UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
|
Washington, D.C. 20549
|
|
|
FORM 10
-
Q
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(Mark One)
|
|
|
|
[X]
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the quarterly period ended:
June 30, 2012
|
|
|
[ ]
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
_________________to________________
Commission File Number: 001-34566
CHINA BIOLOGIC PRODUCTS,
INC.
(Exact Name of Registrant as Specified in
Its Charter)
Delaware
|
75-2308816
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification No.)
|
incorporation or organization)
|
|
18th Floor, Jialong International Building
19 Chaoyang
Park Road
Chaoyang District, Beijing 100125
Peoples Republic of
China
(Address of principal executive offices, Zip Code)
(+86) 10-6598-3111
(Registrants telephone number,
including area code)
_____________________________________________________
(Former
name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [ ]
|
|
Accelerated filer [X]
|
Non-accelerated filer [ ] (Do not check if a
smaller reporting company)
|
|
Smaller reporting company [ ]
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of each of the issuers
classes of common stock, as of August 6, 2012 is as follows:
Class of
Securities
|
|
Shares Outstanding
|
Common Stock, $0.0001 par value
|
|
26,538,625
|
Quarterly Report on Form
10-Q
|
Three and Six Months Ended June 30, 2012
|
|
|
TABLE OF CONTENTS
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|
|
PART I
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FINANCIAL
INFORMATION
|
Item 1. Financial Statements.
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1
|
Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
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18
|
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
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27
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Item 4. Controls and Procedures.
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28
|
|
|
PART II
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OTHER INFORMATION
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Item 1. Legal Proceedings
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28
|
Item 1A. Risk Factors
|
29
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Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
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29
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Item 3. Defaults Upon Senior Securities.
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29
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Item 4. Mine Safety Disclosures.
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29
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Item 5. Other Information.
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30
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Item 6. Exhibits.
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30
|
i
PART I
FINANCIAL INFORMATION
|
|
|
ITEM 1.FINANCIAL STATEMENTS.
|
|
|
|
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
|
Contents
|
Page(s)
|
Unaudited Consolidated Balance Sheets
|
1
|
Unaudited Consolidated Statements of Comprehensive Income
|
2
|
Unaudited Consolidated Statement of Changes
in Equity
|
3
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Unaudited Consolidated Statements of Cash Flows
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4
|
Notes to Unaudited Consolidated Financial
Statements
|
6
|
ii
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
June
30, 2012
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|
|
December 31, 2011
|
|
ASSETS
|
|
|
|
|
|
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Current Assets
|
|
|
|
|
|
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Cash
|
$
|
104,487,225
|
|
$
|
89,411,835
|
|
Short-term investment
|
|
1,347,250
|
|
|
-
|
|
Accounts receivable, net of
allowance for doubtful accounts
|
|
21,539,879
|
|
|
16,757,368
|
|
Inventories
|
|
69,744,364
|
|
|
71,338,590
|
|
Other receivables
|
|
1,843,139
|
|
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2,594,461
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|
Prepayments and prepaid expenses
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|
2,063,454
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|
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1,591,696
|
|
Deferred tax assets
|
|
1,768,319
|
|
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1,999,563
|
|
Total Current Assets
|
|
202,793,630
|
|
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183,693,513
|
|
Property, plant and equipment, net
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|
40,438,504
|
|
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40,546,539
|
|
Intangible assets, net
|
|
5,109,949
|
|
|
6,520,671
|
|
Land use rights, net
|
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5,779,983
|
|
|
5,487,343
|
|
Prepayments and deposits for property, plant and equipment
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|
7,856,130
|
|
|
4,287,492
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Equity method investment
|
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9,888,236
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|
|
8,357,017
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|
Total
Assets
|
$
|
271,866,432
|
|
$
|
248,892,575
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
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Current liabilities
|
|
|
|
|
|
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Short-term bank loans
|
$
|
-
|
|
$
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11,018,000
|
|
Accounts payable
|
|
3,486,567
|
|
|
4,996,463
|
|
Due to related parties
|
|
4,597,741
|
|
|
3,319,938
|
|
Other payables and accrued
expenses
|
|
23,364,025
|
|
|
30,661,794
|
|
Advance from customers
|
|
5,287,022
|
|
|
4,365,523
|
|
Advance from customers a
related party
|
|
-
|
|
|
486,602
|
|
Income tax payable
|
|
3,227,566
|
|
|
5,373,633
|
|
Other taxes payable
|
|
2,280,812
|
|
|
2,189,913
|
|
Derivative liabilities - warrants
|
|
-
|
|
|
5,410,419
|
|
Total Current Liabilities
|
|
42,243,733
|
|
|
67,822,285
|
|
Other payable
|
|
344,804
|
|
|
343,477
|
|
Deferred tax liabilities
|
|
1,478,650
|
|
|
1,685,772
|
|
Total Liabilities
|
|
44,067,187
|
|
|
69,851,534
|
|
|
|
|
|
|
|
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Stockholders Equity
|
|
|
|
|
|
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Common stock:
par value $.0001; 100,000,000 shares authorized; 26,538,625
and 25,601,125 shares issued and outstanding at June 30, 2012 and
December
31, 2011, respectively
|
|
2,654
|
|
|
2,560
|
|
Additional paid-in capital
|
|
58,972,454
|
|
|
48,838,311
|
|
Retained earnings
|
|
99,716,888
|
|
|
73,920,811
|
|
Accumulated other
comprehensive income
|
|
13,811,804
|
|
|
12,750,682
|
|
Total stockholders
equity attributable to China Biologic Products, Inc.
|
|
172,503,800
|
|
|
135,512,364
|
|
|
|
|
|
|
|
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Noncontrolling interest
|
|
55,295,445
|
|
|
43,528,677
|
|
|
|
|
|
|
|
|
Total Equity
|
|
227,799,245
|
|
|
179,041,041
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
$
|
271,866,432
|
|
$
|
248,892,575
|
|
See accompanying notes to Unaudited Consolidated Financial
Statements.
1
CHINA BIOLOGIC PRODUCTS, INC. AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
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$
|
50,466,339
|
|
$
|
41,664,996
|
|
$
|
97,693,800
|
|
$
|
76,060,234
|
|
Related party
|
|
-
|
|
|
462
|
|
|
-
|
|
|
76,046
|
|
Total sales
|
|
50,466,339
|
|
|
41,665,458
|
|
|
97,693,800
|
|
|
76,136,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Eternal customers
|
|
16,130,889
|
|
|
12,512,359
|
|
|
31,846,616
|
|
|
21,789,563
|
|
Related party
|
|
-
|
|
|
210
|
|
|
-
|
|
|
34,604
|
|
Cost of sales
|
|
16,130,889
|
|
|
12,512,569
|
|
|
31,846,616
|
|
|
21,824,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
34,335,450
|
|
|
29,152,889
|
|
|
65,847,184
|
|
|
54,312,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
4,165,242
|
|
|
3,038,143
|
|
|
8,991,349
|
|
|
5,488,056
|
|
General and administrative expenses
|
|
7,932,372
|
|
|
7,665,306
|
|
|
15,078,166
|
|
|
15,129,447
|
|
Research and development expenses
|
|
929,489
|
|
|
1,218,977
|
|
|
1,640,077
|
|
|
1,929,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
21,308,347
|
|
|
17,230,463
|
|
|
40,137,592
|
|
|
31,764,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) / expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of equity method investee
|
|
(451,891
|
)
|
|
(463,688
|
)
|
|
(1,474,303
|
)
|
|
(734,082
|
)
|
Change in fair value of derivative liabilities
|
|
(559,758
|
)
|
|
(11,175,384
|
)
|
|
(1,769,140
|
)
|
|
(12,197,249
|
)
|
Interest expense
|
|
157,635
|
|
|
2,300,601
|
|
|
766,198
|
|
|
3,981,523
|
|
Interest income
|
|
(765,717
|
)
|
|
(269,594
|
)
|
|
(1,309,112
|
)
|
|
(439,725
|
)
|
Other expenses, net
|
|
1,797
|
|
|
846,051
|
|
|
102,786
|
|
|
1,070,282
|
|
Total other income, net
|
|
(1,617,934
|
)
|
|
(8,762,014
|
)
|
|
(3,683,571
|
)
|
|
(8,319,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
22,926,281
|
|
|
25,992,477
|
|
|
43,821,163
|
|
|
40,083,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
3,333,616
|
|
|
5,317,249
|
|
|
6,510,331
|
|
|
9,580,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
19,592,665
|
|
|
20,675,228
|
|
|
37,310,832
|
|
|
30,503,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to the noncontrolling interest
|
|
6,753,894
|
|
|
4,075,523
|
|
|
11,514,755
|
|
|
7,594,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to China Biologic Products, Inc.
|
|
12,838,771
|
|
|
16,599,705
|
|
|
25,796,077
|
|
|
22,908,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.50
|
|
$
|
0.67
|
|
$
|
1.00
|
|
$
|
0.94
|
|
Diluted
|
$
|
0.46
|
|
$
|
0.28
|
|
$
|
0.90
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in
computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
25,875,164
|
|
|
24,632,774
|
|
|
25,738,145
|
|
|
24,492,728
|
|
Diluted
|
|
26,627,160
|
|
|
26,738,279
|
|
|
26,581,824
|
|
|
26,802,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive income, net of nil
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
136,178
|
|
|
2,699,426
|
|
|
1,313,135
|
|
|
3,825,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
19,728,843
|
|
|
23,374,654
|
|
|
38,623,967
|
|
|
34,329,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to the noncontrolling interest
|
|
6,750,933
|
|
|
4,526,465
|
|
|
11,766,768
|
|
|
8,314,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to China
Biologic Products, Inc.
|
$
|
12,977,910
|
|
$
|
18,848,189
|
|
$
|
26,857,199
|
|
$
|
26,014,972
|
|
See accompanying notes to Unaudited Consolidated Financial
Statements.
2
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equity attributable
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Additional
|
|
|
Retained
|
|
|
other comprehensive
|
|
|
to China Biologic
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Par value
|
|
|
paid-in capital
|
|
|
earnings
|
|
|
income
|
|
|
Products, Inc.
|
|
|
interest
|
|
|
Total equity
|
|
Balance as of January 1,
2012
|
|
25,601,125
|
|
$
|
2,560
|
|
$
|
48,838,311
|
|
$
|
73,920,811
|
|
$
|
12,750,682
|
|
$
|
135,512,364
|
|
$
|
43,528,677
|
|
$
|
179,041,041
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,796,077
|
|
|
-
|
|
|
25,796,077
|
|
|
11,514,755
|
|
|
37,310,832
|
|
Other comprehensive
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,061,122
|
|
|
1,061,122
|
|
|
252,013
|
|
|
1,313,135
|
|
Stock compensation
|
|
-
|
|
|
-
|
|
|
1,992,958
|
|
|
-
|
|
|
-
|
|
|
1,992,958
|
|
|
-
|
|
|
1,992,958
|
|
Common stock issued in connection with:
- Exercise of warrants
|
|
937,500
|
|
|
94
|
|
|
8,141,185
|
|
|
-
|
|
|
-
|
|
|
8,141,279
|
|
|
-
|
|
|
8,141,279
|
|
Balance as of June 30, 2012
|
|
26,538,625
|
|
$
|
2,654
|
|
$
|
58,972,454
|
|
$
|
99,716,888
|
|
$
|
13,811,804
|
|
$
|
172,503,800
|
|
$
|
55,295,445
|
|
$
|
227,799,245
|
|
See accompanying notes to Unaudited Consolidated Financial
Statements.
3
CHINA BIOLOGIC PRODUCTS, INC. AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
For the six months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
$
|
37,310,832
|
|
$
|
30,503,428
|
|
Adjustments to reconcile net income to cash
provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
2,281,223
|
|
|
2,192,436
|
|
Amortization
|
|
1,525,267
|
|
|
1,769,484
|
|
Loss on sale of property, plant and equipment
|
|
60,518
|
|
|
133,218
|
|
Allowance / (reversal of
allowance) for doubtful accounts, net
|
|
57,532
|
|
|
(14,674
|
)
|
Write-down of obsolete inventories
|
|
49,703
|
|
|
151,014
|
|
Deferred tax expense / (benefit),
net
|
|
26,341
|
|
|
(677,477
|
)
|
Stock compensation
|
|
1,992,958
|
|
|
2,418,287
|
|
Change in fair value of
derivative liabilities
|
|
(1,769,140
|
)
|
|
(12,197,249
|
)
|
Amortization of deferred note issuance cost
|
|
-
|
|
|
91,945
|
|
Amortization of discount on
convertible notes
|
|
-
|
|
|
3,503,767
|
|
Equity in income of equity method investee
|
|
(1,474,303
|
)
|
|
(734,082
|
)
|
Change in operating assets and
liabilities
|
|
|
|
|
|
|
Accounts receivable - third parties
|
|
(4,692,006
|
)
|
|
(10,150,102
|
)
|
Accounts receivable -a related
party
|
|
-
|
|
|
214,587
|
|
Other receivables
|
|
179,282
|
|
|
27,582
|
|
Inventories
|
|
2,045,191
|
|
|
(9,319,703
|
)
|
Prepayments and prepaid expenses
|
|
(471,755
|
)
|
|
(1,299,510
|
)
|
Accounts payable
|
|
(1,546,373
|
)
|
|
1,200,716
|
|
Other payables and accrued expenses
|
|
(3,053,145
|
)
|
|
378,573
|
|
Due to related parties
|
|
1,255,867
|
|
|
-
|
|
Advance from customers
|
|
891,890
|
|
|
857,251
|
|
Advance from customers a
related party
|
|
(490,497
|
)
|
|
-
|
|
Income tax payable
|
|
(2,185,825
|
)
|
|
2,735,990
|
|
Other taxes payable
|
|
75,672
|
|
|
563,983
|
|
Net cash provided by operating activities
|
|
32,069,232
|
|
|
12,349,464
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Dividend received
|
|
555,310
|
|
|
-
|
|
Purchase of property, plant and equipment
|
|
(5,098,533
|
)
|
|
(4,596,500
|
)
|
Purchase of intangible assets
and land use right
|
|
(796,707
|
)
|
|
(413,925
|
)
|
Purchase of short-term investment
|
|
(1,348,610
|
)
|
|
-
|
|
Net cash used in investing
activities
|
|
(6,688,540
|
)
|
|
(5,010,425
|
)
|
See accompanying notes to Unaudited Consolidated Financial
Statements.
