ITEM 1. FINANCIAL STATEMENTS
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contents
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Page
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Unaudited Condensed Consolidated Balance Sheets
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1
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Unaudited Condensed Consolidated Statements of Comprehensive Income
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2
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Unaudited Condensed
Consolidated Statements of Changes in Equity
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3
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Unaudited Condensed Consolidated Statements of Cash Flows
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4
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Notes to the Unaudited Condensed Consolidated Financial Statements
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6
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CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
Note
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September 30, 2013
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December 31, 2012
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|
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USD
|
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USD
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ASSETS
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|
|
|
|
|
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Current Assets
|
|
|
|
|
|
|
|
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Cash and cash equivalents
|
|
|
|
131,496,674
|
|
|
129,609,317
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
2
|
|
22,404,534
|
|
|
11,206,244
|
|
Inventories
|
|
3
|
|
83,676,773
|
|
|
75,679,173
|
|
Prepayments and other current assets
|
|
|
|
6,480,946
|
|
|
5,664,919
|
|
Total Current Assets
|
|
|
|
244,058,927
|
|
|
222,159,653
|
|
|
|
|
|
|
|
|
|
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Property, plant and equipment, net
|
|
4
|
|
67,126,063
|
|
|
51,325,177
|
|
Intangible assets, net
|
|
5
|
|
2,840,550
|
|
|
3,541,582
|
|
Land use rights, net
|
|
|
|
7,038,767
|
|
|
5,818,709
|
|
Deposits related to land use rights
|
|
6
|
|
16,772,063
|
|
|
14,752,574
|
|
Restricted cash and deposit
|
|
7
|
|
32,064,962
|
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|
2,912,145
|
|
Equity method investment
|
|
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11,652,366
|
|
|
10,537,310
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|
Total Assets
|
|
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|
381,553,698
|
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|
311,047,150
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current Liabilities
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|
|
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Short-term bank loans
|
|
8
|
|
4,890,000
|
|
|
7,935,000
|
|
Accounts payable
|
|
|
|
4,060,550
|
|
|
2,908,624
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Due to related parties
|
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14
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|
4,208,582
|
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4,081,624
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Other payables and accrued expenses
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|
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29,625,322
|
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25,423,349
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Advance from customers
|
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2,100,906
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2,857,420
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Income tax payable
|
|
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5,483,734
|
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4,513,075
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Total Current Liabilities
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50,369,094
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47,719,092
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Long-term bank loans
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8
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30,000,000
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|
-
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Deferred income
|
|
7
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|
2,991,050
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|
2,912,145
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Other liabilities
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3,468,575
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2,996,749
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Total Liabilities
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86,828,719
|
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53,627,986
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Stockholders’ Equity
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Common stock:
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par value $0.0001;
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100,000,000 shares authorized;
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27,046,556 and 26,629,615 shares issued at September 30, 2013 and December 31, 2012,
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respectively;
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25,566,852 and 26,629,615 shares outstanding at September 30, 2013 and December 31, 2012,
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respectively
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2,704
|
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2,663
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Additional paid-in capital
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68,698,856
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62,251,731
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Treasury stock, 1,479,704 and nil shares at September 30, 2013 and
December 31, 2012, respectively, at cost
|
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16
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|
(29,594,080)
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|
-
|
|
|
|
|
|
|
|
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Retained earnings
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|
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|
164,916,809
|
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119,143,000
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Accumulated other comprehensive income
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|
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20,477,319
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14,072,322
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Total equity attributable to China Biologic Products, Inc.
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224,501,608
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195,469,716
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Noncontrolling interest
|
|
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70,223,371
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61,949,448
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|
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|
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Total Stockholders’ Equity
|
|
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|
294,724,979
|
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257,419,164
|
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Commitments and contingencies
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13
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-
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-
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Total Liabilities and Stockholders’ Equity
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381,553,698
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311,047,150
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See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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For the three months ended
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For the nine months ended
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Note
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September 30,
2013
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September 30,
2012
|
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September 30,
2013
|
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September 30,
2012
|
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|
|
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USD
|
|
USD
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|
USD
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|
USD
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Sales
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12
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53,152,141
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|
53,124,050
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|
160,764,396
|
|
150,817,850
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Cost of sales
|
|
|
|
17,165,897
|
|
16,921,284
|
|
49,904,917
|
|
48,767,900
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Gross profit
|
|
|
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35,986,244
|
|
36,202,766
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110,859,479
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102,049,950
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Operating expenses
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|
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Selling expenses
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2,551,245
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3,545,378
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6,829,365
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12,536,727
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General and administrative expenses
|
|
|
|
9,218,798
|
|
11,599,779
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|
26,771,966
|
|
26,677,945
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Research and development expenses
|
|
|
|
1,053,383
|
|
637,397
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|
2,801,625
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|
2,277,474
|
|
Income from operations
|
|
|
|
23,162,818
|
|
20,420,212
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74,456,523
|
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60,557,804
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|
|
|
|
|
|
|
|
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Other income/ (expenses)
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|
|
|
|
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|
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Equity in income of an equity method investee
|
|
|
|
642,579
|
|
744,976
|
|
1,382,524
|
|
2,219,279
|
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Change in fair value of derivative liabilities
|
|
|
|
-
|
|
-
|
|
-
|
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1,769,140
|
|
Interest expense
|
|
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|
(306,656)
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|
(223,992)
|
|
(741,569)
|
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(990,190)
|
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Interest income
|
|
|
|
1,320,263
|
|
561,761
|
|
2,964,082
|
|
1,870,873
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Other income, net
|
|
|
|
-
|
|
449,815
|
|
-
|
|
347,029
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Total other income, net
|
|
|
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1,656,186
|
|
1,532,560
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|
3,605,037
|
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5,216,131
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|
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|
|
|
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Earnings before income tax expense
|
|
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|
24,819,004
|
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21,952,772
|
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78,061,560
|
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65,773,935
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income tax expense
|
|
9
|
|
4,871,041
|
|
3,479,683
|
|
13,223,592
|
|
9,990,014
|
|
|
|
|
|
|
|
|
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Net income
|
|
|
|
19,947,963
|
|
18,473,089
|
|
64,837,968
|
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55,783,921
|
|
|
|
|
|
|
|
|
|
|
|
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Less: Net income attributable to noncontrolling interest
|
|
|
|
5,251,940
|
|
4,855,939
|
|
19,064,159
|
|
16,370,694
|
|
|
|
|
|
|
|
|
|
|
|
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Net income attributable to China Biologic Products, Inc.
|
|
|
|
14,696,023
|
|
13,617,150
|
|
45,773,809
|
|
39,413,227
|
|
|
|
|
|
|
|
|
|
|
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Net income per share of common stock:
|
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15
|
|
|
|
|
|
|
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Basic
|
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|
|
0.55
|
|
0.51
|
|
1.71
|
|
1.51
|
|
Diluted
|
|
|
|
0.53
|
|
0.50
|
|
1.64
|
|
1.41
|
|
Weighted average shares used in computation:
|
|
15
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
26,288,154
|
|
26,546,929
|
|
26,649,563
|
|
26,009,707
|
|
Diluted
|
|
|
|
27,449,081
|
|
27,018,904
|
|
27,780,005
|
|
26,741,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
19,947,963
|
|
18,473,089
|
|
64,837,968
|
|
55,783,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of nil
income taxes
|
|
|
|
1,985,434
|
|
(86,731)
|
|
7,810,690
|
|
1,226,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
21,933,397
|
|
18,386,358
|
|
72,648,658
|
|
57,010,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to
noncontrolling interest
|
|
|
|
5,586,905
|
|
4,926,035
|
|
20,469,852
|
|
16,692,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to China
Biologic Products, Inc.
|
|
|
|
16,346,492
|
|
13,460,323
|
|
52,178,806
|
|
40,317,522
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
Additional
|
|
|
|
|
|
|
|
other
|
|
attributable
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
paid-in
|
|
Retained
|
|
Treasury
|
|
comprehensive
|
|
to China Biologic
|
|
Noncontrolling
|
|
|
|
|
|
|
shares
|
|
Par value
|
|
capital
|
|
earnings
|
|
Stock
|
|
income
|
|
Products, Inc.
