NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

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

	June 30, 2011			December 31, 2010
At cost:
Mineral rights	$	6,151,933		$	6,011,790
Buildings (including salt pans)		40,241,602			41,082,825
Plant and machinery		119,793,169			85,944,460
Motor vehicles		6,838			6,683
Furniture, fixtures and equipment		3,950,101			3,850,525
Construction in progress		4,609,456			-
Total		174,753,099			136,896,283

Less: Impairment		(3,190,041	)		-
Less: Accumulated depreciation and amortization		(30,939,611	)		(24,717,284	)
Net book value	$	140,623,447		$	112,178,999

The Company has certain buildings and salt pans erecting on parcels of land located in Shouguang, the PRC, and such parcels of land are collectively owned by local townships. The Company has not been able to obtain property ownership certificates over these buildings and salt pans as the Company could not obtain land use rights certificates on the underlying parcels of land. The Company could not obtain property ownership certificates covers certain properties of aggregate carrying value of $31,942,453 and aggregate carrying value of $33,868,298 as at June 30, 2011 and December 31, 2010, respectively.

During the three-month period ended June 30, 2011, depreciation and amortization expense totaled $4,120,097, of which $3,830,437 and $196,707 were recorded as cost of net revenue and administrative expenses respectively. During the three-month period ended June 30, 2010, depreciation and amortization expense totaled $2,410,053, of which $2,348,969 and $61,084 were recorded as cost of sales and administrative expenses respectively. During the six-month period ended June 30, 2011, depreciation and amortization expense totaled $7,375,662, of which $6,805,179 and $570,483 were recorded as cost of net revenue and administrative expenses respectively. During the six-month period ended June 30, 2010, depreciation and amortization expense totaled $4,818,792, of which $4,696,076 and $122,716 were recorded as cost of sales and administrative expenses respectively.

Construction in progress as at June 30, 2011 represented the construction and renovation costs incurred for new Factory No. 4, which is currently under construction. In mid-May 2011, the local PRC government requested to recall the leased land of original Factory No. 4 for redevelopment and agreed to lease another parcel of land to the Company nearby to the existing Factory No. 4. The amount of compensation is still under negotiation with the local PRC government. The total construction cost of the new Factory No. 4 is approximately $6,721,620, which is expected to be completed by late August 2011.

The operations of the original Factory No. 4 were stopped in early July 2011 to cooperate with the demolition of factory and relocation of useful plant and machinery to new factory. For those fixed assets that could not be relocated to the new factory, the Company made impairment of $1,384,443 as of June 30, 2011 and included the impairment loss in write-off / impairment on property, plant and equipment.

In June 2010, the Company completed the construction of a production line for wastewater treatment chemical additives at a total cost of RMB60,000,000 (equivalent to $8,838,000). A retention payable of $453,000 as at December 31, 2010, representing 5% of the total cost, will be paid to Shouguang City Shengkun Construction Co., Ltd. upon one year after the completion date. The Company decided to switch the aforesaid production line to the production of pharmaceutical and agricultural chemical intermediates in mid-June 2011 as the Company experienced some technological limitations on extraction purity, which lead to a lower than expected gross margin for wastewater treatment chemical additives. An impairment of $1,805,598 was made as of June 30, 2011 and included in write-off / impairment on property, plant and equipment.

In late June 2011, the Company completed the enhancement projects to its crude salt fields, extraction wells and transmission channels and ducts at total costs of RMB210,113,600 (equivalent to $32,466,753). Retention payables of $1,623,338 as at June 30, 2011, representing 5% of the total costs, will be paid to Shouguang City Shengdou Construction Group Co., Ltd. and Shouguang City Shengkun Construction Co., Ltd. upon six months after the completion date. Certain protection shell of crude salt fields and transmission channels and ducts were replaced during the enhancement projects, write-off of $1,632,004 and $2,065,475, respectively, were made as of June 30, 2011 and included in write-off / impairment on property, plant and equipment.

For the three-month periods ended June 30, 2011 and 2010, repair and maintenance expense were $38,457 and $36,682, respectively. For the six-month periods ended June 30, 2011 and 2010, repair and maintenance expense were $89,090 and $61,813, respectively.