Statutory Reserves

12 Months Ended

Dec. 31, 2012

NOTE 15 – STATUTORY RESERVES

The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax net income determined in accordance with PRC Corporation Law. Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income determined in accordance with the PRC Company Law until the reserve is equal to 50% of the entities’ registered capital or members’ equity. In accordance with the PRC laws and regulations, the Company is restricted in their ability to transfer a portion of its net assets to the Company’s owner in the form of dividends. The balance of statutory reserve represents the accumulated balance of the restricted net assets maintained by the Company. The accumulated balance of the statutory reserve of the Company as of December 31, 2012 and 2011 was $2,580,884 and $342,957, respectively.

For the years ended December 31, 2012 and 2011, statutory reserve activities were as follows:

	Hengchang Agriculture		Hengjiu		Total
Balance - December 31, 2010		342,957		-		342,957
Addition to statutory reserves		-		-		342,957
Balance - December 31, 2011		342,957		-		342,957
Addition to statutory reserves		2,237,927		-		2,237,927
Balance - December 31, 2012		2,580,884		-		2,580,884

GSP-2, INC. 10-K