4
CHINA BIOLOGIC PRODUCTS, INC. AND
SUBSIDIARIES
UNAUDTIED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
For the six months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from warrants exercised
|
|
4,500,000
|
|
|
-
|
|
Proceeds from stock option
exercised
|
|
-
|
|
|
100,000
|
|
Proceeds from short term bank loans
|
|
-
|
|
|
18,373,200
|
|
Repayment for short term bank
loans
|
|
(11,106,200
|
)
|
|
(3,062,200
|
)
|
Acquisition of noncontrolling interest
|
|
-
|
|
|
(7,635,000
|
)
|
Dividend paid by subsidiaries
to noncontrolling interest shareholders
|
|
(4,379,016
|
)
|
|
(5,589,920
|
)
|
Net cash (used in)/provided by financing activities
|
|
(10,985,216
|
)
|
|
2,186,080
|
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE CHANGE IN CASH
|
|
679,914
|
|
|
2,375,192
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
15,075,390
|
|
|
11,900,311
|
|
|
|
|
|
|
|
|
Cash at the beginning of period
|
|
89,411,835
|
|
|
64,941,368
|
|
|
|
|
|
|
|
|
Cash at the end of period
|
$
|
104,487,225
|
|
$
|
76,841,679
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
8,669,815
|
|
$
|
7,521,952
|
|
Cash paid for interest expense
|
$
|
204,982
|
|
$
|
370,918
|
|
Noncash investing and
financing activities:
|
|
|
|
|
|
|
Convertible notes conversion
|
$
|
-
|
|
$
|
12,972,000
|
|
Utilization of prepayments and deposits to acquire
property, plant and equipment
|
$
|
-
|
|
$
|
836,000
|
|
Exercise of warrants that were liability classified
|
$
|
3,641,279
|
|
$
|
-
|
|
Acquisition of property, plant and equipment included
in payables
|
$
|
347,439
|
|
$
|
1,993,920
|
|
See accompanying notes to Unaudited Consolidated Financial Statements.
5
CHINA BIOLOGIC PRODUCTS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 AND 2011
NOTE 1 ORGANIZATION BACKGROUND AND PRINCIPAL ACTIVITIES
China Biologic Products, Inc. (the Company or CBP, formerly known as GRC Holdings, Inc.) was originally incorporated in the State of Texas in 1989. On July 19, 2006, the Company and its then principle shareholders
entered into a share exchange agreement (the Exchange Agreement) with Taibang Biological Ltd. (Taibang Biological, formerly known as Logic Express Ltd., a privately held investment holding company incorporated on
January 6, 2006 under the laws of the British Virgin Islands, and all the shareholders of Taibang Biological (the Taibang Biological Shareholders). Pursuant to the terms of the Exchange Agreement, the Taibang Biological Shareholders
transferred to the Company all of their shares in exchange for 18,484,715 shares of the Companys common shares (the Share Exchange). As a result of the Share Exchange, Taibang Biological became a wholly-owned subsidiary of the
Company and the Taibang Biological Shareholders received approximately 96.1% of the Companys issued and outstanding common shares. Immediately prior to the date of the Share Exchange, the Company was a publicly listed shell entity with no
operations and, Taibang Biological, through its 82.76% owned subsidiary, Shandong Taibang Biological Products Co. Ltd. (Shandong Taibang), was engaged in the research, development, commercialization, manufacture and sale of human blood
products primarily in the Peoples Republic of China (the PRC or
China). The Share Exchange was accounted for as a reverse recapitalization, equivalent to the issuance of stock by Taibang Biological for the net monetary assets of
the Company accompanied by a recapitalization. After consummation of the Share Exchange, the Company converted into a Delaware corporation and changed its name to China Biologic Products, Inc. on January 10, 2007.
The Company, through its PRC subsidiaries, is a biopharmaceutical company that is principally engaged in the research, development, manufacturing and sales of plasma-based pharmaceutical products in the PRC. The PRC subsidiaries own and operate
plasma stations that purchase and collect plasma from individual donors for a fee. The plasma is processed into finished goods after passing through a series of fractionating processes. All of the Companys products are prescription medicines
that require government approval before the products are sold to customers. The Company primarily sells its products to hospitals and inoculation centers directly or through distributors in the PRC.
On September 26, 2008, the Company, through Taibang Biological, entered into an equity purchase agreement with Guiyang Dalin Biologic Technologies Co. Ltd. (Dalin, formerly known as Chongqing Dalin Biologic Technologies Co.
Ltd.), an investment holding company, and certain equity owners of Dalin, to acquire 90% equity interest of Dalin. The purchase consideration for the 90% equity interest in Dalin was RMB 194,400,000 (or approximately $28,479,600) in cash.
At the date of entering into the equity purchase agreement, Dalin held 54% equity interest in Guiyang Qianfeng Biological Products Co., Ltd. (Qianfeng), which subsequently changed its name to Guizhou Taibang Biological Products Co., Ltd.
(Guizhou Taibang) on December 30, 2010. Guizhou Taibang is in compliance with the Good Manufacturing Practices certified by State Food and Drug Administration (SFDA) for the manufacturing, sale and distribution of Human
Albumin, Human Immunoglobulin, Human Intravenous Immunoglobulin, Human Hepatitis B Immunoglobulin, Human Tetanus Immunoglobulin, Human Rabies Immune Globulin and Placenta Polypeptide.
The Company completed the acquisition of a 90% equity interest in Dalin in January 2009. On December 28, 2009, the Companys 90% equity interest in Dalin was transferred to Taibang Biotech (Shandong) Co., Ltd. (Taibang Biotech,
formerly known as Logic Management Consulting (China) Co., Ltd.), a wholly owned subsidiary of the Company. The Company established Taibang Biotech in December 2009, for the purpose of being the holding company of the 90% equity interest
in Dalin.
On August 5, 2010, Taibang Biotech established a wholly-owned subsidiary, Logic Taibang Biological Institute (Beijing), which subsequently changed its name to Taibang (Beijing) Pharmaceutical Research Institute Co., Ltd. (Taibang
Beijing) on January 12, 2011. The registered capital of Taibang Beijing is $149,700 (RMB 1 million). Taibang Beijing is principally engaged in the research and development of plasma-based pharmaceutical products. The purpose of setting up
Taibang Beijing is to coordinate the research and development activities of the Companys PRC subsidiaries.
On January 13, 2010, Shandong Taibang acquired the remaining 20% equity interest in Fangcheng Plasma Company from the noncontrolling interest shareholder (see Note 14). Since the additional purchase of 20% equity interest did not result in a change
of the Companys control over Fangcheng Plasma Company, this transaction was accounted for as an equity transaction. After the acquisition, Fangcheng Plasma Company became a wholly-owned subsidiary of Shandong Taibang.
On July 8, 2010, Taibang Biotech entered into an equity purchase agreement with Shandong Taibang, to acquire 100% of the equity interest in Shandong Taibang Medical Company (Taibang Medical), a wholly-owned subsidiary of Shandong
Taibang. The cash consideration of the 100% equity interest in Taibang Medical was RMB 6,440,000 (approximately $947,327). The transaction was completed on September 23, 2010. The purpose of this transaction is to effectively acquire the 17.24%
equity interest in Taibang Medical indirectly held by the noncontrolling interest holder of Shandong Taibang, and to enable the Company to consolidate its resources in the sales and marketing of Shandong Taibang and Guizhou Taibangs products.
This transaction was accounted for as an equity transaction.
On November 11, 2010, the Company established Qianfeng Biological Science Company (Qianfeng Biologic) for the purpose of research and development of placenta based products. As of June 30, 2012, Qianfeng Biologic, which is a wholly-owned
subsidiary of Guizhou Taibang, did not commence operations.
6
On January 4, 2011, Taibang Biotech entered into an equity
transfer agreement (the Equity Transfer Agreement) with Shaowen Fan, a PRC
individual. Pursuant to the Equity Transfer Agreement, Taibang Biotech agreed to
acquire the remaining 10% noncontrolling interest in Dalin from Shaowen Fan for
a purchase price of RMB 50 million (approximately $7,635,000). The transaction
was completed on January 26, 2011 and Dalin became a wholly-owned subsidiary of
Taibang Biotech. The carrying amount of noncontrolling interest in Dalin at time
of the transaction was $2,870,065. The excess of the purchase price over the
carrying amount of corresponding noncontrolling interest was recorded in
additional paid-in capital.
On July 15, 2011, the Guizhou Provincial Health Department
issued the revised Plan for Guizhou Provincial Blood Collection Institutional
Setting (2011-2014), which stipulates the number of counties that are permitted
to set up plasma collection stations in Guizhou Province is limited to four
counties (the Guizhou Plan). As a result of the implementation of the Guizhou
Plan, the licenses of four plasma collection stations in Dan Zhai, Wei Ning, San
Sui and Na Yong counties owned by Guizhou Taibang were not renewed after their
respective plasma collection permits expired at the end of July 2011. The
licenses of its plasma collection stations in Pu Ding and Huang Ping counties
(locations permitted under the Guizhou Plan) were renewed until July 31, 2013.
In addition, Guizhou Taibangs inactive plasma collection station in Guizhou
Province that was purchased from the government in 2007 is unlikely to obtain a
license as planned, because it is in Zhen Yuan County, a county not included in
the Guizhou Plan.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of
Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted as permitted by rules
and regulations of the U.S. Securities and Exchange Commission (SEC). The
December 31, 2011 consolidated balance sheet was derived from the audited
consolidated financial statements of the Company. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
December 31, 2011 audited consolidated financial statements of the Company
included in the Companys annual report on Form 10-K for the year ended December
31, 2011.
In the opinion of management, all adjustments (which include
normal recurring adjustments) necessary to present a fair statement of the
financial position of June 30, 2012, the results of operations for the three and
six months ended June 30, 2012 and 2011, and cash flows for the six months ended
June 30, 2012 and 2011, have been made.
All significant intercompany transactions and balances are
eliminated on consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3 ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable at June 30, 2012 and December 31, 2011
consisted of the following:
|
|
|
|
|
|
|
|
|
June
30, 2012
|
|
|
December 31, 2011
|
|
Accounts receivable
|
$
|
21,978,738
|
|
$
|
17,171,460
|
|
Less: Allowance for doubtful accounts
|
|
(438,859
|
)
|
|
(414,092
|
)
|
Total
|
$
|
21,539,879
|
|
$
|
16,757,368
|
|
A reversal of the allowance for doubtful accounts of $12,953 and $10,419 was
recorded in the three months ended June 30, 2012 and 2011, respectively. A
provision for doubtful accounts of $21,895 and a reversal of the allowance for
doubtful accounts of $19,377 was recorded for the six months ended June 30, 2012
and 2011, respectively. There were no write-off of accounts receivable for the
three and six months ended June 30, 2012 and June 30, 2011, respectively.
NOTE 4 INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories at June 30, 2012 and December 31, 2011
consisted of the following:
|
|
|
|
|
|
|
|
|
June
30, 2012
|
|
|
December 31, 2011
|
|
Raw materials
|
$
|
26,880,149
|
|
$
|
29,403,776
|
|
Work-in-process
|
|
21,382,882
|
|
|
21,385,806
|
|
Finished goods
|
|
21,481,333
|
|
|
20,549,008
|
|
Total
|
$
|
69,744,364
|
|
$
|
71,338,590
|
|
Raw materials mainly comprised the human blood plasma collected
from the Companys plasma stations. Work-in-process represented the intermediate
products in the process of production. Finished goods mainly comprised human
albumin and human immunoglobulin.
7
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at June 30, 2012
and December 31, 2011 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2012
|
|
|
December 31, 2011
|
|
Buildings
|
$
|
26,304,957
|
|
$
|
25,296,828
|
|
Machinery and equipment
|
|
30,601,008
|
|
|
29,891,291
|
|
Furniture, fixtures, office equipment and
vehicles
|
|
6,762,154
|
|
|
6,445,851
|
|
Total property, plant and equipment, gross
|
|
63,668,119
|
|
|
61,633,970
|
|
Accumulated depreciation
|
|
(24,040,851
|
)
|
|
(21,744,060
|
)
|
Total property, plant and equipment, net
|
|
39,627,268
|
|
|
39,889,910
|
|
Construction in progress
|
|
811,236
|
|
|
656,629
|
|
Property, plant and equipment, net
|
$
|
40,438,504
|
|
$
|
40,546,539
|
|
Depreciation expense for the three months ended June 30, 2012
and 2011 was $1,184,498 and $1,083,692, respectively. Depreciation expense for
the six months ended June 30, 2012 and 2011 was $2,281,223 and $2,192,436,
respectively.
