7. Advances to Suppliers
are shown net of allowances of $4,675,112 and $4,623,323 at September 30, 2012 and June 30, 2012, respectively.
Some of our
suppliers are state-owned companies in the PRC or their subsidiaries. We believe that advances paid to state-owned companies are
ultimately collectible because they are backed by the full faith and credit of the PRC government. As such, we generally do not
provide allowances against such advances.