UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30,
2015
¨ |
TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________
to _____________
Commission File Number: 001-34566
CHINA BIOLOGIC PRODUCTS, INC.
(Exact Name of Registrant as Specified
in Its Charter)
Delaware |
|
75-2308816 |
(State or other jurisdiction of incorporation or
organization) |
|
(I.R.S. Employer Identification No.) |
18th Floor, Jialong International Building
19 Chaoyang Park Road
Chaoyang District, Beijing 100125
People’s Republic of China
(Address of principal executive offices,
Zip Code)
(+86) 10-6598-3111
(Registrant’s telephone number, including
area code)
_____________________________________________________
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer ¨ | |
Accelerated
filer x |
Non-accelerated
filer ¨ (Do not check if a smaller reporting company) | |
Smaller reporting
company ¨ |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of each of the issuer’s
classes of common stock, as of August 5, 2015 is as follows:
Class
of Securities |
|
Shares
Outstanding |
Common Stock, $0.0001 par value |
|
25,708,001 |
Quarterly Report on Form 10-Q
Three and Six Months Ended June 30, 2015
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
Note | |
June 30, 2015 | | |
December 31, 2014 | |
| |
| |
USD | | |
USD | |
ASSETS | |
| |
| | | |
| | |
Current Assets | |
| |
| | | |
| | |
Cash and cash equivalents | |
| |
| 106,614,708 | | |
| 80,820,224 | |
Restricted cash deposits | |
6 | |
| - | | |
| 63,677,610 | |
Time deposits | |
6 | |
| 72,226,607 | | |
| - | |
Accounts receivable, net of allowance for doubtful accounts | |
2 | |
| 38,328,831 | | |
| 19,402,820 | |
Inventories | |
3 | |
| 127,039,477 | | |
| 101,304,932 | |
Prepayments and other current assets, net of allowance for doubtful accounts | |
| |
| 27,789,090 | | |
| 14,781,658 | |
Total Current Assets | |
| |
| 371,998,713 | | |
| 279,987,244 | |
| |
| |
| | | |
| | |
Property, plant and equipment, net | |
4 | |
| 91,208,433 | | |
| 80,230,888 | |
Land use rights, net | |
| |
| 15,837,832 | | |
| 11,909,136 | |
Deposits related to land use rights | |
5 | |
| 12,822,069 | | |
| 12,792,355 | |
Restricted cash and cash deposits, excluding current portion | |
6 | |
| - | | |
| 40,230,250 | |
Equity method investment | |
| |
| 9,825,728 | | |
| 18,221,777 | |
Other non-current assets | |
| |
| 3,236,260 | | |
| 3,475,442 | |
Total Assets | |
| |
| 504,929,035 | | |
| 446,847,092 | |
| |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| |
| | | |
| | |
Current Liabilities | |
| |
| | | |
| | |
Short-term bank loans, including current portion of long-term bank loans | |
7 | |
| - | | |
| 57,902,600 | |
Accounts payable | |
| |
| 14,997,591 | | |
| 4,829,350 | |
Other payables and accrued expenses | |
| |
| 46,997,452 | | |
| 49,692,757 | |
Income tax payable | |
| |
| 6,775,105 | | |
| 8,257,133 | |
Total Current Liabilities | |
| |
| 68,770,148 | | |
| 120,681,840 | |
| |
| |
| | | |
| | |
Long-term bank loans, excluding current portion | |
7 | |
| - | | |
| 40,000,000 | |
Deferred income | |
| |
| 2,626,321 | | |
| 2,765,024 | |
Other liabilities | |
| |
| 8,086,775 | | |
| 8,138,498 | |
Total Liabilities | |
| |
| 79,483,244 | | |
| 171,585,362 | |
| |
| |
| | | |
| | |
Stockholders’ Equity | |
| |
| | | |
| | |
Common stock: | |
| |
| | | |
| | |
par value $0.0001; | |
| |
| | | |
| | |
100,000,000 shares authorized; | |
| |
| | | |
| | |
27,962,705 and 27,865,871 shares issued at June 30, 2015 and December 31, 2014, respectively; | |
| |
| | | |
| | |
25,708,001 and 24,806,167 shares outstanding at June 30, 2015 and December 31, 2014, respectively | |
| |
| 2,797 | | |
| 2,787 | |
Additional paid-in capital | |
| |
| 89,462,086 | | |
| 24,008,281 | |
Treasury stock: 2,254,704 and 3,059,704 shares at June 30, 2015 and December 31, 2014, respectively, at cost | |
| |
| (56,425,094 | ) | |
| (76,570,621 | ) |
| |
| |
| | | |
| | |
Retained earnings | |
| |
| 294,547,822 | | |
| 244,661,391 | |
Accumulated other comprehensive income | |
| |
| 20,318,850 | | |
| 19,985,189 | |
Total equity attributable to China Biologic Products, Inc. | |
| |
| 347,906,461 | | |
| 212,087,027 | |
| |
| |
| | | |
| | |
Noncontrolling interest | |
| |
| 77,539,330 | | |
| 63,174,703 | |
| |
| |
| | | |
| | |
Total Stockholders’ Equity | |
| |
| 425,445,791 | | |
| 275,261,730 | |
| |
| |
| | | |
| | |
Commitments and contingencies | |
12 | |
| - | | |
| - | |
| |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Equity | |
| |
| 504,929,035 | | |
| 446,847,092 | |
See accompanying notes to Unaudited Condensed
Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| |
| |
For the three months ended | | |
For the six months ended | |
| |
Note | |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2015 | | |
June 30, 2014 | |
| |
| |
USD | | |
USD | | |
USD | | |
USD | |
Sales | |
11 | |
| 79,068,452 | | |
| 60,073,984 | | |
| 149,422,783 | | |
| 116,340,561 | |
Cost of sales | |
| |
| 27,054,626 | | |
| 18,919,981 | | |
| 51,516,201 | | |
| 36,635,147 | |
Gross profit | |
| |
| 52,013,826 | | |
| 41,154,003 | | |
| 97,906,582 | | |
| 79,705,414 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| |
| 2,604,660 | | |
| 3,329,175 | | |
| 4,555,348 | | |
| 5,611,661 | |
General and administrative expenses | |
| |
| 8,121,390 | | |
| 7,112,798 | | |
| 15,974,585 | | |
| 14,329,424 | |
Research and development expenses | |
| |
| 1,046,985 | | |
| 1,838,795 | | |
| 2,389,307 | | |
| 2,912,361 | |
Income from operations | |
| |
| 40,240,791 | | |
| 28,873,235 | | |
| 74,987,342 | | |
| 56,851,968 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses) | |
| |
| | | |
| | | |
| | | |
| | |
Equity in (loss) income of an equity method investee | |
| |
| (666,233 | ) | |
| 1,523,216 | | |
| (761,300 | ) | |
| 1,860,579 | |
Interest expense | |
| |
| (675,860 | ) | |
| (862,957 | ) | |
| (1,432,681 | ) | |
| (1,484,164 | ) |
Interest income | |
| |
| 1,467,135 | | |
| 1,724,324 | | |
| 2,843,982 | | |
| 3,320,202 | |
Total other income, net | |
| |
| 125,042 | | |
| 2,384,583 | | |
| 650,001 | | |
| 3,696,617 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Earnings before income tax expense | |
| |
| 40,365,833 | | |
| 31,257,818 | | |
| 75,637,343 | | |
| 60,548,585 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Income tax expense | |
8 | |
| 6,123,661 | | |
| 4,486,157 | | |
| 11,739,811 | | |
| 9,824,375 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
| |
| 34,242,172 | | |
| 26,771,661 | | |
| 63,897,532 | | |
| 50,724,210 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Less: Net income attributable to noncontrolling interest | |
| |
| 7,518,213 | | |
| 7,046,706 | | |
| 14,011,101 | | |
| 12,725,584 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Net income attributable to China Biologic Products, Inc. | |
| |
| 26,723,959 | | |
| 19,724,955 | | |
| 49,886,431 | | |
| 37,998,626 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Net income per share of common stock: | |
13 | |
| | | |
| | | |
| | | |
| | |
Basic | |
| |
| 1.05 | | |
| 0.83 | | |
| 1.96 | | |
| 1.55 | |
Diluted | |
| |
| 0.99 | | |
| 0.79 | | |
| 1.86 | | |
| 1.47 | |
Weighted average shares used in computation: | |
13 | |
| | | |
| | | |
| | | |
| | |
Basic | |
| |
| 25,019,039 | | |
| 23,483,090 | | |
| 24,918,517 | | |
| 24,212,766 | |
Diluted | |
| |
| 26,320,773 | | |
| 24,719,011 | | |
| 26,265,857 | | |
| 25,435,122 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
| |
| 34,242,172 | | |
| 26,771,661 | | |
| 63,897,532 | | |
| 50,724,210 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income: | |
| |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment, net of nil income taxes | |
| |
| 1,463,605 | | |
| 527,203 | | |
| 609,243 | | |
| (2,589,440 | ) |
| |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income | |
| |
| 35,705,777 | | |
| 27,298,864 | | |
| 64,506,775 | | |
| 48,134,770 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Less: Comprehensive income attributable to noncontrolling interest | |
| |
| 7,831,571 | | |
| 7,140,585 | | |
| 14,286,683 | | |
| 12,245,986 | |
| |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income attributable to China Biologic Products, Inc. | |
| |
| 27,874,206 | | |
| 20,158,279 | | |
| 50,220,092 | | |
| 35,888,784 | |
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 SIX MONTHS
ENDED JUNE 30, 2015
| |
| | |
| | |
| | |
| | |
| | |
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, 2015 | |
| 27,865,871 | | |
| 2,787 | | |
| 24,008,281 | | |
| 244,661,391 | | |
| (76,570,621 | ) | |
| 19,985,189 | | |
| 212,087,027 | | |
| 63,174,703 | | |
| 275,261,730 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| 49,886,431 | | |
| - | | |
| - | | |
| 49,886,431 | | |
| 14,011,101 | | |
| 63,897,532 | |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 333,661 | | |
| 333,661 | | |
| 275,582 | | |
| 609,243 | |
Share-based compensation | |
| - | | |
| - | | |
| 4,033,482 | | |
| - | | |
| - | | |
| - | | |
| 4,033,482 | | |
| - | | |
| 4,033,482 | |
Excess tax benefits from stock option exercises | |
| - | | |
| - | | |
| 210,737 | | |
| - | | |
| - | | |
| - | | |
| 210,737 | | |
| 77,944 | | |
| 288,681 | |
Common stock issued in connection with: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
- Exercise of stock options | |
| 91,209 | | |
| 9 | | |
| 771,155 | | |
| - | | |
| - | | |
| - | | |
| 771,164 | | |
| - | | |
| 771,164 | |
- Vesting of restricted shares | |
| 5,625 | | |
| 1 | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Reissuance of treasury stock | |
| - | | |
| - | | |
| 60,438,432 | | |
| - | | |
| 20,145,527 | | |
| - | | |
| 80,583,959 | | |
| - | | |
| 80,583,959 | |
Balance as of June 30,
2015 | |
| 27,962,705 | | |
| 2,797 | | |
| 89,462,086 | | |
| 294,547,822 | | |
| (56,425,094 | ) | |
| 20,318,850 | | |
| 347,906,461 | | |
| 77,539,330 | | |
| 425,445,791 | |
See accompanying notes to Unaudited Condensed
Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONDESENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
For the six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net income | |
| 63,897,532 | | |
| 50,724,210 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation | |
| 4,123,599 | | |
| 3,289,535 | |
Amortization | |
| 415,231 | | |
| 371,168 | |
Loss on sale of property, plant and equipment and land use rights | |
| 313,529 | | |
| 71,494 | |
Allowance for doubtful accounts - accounts receivable | |
| 35,372 | | |
| 1,477 | |