NOTE 6 INTANGIBLE ASSETS, NET
Intangible assets at June 30, 2012 and December 31, 2011
consisted of the following:
|
|
June 30, 2012
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
amortization
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
period
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits and licenses
|
|
10 years
|
|
$
|
4,981,362
|
|
$
|
(1,788,375
|
)
|
$
|
3,192,987
|
|
GMP certificate
|
|
5.8 years
|
|
|
2,522,496
|
|
|
(1,660,853
|
)
|
|
861,643
|
|
Long-term customer-relationship
|
|
4 years
|
|
|
7,509,730
|
|
|
(6,571,014
|
)
|
|
938,716
|
|
Others
|
|
|
|
|
237,352
|
|
|
(120,749
|
)
|
|
116,603
|
|
Total
|
|
|
|
$
|
15,250,940
|
|
$
|
(10,140,991
|
)
|
$
|
5,109,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
amortization
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
period
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Permits and licenses
|
|
10 years
|
|
$
|
4,946,791
|
|
$
|
(1,562,105
|
)
|
$
|
3,384,686
|
|
GMP certificate
|
|
5.8 years
|
|
|
2,504,990
|
|
|
(1,364,070
|
)
|
|
1,140,920
|
|
Long-term customer-relationship
|
|
4 years
|
|
|
7,457,612
|
|
|
(5,593,209
|
)
|
|
1,864,403
|
|
Others
|
|
|
|
|
233,030
|
|
|
(102,368
|
)
|
|
130,662
|
|
Total
|
|
|
|
$
|
15,142,423
|
|
$
|
(8,621,752
|
)
|
$
|
6,520,671
|
|
Aggregate amortization expense for amortizing intangible assets
was $733,794 and $857,695 for the three months ended June 30, 2012 and 2011,
respectively. Aggregate amortization expense for amortizing intangible assets
was $1,456,810 and $1,710,688 for the six months ended June 30, 2012 and 2011,
respectively. Estimated amortization expenses for the next five fiscal years are
$1,114,262 in 2013, $556,779 in 2014, $556,726 in 2015, $539,399 in 2016 and
$526,997 in 2017.
NOTE 7 LAND USE RIGHTS, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2012 and December 31, 2011, land use rights
represented:
|
|
|
|
|
|
|
|
|
June
30, 2012
|
|
|
December 31, 2011
|
|
Land use rights
|
$
|
6,379,880
|
|
$
|
6,018,783
|
|
Accumulated amortization
|
|
(599,897
|
)
|
|
(531,440
|
)
|
Land use rights, net
|
$
|
5,779,983
|
|
$
|
5,487,343
|
|
Aggregate amortization expense for amortizing land use right
was $35,676 and $27,201 for the three months ended June 30, 2012 and 2011,
respectively. Aggregate amortization expense for amortizing land use right was
$68,457 and $58,796 for the six months ended June 30, 2012 and 2011,
respectively.
8
NOTE 8 SHORT-TERM BANK LOANS
The Companys bank loans as of June 30, 2012 and December 31,
2011 consisted of the following:
|
|
|
Maturity
|
|
|
Annual
|
|
|
|
|
|
|
|
Loans
|
|
|
date
|
|
|
interest rate
|
|
|
June
30, 2012
|
|
|
December 31, 2011
|
|
Short-term bank loan, secured
(1)
|
|
|
March 22, 2012
|
|
|
6.06%
|
|
|
-
|
|
|
3,148,000
|
|
Short-term bank loan, unsecured
|
|
|
January 29, 2012
|
|
|
5.81%
|
|
|
-
|
|
|
1,574,000
|
|
Short-term bank loan, unsecured
|
|
|
January 29, 2012
|
|
|
6.06%
|
|
|
-
|
|
|
1,574,000
|
|
Short-term bank loan, unsecured
|
|
|
May 19, 2012
|
|
|
6.31%
|
|
|
-
|
|
|
4,722,000
|
|
Total
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
11,018,000
|
|
Interest expense on short-term bank loans was $45,765 and
$167,964 for the three months ended June 30, 2012 and 2011, respectively.
Interest expense on short-term bank loans was $204,982 and $238,340 for the six
months ended June 30, 2012 and 2011, respectively. The Company did not have any
revolving line of credit as of June 30, 2012.
(1)
As of December 31, 2011, the secured loan was
secured by the Companys buildings with a net carrying amount of
$1,644,480.
NOTE 9 INCOME TAX
On October 31, 2011, Shandong Taibang received a notice from
the Shandong provincial government that the High and New Technology Enterprise
qualification has been renewed for an additional three years which entitled it
for a 15% preferential income tax rate from 2011 to 2013.
According to CaiShui [2011] No. 58 dated July 27, 2011,
qualified enterprises located in the western region of PRC are entitled to
continue to pay income taxes at a preferential income tax rate of 15% effective
retroactively from January 1, 2011. Management believes Guizhou Taibang is a
qualified enterprise located in the western region and therefore is subject to a
preferential tax rate of 15% from 2011 to 2020.
The Companys effective income tax rates were 15% and 20% for
the three months ended June 30, 2012 and 2011, respectively. The Companys
effective income tax rates were 15% and 24% for the six months ended June 30,
2012 and 2011, respectively. For the three and six months ended June 30, 2012,
the effective income tax rates for the PRC entities and the non-PRC entities
were approximately 15% and 0%, respectively.
As of and for the six months ended June 30, 2012, the Company
did not have any unrecognized tax benefits and thus no interest and penalties
related to unrecognized tax benefits were recorded. In addition, the Company
does not expect that the amount of unrecognized tax benefits will change
significantly within the next 12 months.
NOTE 10 WARRANTS AND OPTIONS
Warrants
In connection with the issuance of convertible notes in 2009,
the Company issued warrants to purchase up to 1,194,268 shares of common stock
of the Company to the investors at an exercise price of $4.80 per share.
In June 2012, the warrants to purchase 937,500 shares of common
stock of the Company were exercised and the Company received proceeds of
$4,500,000. At the time of the exercise, the fair value of the warrants was
$3,641,279. For the three months ended June 30, 2012 and 2011, the gains arising
from the decrease in fair value of warrants were $559,758 and $5,393,760,
respectively. For the six months ended June 30, 2012 and 2011, the gains arising
from the decrease in fair value of warrants were $1,769,140 and $5,907,588,
respectively. As of December 31, 2011, there were 937,500 warrants outstanding.
As of June 30, 2012, there were no warrants outstanding.
The fair value of the warrants that were exercised on June 6
and June 4, 2012, and outstanding as of December 31, 2011 was determined based
on the Binominal option pricing model, using the following key assumptions:
|
|
June
6, 2012
|
|
|
June
4, 2012
|
|
|
December 31, 2011
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
Risk-free interest rate
|
|
0.05%
|
|
|
0.04%
|
|
|
0.05%
|
|
Time to maturity (in years)
|
|
-
|
|
|
-
|
|
|
0.43
|
|
Expected volatility
|
|
47.4%
|
|
|
37.3%
|
|
|
80.0%
|
|
Fair value of underlying common shares (per
share)
|
$
|
9.22
|
|
$
|
8.55
|
|
$
|
10.46
|
|
Changes in the managements estimates and assumptions regarding
the expected volatility could significantly impact the estimated fair value of
the warrants determined under the Binominal option pricing model and, as a
result, the net income and the net income attributable to the Companys
stockholders.
9
Options
Effective May 9, 2008, the Board of Directors adopted the China Biologic Products, Inc. 2008 Equity Incentive Plan, or the 2008 Plan. The 2008 Plan provides for grants of stock options, stock appreciation rights, performance units, restricted stock,
restricted stock units and performance shares. A total of five million (5,000,000) shares of the Companys common stock may be issued pursuant to the 2008 Plan. The exercise price per share for the shares to be issued pursuant to an exercise of
a stock option will be no less than the fair market value per share on the grant date, except that, in the case of an incentive stock option granted to a person who holds more than 10% of the total combined voting power of all classes of the
Companys stock or any of its subsidiaries, the exercise price will be no less than 110% of the fair market value per share on the grant date. No more than an aggregate of 500,000 shares (or for awards denominated in cash, the fair market value
of 500,000 shares on the grant date) may be subject to awards under the 2008 Plan to any individual participant in any one fiscal year. No awards may be granted under the 2008 Plan after May 9, 2018, except that any award granted before then may
extend beyond that date.
On May 9, 2008, the Board of Directors granted options to certain directors and employees for the purchase of 937,500 shares of the Companys common stock with an exercise price of $4.00 that vested immediately. These options expire on June
1, 2018.
On July 24, 2008, the Board of Directors granted options to three independent directors for the purchase of 60,000 shares of the Companys common stock with an exercise price of $4.00, of which 30,000 shares vested on January 24, 2009 and
the remaining 30,000 shares vested on July 24, 2009. These options expire on July 24, 2018.
On January 7, 2010, the Board of Directors granted options to one employee for the purchase of 50,000 shares of the Companys common stock with an exercise price of $12.60 that vested immediately. These options expire on January 7, 2020.
On February 4, 2010, the Board of Directors granted options to a newly appointed director for the purchase of 20,000 shares of the Companys common stock with an exercise price of $10.66, of which 10,000 shares vested on August 4, 2010 and
the remaining 10,000 shares vested on February 4, 2011. These options expire on February 4, 2020.
On July 11, 2010, the Board of Directors granted options to four directors and certain employees for the purchase of 160,000 shares and 811,000 shares of the Companys common stock with an exercise price of $12.26, respectively. These
options vest in 12 equal quarters with an initial vesting date of October 11, 2010. These options expire on July 11, 2020.
On January 1, 2011, the Board of Directors granted options to each of the three independent directors for the purchase of 30,000 shares of the Companys common stock with an exercise price of $16.39. These options vest in four equal
quarters over twelve months with an initial vesting date of April 1, 2011. These options expire on January 1, 2021.
On February 1, 2011, the Board of Directors granted options to the Companys president for the purchase of 25,000 shares of the Companys common stock with an exercise price of $15.97. These options vest in four equal quarters over
twelve months with an initial vesting date of May 1, 2011. These options expire on February 1, 2021.
On February 27, 2011, the Board of Directors granted options to each of the two new directors for the purchase of 20,000 shares of the Companys common stock at an exercise price of $17.00, of which 10,000 shares vested on August 27, 2011
and the remaining 10,000 shares vested on February 27, 2012. These options expire on February 27, 2021.
On October 6, 2011, the Board of Directors granted options to a newly appointed director for the purchase of 20,000 shares of the Companys common stock at an exercise price of $5.97, of which 10,000 shares vest on April 7, 2012 and the
remaining 10,000 shares vest on October 7, 2012. These options expire on October 6, 2021.
On March 19, 2012, the Board of Directors granted options to a newly appointed director for the purchase of 20,000 shares of the Companys common stock at an exercise price of $9.16, of which 10,000 shares vest on September 20, 2012 and the
remaining 10,000 shares vest on March 20, 2013. These options expire on March 19, 2022.
On April 20, 2012, the Board of Directors granted options to each of the two new directors for the purchase of 20,000 shares of the Companys common stock at an exercise price of $9.61, of which 10,000 shares vest on October 21, 2012 and
the remaining 10,000 shares vest on April 21, 2013. These options expire on April 20, 2022.
On May 10, 2012, the Board of Directors granted options to the Companys chief executive officer for the purchase of 300,000 shares of the Companys common stock at an exercise price of $9.23. These options vest in 12 equal quarters
with an initial vesting date of August 11, 2012. These options expire on May 10, 2022.
10
The fair value of each option granted in 2011 and 2012 are
estimated on the respective dates of grant using the Black-Scholes option
pricing model with the following major assumptions:
Granted on
|
|
January 1,
|
|
|
February 1,
|
|
|
February 27,
|
|
|
October 6,
|
|
|
March 19,
|
|
|
April 20,
|
|
|
May 10,
|
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
2012
|
|
|
2012
|
|
|
2012
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
Risk-free interest rate
|
|
2.01%
|
|
|
1.95%
|
|
|
2.16%
|
|
|
0.96%
|
|
|
1.13%
|
|
|
0.84%
|
|
|
0.77%
|
|
Expected term (in years)
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
6
|
|
Expected volatility
|
|
70.0%
|
|
|
70.0%
|
|
|
70.0%
|
|
|
65.0%
|
|
|
52.0%
|
|
|
105.0%
|
|
|
105.0%
|
|
The volatility of the Companys common stock was estimated by
management based on the historical volatility of the Companys common stock. The
risk free interest rate was based on Treasury Constant Maturity Rates published
by the U.S. Federal Reserve for periods applicable to the estimated term of the
options. The expected dividend yield was based on the Companys current and
expected dividend policy. Changes in the managements estimates and assumptions
regarding the expected volatility could significantly impact the estimated fair
values of the share options determined under the Black-Scholes option pricing
model and, as a result, the net income and the net income attributable to the
Companys stockholders. The weighted average grant date fair value of options
granted during the three months ended June 30, 2012 was $7.09. The weighted
average grant date fair value of options granted during the six months ended
June 30, 2012 was $6.93. During the six months ended June 30, 2012, no options
were exercised and no option was forfeited. For the three months ended June 30,
2012 and 2011, the Company recorded stock compensation expense of $1,030,539 and
$1,243,405, respectively, in general and administrative expenses. For the six
months ended June 30, 2012 and 2011, the Company recorded stock compensation
expense of $1,992,958 and $2,418,287, respectively, in general and
administrative expenses. As of June 30, 2012, approximately $5,879,304 of stock
compensation expense with respect to non-vested stock options is to be
recognized over approximately 2.86 years.
NOTE 11 STATUTORY RESERVES
Each of the Companys PRC subsidiaries are required to allocate
at least 10% of its after tax profits, as determined under generally accepted
accounting principal in the PRC, to its statutory surplus reserve until the
reserve balance reaches 50% of the respective registered capital. The
accumulated balance of the statutory reserve as of June 30, 2012 and December
31, 2011 was $30,789,351 and $30,753,726, respectively.
NOTE 12 FAIR VALUE MEASUREMENTS
Management used the following methods and assumptions to
estimate the fair value of financial instruments at the relevant balance sheet
dates:
-
Short-term financial instruments (including cash, short-term
investment, accounts receivables, other receivables, short-term bank loans,
accounts payable, other payables and accrued expenses, and amount due to related
parties) The carrying amounts of the short-term financial instruments
approximate their fair values because of the short maturity of these
instruments.
-
Long-term other payable The fair value of the Companys
long-term other payable is estimated by discounting future cash flows using
current market interest rates offered to the Company and its subsidiaries for
debts with substantially the same characteristics and maturities. The carrying
amounts of long-term payable approximate their fair values.
-
Derivative liabilities (the warrants) The estimated fair
values were determined by using Binominal Option Pricing Model with Level 2
inputs. The following table sets forth, by level within the fair value
hierarchy, the Companys financial instruments that were measured at fair value
on a recurring basis as of December 31, 2011.
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for Identical
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Financial Assets
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
and Liabilities
|
|
|
Inputs
|
|
|
Inputs
|
|
December 31, 2011
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilitiesWarrants
|
$
|
5,410,419
|
|
$
|
-
|
|
$
|
5,410,419
|
|
$
|
-
|
|
11
NOTE 13 SALES
The Companys sales are primarily derived from the manufacture
and sale of Human Albumin and Immunoglobulin products. The Companys sales by
significant types of product for the three months ended June 30, 2012 and 2011
are as follows:
|
|
For the three months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
Human Albumin
|
$
|
19,539,419
|
|
$
|
21,377,406
|
|
Immunoglobulin products:
|
|
|
|
|
|
|
Human Hepatitis
B Immunoglobulin
|
|
2,346,915
|
|
|
1,874,504
|
|
Human Immunoglobulin for
Intravenous Injection
|
|
21,239,174
|
|
|
16,084,281
|
|
Human Rabies
Immunoglobulin
|
|
2,116,013
|
|
|
2,451
|
|
Human Tetanus Immunoglobulin
|
|
1,879,363
|
|
|
1,951,355
|
|
Human
Immunoglobulin
|
|
645,531
|
|
|
-
|
|
Placenta Polypeptide
|
|
2,509,202
|
|
|
-
|
|
Others
|
|
190,722
|
|
|
375,461
|
|
Total
|
$
|
50,466,339
|
|
$
|
41,665,458
|
|
The Companys sales by significant types of product for the six
months ended June 30, 2012 and 2011 are as follows:
|
|
For the six months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
Human Albumin
|
$
|
45,329,702
|
|
$
|
41,078,992
|
|
Immunoglobulin products:
|
|
|
|
|
|
|
Human Hepatitis
B Immunoglobulin
|
|
3,606,500
|
|
|
4,090,185
|
|
Human Immunoglobulin for
Intravenous Injection
|
|
36,500,900
|
|
|
26,511,668
|
|
Human Rabies
Immunoglobulin
|
|
3,097,572
|
|
|
752,520
|
|
Human Tetanus Immunoglobulin
|
|
3,313,399
|
|
|
3,140,291
|
|
Human
Immunoglobulin
|
|
755,630
|
|
|
-
|
|
Placenta Polypeptide
|
|
4,620,011
|
|
|
-
|
|
Others
|
|
470,086
|
|
|
562,624
|
|
Total
|
$
|
97,693,800
|
|
$
|
76,136,280
|
|
NOTE 14 COMMITMENTS AND CONTINGENCIES
Operating lease commitments
Total operating lease commitments for rental of offices and
land use rights and buildings of the Companys PRC subsidiaries as of June 30,
2012 is as follows:
12-month period ending June 30,
|
|
|
|
2013
|
$
|
197,773
|
|
2014
|
|
8,382
|
|
2015
|
|
8,382
|
|
2016
|
|
8,244
|
|
2017
|
|
6,726
|
|
Years after
|
|
98,018
|
|
Total minimum payments required
|
$
|
327,525
|
|
For the three months ended June 30, 2012 and 2011, total lease
expense amounted to $91,189 and $103,013, respectively. For the six months ended
June 30, 2012 and 2011, total lease expense amounted to $163,589 and $164,097,
respectively.
12
Legal proceedings
Bobai County Collection Station
In January 2007, the Company's PRC subsidiary, Shandong Taibang, advanced $413,697 (RMB3.0 million) to Feng Lin, the then 20% noncontrolling interest shareholder of Fang Cheng Plasma Company, a Company's subsidiary, for the purpose of
establishing or acquiring a plasma collection station. Mr. Lin and Shandong Taibang intended to establish the BobaiKangan Plasma Collection Co., Ltd. (Bobai) in Bobai County, Guangxi. On January 18, 2007, Shandong Taibang signed a letter
of intent to acquire the assets of the Bobai Plasma Collection Station, which was co-owned by Mr. Lin and Mr. Keliang Huang. However, in January 2007, HuaLan Biological Engineering Co., Ltd. (HuaLan) filed suit in the District Court of
Hong Qi District, Xin Xiang City, Henan Province, alleging that Feng Lin, Keliang Huang and Shandong Taibang established and/or sought to operate the Bobai Plasma Collection Station using a permit for collecting and supplying human plasma in Bobai
County, that was originally granted to HuaLan by the government of the Guangxi region, without HuaLan's permission. The establishment and registration of Bobai was never realized as a result of this law suit. On January 29, 2007, on HuaLan's motion,
the District Court entered an order to freeze funds in the amount of approximately $386,100 (RMB3,000,000) held by the defendants in the case, including approximately $65,750 (RMB500,000) in funds held in Shandong Taibang's bank account in
Tai'an City. A hearing was held on June 25, 2007 and judgment was entered against the defendants along with a $226,780 (RMB1,700,000) joint financial judgment. The Company appealed the District Court judgment to the Xinxiang City Intermediate
Court. In November 2007, the Xinxiang City Intermediate Court affirmed the judgment against the three defendants and increased the amount of the joint financial judgment to approximately $405,954 (RMB3,000,000).
In January 2008, HuaLan enforced the judgment granted by the Xinxiang City Intermediate Court to freeze the Company's bank accounts. During the fourth quarter of 2008, the full amount of the judgment, including Feng Lin and Keliang Huang's portions
of the judgment and the related fees, of approximately $456,222 (RMB3,109,900) was withdrawn from Shandong Taibang's account. The Company recorded Feng Lin and Keliang Huang's portion of the judgment, of approximately $304,143
(RMB2,073,234), as receivable as a result of the withdrawal. As of December 31, 2008, the Company determined that it is unlikely that the Company will be able to recover such receivable from those two individuals and wrote off the receivable as bad
debt expense. In January 2010, Feng Lin transferred his 20% equity in Fang Cheng Plasma Company as a repayment for such receivable he owed to the Company. As a result, the Company is now the 100% owner of the Fang Cheng Plasma Company.
In October 2009, Shandong Taibang appealed to the High Court of Henan Province requesting the court to reverse judgments from the Hong Qi District Court based on Shandong Taibang's belief that HuaLans involvement in Bobai was in violation of
PRC Blood Products Regulations since HuaLan did not invest, as Shandong Taibang did, in Bobai as required by the Regulation. The Company is awaiting the judgment of the Henan High Court as of the date of this report. In light of the foregoing, it is
unlikely that the Company's plan acquisition of the assets of Bobai will go forward.
Dispute among Guizhou Taibang Shareholders over Raising Additional Capital
On May 28, 2007, 91% controlling interest of Guizhou Taibang's shareholders approved a plan to raise additional capital from private strategic investors through the issuance of an additional 20,000,000 shares of Guizhou Taibang equity interests at
RMB2.80 per share. The plan required all existing Guizhou Taibang shareholders to waive their rights of first refusal to subscribe for the additional shares. The remaining 9% noncontrolling interest shareholder of Guizhou Taibang's shares,
GuizhouJie'an Company, or Jie'an, did not support the plan and did not agree to waive its right of first refusal. On May 29, 2007, the controlling interest shareholders caused Guizhou Taibang to sign an Equity Purchase Agreement with certain
investors, pursuant to which the investors agreed to invest an aggregate of RMB50,960,000 (approximately $7,475,832) in exchange for 18,200,000 shares, or 21.4%, of Guizhou Taibang's equity interests. At the same time, Jie'an also subscribed for
1,800,000 shares, representing its 9% pro rata share of the 20,000,000 shares being offered. The proceeds from all parties were received by Guizhou Taibang in accordance with the agreement.
13
In June 2007, Jie'an brought suit in the High Court of Guizhou Province, China, against Guizhou Taibang and the three other original Guizhou Taibang shareholders, alleging the illegality of the Equity Purchase Agreement. In its complaint, Jie'an
alleged that it had a right to acquire the shares waived by the original Guizhou Taibang shareholders and offered to the investors in connection with the Equity Purchase Agreement. On September 12, 2008, the Guizhou High Court ruled against Jie'an
and sustained the Equity Purchase Agreement. On November 2008, Jie'an appealed the Guizhou High Court judgment to the People's Supreme Court in Beijing. On May 13, 2009, the People's Supreme Court sustained the original ruling and denied the rights
of first refusal of Jie'an over the additional shares waived by the original Guizhou Taibang's shareholders. The registration of the new investors as Guizhou Taibang's shareholders and the related increase in registered capital of Guizhou Taibang
with the Administration for Industry and Commerce are still pending. On January 27, 2010, the strategic investors brought suit in the High Court of Guizhou Province against Guizhou Taibang alleging Guizhou Taibangs failure to register their
equity interest in Guizhou Taibang with the local Administration for Industry and Commerce (AIC) and requesting the distribution of their share of Guizhou Taibangs dividends. Dalin was also joined as a co-defendant as it is the
controlling interest shareholder and exercises control over Guizhou Taibangs day-to-day operations. The Company does not expect the strategic investors to prevail because, upon evaluation of the Equity Purchase Agreement, the Company believes
that the Equity Purchase Agreement is void due to certain invalid pre-conditions and the absence of shareholder authorization of the initial investment. In the event that Guizhou Taibang is required to return the original investment amount to the
strategic investors, Guizhou Taibang has set aside the strategic investors initial fund along with RMB13,872,676 (approximately $2,198,819) in accrued interest, and RMB509,600 (approximately $80,772) for the 1% penalty imposed by the
agreement for any breach as of June 30, 2012. If strategic investors prevail in their suit, Dalin's interests in Guizhou Taibang could be reduced to approximately 41.3% . The High Court of Guizhou heard the case on April 8, 2010 and encouraged,
and accepted by both parties, to settle the dispute outside the court but both parties failed to reach a mutual agreeable term.
On October 14, 2010, the High Court of Guizhou ruled in favor of the Company and denied the strategic investors right as shareholders of Guizhou Taibang, as well as their entitlement to the dividends. In light of the Guizhou ruling, in
November 2010 the Company returned the proceeds in the amount of RMB 11,200,000 (approximately $1,762,880) to one of the strategic investors. On October 26, 2010, the other strategic investors appealed to, and subsequently accepted by, the PRC
Superior Court in Beijing on the ruling. On October 9, 2011, the PRC Supreme Court overruled the decision of the High Court of Guizhou and remanded the suit to the High Court of Guizhou for retrial. On December 29, 2011, High Court of Guizhou
accepted the case for retrial. On January 5, 2012, the strategic investors re-filed their case to the High Court of Guizhou requesting, in addition to the share distribution, the distribution of dividends and interest in the amount of RMB 18,349,345
(approximately $2,908,371) and RMB 2,847,000 (approximately $451,250), respectively. The Company is awaiting the hearing as of the date of this report.
During the second quarter of 2010, Jiean requested that Guizhou Taibang register its 1.8 million shares of additional capital infusion with the local AIC, pursuant to the Equity Purchase Agreement, and such request was approved by the
controlling interest shareholders of Guizhou Taibang in a shareholders meeting held in the second quarter of 2010. However, the Board of Directors of the Company is withholding its required ratification of the shareholders approval of
Jieans request until the outcome of the ongoing litigations. On March 20, 2012, the Company received a subpoena that Jiean brought suit in the Peoples Court of Huaxi District, Guizhou Province against Guizhou Taibang,
alleging Guizhou Taibangs withholding of its request. Jiean requested that Guizhou Taibang registers its 1.8 million shares of capital infusion, pay dividends associated with these shares, as well as the related interest and penalty from
May 2007 to December 2011 amounting to RMB 25,000,000 (approximately $3,962,500) in aggregate, and return the over-paid subscription of RMB 1,440,000 (approximately $228,240), as well as the interest and penalty, amounting to RMB 10,000,000
(approximately $1,585,000) in aggregate. The Peoples Court of Huaxi District, Guizhou Province, China has accepted Jieans suit. If the Company decides to ratify the approval or the case is ruled in Jieans favor,
Dalins ownership in Guizhou Taibang will be diluted from 54% to 52.54% and Jiean may be entitled to receive its pro rata share of Guizhou Taibangs profits since the date of Jieans capital contribution became effective.
As this case is closely tied to the outcome of the strategic investors dispute stated above, the Company does not expect Jiean to prevail. As of June 30, 2012, the Company had recorded, in its balance sheet, payables to Jiean in
the amounts of RMB 5,040,000 (approximately $798,840) for the additional funds received in relation to the 1.8 million shares of capital infusion, RMB 1,440,000 (approximately $228,240) for the over-paid subscription and RMB 2,463,230
(approximately $390,422) for the accrued interest. On May 15 and May 29, 2012, Guizhou Taibang was informed by the court that the case was postponed upon the request from Jiean and no exact hearing date has been provided.
14
Guizhou Taibang's Guarantee to a Third
Party
In 2007, as a condition to purchase Huang Ping Plasma Station,
Guizhou Taibang entered into an agreement with Guizhou Zhongxin Investment
Company, or Zhongxin, in which Guizhou Taibang agreed to repay Zhongxin's debt
out of Guizhou Taibang's payables to Zhongxin arising from plasma purchased from
Zhongxin. In the same agreement, Guizhou Taibang also delivered a guarantee to
the Huang Ping County Hospital, the former co-owner of the Huang Ping Plasma
Station, that it would pay RMB3,074,342 (approximately, $451,006) in debt that
Zhongxin owed to the hospital. On June 1, 2009, Huang Ping Hospital brought
suit, in the Huang Ping County People's Court of Guizhou Province, against
Zhongxin for non-payment of its payables and debt due to Huang Ping Hospital and
against Guizhou Taibang as the guarantor. On November 2, 2009, the court ruled
in favor of the plaintiff and Guizhou Taibang as the guarantor became obligated
to repay the Zhongxins debt to the Huang Ping Hospital on behalf of Zhongxin.