|
|
interest
|
|
Total equity
|
|
|
|
|
|
USD
|
|
USD
|
|
USD
|
|
USD
|
|
USD
|
|
USD
|
|
USD
|
|
USD
|
|
Balance as of January 1, 2013
|
|
26,629,615
|
|
|
2,663
|
|
|
62,251,731
|
|
|
119,143,000
|
|
|
-
|
|
|
14,072,322
|
|
|
195,469,716
|
|
|
61,949,448
|
|
|
257,419,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,773,809
|
|
|
-
|
|
|
-
|
|
|
45,773,809
|
|
|
19,064,159
|
|
|
64,837,968
|
|
Other comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,404,997
|
|
|
6,404,997
|
|
|
1,405,693
|
|
|
7,810,690
|
|
Dividend declared by
subsidiaries to noncontrolling
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,896,678)
|
|
|
(10,896,678)
|
|
Acquisition of noncontrolling
interests
|
|
-
|
|
|
-
|
|
|
(664,662)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(664,662)
|
|
|
(1,299,251)
|
|
|
(1,963,913)
|
|
Share repurchase
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(29,594,080)
|
|
|
-
|
|
|
(29,594,080)
|
|
|
-
|
|
|
(29,594,080)
|
|
Share-based compensation
|
|
-
|
|
|
-
|
|
|
4,076,817
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,076,817
|
|
|
-
|
|
|
4,076,817
|
|
Common stock issued in
connection with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Exercise of stock options
|
|
353,191
|
|
|
35
|
|
|
3,034,976
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,035,011
|
|
|
-
|
|
|
3,035,011
|
|
- Vesting of restricted shares
|
|
63,750
|
|
|
6
|
|
|
(6)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Balance as of September 30,
2013
|
|
27,046,556
|
|
|
2,704
|
|
|
68,698,856
|
|
|
164,916,809
|
|
|
(29,594,080)
|
|
|
20,477,319
|
|
|
224,501,608
|
|
|
70,223,371
|
|
|
294,724,979
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDESENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the nine months ended
|
|
|
|
September 30,
2013
|
|
September 30,
2012
|
|
|
|
USD
|
|
USD
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
64,837,968
|
|
55,783,921
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
|
4,550,598
|
|
4,326,425
|
|
Amortization
|
|
1,027,650
|
|
2,293,839
|
|
(Gain)/ loss on sale of property, plant and equipment
|
|
(138,450)
|
|
371,544
|
|
Allowance for doubtful accounts, net
|
|
-
|
|
21,876
|
|
Provision for doubtful accounts - other receivables and prepayments
|
|
37,453
|
|
94,567
|
|
Deferred tax expense/ (benefit)
|
|
428,037
|
|
(515,960)
|
|
Share-based compensation
|
|
4,076,817
|
|
3,074,132
|
|
Change in fair value of derivative liabilities
|
|
-
|
|
(1,769,140)
|
|
Equity in income of an equity method investee
|
|
(1,382,524)
|
|
(2,219,279)
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(10,758,305)
|
|
1,872,418
|
|
Prepayment and other current assets
|
|
(720,340)
|
|
(468,800)
|
|
Inventories
|
|
(5,872,632)
|
|
3,507,968
|
|
Accounts payable
|
|
1,254,404
|
|
(1,103,617)
|
|
Other payables and accrued expenses
|
|
1,088,481
|
|
(398,905)
|
|
Advance from customers
|
|
(823,499)
|
|
(939,904)
|
|
Due to related parties
|
|
16,539
|
|
337,536
|
|
Income tax payable
|
|
837,760
|
|
517,440
|
|
Net cash provided by operating activities
|
|
58,459,957
|
|
64,786,061
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Payment for property, plant and equipment
|
|
(17,076,459)
|
|
(7,436,719)
|
|
Payment for intangible assets and land use rights
|
|
(1,141,197)
|
|
(796,707)
|
|
Dividend received
|
|
560,980
|
|
1,109,115
|
|
Purchase of short-term investment
|
|
-
|
|
(2,731,300)
|
|
Proceeds from sale of property, plant and equipment
|
|
175,808
|
|
-
|
|
Payment related to land use right
|
|
-
|
|
(13,220,568)
|
|
Net cash used in investing activities
|
|
(17,480,868)
|
|
(23,076,179)
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
For the nine months ended
|
|
|
|
September 30,
2013
|
|
September 30,
2012
|
|
|
|
USD
|
|
USD
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from stock option exercised
|
|
3,035,011
|
|
120,000
|
|
Proceeds from warrants exercised
|
|
-
|
|
4,500,000
|
|
Proceeds from short-term bank loans
|
|
4,808,400
|
|
11,076,100
|
|
Repayment of short-term bank loans
|
|
(8,014,000)
|
|
(11,106,200)
|
|
Proceeds from long-term bank loans
|
|
30,000,000
|
|
-
|
|
Payment for deposit as security for long-term bank loans
|
|
(30,000,000)
|
|
-
|
|
Payment for share repurchase
|
|
(29,594,080)
|
|
-
|
|
Acquisition of noncontrolling interest
|
|
(1,963,913)
|
|
-
|
|
Dividend paid by subsidiaries to noncontrolling interest shareholders
|
|
(10,896,678)
|
|
(4,379,016)
|
|
Net cash (used in) /provided by financing activities
|
|
(42,625,260)
|
|
210,884
|
|
|
|
|
|
|
|
EFFECTS OF FOREIGN EXCHANGE RATE CHANGE ON CASH
|
|
3,533,528
|
|
390,585
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
1,887,357
|
|
42,311,351
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
129,609,317
|
|
89,411,835
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
131,496,674
|
|
131,723,186
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
Cash paid for income taxes
|
|
11,957,795
|
|
9,988,536
|
|
Cash paid for interest expense
|
|
273,095
|
|
296,901
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
Acquisition of property, plant and equipment included in payables
|
|
1,502,623
|
|
-
|
|
Exercise of warrants that were liability classified
|
|
-
|
|
3,641,279
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 AND 2012
NOTE 1 BASIS OF PRESENTATION, SIGNIFICANT CONCENTRATION AND RISKS
(a)
|
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, 2012 consolidated balance sheet was derived from the audited consolidated financial statements of China Biologic Products, Inc. (the “Company”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2012 audited consolidated financial statements of the Company included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of September 30, 2013, the results of operations for the three and nine months ended September 30, 2013 and 2012, and cash flows for the nine months ended September 30, 2013 and 2012, have been made. All significant intercompany transactions and balances are eliminated on consolidation.
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment and intangibles with definite lives, the allowance for doubtful accounts, the fair value determinations of equity instruments and stock compensation awards, the realizability of deferred tax assets and inventories, intangible assets, land use rights and property, plant and equipment, and accruals for income tax uncertainties and other contingencies.
(b)
|
Significant Concentration and Risks
|
The Company’s operations are carried out in the People’s Republic of China (the “PRC”) and are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. Accordingly, the Company’s 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
cash and deposit
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 and deposit balances maintained at financial institutions or state-owned banks in the PRC are not covered by insurance. Total cash at banks and deposits as of
September 30
, 2013 and December 31, 2012 amounted to $
162,673,942
and $
132,201,606
, respectively, of which $
523,559
and $
76,101
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 Company’s two major products are human albumin and human immunoglobulin for intravenous injection (“IVIG”).
Human albumin accounted for
49.7
% and
43.3
% of the total sales for the three months ended
September 30
, 2013 and 2012, respectively, and
43.3
% and
45.3
% of the total sales for the nine months ended
September 30
, 2013 and 2012, respectively. IVIG accounted for
32.3
% and
44.1
% of the total sales for the three months ended
September 30
, 2013 and 2012, respectively, and
39.8
% and
39.7
% of the total sales for the nine months ended
September 30
, 2013 and 2012, respectively. If the market demands for human albumin and IVIG cannot be sustained in the future or the price of human albumin and IVIG decreases, the Company’s operating results could be adversely affected.
Substantially all of the Company’s customers are located in the PRC.
There were no customers that individually comprised 10% or more of the total sales during the three and nine months ended September 30, 2013 and 2012, respectively. No individual customer represented 10% or more of trade receivables at September 30, 2013 and December 31, 2012, respectively. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers.
There were no suppliers that comprised 10% or more of the total purchases for the three and nine months ended September 30, 2013 and 2012, respectively. One individual vendor represented more than 10% of accounts payable at September 30, 2013. Two vendors individually represented more than 10% of accounts payable at December 31, 2012.
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable at September 30, 2013 and December 31, 2012 consisted of the following:
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
USD
|
|
USD
|
|
Accounts receivable
|
|
|
22,831,402
|
|
|
11,621,851
|
|
Less: Allowance for doubtful accounts
|
|
|
(426,868)
|
|
|
(415,607)
|
|
Total
|
|
|
22,404,534
|
|
|
11,206,244
|
|
No provision for doubtful accounts was recorded during the three months ended September 30, 2013 and 2012. A provision for doubtful accounts of nil and $
21,876
was recorded for the nine months ended September 30, 2013 and 2012, respectively. There was no write-off of accounts receivable for the three and nine months ended September 30, 2013 and 2012, respectively.
Inventories at September 30, 2013 and December 31, 2012 consisted of the following:
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
USD
|
|
USD
|
|
Raw materials
|
|
|
40,304,623
|
|
|
29,596,746
|
|
Work-in-process
|
|
|
20,417,588
|
|
|
24,524,142
|
|
Finished goods
|
|
|
22,954,562
|
|
|
21,558,285
|
|
Total
|
|
|
83,676,773
|
|
|
75,679,173
|
|
There were no write-down of inventories for the three and nine months ended September 30, 2013 and 2012.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 2013 and December 31, 2012 consisted of the following:
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
USD
|
|
USD
|
|
Buildings
|
|
|
31,252,689
|
|
|
25,183,496
|
|
Machinery and equipment
|
|
|
29,064,844
|
|
|
29,625,166
|
|
Furniture, fixtures, office equipment and vehicles
|
|
|
7,210,615
|
|
|
6,513,482
|
|
Total property, plant and equipment, gross
|
|
|
67,528,148
|
|
|
61,322,144
|
|
Accumulated depreciation
|
|
|
(25,032,035)
|
|
|
(24,356,752)
|
|
Total property, plant and equipment, net
|
|
|
42,496,113
|
|
|
36,965,392
|
|
Construction in progress
|
|
|
21,021,486
|
|
|
3,501,404
|
|
Prepayments for property, plant and equipment
|
|
|
3,608,464
|
|
|
10,858,381
|
|
Property, plant and equipment, net
|
|
|
67,126,063
|
|
|
51,325,177
|
|
Depreciation expense for the three months ended September 30, 2013 and 2012 was $
1,444,859
and $
2,045,202
, respectively. Depreciation expense for the nine months ended September 30, 2013 and 2012 was $
4,550,598
and $
4,326,425
, respectively.