Allowance for doubtful accounts - other receivables and prepayments | |
| 796 | | |
| - | |
Write-down of obsolete inventories | |
| 16,750 | | |
| 9,092 | |
Deferred tax expense | |
| 167,921 | | |
| 1,154,991 | |
Share-based compensation | |
| 4,033,482 | | |
| 1,961,929 | |
Equity in loss (income) of an equity method investee | |
| 761,300 | | |
| (1,860,579 | ) |
Excess tax benefits from share-based compensation arrangements | |
| (288,681 | ) | |
| (760,869 | ) |
Change in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (18,835,493 | ) | |
| (7,473,499 | ) |
Prepayment and other current assets | |
| (1,165,997 | ) | |
| (2,393,459 | ) |
Inventories | |
| (25,272,719 | ) | |
| (6,852,680 | ) |
Accounts payable | |
| 10,123,561 | | |
| (438,427 | ) |
Other payables and accrued expenses | |
| (2,391,597 | ) | |
| 171,318 | |
Deferred income | |
| (149,708 | ) | |
| (74,721 | ) |
Income tax payable | |
| (1,223,601 | ) | |
| 1,126,281 | |
Net cash provided by operating activities | |
| 34,561,277 | | |
| 39,027,261 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Payment for property, plant and equipment | |
| (16,486,212 | ) | |
| (10,243,198 | ) |
Payment for intangible assets and land use right | |
| (4,205,678 | ) | |
| (1,227,914 | ) |
Refund of deposits related to land use right | |
| - | | |
| 1,635,200 | |
Proceeds upon maturity of time deposit | |
| - | | |
| 6,608,612 | |
Proceeds from sale of property,
plant and equipment and land use rights | |
| 559,029 | | |
| 190,660 | |
Net cash used in investing activities | |
| (20,132,861 | ) | |
| (3,036,640 | ) |
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 six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from stock option exercised | |
| 771,164 | | |
| 1,643,559 | |
Repayment of bank loans | |
| (97,910,360 | ) | |
| (4,905,600 | ) |
Proceeds from long-term bank loans | |
| - | | |
| 70,000,000 | |
Maturity of deposit as security for short-term bank loan | |
| 31,985,122 | | |
| - | |
Payment for deposit as security for long-term bank loans | |
| - | | |
| (72,290,922 | ) |
Payment for share repurchase | |
| - | | |
| (70,000,000 | ) |
Excess tax benefits from share-based compensation arrangements | |
| 288,681 | | |
| 760,869 | |
Dividend paid by subsidiaries to noncontrolling interest shareholders | |
| - | | |
| (1,409,542 | ) |
Net proceeds from reissuance of treasury stock | |
| 80,583,959 | | |
| - | |
Dividend to the trial court to be held in escrow as to dispute with Jie'an | |
| (3,690,814 | ) | |
| - | |
Net cash provided by (used in) financing activities | |
| 12,027,752 | | |
| (76,201,636 | ) |
| |
| | | |
| | |
EFFECTS OF FOREIGN EXCHANGE RATE CHANGE ON CASH | |
| (661,684 | ) | |
| (703,847 | ) |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| 25,794,484 | | |
| (40,914,862 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 80,820,224 | | |
| 144,138,487 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
| 106,614,708 | | |
| 103,223,625 | |
| |
| | | |
| | |
Supplemental cash flow information | |
| | | |
| | |
Cash paid for income taxes | |
| 12,829,660 | | |
| 7,564,408 | |
Cash paid for interest expense | |
| 1,428,614 | | |
| 1,067,251 | |
Noncash investing and financing activities: | |
| | | |
| | |
Acquisition of property, plant and equipment included in payables | |
| 231,397 | | |
| 2,805,220 | |
See accompanying notes to Unaudited Condensed
Consolidated Financial Statements.
CHINA BIOLOGIC PRODUCTS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2015 AND 2014
NOTE 1 – BASIS OF PRESENTATION, SIGNIFICANT CONCENTRATION
AND RISKS
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, 2014 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, 2014 audited consolidated financial statements of the Company included
in the Company’s annual report on Form 10-K for the year ended December 31, 2014.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2015,
the results of operations for the three and six months ended June 30, 2015 and 2014, and cash flows for the six months ended June
30, 2015 and 2014, 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, the recoverability
of 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 or may exceed the insured limits for its bank accounts in China established by China Deposit Insurance Fund
Management Institution.
Total cash at banks and deposits as of
June 30, 2015 and December 31, 2014 amounted to $178,482,788 and $184,186,306, respectively, of which $2,952,780 and $86,744 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 35.7% and
34.1% of the total sales for the three months ended June 30, 2015 and 2014, respectively, and 36.9% and 38.1% of the total sales
for the six months ended June 30, 2015 and 2014, respectively. IVIG accounted for 43.1% and 44.0% of the total sales for the three
months ended June 30, 2015 and 2014, and 44.8% and 40.4% of the total sales for the six months ended June 30, 2015 and 2014, 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 months and six months ended June 30, 2015 and June 30, 2014. There was one customer represented more than 10% of accounts
receivables as at June 30, 2015. No individual customer represented 10% or more of accounts receivables at December 31, 2014.
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 months and six months ended June 30, 2015 and 2014, respectively. No vendors
individually represented more than 10% of accounts payable at June 30, 2015 and December 31, 2014, respectively.
NOTE 2 – ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 2015 and
December 31, 2014 consisted of the following:
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
USD | | |
USD | |
Accounts receivable | |
| 38,800,023 | | |
| 19,836,768 | |
Less: Allowance for doubtful accounts | |
| (471,192 | ) | |
| (433,948 | ) |
Total | |
| 38,328,831 | | |
| 19,402,820 | |
The activity in the allowance for doubtful
accounts for the six months ended June 30, 2015 and 2014 are as follows:
| |
For the six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
Beginning balance | |
| 433,948 | | |
| 460,689 | |
Provisions | |
| 35,372 | | |
| 1,477 | |
Recoveries | |
| - | | |
| - | |
Write-offs | |
| - | | |
| - | |
Foreign currency translation adjustment | |
| 1,872 | | |
| (3,380 | ) |
Ending balance | |
| 471,192 | | |
| 458,786 | |
NOTE 3 – INVENTORIES
Inventories at June 30, 2015 and December
31, 2014 consisted of the following:
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
USD | | |
USD | |
Raw materials | |
| 64,953,705 | | |
| 52,010,104 | |
Work-in-process | |
| 34,348,311 | | |
| 22,128,405 | |
Finished goods | |
| 27,737,461 | | |
| 27,166,423 | |
Total | |
| 127,039,477 | | |
| 101,304,932 | |
An inventory write-down of $12,174 and
nil was recorded during the three months ended June 30, 2015 and 2014, respectively. An inventory write-down of $16,750 and $9,092
was recorded during the six months ended June 30, 2015 and 2014, respectively.
NOTE 4 – PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment at June
30, 2015 and December 31, 2014 consisted of the following:
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
USD | | |
USD | |
Buildings | |
| 32,649,791 | | |
| 32,375,433 | |
Machinery and equipment | |
| 61,107,253 | | |
| 58,946,498 | |
Furniture, fixtures, office equipment and vehicles | |
| 8,637,938 | | |
| 8,230,842 | |
Total property, plant and equipment, gross | |
| 102,394,982 | | |
| 99,552,773 | |
Accumulated depreciation | |
| (34,365,280 | ) | |
| (30,779,714 | ) |
Total property, plant and equipment, net | |
| 68,029,702 | | |
| 68,773,059 | |
Construction in progress | |
| 15,945,225 | | |
| 10,237,610 | |
Prepayment for property, plant and equipment | |
| 7,233,506 | | |
| 1,220,219 | |
Property, plant and equipment, net | |
| 91,208,433 | | |
| 80,230,888 | |
Depreciation expense for the three months
ended June 30, 2015 and 2014 was $1,922,579, and $1,817,138, respectively. Depreciation expense for the six months ended June
30, 2015 and 2014 was $4,123,599 and $3,289,535, respectively.
NOTE 5 – DEPOSITS RELATED TO
LAND USE RIGHTS
In 2012, Guizhou Taibang made a refundable
payment of RMB83,400,000 (approximately $13,641,738) to the local government in connection with the public bidding for a land
use right in Guizhou Province. Given the decrease of the land area to be provided by the local government, RMB23,000,000 (approximately
$3,762,110) was refunded by the local government. The remaining deposits will be refunded within one year following the completion
of the bidding process.
NOTE 6 – RESTRICTED CASH DEPOSITS
In February 2014, the Company made time
deposits of RMB246,500,000 (approximately $40,320,005) and RMB194,600,000 (approximately $31,830,722) with CMB BJ Branch as a
security for a 24-month $40,000,000 loan and an 18-month $30,000,000 loan respectively lent by CMB NY Branch (see Note 7). Upon
the repayments of these two bank loans in June 2015, these two time deposits were released from the guarantee.
In August 2014, the Company made a time
deposit of RMB196,300,000 (approximately $32,108,791) with CMB BJ Branch as a security for a 6-month RMB194,000,000 (approximately
$31,732,580) loan lent by CMB BJ Branch (see Note 7). In February 2015, the Company repaid the loan and the time deposit matured
accordingly.
NOTE 7 – BANK LOANS
The Company’s bank loans as of June
30, 2015 and December 31, 2014 consisted of the following:
| |
Maturity | |
Annual | |
June 30, | | |
December 31, | |
Loans | |
date | |
interest rate | |
2015 | | |
2014 | |
| |
| |
| |
| USD | | |
| USD | |
Short-term bank loan, secured | |
February 12, 2015 | |
5.04% | |
| - | | |
| 31,602,600 | |
Current portion of long-term bank loans | |
February 3, 2016 | |
See note (b) | |
| - | | |
| - | |
Current portion of long-term bank loans | |
August 11, 2015 | |
See note (b) | |
| - | | |
| 26,300,000 | |
Total | |
| |
| |
| - | | |
| 57,902,600 | |
In August 2014, the Company entered into
a credit facility agreement with CMB BJ Branch to finance the acquisition of additional equity interest in Guizhou Taibang. Pursuant
to the facility agreement, the Company made a 6-month RMB194,000,000 (approximately $31,732,580) loan from CMB BJ Branch secured
by a time deposit of RMB196,300,000 (approximately $32,108,791). The Company repaid the loan in February 2015.
Interest expense on short-term bank loans
was nil and $73,213 for the three months ended June 30, 2015 and 2014, respectively. Interest expense on short-term bank loans
was $191,609 and $205,957 for the six months ended June 30, 2015 and 2014, respectively.
The Company did not have any revolving
line of credit at June 30, 2015.
| |
June 30, 2015 | | |
December 31, 2014 | |
| |
USD | | |
USD | |
Long-term bank loans | |
| - | | |
| 66,300,000 | |
Less: current portion of long-term bank loans | |
| - | | |
| 26,300,000 | |
Total non-current bank loans | |
| - | | |
| 40,000,000 | |
The Company entered into a credit facility
agreement with CMB NY Branch in February, 2014 to finance the share repurchase. Pursuant to the facility agreement, CMB NY Branch
lent to the Company a 24-month $40,000,000 loan and an 18-month $30,000,000 loan, secured by time deposits of RMB246,500,000 (approximately
$40,320,005) and RMB194,600,000 (approximately $31,830,722), respectively, held at CMB BJ Branch. Both loans bear an interest
rate of 3-month LIBOR plus 1.3% per annum and a facility fee of 1.2% per annum. In July 2014, the Company repaid $3,700,000 out
of the 18-month $30,000,000 loan. In June 2015, the Company fully repaid these two bank loans.
NOTE 8 – INCOME TAX
In October 2014, Shandong provincial government
granted Shandong Taibang the High and New Technology Enterprise certificate. This certificate entitled Shandong Taibang to enjoy
a preferential income tax rate of 15% for a period of three years from 2014 to 2016.
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 15% and 14% for the three months ended June 30, 2015 and 2014. The Company’s effective income tax rates were
16% and 16% for the six months ended June 30, 2015 and 2014, respectively.
As of and for the the three months ended
June 30, 2015, 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 9 – OPTIONS AND NONVESTED
SHARES
Options
A summary of stock options activity for
the six months ended June 30, 2015 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, 2014 | |
| 1,432,454 | | |
| 10.16 | | |
| 6.53 | | |
| 81,753,119 | |
Granted | |
| - | | |
| - | | |
| | | |
| | |
Exercised | |
| (91,209 | ) | |
| 8.45 | | |
| | | |
| 7,942,509 | |
Forfeited and expired | |
| - | | |
| - | | |
| | | |
| | |
Outstanding at June 30, 2015 | |
| 1,341,245 | | |
| 10.27 | | |
| 6.21 | | |
| 140,678,176 | |
| |
| | | |
| | | |
| | | |
| | |
Vested and expected to vest | |
| 1,341,245 | | |
| 10.27 | | |
| 6.21 | | |
| 140,678,176 | |
Exercisable at June 30, 2015 | |
| 1,098,745 | | |
| 10.37 | | |
| 6.00 | | |
| 115,140,501 | |
For the three months ended June 30, 2015
and 2014, the Company recorded stock compensation expense of $337,789 and $427,447, respectively, in general and administrative
expenses. For the six months ended June 30, 2015 and 2014, the Company recorded stock compensation expense of $630,838 and $854,894,
respectively, in general and administrative expenses.
At June 30, 2015, approximately $1,136,358
of stock compensation expense with respect to the non-vested stock options is expected to be recognized over approximately 1.17
years.
Nonvested shares
A summary of nonvested shares activity for the six months ended
June 30, 2015 is as follows:
| |
Number of
nonvested shares | | |
Grant date weighted
average fair value | |
| |
| | |
USD | |
Outstanding at December 31, 2014 | |
| 552,125 | | |
| 37.78 | |
Granted | |
| 10,000 | | |
| 67.94 | |
Vested | |
| (5,625 | ) | |
| 18.58 | |
Forfeited | |
| (7,500 | ) | |
| 28.80 | |
Outstanding at June 30, 2015 | |
| 549,000 | | |
| 38.65 | |
For the three months ended June 30, 2015
and 2014, the Company recorded stock compensation expense of $1,725,724 and $553,517 respectively in general and administrative
expenses. For the six months ended June 30, 2015 and 2014, the Company recorded stock compensation expense of $3,402,644 and $1,107,035
respectively in general and administrative expenses.
At June 30, 2015, approximately $15,547,156
of stock compensation expense with respect to nonvested shares is expected to be recognized over approximately 2.52 years.
NOTE 10 – 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 and cash equivalents, restricted cash deposits, time deposits, accounts receivable,
other receivables, short-term bank loans including current portion of long-term bank loans, accounts payable, and other
payables and accrued expenses) – The carrying amounts of the short-term financial instruments approximate their fair
values because of the short maturity of these instruments.
•
Restricted cash and cash deposits, excluding current portion – The carrying amounts of the restricted cash and cash
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 excluding current portion – 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.
NOTE 11 – SALES
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 June 30, 2015 and 2014 are as follows:
| |
For the three months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
Human Albumin | |
| 28,202,452 | | |
| 20,490,892 | |
Immunoglobulin products: | |
| | | |
| | |
Human Immunoglobulin for Intravenous Injection | |
| 34,075,251 | | |
| 26,446,025 | |
Other Immunoglobulin products | |
| 6,650,652 | | |
| 4,993,559 | |
Placenta Polypeptide | |
| 7,735,830 | | |
| 7,108,510 | |
Others | |
| 2,404,267 | | |
| 1,034,998 | |
Total | |
| 79,068,452 | | |
| 60,073,984 | |
The Company’s sales by significant
types of product for the six months ended June 30, 2015 and 2014 are as follows:
| |
For the six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
Human Albumin | |
| 55,095,482 | | |
| 44,271,893 | |
Immunoglobulin products: | |
| | | |
| | |
Human Immunoglobulin for Intravenous Injection | |
| 66,941,041 | | |
| 46,975,796 | |
Other Immunoglobulin products | |
| 10,984,774 | | |
| 13,276,807 | |
Placenta Polypeptide | |
| 12,288,034 | | |
| 9,735,063 | |
Others | |
| 4,113,452 | | |
| 2,081,002 | |
Total | |
| 149,422,783 | | |
| 116,340,561 | |
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Capital commitments
At June 30, 2015, commitments outstanding
for the purchase of property, plant and equipment approximated $18,699,930.
Legal proceedings
Dispute with Jie’an over Certain Capital Injection
into Guizhou Taibang
In May 2007, a 91% majority of Guizhou
Taibang’s shareholders approved a plan to raise additional capital from qualified strategic investors through the issuance
of an additional 20,000,000 shares of Guizhou Taibang. 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, or Jie’an, did not support the plan and did not waive its right of first refusal.
In May 2007, Guizhou Taibang signed an Equity Purchase Agreement with certain alleged strategic investors (who concealed their
background), pursuant to which such investors agreed to invest an aggregate of RMB50,960,000 (approximately $8,335,527) in exchange
for 21.4% of Guizhou Taibang’s equity interests. Such Equity Purchase Agreement was not approved or ratified by over two-thirds
supermajority of Guizhou Taibang’s shareholders, which approval or ratification is required under the PRC Company Law. At
the same time, as an existing shareholder, Jie’an also subscribed for 1,800,000 shares, representing its pro rata share
of the 20,000,000 shares being offered. In total, Guizhou Taibang received RMB50,960,000 (approximately $8,335,527) from the investors
and RMB6,480,000 (approximately $1,059,933) from Jie’an.
In June 2007, Jie’an brought a lawsuit
against Guizhou Taibang, alleging that it had a right to acquire the 18,200,000 shares offered to the investors under the Equity
Purchase Agreement. The trial court denied Jie’an’s request, and the PRC Supreme Court ultimately sustained the original
ruling in May 2009 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 of
industry and commerce, or AIC. Guizhou Taibang’s board of directors withheld its required ratification of Jie’an’s
request, pending the outcome of the ongoing litigation. In March 2012, Jie’an brought another lawsuit against Guizhou Taibang
for refusing to register the shares. In July 2013, the trial court dismissed the lawsuit for lack of jurisdiction. Jie’an
did not appeal the dismissal.
In December 2013, Jie’an brought a third lawsuit against Guizhou Taibang, requesting Guizhou Taibang
to register 1.8 million shares under its name with the local AIC. In July 2014, the trial court denied Jie’an’s request
to register such shares. Despite the denial of Jie’an’s share registration request, the trial court, however, in its
ruling, ordered Guizhou Taibang to pay accumulated dividends of RMB13,809,197 (approximately $2,258,770)
associated with these shares and the related interest expenses to Jie’an. Guizhou Taibang and Jie’an subsequently filed
a cross-appeal. In December 2014, the appellate court ruled in favor of Jie’an supporting its request to register 1.8 million
shares and ordered Guizhou Taibang to pay Jie’an its share of accumulated dividends of RMB18,339,227 (approximately $2,999,747)
associated with these shares plus the related interest expenses to Jie’an. In the first half of 2015, Guizhou Taibang paid
an aggregate of RMB22,639,227 (approximately $3,703,098) to the trial court held in escrow pending further appeal of this case.
Guizhou Taibang appealed to the High Court of Guizhou, which accepted our appeal and stayed the enforcement procedures at the trial
court in June 2015.
In November 2013, Guizhou Taibang held
a shareholders meeting and the shareholders passed resolutions, or the November 2013 Resolutions, that, inter alia, (i) determined
that it was no longer necessary for Guizhou Taibang to obtain additional capital from investors; (ii) rejected Jie’an’s
request that Jie’an subscribe for additional shares of Guizhou Taibang alone and one or more other shareholders reduce their
shareholding in Guizhou Taibang; and (iii) approved the issuance of a total of 20,000,000 new shares to all existing shareholders
on a pro rata basis. Jie’an subsequently filed a fourth lawsuit against Guizhou Taibang in December 2013, requesting that
the court declare the November 2013 Resolutions void. Both the trial court and the appellate court denied Jie’an’s
request.
In March 2014, Guizhou Taibang held another
shareholders meeting and the shareholders passed resolutions, or the March 2014 Resolutions, that, inter alia, re-calculated
the ownership percentage in Guizhou Taibang based on the November 2013 Resolutions and the additional capital injections from
existing shareholders. Guizhou Taibang subsequently updated the registration with the local AIC regarding the additional capital
injections in August 2014. In September 2014, Jie’an and another minority shareholder of Guizhou Taibang filed a lawsuit
against Guizhou Taibang, requesting that the court declare both the November 2013 Resolutions and the March 2014 Resolutions void
and instruct Guizhou Taibang to withdraw the AIC registration. In November 2014, the trial court suspended this case pending the
final outcome of the third lawsuit filed by Jie’an.
If the pending cases with Jie’an are ultimately ruled in Jie’an’s favor, the
ownership interest in Guizhou Taibang may be diluted to 71% and Jie’an may be entitled to receive accumulated dividends of
RMB18,339,227 (approximately $2,999,747), being its claimed share of Guizhou Taibang’s accumulated dividend distributions
associated with the 1.8 million shares, and the related interest expenses from Guizhou Taibang. As of June 30, 2015, the Company
had maintained, on its balance sheet, payables to Jie’an in the amounts of RMB5,040,000 (approximately $824,393) as received
funds in respect of the 1.8 million shares in dispute, RMB1,440,000 (approximately $235,541) for the over-paid subscription price
paid by Jie’an and RMB3,519,608 (approximately $575,702) for the accrued interest. As these cases are closely interlinked
to the outcome of the disputes with certain individual investor described below, based on its PRC litigation counsel’s assessment,
the Company does not expect Jie’an to prevail.
Dispute with Certain Individual
Investor over Certain Capital Injection into Guizhou Taibang
In part due to the invalidity of the Equity
Purchase Agreement with certain alleged strategic investors in May 2007, which was never approved or ratified by Guizhou Taibang’s
shareholders, such investors’ equity ownership in Guizhou Taibang and the related increase in registered capital of Guizhou
Taibang have never been registered with the local AIC. In January 2010, one individual among such investors brought a lawsuit
against Guizhou Taibang requesting to register his 14.35% ownership interest in Guizhou Taibang with the local AIC and seeking
the distribution of his share of Guizhou Taibang’s dividends declared since 2007.