In October 2009, Guizhou Taibang appealed to the Middle Court of Kaili District
in Guizhou Province which sustained the original judgment on April 8, 2010.
Under the Equity Transfer Agreement pursuant to which the Company acquired a 90%
interest in Dalin, Guizhou Taibang's then shareholders, provide that the sellers
will be responsible, based on their pro rata equity interest in Guizhou Taibang,
for damages incurred by Guizhou Taibang from Zhongxin's debt and that the
sellers will repay Dalin their pro rata share of payments made by Guizhou
Taibang to creditors in connection with Zhongxin's debt within 10 days after
payment by Guizhou Taibang. The RMB3,074,342 contingent liability and
proportionate share of the liability to be recovered from the sellers were
reflected in the consolidated financial statements as of December 31, 2009.
On December 31, 2010, Guizhou Taibang brought suit against
Zhongxin in the Middle Court of Guiyang City, to recover the full judgment
amount of RMB3,074,342 plus court fee of RMB32,340 that Guizhou Taibang has
already paid on behalf of Zhongxin. On September 13, 2010, Zhongxin countersued
the Company for a consideration of RMB500,000 (approximately $74,850) for the
alleged loss of its share of income from the Huang Ping Plasma Station since the
Company acquired the station in April 2007. With the court mediation, Zhongxin
withdrew its claim and agreed with the repayment. On June 22, 2011, the Company
applied to the Middle Court of Guiyang City for the compulsory execution due to
the non-payment from Zhongxin during the agreed period of time.
NOTE 15 RELATED PARTY TRANSACTIONS
The related party balances resulting from transactions
undertaken by the Company with related parties are presented as follows:
Liabilities
|
|
|
Purpose
|
|
|
June
30, 2012
|
|
|
December 31, 2011
|
|
Advance from customers a
related party
(1)
|
|
|
Advance
|
|
$
|
-
|
|
$
|
486,602
|
|
Other payable a related party
(2)
|
|
|
Loan
|
|
$
|
2,293,520
|
|
$
|
2,277,603
|
|
Other payable a related
party
(3)
|
|
|
Contribution
|
|
$
|
1,417,502
|
|
$
|
1,042,335
|
|
Other payable a related party
(1)
|
|
|
Commission
|
|
$
|
886,719
|
|
$
|
-
|
|
(1)
During the year ended December 31, 2011, Guizhou
Taibang had signed an agency contract with Guizhou Eakan Co., Ltd. (Guizhou
Eakan), an affiliate of one of the Guizhou Taibangs noncontrolling interest
shareholders, pursuant to which Guizhou Taibang would pay commission to Guizhou
Eakan for the promotion of the product of Placenta Polypeptide. As of June 30,
2012, Guizhou Taibang accrued commission payable of $886,719 for service
rendered by Guizhou Eakan.
As of December 31, 2011, Guizhou Taibang received $486,602 in
advance from Guizhou Eakan for the product Placenta Polypeptide that has not yet
been delivered by Guizhou Taibang. The payment was made by Guizou Eakan on
behalf of the customers.
Prior to the signing of the agency contract with Guizhou Eakan,
Guizhou Taibang provided processing services to Guizhou Eakan. The Companys
total income from processing services to Guizhou Eakan amounted to nil and $462
for the three months ended June 30, 2012 and 2011, respectively. The Companys
total income from processing services to Guizhou Eakan amounted to nil and
$76,046 for the six months ended June 30, 2012 and 2011, respectively.
(2)
Guizhou Taibang has payables to Guizhou Eakan
Investing Corp., amounting to approximately $2,293,520 (RMB14,470,160). Guizhou
Eakan Investing Corp. is one of the noncontrolling interest shareholders of
Guizhou Taibang. Guizhou Taibang borrowed this interest free advance for working
capital purpose. The balance is due on demand.
(3)
In 2007, Guizhou Taibang received additional
contributions from Jiean of $962,853 to maintain Jiean equity interest in
Guizhou Taibang at 9%. However, due to a legal dispute among shareholders over
raising additional capital as discussed in the legal proceeding section (see
Note 14), the money received was not registered as additional capital
contributions. During the second quarter of 2010, Jiean requested that Guizhou
Taibang register its 1.8 million shares of additional capital contribution with
the local Administration for Industry and Commerce, pursuant to the equity
purchase agreement, and such registration was approved by the controlling
interest shareholders of Guizhou Taibang in a shareholder meeting held in the
second quarter of 2010. However, the Board of Directors of the Company is
withholding its required ratification of the shareholders approval of Jieans
request until the completion of the ongoing litigations. If the Company decided
to ratify the approval, Dalins ownership in Guizhou Taibang will be diluted
from 54% to 52.54% and Jiean will be entitled to receive its pro rata share of
Guizhou Taibangs profits since the date of Jieans capital contribution became
effective. As this case is closely tied to the outcome of the strategic
investors dispute stated above, the Company has set aside Jieans additional
fund of RMB 5,040,000 (approximately $798,840), the over-paid subscription of
RMB 1,440,000 (approximately $228,240) along with RMB 2,463,230 (approximately
$390,422) in accrued interest and penalty as of June 30, 2012.
15
NOTE 16- NET INCOME PER SHARE
The following table sets forth the computation of basic and
diluted net income per share of common stock for the periods indicated:
|
|
For the three months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
Numerator used in basic net income per
share of common stock:
|
|
|
|
|
|
|
Net income attributable to China Biologic Products, Inc.
|
$
|
12,838,771
|
|
$
|
16,599,705
|
|
Interest on the Notes
|
|
-
|
|
|
2,077,028
|
|
Change in fair value of embedded conversion option in the
Notes
|
|
-
|
|
|
(5,781,624
|
)
|
Change in fair value of warrants
|
|
(559,758
|
)
|
|
(5,393,760
|
)
|
Numerator used in diluted net income per share of common
stock
|
$
|
12,279,013
|
|
$
|
7,501,349
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
Basic
|
|
25,875,164
|
|
|
24,632,774
|
|
Effect of dilutive common share equivalents:
|
|
|
|
|
|
|
Diluted effect of the Notes
|
|
-
|
|
|
903,846
|
|
Diluted effect of warrants
|
|
311,200
|
|
|
598,113
|
|
Diluted effect of stock option
|
|
440,796
|
|
|
603,546
|
|
|
|
|
|
|
|
|
Diluted
|
|
26,627,160
|
|
|
26,738,279
|
|
|
|
|
|
|
|
|
Net income per share of common stock -
basic
|
$
|
0.50
|
|
$
|
0.67
|
|
Net income per share of common stock - diluted
|
$
|
0.46
|
|
$
|
0.28
|
|
During the three months ended June 30, 2012, 1,544,000 options
with an average exercise price of $11.98 were excluded from the calculation of
diluted net income per share of common stock since they were antidilutive.
During the three months ended June 30, 2011, 1,126,000 options
with an average exercise price of $12.84 were excluded from the calculation of
diluted net income per share of common stock since they were antidilutive.
The following table sets forth the computation of basic and
diluted net income per share of common stock for the periods indicated:
|
|
For the six months ended
|
|
|
|
June
30, 2012
|
|
|
June
30, 2011
|
|
Numerator used in basic net income per
share of common stock:
|
|
|
|
|
|
|
Net income attributable to China Biologic Products, Inc.
|
$
|
25,796,077
|
|
$
|
22,908,680
|
|
Interest on the Notes
|
|
-
|
|
|
3,580,167
|
|
Change in fair value of embedded conversion option in the
Notes
|
|
-
|
|
|
(6,289,661
|
)
|
Change in fair value of warrants
|
|
(1,769,140
|
)
|
|
(5,907,588
|
)
|
Numerator used in diluted net income per share of common
stock
|
$
|
24,026,937
|
|
$
|
14,291,598
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
For the six months ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
Basic
|
|
25,738,145
|
|
|
24,492,728
|
|
Effect of dilutive common share equivalents:
|
|
|
|
|
|
|
Diluted effect of the Notes
|
|
-
|
|
|
1,038,674
|
|
Diluted effect of warrants
|
|
390,507
|
|
|
631,911
|
|
Diluted effect of stock option
|
|
453,172
|
|
|
639,370
|
|
|
|
|
|
|
|
|
Diluted
|
|
26,581,824
|
|
|
26,802,683
|
|
|
|
|
|
|
|
|
Netincome per share of common stock - basic
|
$
|
1.00
|
|
$
|
0.94
|
|
Net income per share of common stock - diluted
|
$
|
0.90
|
|
$
|
0.53
|
|
16
During the six months ended June 30, 2012, 1,544,000 options with an average exercise price of $11.98 were excluded from the calculation of diluted net income per share of common stock since they were antidilutive.
During the six months ended June 30, 2011, 1,126,000 options with an average exercise price of $12.84 were excluded from the calculation of diluted net income per share of common stock since they were antidilutive.
NOTE 17 CONCENTRATIONS AND CREDIT RISKS
The Companys operations are carried out in the PRC and are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. Accordingly, the Companys business,
financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company's results may be adversely affected by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other matters.
The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for its bank accounts located in the United States or may exceed Hong Kong Deposit Protection Board
insured limits for its bank accounts located in Hong Kong. Cash balances maintained at financial institutions or state-owned banks in the PRC are not covered by insurance. Total cash in banks as of June 30, 2012 and December 31, 2011 amounted to
$104,360,092 and $88,957,826, respectively, of which $166,689 and $236,373 are insured, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant
risks on cash held in bank accounts.
The Companys major product, human albumin, accounted for 38.7% and 51.3% of the total sales for the three months ended June 30, 2012 and 2011, respectively, and 46.4% and 54.0% of the total sales for the six months ended June 30, 2012 and
2011, respectively. If the market demands for human albumin cannot be sustained in the future or the price of human albumin decreases, the Companys operating results could be adversely affected.
All of the Companys customers are located in the PRC and India. As of June 30, 2012 and 2011, the Company had no significant concentration of credit risk. There were no customers that individually comprised 10% or more of the sales during the
three months and six months ended June 30, 2012 and 2011, respectively. No individual customer represented 10% or more of trade receivables at June 30, 2012 and December 31, 2011, respectively. The Company performs ongoing credit evaluations of its
customers financial condition and, generally, requires no collateral from its customers.
There were no supplier that comprised 10% or more of the total purchases for the three months and six months ended June 30, 2012 and 2011, respectively. There was no supplier that represented more than 10% of accounts payables at June 30, 2012 and
2011, respectively.
17
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such
as believe, expect, anticipate, project, target, plan, optimistic, intend, aim, will or similar expressions which are intended to
identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; expectations regarding governmental approvals of our new
products; expected preferential tax treatment of our PRC subsidiary, Guizhou Taibang; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future
operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as well as assumptions,
which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business,
financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments
to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:
-
China Biologic, the Company, we, us, or our, are to the combined
business of China Biologic Products, Inc., a Delaware corporation, and its
direct and indirect subsidiaries;
-
Taibang Biological are to our wholly owned subsidiary Taibang Biological
Limited, a BVI company, formerly Logic Express Limited;
-
Taibang Holdings are to our wholly-owned subsidiary Taibang Holdings (Hong
Kong) Limited, a Hong Kong company, formerly Logic Holdings (Hong Kong) Limited;
-
Taibang Biotech are to our wholly owned subsidiary Taibang Biotech (Shandong)
Co., Ltd., a PRC company, formerly Logic Management and Consulting (China) Co.,
Ltd.;
-
Taibang Beijing are to our wholly owned subsidiary Taibang (Beijing)
Pharmaceutical Research Institute Co., Ltd., a PRC company, formerly Logic
Taibang Biotech Institute (Beijing);
-
Dalin are to our wholly owned subsidiary Guiyang Dalin Biologic Technologies
Co., Ltd., a PRC company;
-
Shandong Taibang are to our majority owned subsidiary Shandong Taibang
Biological Products Co. Ltd., a sino-foreign joint venture incorporated in
China;
-
Taibang Medical are to our wholly owned subsidiary Shandong Taibang Medical
Company, a PRC company;
-
Guizhou Taibang are to our majority owned subsidiary Guizhou Taibang
Biological Products Co., Ltd., a PRC company, formerly Guiyang Qianfeng
Biological Products Co., Ltd.;
-
Huitian are to our minority owned investee Xian Huitian Blood Products Co.,
Ltd., a PRC company;
-
BVI are to
the British Virgin Islands;
-
Hong Kong
are to the Hong Kong Special Administrative Region of the Peoples Republic of
China;
-
PRC and
China are to the Peoples Republic of China;
-
SEC are to
the Securities and Exchange Commission;
-
Securities
Act are to the Securities Act of 1933, as amended;
-
Exchange Act
are to the Securities Exchange Act of 1934, as amended;
-
Renminbi and
RMB are to the legal currency of China; and
-
U.S.
dollars, dollars and $ are to the legal currency of the United States.
18
Overview of Our Business
We are a biopharmaceutical company, through our indirect majority-owned PRC subsidiaries, Shandong Taibang and Guizhou Taibang, and our minority-owned PRC investee, Huitian, principally engaged in the research, development, manufacturing and sales
of human plasma-based pharmaceutical products in China. Shandong Taibang operates from our manufacturing facility located in Taian, Shandong Province and Guizhou Taibang operates from our manufacturing facility located in Guiyang, Guizhou
Province. Our minority owned investee, Huitian, operates from its facility in Shaanxi Province. The human plasma-based biopharmaceutical manufacturing industry in China is highly regulated by both provincial and central governments. Accordingly, the
manufacturing process of our products is strictly monitored from the initial collection of plasma from human donors to finished products. Our principal products include our approved human albumin and immunoglobulin products.
We are approved to sell human albumin with dosages of 20%/10ml, 20%/25ml, 20%/50ml, 10%/10ml, 10%/25ml, 10%/50ml and 25%/50ml. Human albumin is our top-selling product. Sales of these human albumin products represented approximately 38.7% and 51.3%
of our total sales for each of the three months ended June 30, 2012 and 2011, respectively, and 46.4% and 54.0% of our total sales for the six months ended June 30, 2012 and 2011, respectively. Human albumin is principally used to increase blood
volume while immunoglobulin, one of our other major products, is used for certain disease prevention and cures. Our approved human albumin and immunoglobulin products use human plasma as the basic raw material. Albumin has been used for almost 50
years to treat critically ill patients by replacing lost fluid and maintaining adequate blood volume and pressure. All of our products are prescription medicines administered in the form of injections.
In June 2012, we received the manufacturing approval certificate from the State Food and Drug Administration (SFDA) for human coagulation factor VIII ("FVIII"). We expect to commence commercial production of FVIII in the later part of
2012 after the production facility of FVIII obtains the GMP certification from SFDA.
We sell our products directly or through approved distributors to customers in the PRC, mainly hospitals and inoculation centers. We usually sign short-term contracts with customers and therefore our largest customers have changed over the years.
For the three months ended June 30, 2012 and 2011, our top 5 customers accounted for approximately 13.4% and 18.3%, respectively, of our total sales. For the six months ended June 30, 2012 and 2011, our largest 5 customers accounted for
approximately 13.8% and 15.6% of our total sales, respectively. As we continue to diversify our geographic presence, customer base and product mix, we expect that our largest customers will continue to change from year to year.
We operate and manage our business as a single segment. We do not account for the results of our operations on a geographic or other basis.
Our principal executive offices are located at 18
th
Floor, Jialong International Building, 19 Chaoyang Park Road, Chaoyang District, Beijing 100125, the Peoples Republic of China. Our corporate telephone number is (86)10-6598-3111
and our fax number is (86)10-6598-3222. We maintain a website at
http://www.chinabiologic.com
that contains information about our company, but that information is not part of this report.
Second Quarter Financial Performance Highlights
The following are some financial highlights for the three months ended June 30, 2012:
-
Sales
: Sales increased by $8,800,881, or 21.1%, to $50,466,339 for the three months ended June 30, 2012, from $41,665,458 for the same period in 2011.
-
Gross profit
: Gross profit increased by $5,182,561, or 17.8%, to $34,335,450 for the three months ended June 30, 2012, from $29,152,889 for the same period in 2011.
-
Income from operations
: Income from operations increased by $4,077,884, or 23.7%, to $21,308,347 for the three months ended June 30, 2012, from $17,230,463 for the same period in 2011.
-
Net income attributable to the Company
: Net income decreased by $3,760,934, or 22.7%, to $12,838,771 for the three months ended June 30, 2012, from $16,599,705 for the same period in 2011.
-
Diluted net income per share
: Diluted net income per share was $0.46 for the three months ended June 30, 2012, as compared to $0.28 for the same period in 2011.
19
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Three Months Ended June
30, 2012 and June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth key components of
our results of operations for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(All amounts, other than percentages, in U.S.
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
$
|
|
|
%
|
|
|
|
June 30,
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
$
|
50,466,339
|
|
$
|
41,664,996
|
|
$
|
8,801,343
|
|
|
21.1%
|
|
Related party
|
|
-
|
|
|
462
|
|
|
(462
|
)
|
|
(100.0%
|
)
|
Total sales
|
|
50,466,339
|
|
|
41,665,458
|
|
|
8,800,881
|
|
|
21.1%
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
16,130,889
|
|
|
12,512,359
|
|
|
3,618,530
|
|
|
28.9%
|
|
Related party
|
|
-
|
|
|
210
|
|
|
(210
|
)
|
|
(100.0%
|
)
|
Total cost of sales
|
|
16,130,889
|
|
|
12,512,569
|
|
|
3,618,320
|
|
|
28.9%
|
|
GROSS PROFIT
|
|
34,335,450
|
|
|
29,152,889
|
|
|
5,182,561
|
|
|
17.8%
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
4,165,242
|
|
|
3,038,143
|
|
|
1,127,099
|
|
|
37.1%
|
|
General and
administrative expenses
|
|
7,932,372
|
|
|
7,665,306
|
|
|
267,066
|
|
|
3.5%
|
|
Research and development expenses
|
|
929,489
|
|
|
1,218,977
|
|
|
(289,488
|
)
|
|
(23.7%
|
)
|
Total operating expenses
|
|
13,027,103
|
|
|
11,922,426
|
|
|
1,104,677
|
|
|
9.3%
|
|
INCOME FROM OPERATIONS
|
|
21,308,347
|
|
|
17,230,463
|
|
|
4,077,884
|
|
|
23.7%
|
|
OTHER (INCOME) / EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of equity method investee
|
|
(451,891
|
)
|
|
(463,688
|
)
|
|
11,797
|
|
|
(2.5%
|
)
|
Change in fair
value of derivative liabilities
|
|
(559,758
|
)
|
|
(11,175,384
|
)
|
|
10,615,626
|
|
|
(95.0%
|
)
|
Interest expense
|
|
157,635
|
|
|
2,300,601
|
|
|
(2,142,966
|
)
|
|
(93.1%
|
)
|
Interest income
|
|
(765,717
|
)
|
|
(269,594
|
)
|
|
(496,123
|
)
|
|
184.0%
|
|
Other expenses net
|
|
1,797
|
|
|
846,051
|
|
|
(844,254
|
)
|
|
(99.8%
|
)
|
Total other income net
|
|
(1,617,934
|
)
|
|
(8,762,014
|
)
|
|
7,144,080
|
|
|
(81.5%
|
)
|
EARNINGS BEFORE INCOME TAX EXPENSE
|
|
22,926,281
|
|
|
25,992,477
|
|
|
(3,066,196
|
)
|
|
(11.8%
|
)
|
INCOME TAX EXPENSES
|
|
3,333,616
|
|
|
5,317,249
|
|
|
(1,983,633
|
)
|
|
(37.3%
|
)
|
NET INCOME
|
$
|
19,592,665
|
|
$
|
20,675,228
|
|
$
|
(1,082,563
|
)
|
|
(5.2%
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
6,753,894
|
|
|
4,075,523
|
|
|
2,678,371
|
|
|
65.7%
|
|
NET INCOME ATTRIBUTABLE TO THE COMPANY
|
$
|
12,838,771
|
|
$
|
16,599,705
|
|
$
|
(3,760,934
|
)
|
|
(22.7%
|
)
|
Sales
. Our sales increased by 21.1%, or
$8,800,881, to $50,466,339 for the three months ended June 30, 2012, compared to
$41,665,458 for the three months ended June 30, 2011. The increase in sales
during 2012 was primarily attributable to a mix of price and volume increases in
certain of our plasma based products, as well as a substantial increase in sales
of placenta polypeptide products. In addition, foreign exchange translation
accounted for 3.4% of the sales increase.
During the three months ended June 30, 2012 as compared to the
three months ended June 30, 2011, most of our approved products recorded price
increases ranging from approximately 11.2% to 14.0%, except for human hepatitis
B immunoglobulin products, which decreased by approximately 51.3% . For the
three months ended June 30, 2012 as compared to the three months ended June 30,
2011:
-
The average price for our approved human albumin products, which
contributed 38.7% to our total sales, increased by approximately 11.2% and,
excluding the foreign exchange translation effect, their average price in RMB
term increased by approximately 8.0%.
-
The average price for our approved human hepatitis B immunoglobulin
products, which contributed 4.7% to our total sales, decreased by
approximately 51.3% and, excluding the foreign exchange translation effect,
their average price in RMB term decreased by approximately 52.7%.
-
The average price for our approved human immunoglobulin for intravenous
injection, or IVIG products, which contributed 42.1% to our total sales,
increased by approximately 14.0%, and excluding the foreign exchange
translation effect, their average price in RMB term increased by approximately
10.5%.
-
The average price for our approved human tetanus immunoglobulin products,
which contributed 3.7% to our total sales, increased by approximately 13.0%
and, excluding the foreign exchange translation effect, their average price in
RMB term increased by approximately 9.5%.
20
The general price increase of our human albumin products and immunoglobulin products other than human hepatitis B immunoglobulin products was primarily attributable to the shortage in supply of such products in the first half of 2012 as a result
of the closure of several plasma collection stations in Guizhou. The price decrease of human hepatitis B immunoglobulin products in RMB terms was mainly due to newly implanted government program sponsored by PRC Ministry of Health. The sales prices
of participating products in this program are generally lower than normal retail prices for public interest purposes.
The sales volumes of our products in general depend on market demands and our production volumes. The production volumes of our IVIG and human albumin products depend primarily on general plasma supply. The production volumes of our hyper-immune
products, which include human rabies immunoglobulin, human hepatitis B immunoglobulin and human tetanus immunoglobulin products, are subject to the availabilities of specific vaccinated plasma and our production
capacity. The supply of specific
vaccinated plasma in general requires several months of lead time and therefore requires advance planning on the part of the management. Our production
facility currently can only accommodate the production of one type of hyper-immune products at any given
time and we rotate the production of different types of hyper-immune products from time to time in response to market demand. As such, the sales volume of any given type of hyper-immune products may vary significantly from quarter to quarter.
During the three months ended June 30, 2012, sales volumes for our IVIG, human rabies immunoglobulin products and human hepatitis B immunoglobulin products increased by 15.2%, 50,182.7% and 154.7%, respectively, human
tetanus immunoglobulin products and human albumin products decreased by 15.1% and 18.4%, respectively, as compared to the three months ended June 30, 2011.
The increase of sales volumes of IVIG products was primarily due to the increased market demand in the three months ended June 30, 2012 and our increased production volumes and inventory level in the later part of 2011 in anticipation of such
demand increase. Since IVIG products are the primarily medicine for treating Hand-Foot-and-Mouth Disease (HFMD), which often has outbreaks in late spring and summer time, the market demand for IVIG products is generally higher in spring
time as well. The increase of sales volumes of hepatitis B immunoglobulin products was primarily due to the increase of market demand and the fact that the Company successfully secured several major provincial government contracts. The increase
of sales volumes of human rabies immunoglobulin products was primarily due to the increase in market demand. The decrease of sales volumes of human albumin products was primarily due to the decrease of its production volumes
caused by the
reduced raw material supply as a result of the closure of several plasma collection stations in Guizhou. The decrease of sales volumes of human tetanus immunoglobulin products was primarily due to the decrease of its production volume.
Sales of placenta polypeptide products increased substantially during the three months ended June 30, 2012 as compared to the three months ended June 30, 2011. We began manufacturing and selling placenta polypeptide products since December 2011. Prior
to December 2011, we provided processing service for Guizhou Eakan Co., Ltd. (Eakan),
an affiliate of one of Guizhou Taibangs noncontrolling interest holders, for placenta polypeptide products. The revenue we derived from the sales
of placenta polypeptide products is substantially higher than the processing fees we used to charge for these products.
Cost of sales
. Our cost of sales increased by $3,618,320, or 28.9%, to $16,130,889 for the three months ended June 30, 2012, from $12,512,569 for the same period in 2011. Cost of sales as a percentage of sales was 32.0% for
the three months ended June 30, 2012, as compared to 30.0% for the same period in 2011. The increase in cost of sales, as well as the increase in cost of sales as a percentage of sales, was mainly due to the increase in sales
volumes and the increase in
cost of plasma. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to donors, which was in line with the industry practice.
Gross profit and gross margin
. Our gross profit increased by $5,182,561, or 17.8%, to $34,335,450 for the three months ended June 30, 2012, from $29,152,889 for the same period in 2011. As a percentage of sales, our gross
profit margin decreased by 2.0% to 68.0% for the three months ended June 30, 2012, from 70.0% for the same period in 2011. The decrease in gross profit margin was mainly due to the
increase in raw material costs as discussed above, which outpaced the
price increases of our products.
Operating expenses
. Our total operating expenses increased by $1,104,677, or 9.3%, to $13,027,103, for the three months ended June 30, 2012, from $11,922,426 for the same period in 2011. The increase was primarily
attributable to a 37.1% increase in our selling expenses, which was offset by the 23.7% decrease in our research and development expenses for the three months ended June 30, 2012. As a percentage of sales, total expenses decreased by 2.8% to 25.8%
for the three months ended June 30, 2012, from 28.6% for the same period in 2011.
Selling expenses
. For the three months ended June 30, 2012, our selling expenses increased to $4,165,242, from $3,038,143 for the three months ended June 30, 2011, an increase of $1,127,099, or 37.1% . As a percentage of sales,
our selling expenses for the three months ended June 30, 2012 increased by 1.0% to 8.3%, from 7.3% for the three months ended June 30, 2011. The increase in selling expenses as a percentage of sales was primarily due to increase of the selling
expenses associated with the placenta polypeptide products. In December 2011, we entered into an agency agreement with Eakan for the promotion of placenta polypeptide products. We incurred higher selling expenses for placenta polypeptide products as
compared to our other products.
21
General and administrative expenses
. For the three months ended June 30, 2012, our general and administrative expenses increased to $7,932,372, from $7,665,306 for the three months ended June 30, 2011, an increase of $267,066, or
3.5% . General and administrative expenses as a percentage of sales decreased by 2.7% to 15.7% for the three months ended June 30, 2012, from 18.4% for the three months ended June 30, 2011. The increase in general and administrative expenses was
mainly due to the hiring of several senior management team members during the second quarter of 2012.
