 and will expire 10 years from the date of grant.
 
In accordance with the guidance provided in ASC Topic 718, Stock Compensation, the compensation costs associated with these options granted to directors and employees are recognized, based on the grant-date fair values of these options, over the requisite service period, or vesting period. Accordingly the Company recognized compensation expense of  $139,949 and  $57,213 for the six and three months ended June 30, 2011, respectively.
 
Options granted to Independent Directors and Employees
 
Options issued and outstanding at June 30, 2011 and their movements during the six months then ended are as follows:

   
Number of
Underlying
Shares
   
Weighted-
Average
Exercise
Price
Per Share
   
Aggregate
Intrinsic
Value (1)
   
Weighted-
Average
Contractual Life
Remaining in
Years
 
                         
Outstanding at December 31, 2010
    115,000      $ 6.74      $ 465,450       9  
Granted
    75,000       7.32       -       10  
Exercised
    -       -       -       -  
Expired
    -       -       -       -  
Forfeited
    -       -       -       -  
Outstanding at June 30, 2011 (Unaudited)
    190,000      $ 6.97      $ 116,700       8.86  
                                 
Exercisable at June 30, 2011 (Unaudited)
    130,000      $ 7.19      $ 116,700       8.36  

(1)
The intrinsic value of the stock option at June 30, 2011 is the amount by which the market value of the Company’s common stock of  $6.09 as of June 30, 2011 exceeds the exercise price of the option.
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INCOME TAXES
6 Months Ended
Jun. 30, 2011
INCOME TAXES
NOTE 15
INCOME TAXES
 
The Company is subject to income tax on an entity basis on income arising from the tax jurisdiction in which they operate.
 
The Company’s two operating subsidiaries, Lihua Electron and Lihua Copper, are generally subject to PRC enterprise income tax (“EIT”). Before January 1, 2008, Lihua Electron was subject to an EIT rate of 24% on its taxable income because it is located in an economic development zone.  Furthermore, Lihua Electron is a production-based foreign investment enterprise and was granted an EIT holiday for the two years ended December 31, 2006 and 2005 and a 50% reduction on the EIT rate for the three years ended December 31, 2007, 2008 and 2009.
 
On March 16, 2007, the PRC government promulgated a new tax law, China’s Unified Enterprise Income Tax Law (“New EIT Law”), which took effect from January 1, 2008. Under the New EIT Law, foreign-owned enterprises as well as domestic companies are subject to a uniform tax rate of 25%. The New EIT Law provides for a grandfathering and five-year transition period from its effective date for those enterprises which were established before the promulgation date of the New EIT Law and which were entitled to a preferential EIT treatment. Accordingly, Lihua Electron’s exemption period on its EIT expired at December 31, 2009 and it has been subject to an EIT rate of 25% for the years ending December 31, 2011 and 2010 under the New EIT Law.
 
Lihua Copper also has been subject to an EIT rate of 25% for the years ended December 31, 2011 and 2010 under the New EIT Law.
 
The New EIT Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China for distribution of earnings generated after January 1, 2008. Under the New EIT Law, the distribution of earnings generated prior to January 1, 2008 is exempt from the withholding tax. As management does not anticipate that the subsidiaries in the PRC will distribute their earnings to the Company for the year ending December 31, 2011, and no dividends were distributed in the years ended December 31, 2010 and 2009, no deferred tax liability has been recognized for the undistributed earnings of these PRC subsidiaries through June 30, 2011. Total undistributed earnings of these PRC subsidiaries at June 30, 2011 was RMB775,177,422 ( $120,090,460).
 
No provision for other overseas taxes is made as neither Lihua, Ally Profit or Lihua Holdings has any taxable income in the U.S., British Virgin Islands or Hong Kong, respectively.
 
The Company’s provision for income taxes consisted of:
   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
   
Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
PRC income tax:
                       
Current – PRC
   $ 4,581,443      $ 3,371,730      $ 8,533,952      $ 6,034,686  
Deferred
    10,004       16,326       (19,351 )     59,020  
                                 
     $ 4,591,447      $ 3,388,056      $ 8,514,601      $ 6,093,706  

NOTE 15
INCOME TAXES – CONTINUED
 
A reconciliation of the provision for income taxes determined at the United States income tax rate to the Company’s effective income tax rate is as follows:
  
   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
   
Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
Pre-tax income
   $ 18,957,523      $ 13,286,348      $ 35,392,663      $ 24,848,556  
                                 
United States federal corporate income tax rate
    34 %     34 %     34 %     34 %
Income tax computed at United States statutory corporate income tax rate
    6,445,557       4,517,358       12,033,505       8,448,509  
Reconciling items:
                               