In October 2010, the trial court denied
such individual investor’s right as shareholders of Guizhou Taibang and his entitlement to share the dividends, which ruling
was reaffirmed after a re-trial by the same trial court in December 2012. After such ruling, Guizhou Taibang attempted to return
the originally received fund of RMB34,160,000 (approximately $5,587,551)to such investor by wiring the fund back to his bank account
but was unable to do so due to the closure of his bank account. Another investor, however, accepted the returned fund of RMB11,200,000
(approximately $1,831,984) from Guizhou Taibang in November 2010. In 2013, the same individual investor appealed the case to the
PRC Supreme Court, which also denied his claims for shareholder status in Guizhou Taibang and the related dividend distribution
and accrued interest in September 2013. Such investor subsequently attempted to seek for a re-trial by the PRC Supreme Court, which
request was denied by the PRC Supreme Court in January 2014. He then applied to the PRC Supreme Procuratorate to request for a
review of the PRC Supreme Court’s decision and seek an appeal by the PRC Supreme Procuratorate to the PRC Supreme Court for
an ultimate re-trial on his behalf. In July 2015, the PRC Supreme Procuratorate rejected his request for review.
As of June 30, 2015, Guizhou Taibang had
maintained, on its balance sheet, payables to the investors of RMB34,160,000 (approximately $5,587,551) as originally received
funds from such individual investor in respect of the shares in dispute, RMB16,818,175 (approximately $2,750,948) for the interest
expenses, and RMB341,600 (approximately $55,876) for the 1% penalty imposed by the Equity Purchase Agreement for any breach in
the event that Guizhou Taibang is required to return the original investment amount to such investor.
NOTE 13 – 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 | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
| |
| | |
| |
Net income attributable to China Biologic Products, Inc. | |
| 26,723,959 | | |
| 19,724,955 | |
Earnings allocated to participating nonvested shares | |
| (573,820 | ) | |
| (295,479 | ) |
Net income used in basic/diluted net income per common stock | |
| 26,150,139 | | |
| 19,429,476 | |
| |
| | | |
| | |
Weighted average shares used in computing basic net income per common stock | |
| 25,019,039 | | |
| 23,483,090 | |
Diluted effect of stock option | |
| 1,301,734 | | |
| 1,235,921 | |
Weighted average shares used in computing diluted net income per common stock | |
| 26,320,773 | | |
| 24,719,011 | |
| |
| | | |
| | |
Net income per common stock – basic | |
| 1.05 | | |
| 0.83 | |
Net income per common stock – diluted | |
| 0.99 | | |
| 0.79 | |
During the three months ended June 30,
2015 and 2014, no option was antidilutive or excluded from the calculation of diluted net income per common stock.
The following table sets forth the computation
of basic and diluted net income per share for the periods indicated:
| |
For the six months ended | |
| |
June 30, 2015 | | |
June 30, 2014 | |
| |
USD | | |
USD | |
| |
| | |
| |
Net income attributable to China Biologic Products, Inc. | |
| 49,886,431 | | |
| 37,998,626 | |
Earnings allocated to participating nonvested shares | |
| (1,076,448 | ) | |
| (554,349 | ) |
Net income used in basic/diluted net income per common stock | |
| 48,809,983 | | |
| 37,444,277 | |
| |
| | | |
| | |
Weighted average shares used in computing basic net income per common stock | |
| 24,918,517 | | |
| 24,212,766 | |
Diluted effect of stock option | |
| 1,347,340 | | |
| 1,222,356 | |
Weighted average shares used in computing diluted net income per common stock | |
| 26,265,857 | | |
| 25,435,122 | |
| |
| | | |
| | |
Net income per common stock – basic | |
| 1.96 | | |
| 1.55 | |
Net income per common stock – diluted | |
| 1.86 | | |
| 1.47 | |
During the six months ended June 30, 2015
and 2014, no option was antidilutive or excluded from the calculation of diluted net income per common stock.
NOTE 14 – FOLLOW-ON OFFERING
OF COMMON STOCK
On June 15, 2015, the Company completed
a follow-on offering of 3,450,000 shares of common stock at a price of $105.00 per share, less the underwriting discounts and
commissions and offering expenses. In this follow-on offering, the Company sold 805,000 shares (including 105,000 shares sold
pursuant to the exercise by the underwriters of their option to purchase additional shares from the Company) and certain selling
stockholders sold 2,645,000 shares (including 345,000 shares sold pursuant to the exercise by the underwriters of their option
to purchase additional shares from such selling stockholders). The Company raised net proceeds of approximately $80.6 million
from this offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company. The
Company did not receive any proceeds from the sale of the shares by the selling stockholders.
| 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 filed
on March 4, 2015, 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”, “we”, “us”, the “Company”, or
“our”, are to the combined business of China Biologic Products, Inc., a Delaware corporation, and its direct and indirect
subsidiaries; |
| · | “China” or “PRC” are to the People’s Republic of China, excluding,
for the purposes of this report only, Taiwan and the special administrative regions of Hong Kong and Macau; |
| · | “CFDA” are to China Food and Drug Administration; |
| · | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
| · | “GMP” are to good manufacturing practice; |
| · | “Guizhou Taibang” are to our majority owned subsidiary Guizhou Taibang Biological Products
Co., Ltd., a PRC company; |
| · | “Huitian” are to Xi’an Huitian Blood Products Co., Ltd., a PRC company in which
we hold a minority equity interest; |
| · | “RMB” are to the legal currency of China; |
| · | “SEC” are to the Securities and Exchange Commission; |
| · | “Securities Act” are to the Securities Act of 1933, as amended; |
| · | “Shandong Taibang” are to our majority owned subsidiary Shandong Taibang Biological
Products Co. Ltd., a PRC company; and |
| · | “U.S. dollars”, “USD” and “$” are to the legal currency of
the United States. |
Overview of Our Business
We are a biopharmaceutical company principally
engaged in the research, development, manufacturing and sales of human plasma-based biopharmaceutical products, or plasma products,
in China. We operate our business through 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.
We have a strong product portfolio with
over 20 different dosage forms of plasma products across nine categories. Our principal products are human albumin and immunoglobulin
for intravenous injection, or IVIG. Albumin has been used for almost 50 years to treat critically ill patients by assisting the
maintenance of adequate blood volume and pressure. IVIG is used for certain disease prevention and treatment by enhancing specific
immunity. These products use human plasma as their principal raw material. Sales of human albumin products represented approximately
35.7% and 34.1% of our total sales for the three months ended June 30, 2015 and 2014, respectively, and 36.9% and 38.1% of our
total sales for the six months ended June 30, 2015 and 2014, respectively. Sales of IVIG products represented approximately 43.1%
and 44.0% of our total sales for the three months ended June 30, 2015 and 2014, respectively, and 44.8% and 40.4% of our total
sales for the six months ended June 30, 2015 and 2014, respectively. All of our products are prescription medicines administered
in the form of injections.
Our sales model focuses on direct sales
to hospitals and inoculation centers and is complemented by distributor sales. For the three months ended June 30, 2015 and 2014,
our top five customers accounted for approximately 13.2% and 12.3%, respectively, of our total sales. For the six months ended
June 30, 2015 and 2014, our top five customers accounted for approximately 13.3% and 17.7%, respectively, of our total sales.
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 18th 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, which contains information about the Company, but that information is not part
of this report.
Recent Developments
Follow-on Offering of Common Stock
On June 15, 2015, we completed a follow-on
offering of 3,450,000 shares of common stock at a price of $105.00 per share, less the underwriting discounts and commissions and
offering expenses. In this offering, we sold 805,000 shares (including 105,000 shares sold pursuant to the exercise by the underwriters
of their option to purchase additional shares from us) and certain selling stockholders sold 2,645,000 shares (including 345,000
shares sold pursuant to the exercise by the underwriters of their option to purchase additional shares from such selling stockholders).
We raised net proceeds of approximately $80.6 million from this offering, after deducting the underwriting discounts and commissions
and offering expenses payable by us. We did not receive any proceeds from the sale of the shares by the selling stockholders.
Second Quarter Financial Performance Highlights
The following are some financial highlights
for the three months ended June 30, 2015:
| · | Sales: Sales increased by $19.0 million, or 31.6%, to $79.1 million for the three
months ended June 30, 2015, from $60.1 million for the same period in 2014. |
| · | Gross profit: Gross profit increased by $10.8 million, or 26.2%, to $52.0 million
for the three months ended June 30, 2015, from $41.2 million for the same period in 2014. |
| · | Income from operations: Income from operations increased by $11.4 million, or 39.4%,
to $40.3 million for the three months ended June 30, 2015, from $28.9 million for the same period in 2014. |
| · | Net income attributable to the Company: Net income increased by $7.0 million, or
35.5%, to $26.7 million for the three months ended June 30, 2015, from $19.7 million for the same period in 2014. |
| · | Diluted net income per share: Diluted net income per share was $0.99 for the three
months ended June 30, 2015, as compared to $0.79 for the same period in 2014. |
Results of Operations
Comparison of Three Months Ended June 30, 2015 and June 30,
2014
The following table sets forth key components
of our results of operations in thousands of U.S. dollars for the periods indicated.
| |
For the three months ended June 30, | |
| |
2015 | | |
2014 | |
| |
Amount | | |
% of Total Sales | | |
Amount | | |
% of Total Sales | |
| |
(U.S. dollars in thousands, except percentage and per share data) | |
Sales | |
| 79,068 | | |
| 100.0 | | |
| 60,074 | | |
| 100.0 | |
Cost of sales | |
| 27,055 | | |
| 34.2 | | |
| 18,920 | | |
| 31.5 | |
Gross margin | |
| 52,013 | | |
| 65.8 | | |
| 41,154 | | |
| 68.5 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 2,605 | | |
| 3.3 | | |
| 3,329 | | |
| 5.5 | |
General and administrative expenses | |
| 8,121 | | |
| 10.3 | | |
| 7,113 | | |
| 11.8 | |
Research and development expenses | |
| 1,047 | | |
| 1.3 | | |
| 1,839 | | |
| 3.1 | |
Total operating expenses | |
| 11,773 | | |
| 14.9 | | |
| 12,281 | | |
| 20.4 | |
Income from operations | |
| 40,240 | | |
| 50.9 | | |
| 28,873 | | |
| 48.1 | |
Other income (expenses): | |
| | | |
| | | |
| | | |
| | |
Equity in (loss) income of an equity method investee | |
| (666 | ) | |
| (0.8 | ) | |
| 1,523 | | |
| 2.4 | |
Interest expense | |
| (676 | ) | |
| (0.9 | ) | |
| (863 | ) | |
| (1.4 | ) |
Interest income | |
| 1,468 | | |
| 1.8 | | |
| 1,725 | | |
| 2.9 | |
Total other income, net | |
| 126 | | |
| 0.1 | | |
| 2,385 | | |
| 3.9 | |
Earnings before income tax expense | |
| 40,366 | | |
| 51.0 | | |
| 31,258 | | |
| 52.0 | |
Income tax expense | |
| 6,124 | | |
| 7.7 | | |
| 4,486 | | |
| 7.5 | |
Net income | |
| 34,242 | | |
| 43.3 | | |
| 26,772 | | |
| 44.5 | |
Less: Net income attributable to noncontrolling interest | |
| 7,518 | | |
| 9.5 | | |
| 7,047 | | |
| 11.7 | |
Net income attributable to the Company | |
| 26,724 | | |
| 33.8 | | |
| 19,725 | | |
| 32.8 | |
Net income per share of common stock | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 1.05 | | |
| | | |
| 0.83 | | |
| | |
Diluted | |
| 0.99 | | |
| | | |
| 0.79 | | |
| | |
Sales
Our sales increased by $19.0 million, or
31.6%, to $79.1 million for the three months ended June 30, 2015, compared to $60.1 million for the same period in 2014. The increase
in sales for the three months ended June 30, 2015 was primarily attributable to the sales volume increases in major plasma products.