Research and development expenses
. For the three months ended June 30, 2012 and 2011, our research and development expenses were $929,489 and $1,218,977, respectively, a decrease of $289,488, or 23.7% . As a percentage of sales,
our research and development expenses for the three months ended June 30, 2012 and 2011 were 1.8% and 2.9%, respectively. The decrease in research and development expenses was primarily due to the fact that several research and development projects
we currently undertake are still in their earlier stages and do not require substantial investments.
Change in fair value of derivative liabilities
. The embedded derivatives (including the conversion option) in our senior secured convertible notes and warrants issued in June 2009 are classified as derivative liabilities carried at
fair value. For the three months ended June 30, 2012 and 2011, we recognized a gain from the change in fair value of derivative liabilities in the amounts of $559,758 and $11,175,384, respectively. The recognized gain from the change in the
fair value of derivative liabilities in the three months ended June 30, 2012 is mainly due to a decrease in the price of our common stock from $10.46 as of December 31, 2011 to $8.55 and $9.22,
respectively, as of the two warrants exercise dates. As
of June 30, 2012, there were no warrants outstanding.
Interest (income) expense
. Our interest expense decreased by $2,142,966 to $157,635 for the three months ended June 30, 2012, from $2,300,601 for the same period in 2011. Our interest income increased by $496,123 to
$765,717, for the three months ended June 30, 2012, from $269,594 for the same period in 2011. The decrease in interest expense was primarily due to the fact that the convertible notes
were fully converted in June 2011 and all
short-term bank loans were fully repaid in May 2012.
Income tax
. Our provision for income taxes decreased by $1,983,633, or 37.3%, to $3,333,616 for the three months ended June 30, 2012, from $5,317,249 for the same period in 2011. Our effective income tax rates were 15% and
20% for the three months ended June 30, 2012 and 2011, respectively. The decrease of the effective income tax rate was mainly attributable to the decrease in applicable income tax rate to Shandong Taibang and Guizhou Taibang from 25% for the three
months ended June 30, 2011 to 15% for the three months ended June 30, 2012. Further, in the same period of 2011, there was a gain on change in fair value of derivative liabilities which was not subject to income tax
and effectively reduced such
periods effective income tax rate from 25% to 20%.
According to the PRCs central government policy, new or high technology companies will enjoy a preferential tax treatment of 15%, instead of 25% under the Enterprise Income Tax Law. In February 2009, Shandong Taibang was granted the High and
New Technology Enterprise status which entitled it to a 15% preferential income tax rate for a period of three years from 2008 to 2010. Further, Guizhou Taibang was entitled to the preferential income tax rate of 15% under the 10-year Western
Development Tax Concession, which also ended in 2010. On October 31, 2011, Shandong Taibang was issued the High and New Technology Enterprise qualification for an additional three years from 2011 to 2013. According to CaiShui [2011] No. 58 dated
July 27, 2011, qualified enterprises located in the western regions of PRC are entitled to a preferential income tax rate of 15% effective retroactively from January 1, 2011. Management believes Guizhou Taibang will be treated as a qualified
enterprise located in the western regions and therefore be subject to income tax at a preferential tax rate of 15% from 2011 to 2020. All other subsidiaries of the Company are subjected to the regular 25% tax rate.
Our companys PRC subsidiaries have cash balance of $101.3 million as of June 30, 2012 which is planned to be permanently reinvested in the PRC. The distributions from our PRC subsidiaries are subject to the U.S. federal income tax at 34%,
less any applicable foreign tax credits. Due to our plan to indefinitely reinvest our earnings in
PRC, we have not provided for deferred tax liabilities on undistributed earnings of our PRC subsidiaries.
Net income attributable to the Company
. As a result of the cumulative effects of
the foregoing factors, our net income attributable to
the Company decreased by $3,760,934, or 22.7%, to $12,838,771 for the three months ended June 30,
2012, from $16,599,705 for the same period in 2011, and our net income attributable to
the Company as a percentage of total sales was 25.4% and 39.8% for the three months ended June 30, 2012 and 2011, respectively.
22
Comparison of Six Months Ended June
30, 2012 and June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth key components of
our results of operations for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(All amounts, other than percentages, in U.S.
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
$
|
|
|
%
|
|
|
|
June 30,
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2012
|
|
|
2011
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
$
|
97,693,800
|
|
$
|
76,060,234
|
|
$
|
21,633,566
|
|
|
28.4%
|
|
Related party
|
|
-
|
|
|
76,046
|
|
|
(76,046
|
)
|
|
(100.0%
|
)
|
Total sales
|
|
97,693,800
|
|
|
76,136,280
|
|
|
21,557,520
|
|
|
28.3%
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
31,846,616
|
|
|
21,789,563
|
|
|
10,057,053
|
|
|
46.2%
|
|
Related party
|
|
|
|
|
34,604
|
|
|
(34,604
|
)
|
|
(100.0%
|
)
|
Total cost of sales
|
|
31,846,616
|
|
|
21,824,167
|
|
|
10,022,449
|
|
|
45.9%
|
|
GROSS PROFIT
|
|
65,847,184
|
|
|
54,312,113
|
|
|
11,535,071
|
|
|
21.2%
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
8,991,349
|
|
|
5,488,056
|
|
|
3,503,293
|
|
|
63.8%
|
|
General and
administrative expenses
|
|
15,078,166
|
|
|
15,129,447
|
|
|
(51,281
|
)
|
|
(0.3%
|
)
|
Research and development expenses
|
|
1,640,077
|
|
|
1,929,968
|
|
|
(289,891
|
)
|
|
(15.0%
|
)
|
Total operating expenses
|
|
25,709,592
|
|
|
22,547,471
|
|
|
3,162,121
|
|
|
14.0%
|
|
INCOME FROM OPERATIONS
|
|
40,137,592
|
|
|
31,764,642
|
|
|
8,372,950
|
|
|
26.4%
|
|
OTHER (INCOME) / EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of equity method investee
|
|
(1,474,303
|
)
|
|
(734,082
|
)
|
|
(740,221
|
)
|
|
100.8%
|
|
Change in fair
value of derivative liabilities
|
|
(1,769,140
|
)
|
|
(12,197,249
|
)
|
|
10,428,109
|
|
|
(85.5%
|
)
|
Interest expense
|
|
766,198
|
|
|
3,981,523
|
|
|
(3,215,325
|
)
|
|
(80.8%
|
)
|
Interest income
|
|
(1,309,112
|
)
|
|
(439,725
|
)
|
|
(869,387
|
)
|
|
197.7%
|
|
Other expenses net
|
|
102,786
|
|
|
1,070,282
|
|
|
(967,496
|
)
|
|
(90.4%
|
)
|
Total other income net
|
|
(3,683,571
|
)
|
|
(8,319,251
|
)
|
|
4,635,680
|
|
|
(55.7%
|
)
|
EARNINGS BEFORE INCOME TAX EXPENSE
|
|
43,821,163
|
|
|
40,083,893
|
|
|
3,737,270
|
|
|
9.3%
|
|
INCOME TAX EXPENSES
|
|
6,510,331
|
|
|
9,580,465
|
|
|
(3,070,134
|
)
|
|
(32.0%
|
)
|
NET INCOME
|
$
|
37,310,832
|
|
$
|
30,503,428
|
|
$
|
6,807,404
|
|
|
22.3%
|
|
Less: Net income attributable to noncontrolling interest
|
|
11,514,755
|
|
|
7,594,748
|
|
|
3,920,007
|
|
|
51.6%
|
|
NET INCOME ATTRIBUTABLE TO THE COMPANY
|
$
|
25,796,077
|
|
$
|
22,908,680
|
|
$
|
2,887,397
|
|
|
12.6%
|
|
Sales
. Our sales increased by 28.3%, or
$21,557,520, to $97,693,800 for the six months ended June 30, 2012, compared to
$76,136,280 for the six months ended June 30, 2011. The increase in sales during
2012 was primarily attributable to a mix of price and volume increases in
certain of our plasma based products, as well as substantial increase in sales
of placenta polypeptide products. In addition, foreign exchange translation
accounted for 4.5% of the sales increase.
During the six months ended June 30, 2012 as compared to the
six months ended June 30, 2011, most of our approved products recorded price
increases ranging from approximately 10.6% to 19.3%, except for human hepatitis
B immunoglobulin products, which decreased by approximately 48.2% . For the six
months ended June 30, 2012 as compared to the six months ended June 30, 2011:
-
The average price for our approved human albumin products, which
contributed 46.4% to our total sales, increased by approximately 10.6% and,
excluding the foreign exchange translation effect, their average price in RMB
term increased by approximately 6.7%.
-
The average price for our approved human hepatitis B immunoglobulin
products, which contributed 3.7% to our total sales, decreased by
approximately 48.2% and, excluding the foreign exchange translation effect,
their average price in RMB term decreased by approximately 50.0%.
-
The average price for our approved IVIG products, which contributed 37.4% to our total sales,
increased by approximately 13.0%, and excluding the foreign exchange translation
effect, their average price in RMB term increased by approximately 9.0%.
-
The average price for our approved human rabies immunoglobulin products,
which contributed 3.2% to our total sales, increased by approximately 19.3%
and, excluding the foreign exchange translation effect, their average price in
RMB term increased by approximately 15.1%.
-
The average price for our approved human tetanus immunoglobulin products,
which contributed 3.4% to our total sales, increased by approximately 11.7%
and, excluding the foreign exchange translation effect, their average price in
RMB term increased by approximately 7.8%.
23
The general price increase of our human albumin product and immunoglobulin products was primarily attributable to the shortage in supply of such products in the first half of 2012 due to the closure of several plasma collection stations in Guizhou. The price decrease in human hepatitis B immunoglobulin products in RMB terms was mainly due to newly implanted government program sponsored by PRC Ministry of Health. The sales prices of participating products in this program
are generally lower than
normal retail price for public interest purposes.
The sales volumes of our products in general depend on market demands and our production volumes. The production volumes of our IVIG and human albumin products depend primarily on general plasma supply. The production volumes of our hyper-immune
products, which include human rabies immunoglobulin, human hepatitis B immunoglobulin and human tetanus immunoglobulin products, are subject to the availabilities of specific vaccinated plasma and our production
capacity. The supply of specific
vaccinated plasma in general requires several months of lead time and therefore require advance planning on the part of the management. Our production line currently can only accommodate the production of one type of hyper-immune product at any given
time, and we rotate the production of different types of hyper-immune products from time to time in response to market demand. As such, the sales volume of any given type of hyper-immune product may vary significantly from quarter to quarter.
During the six months ended June 30, 2012, sales volumes for our human hepatitis B immunoglobulin, IVIG and human rabies immunoglobulin products increased by 70.3%, 21.9% and 245.2%, respectively, and sales volumes for our human albumin and human
tetanus immunoglobulin products decreased by 0.2% and 5.5%, respectively, as compared to the six months ended June 30, 2011.
The increase of sales volumes of IVIG products was primarily due to the increased market demand in the first half of 2012 and our increased production volume and inventory level in the later part of 2011 in anticipation of such demand increase.
Since IVIG products are the primarily medicine for treating HFMD, which often has outbreaks in late spring and summer time, the market demand for IVIG products is generally higher in spring time as well. The
increase of the sales volumes of hepatitis B immunoglobulin products was primarily due to the increase of market demand and the fact that the Company successfully secured several major provincial government contracts. The increase of sales
volumes of human rabies immunoglobulin products was primarily due to the increase in market demand. The decrease of sales volumes of human albumin products was primarily due to the decrease of its production volumes, which were in turn due to
reduced raw material supply as a result of the closure of several plasma collection stations in Guizhou. The decrease of sales volumes of human tetanus immunoglobulin products was primarily due to the decrease of its production volume.
Sales of placenta polypeptide products increased substantially during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011. We began manufacturing and selling placenta polypeptide products since December 2011. Prior to
December 2011, we provided processing service for Eakan, an affiliate of one of Guizhou Taibangs noncontrolling
interest holders, for placenta polypeptide products. The revenue we derived from
the sales of placenta polypeptide products is substantially higher than the
processing fees we used to charge for these products.
Cost of sales
. Our cost of sales increased by $10,022,449, or 45.9%, to $31,846,616 for the six months ended June 30, 2012, from $21,824,167 for the same period in 2011. Cost of sales as a percentage of sales was 32.6% for
the six months ended June 30, 2012, as compared to 28.7% for the same period in 2011. The increase in cost of sales, as well as the increase in cost of sales as a percentage of sales, was mainly due to the increase in sales and the increase in cost
of plasma. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to donors, which was in line with the industry practice.
Gross profit and gross margin
. Our gross profit increased by $11,535,071, or 21.2%, to $65,847,184 for the six months ended June 30, 2012, from $54,312,113 for the same period in 2011. As a percentage of sales, our gross
profit margin decreased by 3.9% to 67.4% for the six months ended June 30, 2012, from 71.3% for the same period in 2011. The decrease in gross profit margin was mainly due to the
increase in raw material costs as discussed above, which outpaced the price
increases of our products.
Operating expenses
. Our total operating expenses increased by $3,162,121, or 14.0%, to $25,709,592, for the six months ended June 30, 2012, from $22,547,471 for the same period in 2011. The increase was primarily
attributable to a 63.8% increase in our selling expenses, which was offset by the 15.0% decrease in our research and development expenses during the 2012 period. As a percentage of sales, total expenses decreased by 3.3% to 26.3% for the six months
ended June 30, 2012, from 29.6% for the same period in 2011.
