NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

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

	September 30, 2011			December 31, 2010
At cost:
Mineral rights	$	6,265,002		$	6,011,790
Buildings (including salt pans)		40,654,836			41,082,825
Plant and machinery		118,228,887			85,944,460
Motor vehicles		6,963			6,683
Furniture, fixtures and equipment		4,022,702			3,850,525
Construction in progress		5,352,128			-
Total		174,530,518			136,896,283
Less: Accumulated depreciation and amortization		(35,613,493	)		(24,717,284	)
Net book value	$	138,917,025		$	112,178,999

The Company has certain buildings and salt pans erected on parcels of land located in Shouguang, 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 covering certain properties of aggregate carrying value of $31,989,045 and aggregate carrying value of $33,868,298 as at September 30, 2011 and December 31, 2010, respectively.

During the three-month period ended September 30, 2011, depreciation and amortization expense totaled $4,988,255, of which $4,657,093 and $331,162 were recorded as cost of net revenue and administrative expenses respectively. During the three-month period ended September 30, 2010, depreciation and amortization expense totaled $3,048,776, of which $2,947,862 and $100,914 were recorded as cost of sales and administrative expenses respectively. During the nine-month period ended September 30, 2011, depreciation and amortization expense totaled $12,363,918, of which $11,462,272 and $901,646 were recorded as cost of net revenue and administrative expenses respectively. During the nine-month period ended September 30, 2010, depreciation and amortization expense totaled $7,867,568, of which $7,643,938 and $223,630 were recorded as cost of sales and administrative expenses respectively.

Construction in progress as of September 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 take 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 total construction cost of the new Factory No. 4 is approximately $6,845,160, which is expected to be completed and start operations on a trial basis in November 2011.

The operations of the original Factory No. 4 were stopped in early July 2011 to cooperate with the demolition of the factory and the relocation of useful plant and machinery to the new factory. For those fixed assets that could not be relocated to the new factory, the Company recognized write-offs of $1,384,443 in the second quarter of 2011 and included the impairment loss in write-off / impairment on property, plant and equipment. A sum of $1,340,026 was received from the local PRC government for the three-month period ended September 30, 2011 as compensation for the demolition of original Factory No. 4 and included in the income statement as other operating income.

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. one year after the completion date. The Company switched this 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 in the second quarter of 2011 and included in write-off / impairment on property, plant and equipment.

In late June 2011, the Company completed enhancement projects to its crude salt fields, extraction wells and transmission channels and ducts at a total cost of RMB210,113,600 (equivalent to $32,466,753). Retention payables of $1,668,517 as at September 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 protective shells for crude salt fields and transmission channels and ducts were replaced during the enhancement projects, write-offs of $1,632,004 and $2,065,475, respectively, which were made in the second quarter of 2011 and included in write-off / impairment on property, plant and equipment.

For the three-month periods ended September 30, 2011 and 2010, repair and maintenance expenses were $12,985 and $61,625, respectively. For the nine-month periods ended September 30, 2011 and 2010, repair and maintenance expense were $102,076 and $123,438, respectively.