Loss not recognized as deferred tax assets
    196,876       225,106       425,909       458,539  
Change in fair value of warrants
    (409,933 )     (302,251 )     (898,113 )     (805,867
Rate differential for PRC earnings
    (1,645,697 )     (1,175,420 )     (3,055,799 )     (2,139,845 )
Other
    4,644       123,263       9,099       132,370  
                                 
     $ 4,591,447      $ 3,388,056      $ 8,514,601      $ 6,093,706  
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred income tax assets are as follows:
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Deferred income tax assets:
           
Net operating loss carryforward
   $ 3,285,962      $ 2,860,053  
Unrealized intercompany profit in inventory
    30,580       74,363  
Excess of accounting depreciation over tax depreciation
    119,269       52,954  
Less: Valuation allowance
    (3,285,962 )     (2,860,053 )
                 
     $ 149,849      $ 127,317  

As of June 30, 2011 and December 31, 2010, our U.S. entity, i.e. Lihua International, Inc., had net operating loss carryforwards of  $9,644,594 and  $8,411,921, respectively, available to reduce future taxable income which will expire in various years through 2030. Management believes it is more likely than not that the Company will not realize these potential tax benefits as the Company’s U.S. operations will not generate any operating profits in the foreseeable future. As a result, the full amount of the valuation allowance was provided against the potential tax benefits.

As of June 30, 2011 and December 31, 2010, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the six months ended June 30, 2011 and 2010, and no provision for interest and penalties is deemed necessary as of June 30, 2011 and December 31, 2010.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.
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EARNINGS PER SHARE
6 Months Ended
Jun. 30, 2011
EARNINGS PER SHARE
NOTE 16
EARNINGS PER SHARE

The following table is a reconciliation of the net income and the weighted average shares used in the computation of basic and diluted earnings per share for the periods presented:

   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
   
Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Income available to common shareholders:
                       
- Basic and diluted
   $ 14,366,076      $ 9,898,292      $ 26,878,062      $ 18,754,850  
                                 
Weighted average number of shares:
                               
- Basic
    29,872,935       28,484,091       29,865,896       26,625,272  
- Effect of dilutive warrants and options
    238,207       842,480       334,191       852,116  
- Diluted
    30,111,142       29,326,571       30,200,087       27,477,388  
                                 
Net income per share
                               
- Basic
   $ 0.48      $ 0.35      $ 0.90      $ 0.70  
                                 
- Diluted
   $ 0.48      $ 0.34      $ 0.89      $ 0.68
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RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2011
RELATED PARTY TRANSACTIONS
NOTE 17
RELATED PARTY TRANSACTIONS

(1)
Sales
For the six months ended June 30, 2011 and 2010, sales included  $620,295 and  $429,349, respectively that were made to Tianyi Telecom.  For the three months ended June 30, 2011 and 2010, sales included nil and  $429,349, respectively that were made to Tianyi Telecom The controlling stockholders of Tianyi Telecom are related to Ms. Yaying Wang, the Company’s COO and one of the Company’s directors.

(2)
Guarantees
As of June 30, 2011, and December 31, 2010, Mr. Jianhua Zhu, the Company’s CEO and director, and Tianyi Telecom provided guarantees for the Company’s short-term bank loans of  $2,317,819 and  $2,264,937, respectively (See Note 11 above).

(3)
Loans
On May 19, 2011, Magnify Wealth Enterprise Limited (“Magnify Wealth”), a British Virgin Islands corporation and an entity affiliated with Mr. Jianhua Zhu, the Chief Executive Officer and Chairman of the Company, agreed to loan the Company up to  $4 million pursuant to the terms of a demand promissory note (the “Note ”) to partially fund the Company’s previously announced  $15 million stock repurchase program to make open market purchases of the Company’s common stock (the “Repurchase Program”)(See Note 13 above). While the Company’s operating subsidiaries in the PRC have substantial cash reserves available, the laws of the PRC restrict the conversion of RMB to US dollars, such that the Company has encountered difficulty funding the Repurchase Program with US dollars from cash held by its PRC subsidiaries. The Company explored possible alternative arrangements for funding the Repurchase Program in US dollars with financial institutions, but Company management determined that such alternatives would have been costly or otherwise not appropriate for the Company.

On May 23, 2011, Magnify Wealth loaned  $1 million under the Note, which amount the Company repaid in full on May 25, 2011 in RMB. On June 14, 2011, Magnify Wealth loaned  $300,000 under the Note, which amount the Company repaid in full on June 14, 2011 in RMB. The total amount repaid was RMB8,434,660, which was repaid at the average rate of 6.4822 RMB per US dollar, which was based upon the exchange rate between US dollars and RMB as set forth by Standard Chartered Bank in Hong Kong. The loans under the Note were unsecured, payable on demand and bore interest at 2% per annum.