Selling expenses
. For the six months ended June 30, 2012, our selling expenses increased to $8,991,349, from $5,488,056 for the six months ended June 30, 2011, an increase of $3,503,293, or 63.8% . As a percentage of sales, our
selling expenses for the six months ended June 30, 2012 increased by 2.0% to 9.2%, from 7.2% for the six months ended June 30, 2011. The increase of selling expenses as a percentage of sales was primarily due to the increase of selling expenses
associated with the placenta polypeptide products. In December 2011, we entered into an agency agreement with Eakan for the promotion of placenta polypeptide products. We incurred higher selling expenses for placenta polypeptide products as compared to
our other products.
24
General and administrative expenses
. For the six months
ended June 30, 2012, our general and administrative expenses decreased to
$15,078,166, from $15,129,447 for the six months ended June 30, 2011, a decrease
of $51,281, or 0.3%. General and administrative expenses as a percentage of
sales decreased by 4.5% to 15.4% for the six months ended June 30, 2012, from
19.9% for the six months ended June 30, 2011. The decrease in general and
administrative expenses was mainly due to a decrease in expenses related to
legal and accountants, office expense, as well as non-cash employee stock
compensation, which was offset by the $1.1 million increase in expenses related
to the hiring of several senior management team members.
Research and development expenses
. For the six months
ended June 30, 2012 and 2011, our research and development expenses were
$1,640,077 and $1,929,968, respectively, a decrease of $289,891, or 15.0%. As a
percentage of sales, our research and development expenses for the six months
ended June 30, 2012 and 2011 were 1.7% and 2.5%, respectively. The decrease in
research and development was primarily due to the fact that several research and
development projects we currently undertake are still in their earlier stages
and do not require substantial investments.
Change in fair value of derivative liabilities
.
The embedded derivatives (including the conversion option) in our senior secured
convertible notes and warrants issued in June 2009 are classified as derivative
liabilities carried at fair value. For the six months ended June 30, 2012 and
2011, we recognized a gain from the change in fair value of derivative
liabilities in the amounts of $1,769,140 and $12,197,249, respectively. The
recognized gain from the change in the fair value of derivative liabilities in
the six months ended June 30, 2012 is mainly due to a decrease in the price of
our common stock from $10.46 as of December 31, 2011 to $8.55 and $9.22,
respectively, as of
the two warrants exercise dates. As of June 30, 2012, there were no warrants
outstanding.
Interest (income) expense
. Our interest expense
decreased by $3,215,325 to $766,198 for the six months ended June 30, 2012, from
$3,981,523 for the same period in 2011. Our interest income increased by
$869,387 to $1,309,112, for the six months ended June 30, 2012, from $439,725
for the same period in 2011. The decrease in interest expense was primarily due
to the fact that the convertible notes were fully converted in June of 2011
and the short-term bank loans were fully repaid in May of 2012.
Income tax
. Our provision for income taxes
decreased by $3,070,134, or 32.0%, to $6,510,331 for the six months ended June
30, 2012, from $9,580,465 for the same period in 2011. Our effective income tax
rates were 15% and 24% for the six months ended June 30, 2012 and 2011,
respectively. The decrease of the effective income tax rate was mainly
attributable to the decrease in applicable income tax rate of Shandong Taibang
and Guizhou Taibang from 25% for the six months ended June 30, 2011 to 15% for
the six months ended June 30, 2012.
Net income attributable to the Company
. As a
result of the cumulative effects of the foregoing factors, our net income
attributable to the Company increased by $2,887,397, or 12.6%, to $25,796,077 for
the six months ended June 30, 2012, from $22,908,680 for the same period in
2011, and our net income attributable to the Company as a percentage of total sales
was 26.4% and 30.1% for the six months ended June 30, 2012 and 2011,
respectively.
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash
flows from operations, augmented by short-term bank borrowings and equity
contributions by our stockholders. As of June 30, 2012, we had $104,487,225 in
cash, primarily consisting of cash on hand and demand deposits.
The following table provides the statements of net
cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Net cash provided by operating activities
|
$
|
32,069,232
|
|
$
|
12,349,464
|
|
Net cash used in investing activities
|
|
(6,688,540
|
)
|
|
(5,010,425
|
)
|
Net cash (used in)/provided by financing
activities
|
|
(10,985,216
|
)
|
|
2,186,080
|
|
Effects of exchange rate change on cash
|
|
679,914
|
|
|
2,375,192
|
|
Net increase in cash
|
|
15,075,390
|
|
|
11,900,311
|
|
Cash at beginning of the period
|
|
89,411,835
|
|
|
64,941,368
|
|
Cash at end of the period
|
$
|
104,487,225
|
|
$
|
76,841,679
|
|
Operating Activities
Net cash provided by operating activities for the six months
ended June 30, 2012 was $32,069,232, as compared to $12,349,464 for the six
months ended June 30, 2011. For the six months ended June 30, 2012 and 2011, our
net income was $37,310,832 and $30,503,428, respectively, and our net non-cash
operating items was $2,750,099 and ($3,363,329), respectively.
25
Among the non-cash operating items for the six months ended
June 30, 2012 and 2011, our depreciation and amortization expense was $3,806,490
and $3,961,920, respectively, our stock compensation expense was $1,992,958 and
$2,418,287, respectively, amortization of discount on convertible notes was nil
and $3,503,766, respectively, and our income from change in fair value of
derivative liabilities was $1,769,140 and $12,197,247, respectively.
We had a net cash outflow of working capital of $7,991,699 and
$14,790,632 for the six months ended June 30, 2012 and 2011, respectively. Among
these cash outflows, the increase in accounts receivable for the six months
ended June 30, 2012 and 2011 were $4,692,006 and $10,150,102, respectively. As
we increased our sales directly to end-users, such as hospitals and inoculation
centers that have extended credit terms, we experienced a slower turn-over with
our accounts receivable.
Investing Activities
Our use of cash for investing activities is primarily for the
acquisition of property, plant and equipment and intangibles, and advances on
non-current assets.
Net cash used in investing activities for the six months ended
June 30, 2012 was $6,688,540, as compared to $5,010,425, for the six months
ended June 30, 2011. During the six months ended June 30, 2012 and 2011, we paid
$5,895,240 and $5,010,425, respectively, for constructions in
progress at Shandong Taibang and acquiring equipment for Guizhou Taibang.
Financing Activities
Net cash used in financing activities for the six months ended
June 30, 2012 totaled $10,985,216, as compared to $2,186,080 provided by
financing activities for the six months ended June 30, 2011. The net cash used
in financing activities in the six months ended June 30, 2012 was mainly due to
an $11,106,200 repayment of short-term bank loans and a $4,379,016 dividend
paid by our subsidiaries to the noncontrolling interest shareholders, partially
offset by the net proceeds of $4,500,000 from warrants exercised. The net cash
provided by financing activities in the six months ended June 30, 2011 was
mainly due to a new short-term bank loan of $18,373,200, partially offset by a
payment of $7,635,000 to acquire the remaining 10% interest in our then 90%
majority-owned subsidiary Dalin and a dividend payment of $5,589,920 to the
noncontrolling interest shareholders.
Management believes that the Company has sufficient cash on
hand and continuing positive cash inflow, from the sale of its plasma-based
products in the PRC market, for its operations.
Obligations under Material Contracts
The following table sets forth our
material contractual obligations as of June 30, 2012:
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
Due to related parties
|
|
$
|
4,597,741
|
|
$
|
4,597,741
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Operating lease commitment
|
|
|
327,525
|
|
|
197,773
|
|
|
16,764
|
|
|
14,970
|
|
|
98,018
|
|
Total
|
|
$
|
4,925,266
|
|
$
|
4,795,514
|
|
$
|
16,764
|
|
$
|
14,970
|
|
$
|
98,018
|
|
Seasonality of our Sales
Our operating results and operating cash flows historically
have not been subject to seasonal variations. This pattern may change, however,
as a result of new market opportunities or new product introductions.
Inflation
Inflation does not materially affect our business or the
results of our operations.
26
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our investors.
Critical Accounting Policies
Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties
regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our operations are carried out in the PRC and we are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. Accordingly, our business, financial condition and results of
operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. Our results may be adversely affected by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Interest Rate Risk
Management monitors the banks prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to
reduce our exposure to interest rate risk.
Foreign Exchange Risk
While our reporting currency is the U.S. Dollar, all of our consolidated revenues and consolidated costs and majority of expenses are denominated in RMB. All of our assets are denominated in RMB, except certain cash balances. As a result, we are
exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB. If RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and
assets as expressed in our U.S. Dollar financial statements will decline. Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and shareholders
equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of stockholders equity. We have not
entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in Chinas political and economic conditions. Since July 2005, the RMB has not been pegged to the U.S. dollar. Although the
Peoples Bank of China regularly involved in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar or Euro in the
medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen involvement in the foreign exchange market.
27
Account Balances
We maintain balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States or may exceed Hong Kong Deposit Protection Board insured limits for
the banks located in Hong Kong. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. Total cash in banks as of June 30, 2012 and December 31, 2011 amounted to $104,360,092 and $88,957,826,
respectively, $166,689 and $236,373 of which are covered by insurance, respectively. We have not experienced any losses in such accounts and we do not believe that we are exposed to any significant risks on our cash in bank accounts.
Inflation
Inflationary factors such as increases in the cost of our sales and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to
date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do
not increase with these increased costs.
Market for Human Albumin and IVIG
Our two major products, human albumin and IVIG, accounted for 38.7% and 42.1% of the total sales for the three months ended June 30, 2012, respectively. If the market demands for human albumin or IVIG cannot be sustained in the future or if there is
substantial price decrease in either or both products, our operating results could be materially and adversely affected.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the
reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. David (Xiaoying) Gao and our Chief Financial Officer, Mr. Ming Yang, of the
effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2012. Based on that evaluation, Mr. Gao and Mr. Yang concluded that our disclosure controls and procedures were effective as of June 30, 2012.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the second quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise
from time to time that may harm our business. Other than the legal proceedings described in Item 3 Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2011, we are currently not aware of any such legal
proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results. Investors are directed to Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2011 for the
description of these legal proceedings. There have been no material developments to these legal proceedings except for the following.
28
Dispute among Guizhou Taibang Shareholders over Raising Additional Capital
On March 20, 2012, the Company received a subpoena that Jiean brought suit in the Peoples Court of Huaxi District, Guizhou Province against Guizhou Taibang, alleging Guizhou Taibangs withholding of its request. Jiean
requested that Guizhou Taibang registers its 1.8 million shares of capital infusion, pay dividends associated with these shares, as well as the related interest and penalty from May 2007 to December 2011 amounting to RMB25,000,000 (approximately
$3,962,500) in aggregate, and return the over-paid subscription of RMB1,440,000 (approximately $228,240), as well as the interest and penalty, amounting to RMB10,000,000 (approximately $1,585,000) in aggregate. The Peoples Court
of Huaxi District, Guizhou Province, China has accepted Jieans suit. If the Company decides to ratify the approval or the case is ruled in Jieans favor, Dalins ownership in Guizhou Taibang will be diluted from 54% to
52.54% and Jiean may be entitled to receive its pro rata share of Guizhou Taibangs profits since the date of Jieans capital contribution became effective. As this case is closely tied to the outcome of the strategic
investors dispute, the Company does not expect Jiean to prevail. As of June 30, 2012, the Company had recorded, in its balance sheet, payables to Jiean in the amounts of RMB5,040,000 (approximately $798,840) for the additional
funds received in relation to the 1.8 million shares of capital infusion, RMB1,440,000 (approximately $228,240) for the over-paid subscription and RMB2,463,230 (approximately $390,422) for the accrued interest. On May 15 and May 29, 2012,
Guizhou Taibang was informed by the court that the case was postponed upon the request from Jiean and no exact hearing date has been provided.
ITEM 1A. RISK FACTORS.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 contains a detailed discussion of risk factors that could materially adversely affect our business, our operating results, or our financial condition. The following risk
factor should be read in conjunction with that discussion. Except for the addition of this risk factor, there are no material changes from the risk factors previously disclosed in Item 1A Risk Factors of our Annual Report on Form 10-K
for the year ended December 31, 2011.
Our independent registered public accounting firms audit documentation related to their audit reports included in our annual report may include audit documentation located in the Peoples Republic of China. The Public Company
Accounting Oversight Board (PCAOB) currently cannot inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection.
Our independent registered public accounting firm that issued an audit opinion in the financial statements included in our annual report for the fiscal year ended December 31, 2011 filed with the U.S. Securities and Exchange Commission, or SEC, as
auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB. Since the significant portion of the audit is
conducted in China and the work papers related to such portion are located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, the work papers of our auditors that are
located in China are not currently inspected by the PCAOB.
Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve
future audit quality. However, the PCAOB is currently unable to inspect an auditors audit work related to a companys operations in China and where such documentation of the audit work is located in China. As a result, our investors may
be deprived of the benefits of PCAOBs oversight of our auditors through such inspections.
The inability of the PCAOB to conduct inspections of our auditors work papers in China makes it more difficult to evaluate the effectiveness of our auditors audit procedures or quality control procedures as compared to auditors outside
of China that are subject to PCAOB inspections. Investors may consequently lose confidence in our reported financial information and procedures and the quality of our financial statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In June 2012, two warrants holders exercised their warrants to purchase 937,500
shares of common stock of the Company and the Company received proceeds of
$4,500,000 from such exercise. Other than this, we have not sold any equity securities during the second quarter of 2012 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during quarter. No repurchases of our common stock were
made during the second quarter of 2012.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
29
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required to be in a report on Form 8-K during the second quarter of 2012, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our
board of directors.
ITEM 6. EXHIBITS.
The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 9, 2012
|
CHINA BIOLOGIC PRODUCTS, INC.
|
|
|
|
|
By:
|
/s/
David (Xiaoying) Gao
|
|
|
David (Xiaoying) Gao, Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
By:
|
/s/
Ming Yang
|
|
|
Ming Yang, Chief Financial Officer
|
|
|
(Principal Financial Officer and
Principal
|
|
|
Accounting Officer)
|
31
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