The following table summarizes the breakdown
of sales by significant types of product:
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
| | |
| |
| |
Amount | | |
% | | |
Amount | | |
% | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Human albumin | |
| 28.2 | | |
| 35.7 | | |
| 20.5 | | |
| 34.1 | | |
| 7.7 | | |
| 37.6 | |
Immunoglobulin products: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
IVIG | |
| 34.1 | | |
| 43.1 | | |
| 26.4 | | |
| 44.0 | | |
| 7.7 | | |
| 29.2 | |
Other immunoglobulin products | |
| 6.7 | | |
| 8.5 | | |
| 5.0 | | |
| 8.3 | | |
| 1.7 | | |
| 34.0 | |
Placenta polypeptide | |
| 7.7 | | |
| 9.7 | | |
| 7.1 | | |
| 11.8 | | |
| 0.6 | | |
| 8.5 | |
Others | |
| 2.4 | | |
| 3.0 | | |
| 1.1 | | |
| 1.8 | | |
| 1.3 | | |
| 118.2 | |
Totals | |
| 79.1 | | |
| 100.0 | | |
| 60.1 | | |
| 100.0 | | |
| 19.0 | | |
| 31.6 | |
During the three months ended June 30,
2015 as compared to the three months ended June 30, 2014:
| · | the average price for our approved human albumin products, which accounted for 35.7% of our total
sales for the three months ended June 30, 2015, increased by 2.9% and 2.2% in USD term and RMB term, respectively; and |
| · | the average price for our approved IVIG products, which accounted for 43.1% of our total sales
for the three months ended June 30, 2015, increased by 3.0% and 2.3% in USD term and RMB term, respectively. |
The average sales price increase of our
human albumin products and IVIG products was mainly due to the combined effect of the reduced value added tax, or VAT, rate and
our sales effort to increase market shares in tier-one cities and new markets. On the one hand, the VAT rate on sales of plasma
products was reduced from 6% to 3%, effective on July 1, 2014, pursuant to a notice jointly promulgated by the PRC Ministry of
Finance and the PRC State Administration of Taxation in June 2014. The reduction in the VAT rate had a positive impact on our sales
prices as our sales are recognized as the invoiced price of the products sold minus VAT. All other factors being equal, the reduction
in the VAT rate had the effect of increasing our sales price of plasma products by 2.9%. On the other hand, to improve brand recognition,
we increased the market share of our human albumin products and IVIG products in tier-one cities and new markets through distributors
by lowering the invoiced prices during the three months ended June 30, 2015. The recently announced price ceiling removal, effective
on June 1, 2015, did not have a meaningful impact on the average sales prices of our products yet.
The sales volume of our products depends
on market demand and our production volume. The production volume of our human albumin products and IVIG products depends primarily
on the general plasma supply. The production volume of our hyper-immune products, which include human rabies immunoglobulin, human
hepatitis B immunoglobulin and human tetanus immunoglobulin products, is subject to the availabilities of specific vaccinated plasma
and our production capacity. The supply of specific vaccinated plasma 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.
The sales volume of our human albumin products
increased by 33.8% for the three months ended June 30, 2015 as compared to the same period in 2014, mainly due to sales recognized
in the second quarter after the delayed batch approval from the previous quarter, as well as lower volume sold in the three months
ended June 30, 2014 due to the production suspension to upgrade the Guizhou facility. Guizhou Taibang resumed production in March
2014 but did not ship its first batch of products for sales until July 2014 after the completion of government batch approval.
The sales volume of our IVIG products increased
by 25.1% for the three months ended June 30, 2015 as compared to the same period in 2014. The increase in sales volume of IVIG
was primarily due to the increased sales through distributors in tier-one cities and new markets supported by the increased output
following the production resumption at Guizhou Taibang.
Cost of sales and gross
profit
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Cost of sales | |
| 27.1 | | |
| 18.9 | | |
| 8.2 | | |
| 43.4 | |
as a percentage of total sales | |
| 34.2 | % | |
| 31.5 | % | |
| | | |
| 2.7 | |
Gross Profit | |
| 52.0 | | |
| 41.2 | | |
| 10.8 | | |
| 26.2 | |
Gross Margin | |
| 65.8 | % | |
| 68.5 | % | |
| | | |
| (2.7 | ) |
Our cost of sales was $27.1 million, or
34.2% of our sales for the three months ended June 30, 2015, as compared to $18.9 million, or 31.5% of our sales for the same period
in 2014. Our gross profit was $52.0 million and $41.2 million for the three months ended June 30, 2015 and 2014, respectively,
representing gross margins of 65.8% and 68.5%, respectively. Our cost of sales and gross margin are affected by the volume
and pricing of our sold products, raw material costs, production mix and respective yields, inventory provisions, production cycles
and routine maintenance costs.
The increase in cost of sales in the three
month ended June 30, 2015 as compared to the same period in 2014 was generally in line with the increases in sales volume and cost
of plasma. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to
donors consistent with the industry practice. We expected the nutrition fees to be paid to donors continue to increase as a result
of improving living standards in China. Consequently, future improvements on margins will need to be derived from increases in
product pricing and volume, product mix, yields and manufacturing efficiency. The increase in cost of sales as a percentage of
sales for the three months ended June 30, 2015 as compared to the same period in 2014 was mainly due to the increase in cost of
plasma partially offset by the change of our product mix to include products with higher margins.
Operating expenses
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Operating expenses | |
| 11.7 | | |
| 12.3 | | |
| (0.6 | ) | |
| (4.9 | ) |
as a percentage of total sales | |
| 14.9 | % | |
| 20.4 | % | |
| | | |
| (5.5 | ) |
Our total operating expenses decreased
by $0.6 million, or 4.9%, to $11.7 million for the three months ended June 30, 2015, from $12.3 million for the same period in
2014. As a percentage of sales, total expenses decreased by 5.5% to 14.9% for the three months ended June 30, 2015, from 20.4%
for the same period in 2014. The decrease of the total operating expenses was mainly due to a combined effect of the decrease of
the selling expenses and research and development expenses and the increase of general and administrative expenses as discussed
below.
Selling expenses
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Selling expenses | |
| 2.6 | | |
| 3.3 | | |
| (0.7 | ) | |
| (21.2 | ) |
as a percentage of total sales | |
| 3.3 | % | |
| 5.5 | % | |
| | | |
| (2.2 | ) |
Our selling expenses decreased by $0.7
million, or 21.2%, to $2.6 million for the three months ended June 30, 2015, from $3.3 million for the same period in 2014. As
a percentage of sales, our selling expenses for the three months ended June 30, 2015 decreased by 2.2% to 3.3%, from 5.5% for the
same period in 2014. The decrease was mainly due to the decreased selling expense of placenta polypeptide for the three months
ended June 30, 2015 as compared to the same period in 2014. We shifted to utilizing internal resources for our promotional efforts,
instead of engaging a third-party service provider to promote sales of placenta polypeptide products, and did not renew the third-party
engagement upon its expiration in May 2014.
General and administrative expenses
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
General and administrative expenses | |
| 8.1 | | |
| 7.1 | | |
| 1.0 | | |
| 14.1 | |
as a percentage of total sales | |
| 10.3 | % | |
| 11.8 | % | |
| | | |
| (1.5 | ) |
Our general and administrative expenses
increased by $1.0 million, or 14.1%, to $8.1 million for the three months ended June 30, 2015, from $7.1 million for the same period
in 2014. General and administrative expenses as a percentage of sales decreased by 1.5% to 10.3% for the three months ended June
30, 2015, from 11.8% for the same period in 2014. The increase in general and administrative expenses was mainly due to the increase
of share-based compensation expenses.
Research and development expenses
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Research and development expenses | |
| 1.0 | | |
| 1.8 | | |
| (0.8 | ) | |
| (44.4 | ) |
as a percentage of total sales | |
| 1.3 | % | |
| 3.1 | % | |
| | | |
| (1.8 | ) |
In May 2015, we received a government grant
of $0.9 million and recognized it as a reduction of research and development expenses. Excluding this impact, our research and
development expenses remained stable for the three months ended June 30, 2015 as compared to the same period in 2014. As a percentage
of total sales, our research and development expenses, excluding the impact of the government grant, decreased by 0.7% to 2.4%
for the three months ended June 30, 2015 from 3.1% for the same period in 2014.
Income tax
| |
For the three months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Income tax | |
| 6.1 | | |
| 4.5 | | |
| 1.6 | | |
| 35.6 | |
as a percentage of total sales | |
| 7.7 | % | |
| 7.5 | % | |
| | | |
| 0.2 | |
Our provision for income taxes increased by $1.6 million, or
35.6%, to $6.1 million for the three months ended June 30, 2015, from $4.5 million for the same period in 2014. Our effective income
tax rates were 15.2% and 14.4% for the three months ended June 30, 2015 and 2014, respectively. The statutory tax rate applicable
to our major operating subsidiaries in the PRC for 2015 and 2014 is 15.0%.
Comparison of Six Months Ended June
30, 2015 and June 30, 2014
The following table sets forth key components
of our results of operations in thousands of U.S. dollars for the periods indicated.
| |
For the six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
Amount | | |
% of Total Sales | | |
Amount | | |
% of
Total Sales | |
| |
(U.S. dollars in thousands, except percentage and per share data) | |
Sales | |
| 149,423 | | |
| 100.0 | | |
| 116,341 | | |
| 100.0 | |
Cost of sales | |
| 51,516 | | |
| 34.5 | | |
| 36,636 | | |
| 31.5 | |
Gross margin | |
| 97,907 | | |
| 65.5 | | |
| 79,705 | | |
| 68.5 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 4,555 | | |
| 3.0 | | |
| 5,612 | | |
| 4.8 | |
General and administrative expenses | |
| 15,975 | | |
| 10.7 | | |
| 14,329 | | |
| 12.3 | |
Research and development expenses | |
| 2,389 | | |
| 1.6 | | |
| 2,912 | | |
| 2.5 | |
Total operating expenses | |
| 22,919 | | |
| 15.3 | | |
| 22,853 | | |
| 19.6 | |
Income from operations | |
| 74,988 | | |
| 50.2 | | |
| 56,852 | | |
| 48.9 | |
Other income (expenses): | |
| | | |
| | | |
| | | |
| | |
Equity in (loss) income of an equity method investee | |
| (761 | ) | |
| (0.5 | ) | |
| 1,861 | | |
| 1.6 | |
Interest expense | |
| (1,433 | ) | |
| (1.0 | ) | |
| (1,484 | ) | |
| (1.3 | ) |
Interest income | |
| 2,843 | | |
| 2.0 | | |
| 3,320 | | |
| 2.8 | |
Total other income, net | |
| 649 | | |
| 0.5 | | |
| 3,697 | | |
| 3.1 | |
Earnings before income tax expense | |
| 75,637 | | |
| 50.7 | | |
| 60,549 | | |
| 52.0 | |
Income tax expense | |
| 11,740 | | |
| 7.9 | | |
| 9,825 | | |
| 8.4 | |
Net income | |
| 63,897 | | |
| 42.8 | | |
| 50,724 | | |
| 43.6 | |
Less: Net income attributable to noncontrolling interest | |
| 14,011 | | |
| 9.4 | | |
| 12,725 | | |
| 10.9 | |
Net income attributable to the Company | |
| 49,886 | | |
| 33.4 | | |
| 37,999 | | |
| 32.7 | |
Net income per share of common stock | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 1.96 | | |
| | | |
| 1.55 | | |
| | |
Diluted | |
| 1.86 | | |
| | | |
| 1.47 | | |
| | |
Sales
Our sales increased by $33.1 million, or
28.5%, to $149.4 million for the six months ended June 30, 2015, compared to $116.3 million for the same period in 2014. Such increase
of sales was mainly due to the increase in sales volume in major plasma-based products and placenta polypeptide.
The following table summarizes the breakdown
of sales by significant types of product:
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
| | |
| |
| |
Amount | | |
% | | |
Amount | | |
% | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Human albumin | |
| 55.1 | | |
| 36.9 | | |
| 44.3 | | |
| 38.1 | | |
| 10.8 | | |
| 24.4 | |
Immunoglobulin products: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
IVIG | |
| 66.9 | | |
| 44.8 | | |
| 47.0 | | |
| 40.4 | | |
| 19.9 | | |
| 42.3 | |
Other immunoglobulin products | |
| 11.0 | | |
| 7.4 | | |
| 13.3 | | |
| 11.4 | | |
| (2.3 | ) | |
| (17.3 | ) |
Placenta polypeptide | |
| 12.3 | | |
| 8.2 | | |
| 9.7 | | |
| 8.3 | | |
| 2.6 | | |
| 26.8 | |
Others | |
| 4.1 | | |
| 2.7 | | |
| 2.0 | | |
| 1.8 | | |
| 2.1 | | |
| 105.0 | |
Totals | |
| 149.4 | | |
| 100.0 | | |
| 116.3 | | |
| 100.0 | | |
| 33.1 | | |
| 28.5 | |
During the six months ended June 30, 2015
as compared to the six months ended June 30, 2014:
| · | the average price for our approved human albumin products, which accounted for 36.9% of our total
sales for the six months ended June 30, 2015, increased by approximately 1.5% and 1.4% in USD term and RMB term, respectively;
and |
| · | the average price for our approved IVIG products, which accounted for 44.8% of our total sales
for the six months ended June 30, 2015, increased by 2.5% and 2.3% in USD term and RMB term, respectively. |
The average sales price increase of our
human albumin products and IVIG products was mainly due to the combined effect of the reduced VAT rate and our sales effort to
increase market shares in tier-one cities and new markets. On the one hand, the VAT rate on sales of plasma products was reduced
from 6% to 3%, effective on July 1, 2014. The reduction in the VAT rate had a positive impact on our sales prices as our sales
are recognized as the invoiced price of the products sold minus VAT. All other factors being equal, the reduction in the VAT rate
had the effect of increasing our sales price of plasma products by 2.9%. On the other hand, to improve brand recognition, we increased
the market share of our human albumin products and IVIG products in tier-one cities and new markets through distributors by lowering
the invoiced prices during the six months ended June 30, 2015. The recently announced price ceiling removal, effective on June
1, 2015, did not have a meaningful impact on the average sales prices of our products yet.
The sales volume of our human albumin products
increased by 22.6% for the six months ended June 30, 2015 as compared to the same period in 2014, as a result of the increased
sales volume at Shandong Taibang and Guizhou Taibang. Guizhou Taibang resumed production in March 2014 but did not ship its first
batch of products for sales until July 2014 after the completion of government batch approval.
The sales volume of our IVIG products increased
by 39.0% for the six months ended June 30, 2015 as compared to the same period in 2014. The increase in sales volume of IVIG was
primarily due to the increased sales through distributors in tier-one cities and new markets supported by the increased output
following the production resumption at Guizhou Taibang. Further, in anticipation of a favorable market environment and our increased
sales capabilities this year, we reserved a large volume of the prior years’ IVIG pastes to be processed and sold in early
2015, which also contributed to our increased sales volume during the six months ended June 30, 2015.
The sales decrease of other immunoglobulin
products in the six months ended June 30, 2015 as compared to the same period in 2014 was mainly attributable to the decrease in
sales volume of human rabies immunoglobulin products. The decrease in sales volume of human rabies immunoglobulin was primarily
a result of decreased production volume during this period. We adjusted the supply of various hyper-immune vaccinated plasma and
their production in response to the market demand.
The sales increase of placenta polypeptide
products was mainly in line with the volume increase for the six months ended June 30, 2015 as compared to the same period in 2014.
The sales volume of placenta polypeptide products increased by 24.3% for the six months ended June 30, 2015 as compared to the
same period in 2014. This increase was due to the ramp-up of placenta polypeptide at Guizhou Taibang after its receipt of the GMP
certification for the upgraded production facilities in January 2014.
Cost of sales and gross
profit
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Cost of sales | |
| 51.5 | | |
| 36.6 | | |
| 14.9 | | |
| 40.7 | |
as a percentage of total sales | |
| 34.5 | % | |
| 31.5 | % | |
| | | |
| 3.0 | |
Gross Profit | |
| 97.9 | | |
| 79.7 | | |
| 18.2 | | |
| 22.8 | |
Gross Margin | |
| 65.5 | % | |
| 68.5 | % | |
| | | |
| (3.0 | ) |
Our cost of sales was $51.5 million, or
34.5% of our sales for the six months ended June 30, 2015, as compared to $36.6 million, or 31.5% of our sales for the same period
in 2014. Our gross profit was $97.9 million and $79.7 million for the six months ended June 30, 2015 and 2014, respectively, representing
gross margins of 65.5% and 68.5%, respectively. Our cost of sales and gross margin are affected by the volume and pricing of our
sold products, raw material costs, production mix and respective yields, inventory provisions, production cycles and routine maintenance
costs.
The increase in cost of sales in the six
month ended June 30, 2015 as compared to the same period in 2014 was generally in line with the increases in sales volume and cost
of plasma. In an effort to increase plasma collection volume and expand our donor base, we increased the nutrition fees paid to
donors consistent with the industry practice. We expected the nutrition fees to be paid to donors continue to increase as a result
of improving living standards in China. Consequently, future improvements on margins will need to be derived from increases in
product pricing and volume, product mix, yields and manufacturing efficiency. The increase in cost of sales as a percentage of
sales for the six month ended June 30, 2015 as compared to the same period in 2014 was mainly due to the increase in cost of plasma
partially offset by the change of our product mix to include products with higher margins.
Operating expenses
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Operating expenses | |
| 23.0 | | |
| 22.9 | | |
| 0.1 | | |
| 0.4 | |
as a percentage of total sales | |
| 15.3 | % | |
| 19.6 | % | |
| | | |
| (4.3 | ) |
Our total operating expenses increased
by $0.1 million, or 0.4%, to $23.0 million for the six months ended June 30, 2015, from $22.9 million for the same period in 2014.
As a percentage of sales, total expenses decreased by 4.3% to 15.3% for the six months ended June 30, 2015, from 19.6% for the
same period in 2014. The increase of the total operating expenses was a combined effect of the decrease of the selling expenses
and research and development expenses and the increase of the general and administrative expenses as discussed below.
Selling expenses
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Selling expenses | |
| 4.6 | | |
| 5.6 | | |
| (1.0 | ) | |
| (17.9 | ) |
as a percentage of total sales | |
| 3.0 | % | |
| 4.8 | % | |
| | | |
| (1.8 | ) |
Our selling expenses decreased by $1.0
million, or 17.9%, to $4.6 million for the six months ended June 30, 2015, from $5.6 million for the same period in 2014. As a
percentage of sales, our selling expenses for the six months ended June 30, 2015 decreased by 1.8% to 3.0%, from 4.8% for the same
period in 2014. The decrease was mainly due to the decreased selling expense of placenta polypeptide for the six months ended June
30, 2015 as compared to the same period in 2014. We shifted to utilizing internal resources for our promotional efforts, instead
of engaging a third-party service provider to promote sales of placenta polypeptide products, and did not renew the third-party
engagement upon its expiration in May 2014.
General and administrative expenses
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
General and administrative expenses | |
| 16.0 | | |
| 14.3 | | |
| 1.7 | | |
| 11.9 | % |
as a percentage of total sales | |
| 10.7 | % | |
| 12.3 | % | |
| | | |
| (1.6 | ) |
Our general and administrative expenses
increased by $1.7 million, or 11.9%, to $16.0 million for the six months ended June 30, 2015, from $14.3 million for the same period
in 2014. General and administrative expenses as a percentage of sales decreased by 1.6% to 10.7% for the six months ended June
30, 2015, from 12.3% for the same period in 2014. The increase in general and administrative expenses was mainly due to the increase
of share-based compensation expenses.
Research and development expenses
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Research and development expenses | |
| 2.4 | | |
| 2.9 | | |
| (0.5 | ) | |
| (17.2 | ) |
as a percentage of total sales | |
| 1.6 | % | |
| 2.5 | % | |
| | | |
| (0.9 | ) |
In May 2015, we received a government grant
of $0.9 million and recognized it as a reduction of research and development expenses. Excluding this impact, our research and
development expenses increased by $0.4 million, or 13.8%, for the six months ended June 30, 2015 as compared to the same period
in 2014. As a percentage of total sales, our research and development expenses, excluding the impact of the government grant, decreased
by 0.3% to 2.2% for the six months ended June 30, 2015 from 2.5% for the same period in 2014. The increase in research and development
expenses was mainly due to the expenditure paid for certain clinical trial programs for the six months ended June 30, 2015.
Income tax
| |
For the six months ended June 30, | | |
Change | |
| |
2015 | | |
2014 | | |
Amount | | |
% | |
| |
(U.S. dollars in millions, except percentage) | |
Income tax | |
| 11.7 | | |
| 9.8 | | |
| 1.9 | | |
| 19.4 | |
as a percentage of total sales | |
| 7.9 | % | |
| 8.4 | % | |
| | | |
| (0.5 | ) |
Our provision for income taxes increased
by $1.9 million, or 19.4%, to $11.7 million for the six months ended June 30, 2015, from $9.8 million for the same period in 2014.
Our effective income tax rates were 15.5% and 16.2% for the six months ended June 30, 2015 and 2014, respectively. The statutory
tax rate applicable to our major operating subsidiaries in the PRC for 2015 and 2014 is 15.0%. We no longer accrue dividend withholding
income tax in respect of Shandong Taibang since 2015 due to internal corporate restructuring, which contributed to the decrease
in effective income tax rate.
Liquidity and Capital Resources
To date, we have financed our operations
primarily through cash flows from operations, augmented by bank borrowings and equity contributions by our stockholders. As of
June 30, 2015, we had $106.6 million in cash and cash equivalents, primarily consisting of cash on hand and demand deposits, and
$72.2 million in time deposits.