NOTE 5 INTANGIBLE ASSETS, NET
Intangible assets at September 30, 2013 and December 31, 2012 consisted of the following:
|
|
September 30, 2013
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
Gross
|
|
|
|
Net
|
|
|
|
amortization
|
|
carrying
|
|
Accumulated
|
|
carrying
|
|
|
|
period
|
|
amount
|
|
amortization
|
|
amount
|
|
|
|
|
|
USD
|
|
USD
|
|
USD
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
Permits and licenses
|
|
10 years
|
|
5,122,788
|
|
(2,614,623)
|
|
2,508,165
|
|
GMP certificate
|
|
5 years
|
|
2,594,112
|
|
(2,445,289)
|
|
148,823
|
|
Long-term customer relationship
|
|
4 years
|
|
7,722,940
|
|
(7,722,940)
|
|
-
|
|
Others
|
|
|
|
344,343
|
|
(160,781)
|
|
183,562
|
|
Total
|
|
|
|
15,784,183
|
|
(12,943,633)
|
|
2,840,550
|
|
|
|
December 31, 2012
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
|
|
Gross
|
|
|
|
Net
|
|
|
|
amortization
|
|
carrying
|
|
Accumulated
|
|
carrying
|
|
|
|
period
|
|
amount
|
|
amortization
|
|
amount
|
|
|
|
|
|
USD
|
|
USD
|
|
USD
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
Permits and licenses
|
|
10 years
|
|
4,987,647
|
|
(2,119,622)
|
|
2,868,025
|
|
GMP certificate
|
|
5 years
|
|
2,525,679
|
|
(1,955,360)
|
|
570,319
|
|
Long-term customer relationship
|
|
4 years
|
|
7,519,206
|
|
(7,519,206)
|
|
-
|
|
Others
|
|
|
|
214,520
|
|
(111,282)
|
|
103,238
|
|
Total
|
|
|
|
15,247,052
|
|
(11,705,470)
|
|
3,541,582
|
|
Amortization expense for intangible assets was $
257,318
and $
730,994
for the three months ended September 30, 2013 and 2012, respectively. Amortization expense for intangible assets was $
912,470
and $
2,187,804
for the nine months ended September 30, 2013 and 2012, respectively. Estimated amortization expenses for the next five fiscal years are $
513,226
in 2014, $
511,439
in 2015, $
505,852
in 2016, $
471,598
in 2017 and $
428,585
in 2018.
NOTE 6 DEPOSITS RELATED TO LAND USE RIGHTS
At September 30, 2013, the deposits mainly represented a RMB
83,400,000
(approximately $
13,594,200
) refundable payment made by Guizhou Taibang to the local government in connection with the public bidding for a land use right in Guizhou Province. The payment will be refunded within one year following the completion of the bidding process. If the Company is successful in the bid, the land use right will be used for the construction of a new manufacturing facility to comply with the new GMP standard effective by the end of 2013. However, due to potential delays in government approval procedures with respect to the land use right for such site, the Company may not be able to complete the construction of the new production facility as planned. In order to mitigate the operation disruption at Guizhou Taibang, the Company started to upgrade its existing production facility to meet the new GMP standard in June 2013. The production of the related facilities was suspended and the total production capacity of the Company is expected to decrease in part of 2013 and 2014.
NOTE 7 RESTRICTED CASH
AND DEPOSIT
On November 1, 2012, Guizhou Taibang entered into an agreement with the Financial Bureau of Huaxi District, Guiyang City. Pursuant to the agreement, the Financial Bureau of Huaxi District provided RMB
18,350,000
(approximately $
2,991,050
) to Guizhou Taibang to subsidize the technical upgrade in respect of the new GMP standard (see Note 6). The agreement is valid for a three-year period. The usage of this fund is under the supervision of the Financial Bureau of Huaxi District and this fund cannot be used for other purposes. During the nine months ended September 30, 2013, RMB
7,632,444
(approximately $
1,244,088
) was used in the technical upgrade in respect of the new GMP standard.
At September 30, 2013, the balance of restricted cash was RMB
10,717,556
(approximately $
1,746,962
).
On August 7, 2013, the Company made a time deposit of RMB
186,000,000
with China Merchants Bank Beijing Branch (“CMB BJ Branch”) as a security for an 18-month US$
30,000,000
loan lent by
China Merchants Bank Co., Ltd., New York Branch (“CMB NY Branch”) (see Note 8).
NOTE 8 BANK LOANS
(a)
|
Short-term bank loans
|
The Company’s short-term bank loans at September 30, 2013 and December 31, 2012 consisted of the following:
|
|
Maturity
|
|
Annual
|
|
|
|
|
|
|
Loans
|
|
date
|
|
interest rate
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
USD
|
|
USD
|
|
Short-term bank loan, unsecured
|
|
August 1, 2013
|
|
6.00
|
%
|
|
-
|
|
3,174,000
|
|
Short-term bank loan, unsecured
|
|
September 3, 2013
|
|
6.00
|
%
|
|
-
|
|
3,174,000
|
|
Short-term bank loan, unsecured
|
|
September 3, 2013
|
|
6.00
|
%
|
|
-
|
|
1,587,000
|
|
Short-term bank loan, unsecured
|
|
May 12, 2014
|
|
6.00
|
%
|
|
4,890,000
|
|
-
|
|
Total
|
|
|
|
|
|
|
4,890,000
|
|
7,935,000
|
|
Interest expense on short-term bank loans was $
79,195
and $
91,919
for three months ended September 30, 2013 and 2012, respectively. Interest expense on short-term bank loans was $
273,095
and $
296,901
for the nine months ended September 30, 2013 and 2012, respectively.
The Company did not have any revolving line of credit at September 30, 2013.
On August 8, 2013, the
Company entered into a
credit facility agreement with CMB NY Branch to finance the share repurchase (see Note 16). Pursuant to the facility agreement
,
CMB NY Branch
lends to the Company an
18
-month US$
30,000,000
loan bearing an interest rate of
3-month LIBOR plus 1.6%
per annum and a facility fee of
0.7
% per annum.
The loan
is secured by a time deposit of RMB
186,000,000
(approximately $
30,318,000
)
held at
CMB BJ Branch.
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 to a
15
% preferential income tax rate from 2011 to 2013.
According to Cai Shui [2011] No. 58 dated July 27, 2011, Guizhou Taibang, being a qualified enterprise located in the western region of PRC, enjoys a preferential income tax rate of
15
% effective retroactively from January 1, 2011 to December 31, 2020.
The Company’s effective income tax rates were
20
% and
16
% for the three months ended September 30, 2013 and 2012, respectively. The Company’s effective income tax rates were
17
% and
15
% for the nine months ended September 30, 2013 and 2012, respectively.
As of and for the nine months ended September 30, 2013, 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 to change significantly within the next 12 months.
NOTE 10 OPTIONS AND NONVESTED SHARES
Options
A summary of stock options activity for the nine months ended September 30, 2013 is as follow:
|
|
Number of Options
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Term
in Years
|
|
Aggregate Intrinsic
Value
|
|
|
|
|
|
USD
|
|
|
|
USD
|
|
Outstanding at December 31, 2012
|
|
2,648,609
|
|
9.39
|
|
7.65
|
|
18,374,422
|
|
Granted
|
|
33,000
|
|
10.48
|
|
|
|
|
|
Exercised
|
|
(353,191)
|
|
8.59
|
|
|
|
4,669,588
|
|
Forfeited and expired
|
|
(150,680)
|
|
6.78
|
|
|
|
|
|
Outstanding at September 30, 2013
|
|
2,177,738
|
|
9.71
|
|
7.20
|
|
42,462,885
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
2,177,738
|
|
9.71
|
|
7.20
|
|
42,462,885
|
|
Exercisable at September 30, 2013
|
|
1,617,738
|
|
9.73
|
|
6.66
|
|
31,509,285
|
|
The
33,000
stock options granted during the nine months ended September 30, 2013 had a weighted average fair value of $
8.37
per share or an aggregate of $
276,250
on the date of grant, determined based on the Black-Scholes option pricing model using the following weighted average assumptions:
|
|
For the nine months ended
|
|
|
|
September 30, 2013
|
|
Expected volatility
|
|
|
104
|
%
|
Expected dividends yield
|
|
|
0
|
%
|
Expected term
|
|
|
5 years
|
|
Risk-free interest rate (per annum)
|
|
|
0.72
|
%
|
Fair value of underlying ordinary shares (per share)
|
|
$
|
10.57
|
|
For the three months ended September 30, 2013 and 2012, the Company recorded stock compensation expense of $
651,047
and $
1,028,860
, respectively, in general and administrative expenses. For the nine months ended September 30, 2013 and 2012, the Company recorded stock compensation expense of $
3,346,046
and $
3,021,818
, respectively, in general and administrative expenses.
At
September 30
, 2013, approximately $
4,082,914
of stock compensation expense with respect to the non-vested stock options is
expected
to be recognized over approximately
2.49
years.
Nonvested shares
A summary of nonvested shares activity for the
nine months ended September 30
, 2013 is as follows:
|
|
Number of
nonvested shares
|
|
Grant date weighted
average fair value
|
|
|
|
|
|
USD
|
|
Outstanding at December 31, 2012
|
|
120,000
|
|
9.85
|
|
Granted
|
|
296,500
|
|
22.74
|
|
Vested
|
|
(63,750)
|
|
9.85
|
|
Forfeited
|
|
-
|
|
-
|
|
Outstanding at September 30, 2013
|
|
352,750
|
|
20.68
|
|
For the three months ended September 30, 2013 and 2012, the Company recorded stock compensation expense of $
377,808
and $
52,314
respectively in general and administrative expenses. For the nine months ended September 30, 2013 and 2012, the Company recorded stock compensation expense of $
730,771
and $
52,314
respectively in general and administrative expenses.
At
September 30
, 2013, approximately $
6,983,867
of stock compensation expense with respect to
nonvested
shares is
expected
to be recognized over approximately
3.43
years.
NOTE 11 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,
accounts receivable, 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.
|
|
|
•
|
Restricted deposit The carrying amounts of the restricted deposit approximate their fair value. The fair value is estimated using discounted cash flow analysis based on the Company’s incremental borrowing rates for similar borrowing.
|
•
|
Long-term bank loan fair value is based on the amount of future cash flows associated with the long-term bank loan discounted at the Company’s current borrowing rate for similar debt instruments of comparable terms. The carrying value of the long-term bank loan approximate its fair value as the long-term bank loan carry variable interest rate which approximate rate currently offered by the Company’s bankers for similar debt instruments of comparable maturities.
|
The Company’s sales are primarily derived from the manufacture and sale of Human Albumin and Immunoglobulin products. The Company’s sales by significant types of product for the three months ended September 30, 2013 and 2012 are as follows:
|
|
For the three months ended
|
|
|
|
September 30,
2013
|
|
September 30,
2012
|
|
|
|
USD
|
|
USD
|
|
Human Albumin
|
|
26,420,902
|
|
22,990,891
|
|
Immunoglobulin products:
|
|
|
|
|
|
Human Immunoglobulin for Intravenous Injection
|
|
17,162,545
|
|
23,412,548
|
|
Other Immunoglobulin products
|
|
5,355,020
|
|
3,685,613
|
|
Placenta Polypeptide
|
|
2,762,092
|
|
2,726,801
|
|
Others
|
|
1,451,582
|
|
308,197
|
|
Total
|
|
53,152,141
|
|
53,124,050
|
|
The Company’s sales by significant types of product for the nine months ended September 30, 2013 and 2012 are as follows:
|
|
For the nine months ended
|
|
|
|
September 30,
2013
|
|
September 30,
2012
|
|
|
|
USD
|
|
USD
|
|
Human Albumin
|
|
69,686,924
|
|
68,320,593
|
|
Immunoglobulin products:
|
|
|
|
|
|
Human Immunoglobulin for Intravenous Injection
|
|
63,921,570
|
|
59,913,448
|
|
Other Immunoglobulin products
|
|
15,949,006
|
|
14,458,714
|
|
Placenta Polypeptide
|
|
7,984,246
|
|
7,346,812
|
|
Others
|
|
3,222,650
|
|
778,283
|
|
Total
|
|
160,764,396
|
|
150,817,850
|
|
NOTE 13 COMMITMENTS AND CONTINGENCIES
Capital commitments
At September 30, 2013, commitments outstanding for the purchase of property, plant and equipment approximated $
4,800,000
.
Legal proceedings
Dispute among Guizhou Taibang Shareholders over Raising Additional Capital
In May 2007, a
91
% majority 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 at RMB
2.80
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
% minority shareholder of Guizhou Taibang’s shares, Guizhou Jie’an Company (“Jie’an”), did not support the plan and did not waive its right of first refusal. In May 2007, the majority shareholders caused Guizhou Taibang to sign an Equity Purchase Agreement with certain investors, pursuant to which the investors agreed to invest an aggregate of $
7,475,832
(or RMB
50,960,000
) 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 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.
In June 2007, Jie’an brought suit in the High Court of Guizhou province, China, against Guizhou Taibang and the three other original shareholders of Guizhou Taibang, alleging the illegality of the Equity Purchase Agreement. In its complaint, Jie’an claimed that it had a right to acquire the
18,200,000
shares offered to the strategic investors under the Equity Purchase Agreement. In September 2008, the Guizhou High Court ruled against Jie’an and sustained the Equity Purchase Agreement. In November 2008, Jie’an appealed the Guizhou High Court judgment to the People’s Supreme Court in Beijing. In May 2009, the People’s Supreme Court sustained the original ruling and denied the rights of first refusal of Jie’an over the
18,200,000
shares.
During the second quarter of 2010, Jie’an requested that Guizhou Taibang register its
1.8
million shares of additional capital injection with
the local Administration for Industry and Commerce, or
AIC, pursuant to the Equity Purchase Agreement, and such request was approved by the majority 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 Jie’an’s request, pending the outcome of the ongoing litigation. In March 2012, the Company received a subpoena that Jie’an brought suit in the People’s Court of Huaxi District, Guizhou Province, against Guizhou Taibang, alleging Guizhou Taibang’s withholding of its request. Jie’an requested that Guizhou Taibang register its 1.8 million shares of capital injection, pay dividends associated with these shares, as well as the related interest and penalty from May 2007 to December 2011 amounting to $
3,967,500
(or RMB
25,000,000
) in aggregate, and return the over-paid subscription of $
228,528
(or RMB
1,440,000
), as well as the interest and penalty, amounting to $
1,587,000
(or RMB
10,000,000
) in aggregate. The People’s Court of Huaxi District, Guizhou Province, has accepted Jie’an’s suit. In May 2012, Guizhou Taibang was informed by the court that the case was postponed upon the request from Jie’an and no exact hearing date has been provided as of the date of this report. If the Company decides to ratify the approval or the case is ruled in Jie’an’s favor, Dalin’s ownership in Guizhou Taibang will be diluted from
54
% to
52.54
% and Jie’an may be entitled to receive its pro rata share of Guizhou Taibang’s profits since the date of Jie’an’s capital contribution became effective. As this case is closely tied to the outcome of the strategic investors’ dispute stated below, the Company does not expect Jie’an to prevail. At
September 30
, 2013, the Company had recorded, in its balance sheet, payables to Jie’an in the amounts of RMB
5,040,000
(approximately $
821,520
) for the additional funds received in relation to the 1.8 million shares of capital infusion, RMB
1,440,000
(approximately $
234,720
) for the over-paid subscription and RMB
2,837,024
(approximately $
462,435
) for the accrued interest.
As a result of this dispute, the strategic investors’ equity ownership in Guizhou Taibang and the related increase in registered capital of Guizhou Taibang have not been registered with the local AIC. In January 2010, the strategic investors brought suit in the High Court of Guizhou Province against Guizhou Taibang alleging Guizhou Taibang’s failure to register their equity interest in Guizhou Taibang with the local AIC and requesting the distribution of their share of Guizhou Taibang’s dividends declared since 2007. Dalin was also joined as a co-defendant as it is the majority shareholder and exercises control over Guizhou Taibang’s day-to-day operations.
In October, 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, the Company returned the proceeds of $
1,699,040
(or RMB
11,200,000
) to one of the strategic investors in November 2010. In October 2010, the other strategic investors appealed to the PRC Supreme Court in Beijing on the ruling of the High Court of Guizhou. The PRC Supreme Court overruled the decision of the High Court of Guizhou and remanded the case to the High Court of Guizhou for retrial. In January 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 $
2,990,943
) and RMB
2,847,000
(approximately $
464,061
), respectively. In December 2012, the High Court of Guizhou affirmed the judgment against the strategic investors. In January 2013, the strategic investors appealed to the PRC Supreme Court in Beijing on the ruling again. The PRC Supreme Court accepted the case for retrial.
In April 2013, the Company countersued the strategic investors in the Intermediate Court of Guiyang City alleging their breach of the Security Law in the PRC and requested a consideration of $
6,064,800
(or RMB
38,000,000
) for the related expenses and losses, and Guizhou Intermediate Court accepted the case.
The Company is awaiting the hearing of the above case as of the date of this report.
In September 2013, the PRC Supreme Court made the final judgement against the strategic investors and denied the strategic investors’ right as shareholders of Guizhou Taibang and their claim for the related dividend distribution.
A
t
September 30
, 2013,
Guizhou Taibang has made provision for the strategic investors’ initial fund along with RMB16,558,473 (approximately $2,699,031) in accrued interest, and RMB509,600 (approximately $83,065) for the 1% penalty imposed by the agreement
for any breach in the event that Guizhou Taibang is required to return their original investment amount to the strategic investors.
NOTE 14 RELATED PARTY TRANSACTIONS
The material related party transactions undertaken by the Company for the three months ended September 30, 2013 and 2012 are as follows:
|
|
For the three months ended
|
|
|
|
|
September 30, 2013
|
|
|
September 30, 2012
|
|
|
|
|
USD
|
|
|
USD
|
|
Commission expenses with related parties
(1)
|
|
|
815,410
|
|
|
1,014,193
|
|
The material related party transactions undertaken by the Company for the nine months ended September 30, 2013 and 2012 are as follows:
|
For the nine months ended
|
|
|
September 30, 2013
|
|
September 30, 2012
|
|
|
USD
|
|
USD
|
|
Commission expenses with related parties
(1)
|
2,367,722
|
|
|
2,594,281
|
|
The related party balances at September 30, 2013 and December 31, 2012 are presented as follows:
Liabilities
|
|
Purpose
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
USD
|
|
USD
|
|
Other payable a related party
(1)
|
|
Commission
|
|
316,627
|
|
339,272
|
|
Other payable a related party
(2)
|
|
Loan
|
|
2,373,280
|
|
2,311,044
|
|
Other payable a related party
(3)
|
|
Contribution
|
|
1,518,675
|
|
1,431,308
|
|
Total other payable related parties
|
|
|
|
4,208,582
|
|
4,081,624
|
|
(1)
During the year ended December 31, 2011, Guizhou Taibang signed an agency contract with Guizhou Eakan Co., Ltd. (“Guizhou Eakan”), an affiliate of one of the Guizhou Taibang’s noncontrolling interest shareholders, pursuant to which Guizhou Taibang would pay commission to Guizhou Eakan for the promotion of the product of Placenta Polypeptide. At September 30, 2013, Guizhou Taibang accrued commission payable of $
316,627
for service rendered by Guizhou Eakan. For the three months ended September 30, 2013, commission expense for service rendered by Guizhou Eakan was $
815,410
. For the nine months ended September 30, 2013, commission expense for service rendered by Guizhou Eakan was $
2,367,722
.