As of June 30, 2011, there was no outstanding loan under the Note.

(4)
Amount due to a related party

Amount due to Mr. Jianhua Zhu was unsecured, payable on demand and non-interest bearing. The amount was repaid in August 2011.
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CERTAIN RISKS AND CONCENTRATION
6 Months Ended
Jun. 30, 2011
CERTAIN RISKS AND CONCENTRATION
NOTE 18
CERTAIN RISKS AND CONCENTRATION

Credit risk and major customers

As of June 30, 2011 and December 31, 2010, substantially all of the Company’s cash including cash on hand and deposits in accounts were maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of a bank’s failure. However, the Company has not experienced any such losses and believes it is not exposed to any significant risks on its cash in bank accounts.

For the six months ended June 30, 2011 and 2010, all of the Company’s sales arose in the PRC.  In addition, all accounts receivable as of June 30, 2011 and December 31, 2010 were due from customers located in the PRC.

Except for two customers which accounted for 14.85% and 13.03% of the Company’s revenue for the six months ended June 30, 2011, respectively, there was no other single customer who accounted for more than 10% of the Company’s revenue for the six months ended June 30, 2011 or 2010.

Except for one customer which accounted for 14.83% of the Company’s revenue for the three months ended June 30, 2011, there was no other single customer who accounted for more than 10% of the Company’s revenue for the three months ended June 30, 2011 or 2010.

There were two customers who accounted for 22.2% and 12.73%, respectively, of total accounts receivable of the Company as of June 30, 2011. There were two customers who accounted for 20.5% and 15.2%, respectively, of total accounts receivable of the Company as of December 31, 2010. There was no other customer who accounted for 10% or more of the Company’s accounts receivable as of June 30, 2011 or December 31, 2010.

Risk arising from operations in foreign countries

Substantially all of the Company’s operations are conducted in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.
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COMMITMENTS AND CONTINGENCIES
6 Months Ended
Jun. 30, 2011
COMMITMENTS AND CONTINGENCIES
NOTE 19
COMMITMENTS AND CONTINGENCIES

Lease commitments
 
The Company has entered into tenancy agreements for the lease of factory premises and warehouse with independent parties. The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of June 30, 2011 are as follows:

Payable within:
     
- remainder of fiscal year ending December 31, 2011
   $ 25,960  
- fiscal year ending December 31, 2012
    55,627  
- fiscal year ending December 31, 2013
    59,955  
- fiscal year ending December 31, 2014 and thereafter
    20,397  
         
Total
   $ 161,939  

   
June 30,
   
December 31,
 
   
2011
   
2010
 
Capital commitments – contracted but not provided for:
           
             
Acquisition or construction of buildings - within one year
   $ 4,791,705      $ 1,664,997  
Purchase of machinery - within one year
    145,250       -  
                 
     $ 4,936,955      $ 1,664,997
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SEGMENT DATA AND RELATED INFORMATION
6 Months Ended
Jun. 30, 2011
SEGMENT DATA AND RELATED INFORMATION
NOTE 20
SEGMENT DATA AND RELATED INFORMATION

The Company operates in one business segment, the manufacturing and sale of refined copper rod and copper anode, as well as copper clad aluminum (CCA) wire and copper wire produced from refined copper rod.  The Company also operates in only one geographical segment – China, as all of the Company’s products are sold to customers located in China and the Company’s manufacturing operations are located in China.

The Company’s major product categories are (1) wire manufacturing, consisting of (a) CCA fine and superfine wire, which is an electrical conductor consisting of an outer sleeve of copper that is metallurgically bonded to a solid aluminum core, and (b) copper fine and superfine wire, manufactured from recycled copper rod; (2) refined copper rod; and (3) refined copper anode, the latter two of which are fire refined from scrap copper.

Management evaluates performance based on several factors, of which net revenue and gross profit by product are the primary financial measures:

   
For the Three Months
   
For the Six Months
 
   
Ended June 30,
   
Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
Net revenue from unaffiliated customers:
                       
Copper and CCA wire
   $ 93,513,329      $ 68,318,870      $ 164,424,965      $ 108,937,801  
Copper anode
    73,499,198       -       139,518,658       -  
Refined copper rod
    -       7,183,480       -       29,785,251  
     $ 167,012,527      $ 75,502,350      $ 303,943,623      $ 138,723,052  
                                 
Gross profit:
                               
Copper and CCA wire
   $ 13,833,862      $ 13,799,167      $ 24,810,315      $ 23,697,804  
Copper anode
    5,813,601       -       11,745,221       -  
Refined copper rod
    -       701,139       -       2,623,786  
     $ 19,647,463      $ 14,500,306      $ 36,555,536      $ 26,321,590
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