The following table provides the summary
of our cash flows for the periods indicated:
| |
For the six months ended June 30, | |
| |
2015 | | |
2014 | |
| |
(U.S. dollars in millions) | |
Net cash provided by operating activities | |
| 34.6 | | |
| 39.0 | |
Net cash used in investing activities | |
| (20.1 | ) | |
| (3.0 | ) |
Net cash provided by (used in) financing activities | |
| 12.0 | | |
| (76.2 | ) |
Effects of exchange rate change on cash | |
| (0.7 | ) | |
| (0.7 | ) |
Net increase (decrease) in cash and cash equivalents | |
| 25.8 | | |
| (40.9 | ) |
Cash and cash equivalents at beginning of the period | |
| 80.8 | | |
| 144.1 | |
Cash and cash equivalents at end of the period | |
| 106.6 | | |
| 103.2 | |
Operating Activities
Net cash provided by operating activities
for the six months ended June 30, 2015 was $34.6 million, as compared to $39.0 million for the same period in 2014. The decrease
in net cash provided by operating activities was primarily due to the increase in accounts receivable and inventories for the six
months ended June 30, 2015 as compared to the same period in 2014, partially offset by the increase in net income and accounts
payable. Accounts receivable increased by $18.8 million during the six months ended June 30, 2015, as compared to $7.5 million
during the same period in 2014, primarily due to the extended credit terms granted to certain top-tier hospitals and human rabies
immunoglobulin distributors. In 2015, in an effort to help penetrate new markets, we granted credit terms of up to six months to
certain trustworthy, top-tier hospitals. Additionally, we adjusted our sales strategy for human rabies immunoglobulin by granting
credit terms of up to six months to certain qualified distributors to assist in their bidding efforts with provincial centers for
disease control and prevention. Inventories increased by $25.3 million during the six months ended June 30, 2015, as compared to
$6.9 million during the same period in 2014. Accounts payable increased by $10.1 million during the six months ended June 30, 2015,
as compared to a decrease of $0.4 million during the same period in 2014. The increase in both inventories and accounts payable
was mainly due to the purchase of approximately 103 tonnes of source plasma and approximately 38 tonnes of plasma pastes from Xinjiang
Deyuan Bioengineering Co., Ltd., or Xinjiang Deyuan, for a consideration of approximately RMB139 million (approximately US$22.6
million) in June 2015.
Investing Activities
Our use of cash for investing activities
is primarily for the acquisition of property, plant and equipment, intangibles and purchase of time deposits.
Net cash used in investing activities for
the six months ended June 30, 2015 was $20.1 million, as compared to $3.0 million for the same period in 2014. During the six months
ended June 30, 2015 and 2014, we paid $20.7 million and $11.5 million, respectively, for the acquisition of property, plant and
equipment, intangible assets and land use right for Shandong Taibang and Guizhou Taibang. During the six months ended June 30,
2014, we received a refund of deposit of $1.6 million from the local government due to a decrease in the size of a land parcel
that was granted to us in Guizhou, and received $6.6 million upon the maturity of a time deposit.
Financing Activities
Net cash provided by financing activities
for the six months ended June 30, 2015 was $12.0 million, as compared to net cash used in financing activities of $76.2 million
for the same period in 2014. The net cash provided by financing activities for the six months ended June 30, 2015 mainly consisted
of net proceeds of $80.6 million from a follow-on offering of the Company’s stock in June 2015 and proceeds of $32.0 million
from the maturity of a deposit used as security for short-term bank loan, partially offset by repayments of bank loans totaling
$97.9 million and a dividend of $3.7 million held in escrow by a trial court in connection with disputes with a minority shareholder
of Guizhou Taibang. The net cash used in financing activities for the six months ended June 30, 2014 mainly consisted of a payment
of $70.0 million for share repurchase, a deposit of $72.3 million as cash collateral for certain long-term bank loans, a repayment
of $4.9 million on a short-term bank loan, and a dividend of $1.4 million paid by our subsidiaries to the noncontrolling interest
shareholders, partially offset by proceeds of $70.0 million from certain long-term bank loans and proceeds of $1.6 million from
the exercise of stock options.
Management believes that the Company has
sufficient cash on hand and will continue to have positive cash inflow for its operations from the sale of its products in the
PRC market.
Obligations under Material Contracts
The following table sets forth our material contractual obligations
as of June 30, 2015:
| |
Payments Due by Period | |
Contractual Obligations | |
Total | | |
Less than one year | | |
One to three years | | |
Three to five years | | |
More than five years | |
| |
(U.S. dollars in millions) | |
Operating lease commitment | |
| 0.6 | | |
| 0.4 | | |
| - | | |
| - | | |
| 0.2 | |
Capital commitment | |
| 18.7 | | |
| 16.8 | | |
| 1.9 | | |
| - | | |
| - | |
Total | |
| 19.3 | | |
| 17.2 | | |
| 1.9 | | |
| - | | |
| 0.2 | |
Seasonality of Our Sales
Our operating results and operating cash
flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities
or new product introductions.
Inflation
Inflation does not materially affect our
business or the results of our operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
Critical Accounting Policies
Critical accounting policies are those
we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount
of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies
may result in materially different amounts being reported under various conditions or using different assumptions. There have been
no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2014.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
Our operations are carried out in the PRC
and we are subject to specific considerations and significant risks not typically associated with companies in North America and
Western Europe. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic
and legal environment in the PRC, and by the general state of the PRC economy. Our results may be adversely affected by changes
in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad,
and rates and methods of taxation, among other things.
Interest Rate Risk
We are exposed to interest rate risk primarily
with respect to our bank loans. We have not used any derivative financial instruments to manage our interest rate risk exposure.
We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future
interest expenses may increase due to changes in market interest rates.
Management monitors the banks’ prime
rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of
funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.
Foreign Exchange Risk
All of our consolidated revenues and consolidated
costs and majority of expenses are denominated in RMB. All of our assets are denominated in RMB, except certain cash balances.
However, our reporting currency is U.S. dollars. As a result, we are exposed to foreign exchange risk as our revenues and results
of operations may be affected by fluctuations in the exchange rate between U.S. dollars and RMB. If RMB depreciates against the
U.S. dollars, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline.
Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and shareholders’ equity is translated at historical exchange rates. Any resulting translation adjustments
are not included in determining net income but are included in determining other comprehensive income, a component of stockholders’
equity. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
The value of the RMB against the U.S. dollars
and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July
2005, the RMB has not been pegged to the U.S. dollars. Although the People’s Bank of China regularly involved in the foreign
exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly
in value against the U.S. dollars in the medium to long term. Moreover, it is possible that in the future, PRC authorities may
lift restrictions on fluctuations in RMB exchange rate and lessen involvement in the foreign exchange market.
Account Balances
We maintain balances at financial institutions
which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States,
Hong Kong Deposit Protection Board insured limits for the banks located in Hong Kong, or China Deposit Insurance Scheme insured
limits for the banks located in the PRC. Total cash at banks and restricted cash deposits as of June 30, 2015 and December 31,
2014 amounted to $178.5 million and $184.2 million, respectively, $3.0 million and $0.1 million of which are covered by insurance,
respectively. We have not experienced any losses in such accounts and we do not believe that we are exposed to any significant
risks on our cash at banks and deposits.
Inflation
Inflationary factors such as increases in the
cost of our sales and overhead costs may adversely affect our operating results. Although we do not believe that inflation has
had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have
an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as
a percentage of net sales if the selling prices of our products do not increase with these increased costs.
Market for Human Albumin and IVIG
Our two major products, human albumin and IVIG,
accounted for 36.9% and 44.8% of the total sales for the six months ended June 30, 2015, respectively. If the market demands for
human albumin or IVIG cannot be sustained in the future or if there is substantial price decrease in either or both products, our
operating results could be materially and adversely affected.
ITEM 4.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures
designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e), our management
has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. David (Xiaoying)
Gao and our Chief Financial Officer, Mr. Ming Yang, of the effectiveness of the design and operation of our disclosure controls
and procedures, as of June 30, 2015. Based on that evaluation, Mr. Gao and Mr. Yang concluded that our disclosure controls and
procedures were effective as of June 30, 2015.
Changes in Internal Control over Financial
Reporting
There were no changes in our internal control
over financial reporting during the three months ended June 30, 2015 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become involved in
various lawsuits and legal proceedings arising in the ordinary course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these, or other matters, may arise from time to time that may harm our business. Other than the legal
proceedings set forth below, we are currently not aware of any such legal proceedings or claims that we believe will have a material
adverse effect on our business, financial condition or operating results.
Dispute with Jie’an over Certain Capital
Injection into Guizhou Taibang
In May 2007, a 91% majority of Guizhou Taibang’s
shareholders approved a plan to raise additional capital from qualified strategic investors through the issuance of an additional
20,000,000 shares of Guizhou Taibang. 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, or Jie’an, did not support the plan and did not waive its right of first refusal. In May 2007, Guizhou
Taibang signed an Equity Purchase Agreement with certain alleged strategic investors (who concealed their background), pursuant
to which such investors agreed to invest an aggregate of RMB51.0 million (approximately $8.3 million) in exchange for 21.4% of
Guizhou Taibang’s equity interests. Such Equity Purchase Agreement was not approved or ratified by over two-thirds supermajority
of Guizhou Taibang’s shareholders, which approval or ratification is required under the PRC Company Law. At the same time,
as an existing shareholder, Jie’an also subscribed for 1,800,000 shares, representing its pro rata share of the 20,000,000
shares being offered. In total, Guizhou Taibang received RMB51.0 million (approximately $8.3 million) from the investors and RMB6.5
million (approximately $1.1 million) from Jie’an.
In June 2007, Jie’an brought a lawsuit
against Guizhou Taibang, alleging that it had a right to acquire the 18,200,000 shares offered to the investors under the Equity
Purchase Agreement. The trial court denied Jie’an’s request, and the PRC Supreme Court ultimately sustained the original
ruling in May 2009 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 of
industry and commerce, or AIC. Guizhou Taibang’s board of directors withheld its required ratification of Jie’an’s
request, pending the outcome of the ongoing litigation. In March 2012, Jie’an brought another lawsuit against Guizhou Taibang
for refusing to register the shares. In July 2013, the trial court dismissed the lawsuit for lack of jurisdiction. Jie’an
did not appeal the dismissal.
In December 2013, Jie’an brought a third
lawsuit against Guizhou Taibang, requesting Guizhou Taibang to register 1.8 million shares under its name with the local AIC. In
July 2014, the trial court denied Jie’an’s request to register such shares. Despite the denial of Jie’an’s
share registration request, the trial court, however, in its ruling, ordered Guizhou Taibang to pay accumulated dividends of RMB13.8
million (approximately $2.3 million) associated with these shares and the related interest expenses to Jie’an. Guizhou Taibang
and Jie’an subsequently filed a cross-appeal. In December 2014, the appellate court ruled in favor of Jie’an supporting
its request to register 1.8 million shares and ordered Guizhou Taibang to pay Jie’an its share of accumulated dividends of
RMB18.3 million (approximately $3.0 million) associated with these shares plus the related interest expenses to Jie’an. In
the first half of 2015, Guizhou Taibang paid an aggregate of RMB22.6 million (approximately $3.7 million) to the trial court held
in escrow pending further appeal of this case. Guizhou Taibang appealed to the High Court of Guizhou, which accepted our appeal
and stayed the enforcement procedures at the trial court in June 2015.
