SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2014 |
Accounting Policies [Abstract] | ' |
Basis of Accounting, Policy [Policy Text Block] | ' |
Basis of Presentation |
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The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”) applicable to interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2014. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of the Company, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the Securities and Exchange Commission (“SEC”). |
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Consolidation, Policy [Policy Text Block] | ' |
Principles of consolidation |
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries, and its variable interest entities (“VIEs”). All significant inter-company transactions and balances between the Company, its subsidiaries, and its VIEs have been eliminated in consolidation. |
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The Company has evaluated the relationship with Xi’an Tianxing and Xi’an Tianxing’s wholly owned subsidiaries, Xi’an Sikaida and Shanghai Siqiang. As a result of the contractual arrangements which obligate Sida to absorb all of the risk of loss from Xi’an Tianxing’s activities and enable Sida to receive all of its expected residual returns, the Company is the primary beneficiary of these VIEs and thus it accounts for Xi’an Tianxing, Xi’an Sikaida and Shanghai Siqiang as VIEs under the Financial Accounting Standards Board’s (“FASB”) interpretation on consolidation of variable interest entities. Accordingly, the Company consolidates the results, assets, and liabilities of Xi’an Tianxing. Xi’an Sikaida and Shanghai Siqiang. |
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Use of Estimates, Policy [Policy Text Block] | ' |
Use of estimates |
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The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time to complete the underlying transactions. Actual results may differ from these estimates in amounts that may be material to the consolidated financial statements and accompanying notes. Significant estimates and assumptions made by the Company are used for, but not limited to the allowance for doubtful accounts, useful lives of property, plant and equipment and intangible assets, assumptions used in assessing impairment for long-lived assets, classification of prepayments to suppliers and the fair value for derivative instruments. |
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Foreign Currency Transactions and Translations Policy [Policy Text Block] | ' |
Foreign currency translation |
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The Company uses the United States dollar (“U.S. dollar”) for financial reporting purposes and the Chinese Renminbi (“RMB”) as its functional currency. The Company’s subsidiaries and VIEs maintain their books and records in their functional currency, being the primary currency of the economic environment in which their operations are conducted. |
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The Company translates the subsidiaries’ and VIEs’ assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet dates, and the statements of comprehensive income and cash flows are translated at average exchange rates during the reporting period. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the subsidiaries’ and VIEs’ financial statements are recorded as accumulated other comprehensive income. |
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The quotation of the exchange rates does not imply free convertibility of RMB to other foreign currencies. All foreign exchange transactions continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the People’s Bank of China. |
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Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with invoices, shipping documents, and signed contracts. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. |
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Fair Value of Financial Instruments, Policy [Policy Text Block] | ' |
Fair values of financial instruments |
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ASC Topic 820, Fair Value Measurement and Disclosures , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows: |
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| ¨ | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | | | | | | | | | | | |
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| ¨ | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | | | | | | | | | | | |
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| ¨ | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. | | | | | | | | | | | |
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The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2014 and December 31, 2013: |
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| | Carrying | | Fair Value Measurement at | |
Value at | June 30, 2014 |
June 30, | |
| | 2014 | | Level 1 | | Level 2 | | Level 3 | |
Purchase option liability | | $ | — | | $ | — | | $ | — | | $ | — | |
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| | Carrying | | Fair Value Measurement at | |
Value at | December 31, 2013 |
December 31, | |
| | 2013 | | Level 1 | | Level 2 | | Level 3 | |
Purchase option liability | | $ | 62,440 | | $ | — | | $ | 62,440 | | $ | — | |
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Below is the reconciliation for the purchase option liability changes from January 1, 2014 to June 30, 2014: |
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Balance, January 1, 2014 | | $ | 62,440 | | | | | | | | | | |
Change in fair value | | | -62,440 | | | | | | | | | | |
Balance, June 30, 2014 | | $ | — | | | | | | | | | | |
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Revenue Recognition, Policy [Policy Text Block] | ' |
Revenue recognition |
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Revenue of the Company is primarily derived from the sales of veterinary healthcare and medical care products in China. Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales are presented net of value added tax (“VAT”). No estimated allowance for sales returns is reflected in these consolidated financial statements as sales returns historically have been insignificant. |
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There are two types of sales upon which revenue is recognized: |
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| a. | Credit sales: revenue is recognized when the products have been delivered to the customers. | | | | | | | | | | | |
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| b. | Full payment before delivery: Cash received is recorded as “deposits from customers” and revenue is recognized when the products have been delivered to the customers. | | | | | | | | | | | |
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Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash |
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Cash includes currency on hand and demand deposits with banks with an original maturity of three months or less. |
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Receivables, Policy [Policy Text Block] | ' |
Accounts receivable |
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Accounts receivable are stated at cost, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses, if any, resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectibility of individual balances. In evaluating the collectibility of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. |
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Inventory, Policy [Policy Text Block] | ' |
Inventories |
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Inventories are stated at the lower of cost as determined on a weighted-average basis, or market. Inventories include purchases and related costs incurred in bringing the inventories to their present location and condition. Management reviews inventories for obsolescence and cost in excess of market and records a write-down against the inventory and additional cost of goods sold when the carrying value exceeds market. |
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Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Property, plant and equipment |
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Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs that do not improve or extend the useful lives of the assets are charged to operations as incurred, while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations. Estimated useful lives of the assets are as follows: |
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| | Estimated useful life | | | | | | | | | | | |
Buildings and improvements | | Shorter of lease | | | | | | | | | | | |
| | term or 10-40 years | | | | | | | | | | | |
Machinery and equipment | | 5-10 years | | | | | | | | | | | |
Office equipment and furniture | | 3-10 years | | | | | | | | | | | |
Vehicles | | 5-10 years | | | | | | | | | | | |
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Management assesses the carrying value of property, plant and equipment annually or more often when factors indicating impairment are present, and reduces the carrying value of such assets by the amount of the impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted) and comparing such amount to the net asset carrying value. An impairment loss, if it exists, is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Based on its review, management believes that, as of June 30, 2014 and December 31, 2013, there was no impairment of its property, plant and equipment. |
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Construction In Progress Policy [Policy Text Block] | ' |
Construction-in-progress |
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Construction-in-progress includes direct costs of construction of factory buildings. Interest incurred during the period of construction, if significant, is capitalized. All other interest is expensed as incurred. Construction-in-progress is not depreciated until such time as the asset is completed and put into service. |
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Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block] | ' |
Intangible assets |
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Land use rights — Land use rights represent the amounts paid to acquire a long-term interest to utilize the land underlying the Company’s facilities. This type of arrangement is common for the use of land in the PRC. Land use rights are amortized on the straight-line method over the contractual lease terms. The land use right granted to the Company’s Huxian facility was for 50 years. The land use right granted to the Company’s Jingzhou facility was 30 years. The land use right granted to the Company’s Kunshan facility was for 41 years. |
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Technological know-how — