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2. ASSETS ACQUISITIONS | 12 Months Ended
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Dec. 31, 2012
Notes to Financial Statements |
2. ASSETS ACQUISITIONS | NOTE 2 – ASSETS ACQUISITIONS Pursuant to the lease contract signed by SCHC on November 5, 2010 with State-Operated Shouguang Qingshuibo Farm (the “Lessor”), the Company recognized in January 2011 (1) a 20-year capital lease of a real property adjacent to Factory No. 1, with the related production facility, channels and ducts, other production equipment and the buildings located on the property, with an annual payment of RMB1,877,000 (approximately $295,365) up to December 31, 2030 to the Lessor, aggregating $3,127,913 (the present value of the minimum lease payments); and (2) a 20-year land lease and rights to new extraction wells on which the aforesaid real property, production facilities, channels and ducts, other production equipment and the buildings are situated, with an annual payment of RMB3,123,000 (approximately $495,651) up to December 31, 2030 to the Lessor. The lease was accounted for under FASB ASC 840-10-25 “Leases – Recognition” and the cost of $3,127,913 was included in property, plant equipment under capital lease in the first quarter of 2011. On December 22, 2011, the Company acquired substantially all of the assets owned by Liangcai Zhang in Yangkou Village located Shouguang City Yangkou Township area (the “Liangcai Zhang Property” or “Factory No. 10”). The Liangcai Zhang Property includes a 10-year land lease covering approximately 1,700 acres of real property, with the related production facility, wells, pipelines, other production equipment, and the buildings located on the property. The total purchase price for the acquired assets was RMB63 million (approximately $9,998,730) in cash. The Company expected to resume production with the newly acquired assets by the end of first quarter 2012 after repair and adjustments. A rental agreement was subsequently signed in February 2012 with the State-Operated Shandong Caiyangzi Saltworks for the lease of the parcel of land on which the aforesaid real property, production facilities, the wells, pipelines, other production equipment, and the buildings are situated, with an annual payment of RMB688,000 (approximately $109,192) up to December 31, 2021. The Company also enhanced the new plant and machinery leased in the first quarter of 2011 by making capital improvement in reconstruction and renovation work at a cost of approximately $3,050,400, which was recorded as buildings and plant and machinery, for the operation of the aforesaid real property, production facilities, channels and ducts, other production equipment and the buildings located on the property. In the second quarter of 2011, the Company carried out enhancement projects to its existing bromine extraction and crude salt production facilities. In particular, the Company incurred reconstruction and renovation works at a cost of approximately $12,379,153 for its crude salt fields in Factory No. 1, 5 to 9, and at a cost of approximately $20,087,600 for its extraction wells and transmission channels and ducts in Factory No. 1 to 9. The above enhancement projects have estimated useful lives of 5 to 8 years and are capitalized as buildings and plant and machinery. On November 26, 2012, the Company acquired substantially all of the assets owned by Chengyong Zhao in Guantai Village located Shouguang City Yangkou Township area (the “Chengyong Zhao Property” or “Factory No. 11”). The Chengyong Zhao Property includes a 20-year land lease covering approximately 1,727 acres of real property, with the related production facility, wells, pipelines, other production equipment, and the buildings located on the property. The total purchase price for the acquired assets was RMB 62 million (approximately $9.80 million), consisting of RMB 31 million (approximately $4.93million) in cash and 3,806,728 shares of the Company’s Common Stock valued at approximately $4.87 million (fair value). The production line of Factory No. 11 was resumed in March 2013 after certain repair and adjustments. Each of the bromine factories and crude salt field acquisitions described above was not in operation when the Company acquired the assets. Production at each of the assets acquired had previously been halted by the government since the owners of each of the bromine factories did not hold the proper license for the exploration and production of bromine. Both Factories No.10 and No.11 had not been in operation for more than six months at the time of the acquisitions. The Company recorded the above transactions as purchase of assets.

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