In November 2013, Guizhou Taibang held a shareholders
meeting and the shareholders passed resolutions, or the November 2013 Resolutions, that, inter alia, (i) determined that it was
no longer necessary for Guizhou Taibang to obtain additional capital from investors; (ii) rejected Jie’an’s request
that Jie’an subscribe for additional shares of Guizhou Taibang alone and one or more other shareholders reduce their shareholding
in Guizhou Taibang; and (iii) approved the issuance of a total of 20,000,000 new shares to all existing shareholders on a pro rata
basis. Jie’an subsequently filed a fourth lawsuit against Guizhou Taibang in December 2013, requesting that the court declare
the November 2013 Resolutions void. Both the trial court and the appellate court denied Jie’an’s request.
In March 2014, Guizhou Taibang held another
shareholders meeting and the shareholders passed resolutions, or the March 2014 Resolutions, that, inter alia, re-calculated the
ownership percentage in Guizhou Taibang based on the November 2013 Resolutions and the additional capital injections from existing
shareholders. Guizhou Taibang subsequently updated the registration with the local AIC regarding the additional capital injections
in August 2014. In September 2014, Jie’an and another minority shareholder of Guizhou Taibang filed a lawsuit against Guizhou
Taibang, requesting that the court declare both the November 2013 Resolutions and the March 2014 Resolutions void and instruct
Guizhou Taibang to withdraw the AIC registration. In November 2014, the trial court suspended this case pending the final outcome
of the third lawsuit filed by Jie’an.
If the pending cases with Jie’an are
ultimately ruled in Jie’an’s favor, our ownership interest in Guizhou Taibang may be diluted to 71% and Jie’an
may be entitled to receive accumulated dividends of RMB18.3 million (approximately $3.0 million), being its claimed share of Guizhou
Taibang’s accumulated dividend distributions associated with the 1.8 million shares, and the related interest expenses from
Guizhou Taibang. As of June 30, 2015, the Company had maintained, on its balance sheet, payables to Jie’an in the amounts
of RMB5.0 million (approximately $0.8 million) as received funds in respect of the 1.8 million shares in dispute, RMB1.4 million
(approximately $0.2 million) for the over-paid subscription price paid by Jie’an and RMB3.5 million (approximately $0.6 million)
for the accrued interest. As these cases are closely interlinked to the outcome of the disputes with certain individual investor
described below, based on our PRC litigation counsel’s assessment, we do not expect Jie’an to prevail.
Dispute with Certain Individual Investor
over Certain Capital Injection into Guizhou Taibang
In part due to the invalidity of the Equity
Purchase Agreement with certain alleged strategic investors in May 2007, which was never approved or ratified by Guizhou Taibang’s
shareholders, such investors’ equity ownership in Guizhou Taibang and the related increase in registered capital of Guizhou
Taibang have never been registered with the local AIC. In January 2010, one individual among such investors brought a lawsuit against
Guizhou Taibang requesting to register his 14.35% ownership interest in Guizhou Taibang with the local AIC and seeking the distribution
of his share of Guizhou Taibang’s dividends declared since 2007.
In October 2010, the trial court denied such
individual investor’s right as shareholders of Guizhou Taibang and his entitlement to share the dividends, which ruling was
reaffirmed after a re-trial by the same trial court in December 2012. After such ruling, Guizhou Taibang attempted to return the
originally received fund of RMB34.2 million (approximately $5.6 million) to such investor by wiring the fund back to his bank account
but was unable to do so due to the closure of his bank account. Another investor, however, accepted the returned fund of RMB11.2
million (approximately $1.8 million) from Guizhou Taibang in November 2010. In 2013, the same individual investor appealed the
case to the PRC Supreme Court, which also denied his claims for shareholder status in Guizhou Taibang and the related dividend
distribution and accrued interest in September 2013. Such investor subsequently attempted to seek for a re-trial by the PRC Supreme
Court, which request was denied by the PRC Supreme Court in January 2014. He then applied to the PRC Supreme Procuratorate to request
for a review of the PRC Supreme Court’s decision and seek an appeal by the PRC Supreme Procuratorate to the PRC Supreme Court
for an ultimate re-trial on his behalf. In July 2015, the PRC Supreme Procuratorate rejected his request for review.
As of June 30, 2015, Guizhou Taibang had maintained,
on its balance sheet, payables to the investors of RMB34.2 million (approximately $5.6 million) as originally received funds from
such individual investor in respect of the shares in dispute, RMB16.8 million (approximately $2.8 million) for the interest expenses,
and RMB0.3 million (approximately $55,876) for the 1% penalty imposed by the Equity Purchase Agreement for any breach in the event
that Guizhou Taibang is required to return the original investment amount to such investor.
ITEM 1A. RISK
FACTORS.
As of the date of this filing, there have been
no material changes from the risk factors disclosed in our Annual Report on Form 10-K filed on March 4, 2015. We operate in a changing
environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks,
uncertainties and other factors set forth in the above-referenced Annual Report on Form 10-K may cause our actual results, performances
and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these
risks or events occurs, our business, financial condition or results of operations may be adversely affected.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any equity securities during
the three months ended June 30, 2015 that were not previously disclosed in a quarterly report on Form 10-Q or a current report
on Form 8-K that was filed during this period. No repurchases of our common stock were made during the three months ended June
30, 2015.
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES.
None.
ITEM 4. MINE
SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER
INFORMATION.
Disclosure pursuant to Section 13(r) of
the Securities Exchange Act of 1934
Pursuant to Section 13(r) of the Securities
Exchange Act of 1934, we, China Biologic, may be required to disclose in our annual and quarterly reports to the SEC, whether we
or any of our “affiliates” knowingly engaged in certain activities, transactions or dealings relating to Iran or with
certain individuals or entities targeted by US economic sanctions. Disclosure is generally required even where the activities,
transactions or dealings were conducted in compliance with applicable law. Because the SEC defines the term “affiliate”
broadly, it includes any entity under common “control” with us (and the term “control” is also construed
broadly by the SEC).
The description of the activities below has
been provided to us by Warburg Pincus LLC, or WP, affiliates of which: (i) beneficially own more than 10% of our outstanding common
stock and are members of our board of directors and (ii) beneficially own more than 10% of the equity interests of, and have the
right to designate members of the board of directors of Santander Asset Management Investment Holdings Limited, or SAMIH. SAMIH
may therefore be deemed to be under common “control” with us; however, this statement is not meant to be an admission
that common control exists.
The disclosure below relates solely to activities
conducted by SAMIH and its non-U.S. affiliates that may be deemed to be under common “control” with us. The disclosure
does not relate to any activities conducted by us or by WP and does not involve our or WP’s management. Neither we nor WP
has had any involvement in or control over the disclosed activities of SAMIH, and neither we nor WP has independently verified
or participated in the preparation of the disclosure. Neither we nor WP is representing as to the accuracy or completeness of the
disclosure nor do we or WP undertake any obligation to correct or update it.
We understand that SAMIH’s affiliates
intend to disclose in their next annual or quarterly SEC report that “Santander UK holds frozen savings and current accounts
for two customers resident in the U.K. who are currently designated by the U.S. for terrorism. The accounts held by each customer
were blocked after the customer’s designation and have remained blocked and dormant throughout the first half of 2015. No
revenue has been generated by Santander UK on these accounts.”
“An Iranian national, resident in the
U.K., who is currently designated by the U.S. under the Iranian Financial Sanctions Regulations and the Weapons of Mass Destruction
Proliferators Sanctions Regulations (“NPWMD sanctions program”), holds a mortgage with Santander UK that was issued
prior to any such designation. No further drawdown has been made (or would be allowed) under this mortgage although Santander UK
continues to receive repayment installments. In the first half of 2015, total revenue in connection with the mortgage was approximately
£1,780 while net profits were negligible relative to the overall profits of Santander UK. Santander UK does not intend to
enter into any new relationships with this customer, and any disbursements will only be made in accordance with applicable sanctions.
The same Iranian national also holds two investment accounts with Santander Asset Management UK Limited. The accounts have remained
frozen during the first half of 2015. The investment returns are being automatically reinvested, and no disbursements have been
made to the customer. Total revenue for the Group in connection with the investment accounts was approximately £120 while
net profits in the first quarter of 2015 were negligible relative to the overall profits of Banco Santander, S.A.”
ITEM 6. EXHIBITS.
The list of exhibits in the Exhibit Index to
this report is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: August 5, 2015 |
CHINA BIOLOGIC PRODUCTS, INC. |
|
|
|
|
By: |
/s/ David (Xiaoying) Gao |
|
David (Xiaoying) Gao, Chief Executive Officer |
|
(Principal Executive Officer) |
|
By: |
/s/ Ming Yang |
|
Ming Yang, Chief Financial Officer |
|
(Principal Financial Officer and Principal
Accounting Officer) |
EXHIBIT INDEX
Exhibit No. |
|
Description |
3.1 |
|
Second Amended and Restated Certificate of Incorporation of China Biologic Products, Inc. (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q filed by the Company on August 5, 2014). |
3.2 |
|
Third Amended and Restated Bylaws of China Biologic Products, Inc. (incorporated by reference to Exhibit 3.2 of the Quarterly Report on Form 10-Q filed by the Company on August 5, 2014). |
10.1 |
|
Summary translation of the Cooperation Agreement dated September 30, 2014 made by and between Guizhou Taibang and Xinjiang Deyuan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on April 16, 2015). |
10.2 |
|
Summary translation of the Supplemental Agreement dated April 16, 2015 made by and between Guizhou Taibang and Xinjiang Deyuan (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on April 16, 2015). |
31.1 |
|
Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
|
Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
|
Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
|
Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 |
|
Interactive data filed pursuant to Rule 405 of Regulation S-T. |
Exhibit 31.1
CERTIFICATIONS
I, David (Xiaoying) Gao, certify that:
|
1. |
|
I have reviewed this quarterly report on Form 10-Q of China Biologic Products, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 5, 2015
/s/ David (Xiaoying) Gao |
|
David (Xiaoying) Gao |
|
Chief Executive Officer
(Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATIONS
I, Ming Yang, certify that:
|
1. |
|
I have reviewed this quarterly report on Form 10-Q of China Biologic Products, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 5, 2015
/s/ Ming Yang |
|
Ming Yang |
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, David
(Xiaoying) Gao, the Chief Executive Officer of CHINA BIOLOGIC PRODUCTS, INC. (the “Company”), DOES HEREBY CERTIFY that:
1. The Company’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2015 (the “Report”), fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report
fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, each
of the undersigned has executed this statement this 5th day of August, 2015.
|
/s/ David (Xiaoying) Gao |
|
|
David (Xiaoying) Gao |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
A signed original of this written statement
required by Section 906 has been provided to China Biologic Products, Inc. and will be retained by China Biologic Products, Inc.
and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished
to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Ming Yang,
the Chief Financial Officer of CHINA BIOLOGIC PRODUCTS, INC. (the “Company”), DOES HEREBY CERTIFY that:
1. The Company’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2015 (the “Report”), fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report
fairly presents, in all material respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, each
of the undersigned has executed this statement this 5th day of August, 2015.
|
/s/ Ming Yang |
|
|
Ming Yang |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
A signed original of this written statement
required by Section 906 has been provided to China Biologic Products, Inc. and will be retained by China Biologic Products, Inc.
and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished
to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company,
whether made before or after the date hereof, regardless of any general incorporation language in such filing.
China Bioligic Products (NASDAQ:CBPO)
Historical Stock Chart
From Aug 2024 to Sep 2024
China Bioligic Products (NASDAQ:CBPO)
Historical Stock Chart
From Sep 2023 to Sep 2024