(2)
Guizhou Taibang has payables to Guizhou Eakan Investing Corp., amounting to approximately $
2,373,280
and $
2,311,044
at September 30, 2013 and December 31, 2012, respectively. Guizhou Eakan Investing Corp. is one of the noncontrolling interest shareholders of Guizhou Taibang. The Company borrowed this interest free advance for working capital purpose for Guizhou Taibang. The balance is due on demand.
(3)
Guizhou Taibang has payables to Jie’an, a noncontrolling interest shareholder of Guizhou Taibang, amounting to approximately $
1,518,675
and $
1,431,308
at September 30, 2013 and December 31, 2012, respectively. In 2007, Guizhou Taibang received additional contributions from Jie’an of $
962,853
(or RMB
6,480,000
) to maintain Jie’an’s 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 13), the contribution is subject to be returned to Jie’an. During the second quarter of 2010, Jie’an requested that Guizhou Taibang register its
1.8
million shares of additional capital contribution with the local AIC, pursuant to the Equity Purchase Agreement, and such registration was approved by the majority 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 Jie’an’s request until the completion of the ongoing litigations. If the Company decided to ratify the approval, Dalin’s ownership in Guizhou Taibang will be diluted from
54
% to
52.54
% and Jie’an will be entitled to receive its pro rata share of Guizhou Taibang’s profits since the date of Jie’an contribution became effective. As this case is closely tied to the outcome of the strategic investors’ dispute stated above, the Company has set aside Jie’an’s additional fund of RMB
5,040,000
(approximately $
821,520
), the over-paid subscription of RMB
1,440,000
(approximately $
234,720
) along with RMB
2,837,024
(approximately $
462,435
) in accrued interest and penalty at September 30, 2013.
NOTE 15 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
|
|
For the three months ended
|
|
|
|
September 30, 2013
|
|
September 30, 2012
|
|
|
|
USD
|
|
USD
|
|
|
|
|
|
|
|
Net income attributable to China Biologic Products, Inc.
|
|
14,696,023
|
|
13,617,150
|
|
Earnings allocated to participating nonvested shares
|
|
(143,220)
|
|
(20,709)
|
|
Net income used in basic/diluted net income per common stock
|
|
14,552,803
|
|
13,596,441
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income per common
stock
|
|
26,288,154
|
|
26,546,929
|
|
Diluted effect of stock option
|
|
1,160,927
|
|
471,975
|
|
Weighted average shares used in computing diluted net income per common
stock
|
|
27,449,081
|
|
27,018,904
|
|
|
|
|
|
|
|
Net income per common stock basic
|
|
0.55
|
|
0.51
|
|
Net income per common stock diluted
|
|
0.53
|
|
0.50
|
|
During the three months ended September 30, 2013, no option was antidilutive and excluded from the calculation of diluted net income per common stock.
During the three months ended September 30, 2012,
1,979,333
options with an average exercise price of $
11.37
were excluded from the calculation of diluted net income per common stock since they were antidilutive.
The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
|
|
For the nine months ended
|
|
|
|
September 30, 2013
|
|
September 30, 2012
|
|
|
|
USD
|
|
USD
|
|
|
|
|
|
|
|
Net income attributable to China Biologic Products, Inc.
|
|
45,773,809
|
|
39,413,227
|
|
Earnings allocated to participating nonvested shares
|
|
(303,490)
|
|
(20,562)
|
|
Net income allocated to common stockholders used in computing basic net
income per common stock
|
|
45,470,319
|
|
39,392,665
|
|
Change in fair value of warrants
|
|
-
|
|
(1,769,140)
|
|
Net income used in diluted net income per common stock
|
|
45,470,319
|
|
37,623,525
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income per common
stock
|
|
26,649,563
|
|
26,009,707
|
|
Diluted effect of warrants
|
|
-
|
|
266,999
|
|
Diluted effect of stock option
|
|
1,130,442
|
|
465,007
|
|
Weighted average shares used in computing diluted net income per common
stock
|
|
27,780,005
|
|
26,741,713
|
|
|
|
|
|
|
|
Net income per common stock basic
|
|
1.71
|
|
1.51
|
|
Net income per common stock diluted
|
|
1.64
|
|
1.41
|
|
During the nine months ended September 30, 2013, no option was antidilutive and excluded from the calculation of diluted net income per common stock.
During the nine months ended September 30, 2012,
1,979,333
options with an average exercise price of $
11.37
were excluded from the calculation of diluted net income per common stock since they were antidilutive.
NOTE 16 SHARE REPURCHASE
On August 2, 2013, the Company entered into an agreement with one of its individual shareholders, pursuant to which the Company repurchased
1,479,704
shares of common stock for a consideration of US$
29,594,080
. The transaction was completed on August 8, 2013.
ITEM 2.
MANAGEMENT’S 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; 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, 2012, 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 Xi’an Huitian Blood Products Co., Ltd., a PRC company;
·
“Board” are to our board of directors;
·
“BVI” are to the British Virgin Islands;
·
“Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;
·
“PRC” and “China” are to the People’s 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;
·
“U.S. dollars”, “dollars” ,“USD”and “$” are to the legal currency of the United States; and
·
“New GMP Standard” are to the Drug Good Manufacturing Practice Regulations enacted by China’s Ministry of Health on February 12, 2001 and the Good Manufacturing Practice Implementation Guidelines published by China’s State Food and Drug Administration on February 24, 2011.
Overview of Our Business
We are a biopharmaceutical company principally engaged in the research, development, manufacturing and sales of human plasma-based pharmaceutical products in China. We have two majority owned subsidiaries, Shandong Taibang, a company based in Tai’an, Shandong Province and Guizhou Taibang, a company based in Guiyang, Guizhou Province. We also hold a minority equity interest in Huitian, a company based in Xi’an, 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 are human albumin and immunoglobulin products. Albumin has been used for almost 50 years to treat critically ill patients by replacing lost fluid and maintaining adequate blood volume and pressure. Immunoglobulin is used for certain disease prevention and treatment by enhancing specific immunity. These products use human plasma as the principal raw material. Human albumin and human immunoglobulin for intravenous injection, or IVIG products, are our top-selling products. Sales of human albumin products represented approximately 49.7% and 43.3% of our total sales for each of the three months ended September 30, 2013 and 2012, respectively, and 43.3% and 45.3% of our total sales for the nine months ended September 30, 2013 and 2012, respectively. Sales of IVIG products represented approximately 32.3% and 44.1% of our total sales for each of the three months ended September 30 2013 and 2012, respectively, and 39.8% and 39.7% of our total sales for the nine months ended September 30, 2013 and 2012, respectively. All of our products are prescription medicines administered in the form of injections.
We sell our products primarily to hospitals and inoculation centers in the PRC directly or through approved distributors. We usually sign short-term contracts with customers and therefore our largest customers have changed over the years. For the three months ended September 30, 2013 and 2012, our top 5 customers accounted for approximately 11.9% and 8.5%, respectively, of our total sales. For the nine months ended September 30, 2013 and 2012, our top 5 customers accounted for approximately 10.8% and 11.6%, respectively, of our total sales. As we continue to expand our geographic presence and diversify our 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 People’s 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.
Recent Development
In July 2013, Guizhou Taibang obtained the manufacturing approval certificate from the State Food and Drug Administration (“SFDA”) for human prothrombin complex concentrate (“PCC”). Guizhou Taibang is expected to obtain the GMP certification for the production facility of PCC from SFDA after the completion of the plasma production facility upgrade and commence commercial production in 2014.
In July 2013, Shandong Taibang received the manufacturing approval certificate from SFDA for human coagulation factor VIII (300IU) and is expected to commence the commercial production in the foreseeable future.
On August 2, 2013, the Company entered into an agreement with one of its individual shareholders, pursuant to which the Company repurchased 1,479,704 shares of common stock for a consideration of US$29,594,080. On August 8, 2013, the Company entered into a credit facility agreement with China Commercial Merchant Bank Co., Ltd, New York Branch (“CMB NY Branch”) to finance such share repurchase. Pursuant to the facility agreement, CMB NY Branch provided to the Company an 18-month US$30,000,000 loan bearing an interest rate that equals 3-month LIBOR plus 1.6% per annum and a facility fee of 0.7% per annum. This loan is secured by a time deposit of RMB186,000,000 (equivalent of US$30,000,000) with the Beijing Branch of China Commercial Merchant Bank Co., Ltd. The share repurchase transaction was completed on August 8, 2013. For details, please see our current report on Form 8-K filed on August 2 and August 8, 2013.
Third Quarter Financial Performance Highlights
The following are some financial highlights for the three months ended September 30, 2013:
·
Sales
: Sales was $53,152,141 for the three months ended September 30, 2013, as compared to $53,124,050 for the same period in 2012.
·
Gross profit
: Gross profit was $35,986,244 for the three months ended September 30, 2013, as compared to $36,202,766 for the same period in 2012.
·
Income from operations
: Income from operations increased by $2,742,606, or 13.4%, to $23,162,818 for the three months ended September 30, 2013, from $20,420,212 for the same period in 2012.
·
Net income attributable to the Company
: Net income increased by $1,078,873, or 7.9%, to $14,696,023 for the three months ended September 30, 2013, from $13,617,150 for the same period in 2012.
·
Diluted net income per share
: Diluted net income per share was $0.53 for the three months ended September 30, 2013, as compared to $0.50 for the same period in 2012.
