NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

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

	As of December 31,
	2011			2010
At cost:
Mineral rights	$	6,318,750		$	6,011,790
Buildings		40,974,528			38,878,225
Plant and machinery		136,862,383			88,149,060
Motor vehicles		7,024			6,683
Furniture, fixtures and office equipment		4,057,356			3,850,525
Total		188,220,041			136,896,283
Less: accumulated depreciation and amortization		(41,019,301	)		(24,717,284	)
Net book value	$	147,200,740		$	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 $33,108,012 and $33,868,298 as at December 31, 2011 and 2010, respectively.

In the fiscal year 2011, the Company reclassified certain protective shells for crude salt pans with cost of $2,204,600 (RMB14.6 million), previously included in building, into plant and equipment for consistent classification with other similar assets. Comparative figures for the fiscal year 2010 were reclassified to conform to the current year presentation. There is no impact on the statements of income as estimated useful lives of the assets being reclassified was not changed.

During the year ended December 31, 2011, depreciation and amortization expense totaled $17,432,382, of which $16,348,509 and $1,083,873 were recorded as cost of net revenue and administrative expenses, respectively.

During the year ended December 31, 2010, depreciation and amortization expense totaled $11,097,149 of which $10,236,230 and $860,919 were recorded as cost of net revenue and administrative expenses, respectively.

During the year ended December 31, 2009, depreciation and amortization expense totaled $7,199,658, of which $7,019,608 and $180,050 were recorded as cost of net revenue and administrative expenses, respectively.

In June 2010, the Company completed the construction of a production line for wastewater treatment chemical additives line at a total cost of RMB60 million (equivalent to $8,838,000). A retention amount of $453,000 as of 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.

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 was approximately $6,207,901, which was completed and restarted operations in December 2011. A rental agreement was subsequently signed in February 2012 with the local Township government for the lease of the parcel of land with an annual payment of RMB100,000 (approximately $15,871) up to December 31, 2031.

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 in the third quarter of 2011 as compensation for the demolition of original Factory No. 4 and included in the income statement as other operating income.

Besides the assets acquisition as mentioned in Note 2, the Company carried out the following major enhancement projects to the existing facilities in 2011:

(a)

In the first quarter of 2011, the Company carried out enhancements to the new property, plant and machinery acquired under finance lease in January 2011 (see Note 6) by making capital improvement in reconstruction and renovation work at a cost of approximately $3,050,400, which was recorded as buildings ($297,349) and plant and machinery ($2,753,051), for the operation of the real property, production facilities, channels and ducts, other production equipment and the buildings located on the property (“Branch 1 of Factory No. 1”). The capital improvement works to the buildings and plant and equipment have estimated useful lives of 15-20 years and 5-8 years, respectively.

(b)

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), which were recorded as plant and machinery. In particular, the Company incurred reconstruction and renovation works at a cost of approximately $12,379,153 for its existing crude salt fields in Factory No. 1, 5 to 9, at costs of approximately $12,361,600 for its extraction wells in Factory No. 1 to 9, and $7,726,000 for its transmission channels and ducts, respectively, in Factory No. 1 to 9. The enhancement work to existing extraction wells, drilling deeper underground for better quality brine water, has estimated useful lives of 8 years. None of the existing extraction wells were impaired as a result of the drilling enhancement. The enhancement works to crude salt fields, transmission channels and ducts, replacing eroded protective shells for crude salt fields and transmission channels and ducts, have estimated useful lives of 5 years. Certain eroded protective shells for crude salt fields and transmission channels and ducts, with net book values of $1,632,004 and $1,315,476, respectively, were replaced during the enhancement projects, write-offs of the same amounts, were made in the second quarter of 2011 and included in write-off / impairment on property, plant and equipment. The Company also recognized write-offs of certain eroded protective shells for transmission channels and ducts, without enhancement works, with net book values of $749,999, during the regular inspection of fixed assets, and included in write-off / impairment on property, plant and equipment.

(c)

In mid-June 2011, the Company switched its production line for wastewater treatment chemical additives, with net book value of $8,320,410, to the production of pharmaceutical and agricultural chemical intermediates at a cost of $153,426 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.

Enhancements of protective shells to the crude salt fields, extraction wells and transmission channels and ducts are carried out every 5 to 8 years, depending on the need to do so, that is, when regular repair and maintenance work identifies the replacement needs. The erosion rate of protection shells is affected by different weather conditions and the change in acid components of brine water over time.

There were no impairment provisions made at December 31, 2010 and 2009.

For the years ended December 31, 2011, 2010 and 2009, ordinary repair and maintenance expenses were $1,078,134, $199,257 and $27,317, respectively.