NOTE 8

PREPAID LAND USE RIGHTS

The Company has recorded as prepaid land use rights the lump sum payments paid to acquire long-term interests to utilize the land underlying its building and production facility. This type of arrangement is common for the use of land in the PRC. The prepaid land use rights are expensed on the straight-line basis over the term of the land use rights of 50 years.

The amounts expensed on prepaid land use right were $195,041 and $86,316 for the six months ended June 30, 2011 and 2010, and $98,144 and $43,179 for the three months ended June 30, 2011 and 2010, respectively. The estimated expense of the prepaid land use rights over each of the next five years and thereafter is $394,350 per annum.

As of June 30, 2011, prepaid land use rights included RMB32,399,100 ($5,006,351) representing payments made by Lihua Copper to a local authority to acquire a 50-year right to use a parcel of land which will be used for expansion of its manufacturing facilities. As of June 30, 2011, RMB2,399,100 ($370,712) remained unpaid and no land use right certificate had been issued and the relevant formalities were not completed. Apart from the payment of $5,006,351 to the local authority, the Company also paid $5,606,162 to various local authorities primarily as compensation to the local communities in connection with the Company’s acquisition of these land use rights.