Results of Operations
Comparison of Three Months Ended September 30, 2013 and September 30, 2012
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)
|
|
For the three Months Ended September 30
|
|
|
|
2013
|
|
2012
|
|
|
|
$
|
|
% of
Total
Sales
|
|
$
|
|
% of
Total
Sales
|
|
Sales
|
|
|
53,152,141
|
|
|
100.0
|
|
|
53,124,050
|
|
|
100.0
|
|
Cost of sales
|
|
|
17,165,897
|
|
|
32.3
|
|
|
16,921,284
|
|
|
31.9
|
|
Gross margin
|
|
|
35,986,244
|
|
|
67.7
|
|
|
36,202,766
|
|
|
68.1
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
2,551,245
|
|
|
4.8
|
|
|
3,545,378
|
|
|
6.7
|
|
General and administrative expenses
|
|
|
9,218,798
|
|
|
17.3
|
|
|
11,599,779
|
|
|
21.8
|
|
Research and development expenses
|
|
|
1,053,383
|
|
|
2.0
|
|
|
637,397
|
|
|
1.2
|
|
Total operating expenses
|
|
|
12,823,426
|
|
|
24.1
|
|
|
15,782,554
|
|
|
29.7
|
|
Income from operations
|
|
|
23,162,818
|
|
|
43.6
|
|
|
20,420,212
|
|
|
38.4
|
|
Other income/ (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of equity method investee
|
|
|
642,579
|
|
|
1.2
|
|
|
744,976
|
|
|
1.4
|
|
Interest expense
|
|
|
(306,656)
|
|
|
(0.6)
|
|
|
(223,992)
|
|
|
(0.4)
|
|
Interest income
|
|
|
1,320,263
|
|
|
2.5
|
|
|
561,761
|
|
|
1.1
|
|
Other income, net
|
|
|
-
|
|
|
-
|
|
|
449,815
|
|
|
0.8
|
|
Total other income, net
|
|
|
1,656,186
|
|
|
3.1
|
|
|
1,532,560
|
|
|
2.9
|
|
Earnings before income tax expense
|
|
|
24,819,004
|
|
|
46.7
|
|
|
21,952,772
|
|
|
41.3
|
|
Income tax expense
|
|
|
4,871,041
|
|
|
9.2
|
|
|
3,479,683
|
|
|
6.6
|
|
Net income
|
|
|
19,947,963
|
|
|
37.5
|
|
|
18,473,089
|
|
|
34.8
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
5,251,940
|
|
|
9.9
|
|
|
4,855,939
|
|
|
9.1
|
|
Net income attributable to the Company
|
|
|
14,696,023
|
|
|
27.6
|
|
|
13,617,150
|
|
|
25.6
|
|
Net income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.55
|
|
|
|
|
|
0.51
|
|
|
|
|
Diluted
|
|
|
0.53
|
|
|
|
|
|
0.50
|
|
|
|
|
Sales
Our sales was $53,152,141 for the three months ended September 30, 2013, compared to $53,124,050 for the three months ended September 30, 2012. Excluding the foreign currency impact, our sales in RMB term decreased by 2.5% for the three months ended September 30, 2013, as compared to the same period in 2012. Such decrease of sales was mainly due to the reduced production volume as a result of the planned production suspension of Guizhou Taibang starting from June 2013 partially offset by increase in sales by Shandong Taibang during the same period. Guizhou Taibang reduced the sales volume of its plasma based products during the three months ended September 30, 2013 in order to smooth out the impact of the reduced production volume and maintain its sales channels and customer relationships during such period of production suspension. On the other hand, the sales of Shandong Taibang increased, which was attributable to a combined effect of price and volume increases of certain plasma based products during the three months ended September 30, 2013, as compared to the same period in 2012.
The following table summarizes the breakdown of sales by significant types of product
:
|
|
For the three Months Ended September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
Amount
|
|
%
|
|
Human Albumin
|
|
|
26,420,902
|
|
|
49.7
|
|
|
22,990,891
|
|
|
43.3
|
|
|
3,430,011
|
|
|
14.9
|
|
Immunoglobulin products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVIG
|
|
|
17,162,545
|
|
|
32.3
|
|
|
23,412,548
|
|
|
44.1
|
|
|
(6,250,003)
|
|
|
(26.7)
|
|
Other Immunoglobulin products
|
|
|
5,355,020
|
|
|
10.1
|
|
|
3,685,613
|
|
|
6.9
|
|
|
1,669,407
|
|
|
45.3
|
|
Placenta Polypeptide
|
|
|
2,762,092
|
|
|
5.2
|
|
|
2,726,801
|
|
|
5.1
|
|
|
35,291
|
|
|
1.3
|
|
Others
|
|
|
1,451,582
|
|
|
2.7
|
|
|
308,197
|
|
|
0.6
|
|
|
1,143,385
|
|
|
371.0
|
|
Totals
|
|
|
53,152,141
|
|
|
100.0
|
|
|
53,124,050
|
|
|
100.0
|
|
|
28,091
|
|
|
0.1
|
|
During the three months ended
September 30
, 2013 as compared to the three months ended
September 30
, 2012:
·
the average price for our approved human albumin products, which accounted for
49.7
% of our total sales for the three months ended September 30, 2013, increased by approximately 11.0% and, excluding the impact of foreign currency, the average price in RMB term increased by approximately 9.2%; and
·
the average price for our approved IVIG products, which accounted for 32.3% of our total sales for the three months ended September 30, 2013, remained stable, and excluding the impact of foreign currency, the average price in RMB term decreased by approximately 2.1%.
The price increase of human albumin products was mainly due to the increase of retail price ceiling announced by Chinese National Development and Reform Commission (“NDRC”) in January 2013, which came into effect on February 1, 2013. This increased retail price ceiling provides us with more flexibility in pricing our human albumin products and allows us to increase our ex-factory prices in certain regional markets. NDRC also adjusted retail price ceilings for IVIG in September 2012, which came into effect on October 8, 2012. The new retail price ceilings for IVIG products are lower than the current prevailing market prices in some of our regional markets. As a result, some of local governments revised tender price ceilings for IVIG products. We have appealed to local governments for favorable pricing policy in selective regional markets and have successfully gained support from certain provincial governments in lifting the tender price ceilings for IVIG products. Therefore, the average price of our IVIG products remained relatively stable in the third quarter of 2013 as compared to the same period of 2012.
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. 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.
Sales volume for our human albumin products increased slightly by 2.7% in the third quarter of 2013 as compared to the same period of 2012. The increase in sales volumes of human albumin products was primarily due to increased sales volumes at Shandong Taibang, partially offset by reduced production volume as a result of the planned production suspension of Guizhou Taibang. The shipments of a few batches of albumin products at Shandong Taibang were originally scheduled in the second quarter of 2013, but were postponed due to delayed inspection by National Institutes For Food and Drug Control ( the
“
NIFDC
”
).
As a result, these products were shipped and the sales of these products were recognized in the third quarter of 2013.
Sales volume for our IVIG products decreased by 27.2% in the third quarter of 2013 as compared to the same period of 2012. The decrease in sales volume of IVIG was primarily due to the reduced production volume as a result of the planned production suspension of Guizhou Taibang during this period.
For the third quarter of 2013 as compared to the same period in 2012, the sales increase of other immunoglobulin products was mainly attributable to the increase of sales volume for human rabies immunoglobulin products. We increased the supply of rabies vaccinated plasma and expanded their production in Shandong Taibang for the third quarter of 2013.
For the third quarter of 2013 as compared to the same period in 2012, the sales increase of other products was mainly attributable to the newly-launched product of human coagulation factor VIII (200IU) in Shandong Taibang.
Cost of sales
& gross profit
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
%
|
|
Cost of sales
|
|
$
|
17,165,897
|
|
|
$
|
16,921,284
|
|
|
$
|
244,613
|
|
|
|
1.4
|
%
|
as a percentage of total sales
|
|
|
32.3
|
%
|
|
|
31.9
|
%
|
|
|
|
|
|
|
0.4
|
%
|
Gross Profit
|
|
$
|
35,986,244
|
|
|
$
|
36,202,766
|
|
|
$
|
(216,522)
|
|
|
|
(0.6)
|
%
|
Gross Margin
|
|
|
67.7
|
%
|
|
|
68.1
|
%
|
|
|
|
|
|
|
(0.4)
|
%
|
Our cost of sales was $
17,165,897
, or
32.3%
of our sales, for the three months ended September 30, 2013, as compared to $16,921,284, or
31.9
% of our sales for the same period in 2012. Our gross profit was $
35,986,244
and $36,202,766 for the three months ended September 30, 2013 and 2012, respectively, representing gross margins of
67.7%
and
68.1
%, respectively. In general, our cost of sales and gross margin are impacted by the volume and pricing of our finished products, our raw material costs, production mix and respective yields, inventory provisions, production cycles and routine maintenance costs.
The increase in cost of sales in absolute term and as a percentage of sales and the decrease of gross margin were mainly due to the increase in cost of plasma paid to donors, which is the largest component of our cost of sales. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to donors in 2013 as compared to 2012, which was in line with the industry practice. We expected the nutrition fees to be paid to donors continue to increase as a result of improving living standards and the increasing trend of urbanization in China. Consequently, future improvements on margins will need to be derived from increases in product pricing and volumes, product mix, yields and manufacturing efficiency.
Operating expenses
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Operating expenses
|
|
$
|
12,823,426
|
|
|
$
|
15,782,554
|
|
|
$
|
(2,959,128)
|
|
|
|
(18.7)
|
%
|
as a percentage of total sales
|
|
|
24.1
|
%
|
|
|
29.7
|
%
|
|
|
|
|
|
|
(5.6)
|
%
|
Our total operating expenses decreased by $
2,959,128
, or
18.7
%, to $
12,823,426
, for the three months ended
September 30
, 2013, from $15,782,554 for the same period in 2012. As a percentage of sales, total expenses decreased by
5.6
% to
24.1%
for the three months ended September 30, 2013, from 29.7% for the same period in 2012. The decrease of the total operating expenses was mainly due to the decrease of
selling expenses
and general and administrative expenses as discussed below.
Selling expenses
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Selling expenses
|
|
$
|
2,551,245
|
|
|
$
|
3,545,378
|
|
|
$
|
(994,133)
|
|
|
|
(28.0)
|
%
|
as a percentage of total sales
|
|
|
4.8
|
%
|
|
|
6.7
|
%
|
|
|
|
|
|
|
(1.9)
|
%
|
For the three months ended
September 30
, 2013, our selling expenses decreased by $
994,133
, or
28.0
%, to $
2,551,245
, from $3,545,378 for the three months ended
September 30
, 2012. As a percentage of sales, our selling expenses for the three months ended
September 30
, 2013 decreased by
1.9
% to
4.8
%, from
6.7
% for the three months ended
September 30
, 2012. The decrease was mainly due to our increasingly stringent control on selling expenses since the second half of 2012.
General and administrative expenses
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
%
|
|
General and administrative expenses
|
|
$
|
9,218,798
|
|
|
$
|
11,599,779
|
|
|
$
|
(2,380,981)
|
|
|
(20.5)
|
%
|
as a percentage of total sales
|
|
|
17.3
|
%
|
|
|
21.8
|
%
|
|
|
|
|
|
(4.5)
|
%
|
For the three months ended
September 30
, 2013, our general and administrative expenses decreased by $
2,380,981
, or
20.5
%, to $
9,218,798
, from $
11,599,779
for the three months ended
September 30
, 2012. General and administrative expenses as a percentage of sales decreased by
4.5
% to
17.3
% for the three months ended
September
30, 2013, from 21.8% for the three months ended
September 30
, 2012. The decrease in general and administrative expenses was mainly due to the decrease of payroll expenses in Guizhou Taibang as a result of the production suspension in the third quarter of 2013. In addition, we incurred amortization expenses of long-term customer relationship with respect to the acquisition of Guizhou Taibang in the third quarter of 2012. Given that such intangible assets has been fully amortized by the end of 2012, we did not incur the related expenses in the third quarter of 2013.
Research and development expenses
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
%
|
|
Research and development expenses
|
|
$
|
1,053,383
|
|
|
$
|
637,397
|
|
|
$
|
415,986
|
|
|
65.3
|
%
|
as a percentage of total sales
|
|
|
2.0
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
0.8
|
%
|
For the three months ended
September 30
, 2013 and 2012, our research and development expenses were $
1,053,383
and $
637,397
, respectively, representing an increase of $
415,986
, or
65.3
%. As a percentage of sales, our research and development expenses for the three months ended September 30, 2013 and 2012 were
2.0
% and
1.2
%, respectively. The increase in research and development expenses was primarily due to certain technical support services we engaged to improve production yields on certain hyper-immune products during the three months ended September 30, 2013. In addition, we started the clinical trial program on human fibrinogen in the third quarter of 2013.
Income tax
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
%
|
|
Income tax
|
|
$
|
4,871,041
|
|
|
$
|
3,479,683
|
|
|
$
|
1,391,358
|
|
|
40.0
|
%
|
as a percentage of total sales
|
|
|
9.2
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
2.6
|
%
|
Our provision for income taxes increased by $
1,391,358
, or
40.0
%, to $
4,871,041
for the three months ended
September
30, 2013, from $3,479,683 for the same period in 2012. Our effective income tax rates were 19.6% and 15.9% for the three months ended September 30, 2013 and 2012, respectively. Tax rate applicable to our major operating subsidiaries in the PRC for 2012 and 2013 is 15%. The increase in effective income tax rate for the three months ended September 30, 2013, as compared to the same period in 2012 was due to the withholding income tax in respect of the dividend declared by Shandong Taibang in July 2013.
Net income attributable to the Company
|
|
For the three Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
%
|
|
Net income attributable to the Company
|
|
$
|
14,696,023
|
|
|
$
|
13,617,150
|
|
|
$
|
1,078,873
|
|
|
7.9
|
%
|
as a percentage of total sales
|
|
|
27.6
|
%
|
|
|
25.6
|
%
|
|
|
|
|
|
2.0
|
%
|
Our net income attributable to the Company increased by $
1,078,873
, or
7.9
%, to $
14,696,023
for the three months ended
September 30
, 2013, from $13,617,150 for the same period in 2012. Net income attributable to the Company as a percentage of total sales was
27.6
% and 25.6% for the three months ended
September 30
, 2013 and 2012, respectively, as a result of the cumulative effect of the foregoing factors.
Comparison of Nine Months Ended September 30, 2013 and September 30, 2012
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)
|
|
For the nine Months Ended September 30
|
|
|
|
2013
|
|
2012
|
|
|
|
$
|
|
% of
Total
Sales
|
|
$
|
|
% of
Total
Sales
|
|
Sales
|
|
|
160,764,396
|
|
|
100.0
|
|
|
150,817,850
|
|
|
100.0
|
|
Cost of sales
|
|
|
49,904,917
|
|
|
31.0
|
|
|
48,767,900
|
|
|
32.3
|
|
Gross margin
|
|
|
110,859,479
|
|
|
69.0
|
|
|
102,049,950
|
|
|
67.7
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
6,829,365
|
|
|
4.2
|
|
|
12,536,727
|
|
|
8.3
|
|
General and administrative expenses
|
|
|
26,771,966
|
|
|
16.7
|
|
|
26,677,945
|
|
|
17.7
|
|
Research and development expenses
|
|
|
2,801,625
|
|
|
1.7
|
|
|
2,277,474
|
|
|
1.5
|
|
Total operating expenses
|
|
|
36,402,956
|
|
|
22.6
|
|
|
41,492,146
|
|
|
27.5
|
|
Income from operations
|
|
|
74,456,523
|
|
|
46.3
|
|
|
60,557,804
|
|
|
40.2
|
|
Other income/ (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of equity method investee
|
|
|
1,382,524
|
|
|
0.9
|
|
|
2,219,279
|
|
|
1.5
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
-
|
|
|
1,769,140
|
|
|
1.2
|
|
Interest expense
|
|
|
(741,569)
|
|
|
(0.5)
|
|
|
(990,190)
|
|
|
(0.7)
|
|
Interest income
|
|
|
2,964,082
|
|
|
1.8
|
|
|
1,870,873
|
|
|
1.2
|
|
Other income, net
|
|
|
-
|
|
|
-
|
|
|
347,029
|
|
|
0.2
|
|
Total other income, net
|
|
|
3,605,037
|
|
|
2.2
|
|
|
5,216,131
|
|
|
3.5
|
|
Earnings before income tax expense
|
|
|
78,061,560
|
|
|
48.6
|
|
|
65,773,935
|
|
|
43.6
|
|
Income tax expense
|
|
|
13,223,592
|
|
|
8.2
|
|
|
9,990,014
|
|
|
6.6
|
|
Net income
|
|
|
64,837,968
|
|
|
40.3
|
|
|
55,783,921
|
|
|
37.0
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
19,064,159
|
|
|
11.9
|
|
|
16,370,694
|
|
|
10.9
|
|
Net income attributable to the Company
|
|
|
45,773,809
|
|
|
28.5
|
|
|
39,413,227
|
|
|
26.1
|
|
Net income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.71
|
|
|
|
|
|
1.51
|
|
|
|
|
Diluted
|
|
|
1.64
|
|
|
|
|
|
1.41
|
|
|
|
|
Sales
Our sales increased by 6.6%, or $9,946,546, to $160,764,396 for the nine months ended September 30, 2013, compared to $150,817,850 for the nine months ended September 30, 2012. The increase in sales for the nine months ended September 30, 2013 was primarily attributable to a combined effect of price and volume increases in certain of our plasma based products. In addition, foreign currency translation accounted for 1.6% of the sales increase.
The following table summarizes the breakdown of sales by significant types of product
:
|
|
For the nine Months Ended September 30,
|
|
Change
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
Amount
|
|
%
|
|
Human Albumin
|
|
|
69,686,924
|
|
|
43.3
|
|
|
68,320,593
|
|
|
45.3
|
|
|
1,366,331
|
|
|
2.0
|
|
Immunoglobulin products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IVIG
|
|
|
63,921,570
|
|
|
39.8
|
|
|
59,913,448
|
|
|
39.7
|
|
|
4,008,122
|
|
|
6.7
|
|
Other Immunoglobulin products
|
|
|
15,949,006
|
|
|
9.9
|
|
|
14,458,714
|
|
|
9.6
|
|
|
1,490,292
|
|
|
10.3
|
|
Placenta Polypeptide
|
|
|
7,984,246
|
|
|
5.0
|
|
|
7,346,812
|
|
|
4.9
|
|
|
637,434
|
|
|
8.7
|
|
Others
|
|
|
3,222,650
|
|
|
2.0
|
|
|
778,283
|
|
|
0.5
|
|
|
2,444,367
|
|
|
314.1
|
|
Totals
|
|
|
160,764,396
|
|
|
100.0
|
|
|
150,817,850
|
|
|
100.0
|
|
|
9,946,546
|
|
|
6.6
|
|
During the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012:
·
the average price for our approved human albumin products, which accounted for 43.3% of our total sales for the nine months ended September 30, 2013, increased by approximately 10.0% and, excluding the impact of foreign currency, their average price in RMB term increased by approximately 9.2%; and
·
the average price for our approved IVIG products, which accounted for 39.8% of our total sales for the nine months ended September 30, 2013, remained stable, and excluding the impact of foreign currency, their average price in RMB term decreased slightly by 0.5%.
The price increase of human albumin products was mainly due to the increase of retail price ceiling announced by NDRC in January 2013, which came into effect on February 1, 2013. This increased retail price ceiling provides us with more flexibility in pricing our human albumin products and allows us to increase our ex-factory prices in certain regional markets. NDRC also adjusted retail price ceilings for IVIG in September 2012, which came into effect on October 8, 2012. The new retail price ceilings for IVIG products are lower than the current prevailing market prices in some of our regional markets. As a result, some of local governments revised tender price ceilings for IVIG products. We have appealed to local governments for favorable pricing policy in selective regional markets and have successfully gained support from certain provincial governments in lifting the tender price ceilings for IVIG products. Therefore, the average price of our IVIG products remained relatively stable for the nine months ended September 30, 2013 as compared to the same period of 2012.
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. 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. In addition, in light of the planned production suspension of Guizhou Taibang starting from June 2013, we decreased the sales volume of some of our products from the second quarter of 2013 in order to smooth out the impact of the reduced production volume and maintain our sales channels and customer relationship during the period of Guizhou Taibang production suspension.
Sales volume for our human albumin products decreased by 8.0% during the nine months ended September 30, 2013 as compared to the same period of 2012. The decrease in sales volumes of human albumin products was primarily due to our increase of inventory level of these products in preparation for the production suspension in Guizhou Taibang during the suspension period. Sales volume for our IVIG products increased by 5.7% during the nine months ended September 30, 2013 as compared to the same period of 2012. The increase in sales volumes of IVIG products was primarily due to our marketing efforts focusing on IVIG promotion and the engagement of new distributors to sell IVIG in new territories for the nine months ended September 30, 2013, partially offset by reduced production volume in the third quarter of 2013.
For the nine months ended September 30, 2013 as compared to the same period in 2012, the sales increase of other immunoglobulin products was mainly attributable to the increase of sales volume for human rabies immunoglobulin products. We increased the supply of rabies vaccinated plasma and expanded the related production in Shandong Taibang in the third quarter of 2013.
For the nine months ended September 30, 2013 as compared to the same period in 2012, the sales increase of others was mainly attributable to the newly-launched product of human coagulation factor VIII (200IU) in Shandong Taibang.
Cost of sales
& gross profit
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Cost of sales
|
|
$
|
49,904,917
|
|
|
$
|
48,767,900
|
|
|
$
|
1,137,017
|
|
|
|
2.3
|
%
|
as a percentage of total sales
|
|
|
31.0
|
%
|
|
|
32.3
|
%
|
|
|
|
|
|
|
(1.3)
|
%
|
Gross Profit
|
|
$
|
110,859,479
|
|
|
$
|
102,049,950
|
|
|
$
|
8,809,529
|
|
|
|
8.6
|
%
|
Gross Margin
|
|
|
69.0
|
%
|
|
|
67.7
|
%
|
|
|
|
|
|
|
1.3
|
%
|
Our cost of sales was $
49,904,917
, or
31.0%
of our sales, for the nine months ended September 30, 2013, as compared to $48,767,900, or
32.3
% of our sales for the same period in 2012. Our gross profit was $
110,859,479
and $102,049,950 for the nine months ended September 30, 2013 and 2012, respectively, representing gross margins of
69.0%
and
67.7
%, respectively. In general, our cost of sales and gross margin are impacted by the volume and pricing of our finished products, our raw material costs, production mix and respective yields, inventory provisions, production cycles and routine maintenance costs.
The increase in cost of sales
in absolute term
for the nine months ended September 30, 2013 as compared to the same period in 2012 was in line with the sale increase. The
decrease of cost of sales as a percentage of total sales and the
increase of our overall gross margin for the nine months ended September 30, 2013, as compared to the same period in 2012, was mainly due to the improved gross margin of human albumin products as a result of price increases and the improved utilization efficiency of plasma following the newly-launched Factor VIII products.
Operating expenses
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Operating expenses
|
|
$
|
36,402,956
|
|
|
$
|
41,492,146
|
|
|
$
|
(5,089,190)
|
|
|
|
(12.3)
|
%
|
as a percentage of total sales
|
|
|
22.6
|
%
|
|
|
27.5
|
%
|
|
|
|
|
|
|
(4.9)
|
%
|
Our total operating expenses decreased by $
5,089,190
, or
12.3
%, to $
36,402,956
, for the nine months ended September 30, 2013, from $41,492,146 for the same period in 2012. As a percentage of sales, total expenses decreased by 4.9% to
22.6%
for the nine months ended September 30, 2013, from
27.5
% for the same period in 2012. The decrease of the total operating expenses was mainly due to the decrease of the selling expenses as discussed below.
Selling expenses
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
|
Selling expenses
|
|
$
|
6,829,365
|
|
|
$
|
12,536,727
|
|
|
$
|
(5,707,362)
|
|
|
|
(45.5)
|
%
|
|
as a percentage of total sales
|
|
|
4.2
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
(4.1)
|
%
|
|
For the nine months ended September 30, 2013, our selling expenses decreased by $
5,707,362
, or
45.5
%, to $
6,829,365
, from $12,536,727 for the nine months ended September 30, 2012. As a percentage of sales, our selling expenses for the nine months ended September 30, 2013 decreased by 4.1% to
4.2
%, from
8.3
% for the nine months ended September 30, 2012. The decrease was mainly due to the fact that we imposed more stringent selling expenses control since the second half of 2012.
General and administrative expenses
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
General and administrative expenses
|
|
$
|
26,771,966
|
|
|
$
|
26,677,945
|
|
|
$
|
94,021
|
|
|
|
0.4
|
%
|
as a percentage of total sales
|
|
|
16.7
|
%
|
|
|
17.7
|
%
|
|
|
|
|
|
|
(1.0)
|
%
|
For the nine months ended September 30, 2013 and 2012, our general and administrative expenses was $
26,771,966 and
$26,677,945, respectively. General and administrative expenses as a percentage of sales decreased by 1.0% to
16.7
% for the nine months ended September 30, 2013, from
17.7
% for the nine months ended September 30, 2012. The general and administrative expenses remained consistent for the nine months ended September 30, 2013 as compared to the same period in 2012. The impact of long-term customer relationship which has been fully amortized by the end of 2012 was mainly offset by higher legal expenses for the nine months ended September 30, 2013 as compared to the same period in 2012.
Research and development expenses
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Research and development expenses
|
|
$
|
2,801,625
|
|
|
$
|
2,277,474
|
|
|
$
|
524,151
|
|
|
|
23.0
|
%
|
as a percentage of total sales
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
0.2
|
%
|
For the nine months ended September 30, 2013 and 2012, our research and development expenses were $
2,801,625
and $2,277,474, respectively, representing an increase of $
524,151
, or
23.0
%. As a percentage of sales, our research and development expenses for the nine months ended September 30, 2013 and 2012 were
1.7
% and
1.5
%, respectively. The increase in research and development expenses was primarily due to the fact that we acquired technical support services on certain hyper-immune products for the nine months ended September 30, 2013. In addition, we started the clinical trial program on human fibrinogen in 2013.
Change in fair value of derivative liabilities
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Change in fair value of derivative liabilities
|
|
$
|
-
|
|
|
$
|
1,769,140
|
|
|
$
|
(1,769,140)
|
|
|
|
(100.0)
|
%
|
as a percentage of total sales
|
|
|
-
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
(1.2)
|
%
|
Our warrants issued in June 2009 are classified as derivative liabilities carried at fair value. For the nine months ended September 30, 2013 and 2012, we recognized a gain from the change in fair value of derivative liabilities in the amounts of nil and $
1,769,140
, respectively. The recognized gain from the change in the fair value of derivative liabilities for the nine months ended September 30, 2012 was mainly due to a decrease in the price of our common stock from $10.46 per share as of December 31, 2011 to $8.55 and $9.22, respectively, as of the two warrants exercise dates. All warrants have been exercised by the end of June 2012.
Income tax
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Income tax
|
|
$
|
13,223,592
|
|
|
$
|
9,990,014
|
|
|
$
|
3,233,578
|
|
|
|
32.4
|
%
|
as a percentage of total sales
|
|
|
8.2
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
1.6
|
%
|
Our provision for income taxes increased by $
3,233,578
, or
32.4
%, to $
13,223,592
for the nine months ended September 30, 2013, from $9,990,014 for the same period in 2012. Our effective income tax rates were 16.9% and 15.2% for the nine months ended September 30, 2013 and 2012, respectively. Tax rate applicable to our major operating subsidiaries in the PRC for 2012 and 2013 is 15%. The effective income tax rate increased due to the withholding income tax paid with respect to the dividend declared by Shandong Taibang in the nine months ended September 30, 2013.
Net income attributable to the Company
|
|
For the nine Months Ended September 30,
|
|
|
Change
|
|
|
|
2013
|
|
|
2012
|
|
|
Amount
|
|
|
%
|
|
Net income attributable to the Company
|
|
$
|
45,773,809
|
|
|
$
|
39,413,227
|
|
|
$
|
6,360,582
|
|
|
|
16.1
|
%
|
as a percentage of total sales
|
|
|
28.5
|
%
|
|
|
26.1
|
%
|
|
|
|
|
|
|
2.4
|
%
|
Our net income attributable to the Company increased by $
6,360,582
, or
16.1
%, to $
45,773,809
for the nine months ended September 30, 2013, from $39,413,227 for the same period in 2012. Net income attributable to the Company as a percentage of total sales was
28.5
% and 26.1% for the nine months ended September 30, 2013 and 2012, respectively, as a result of the cumulative effect of the foregoing factors.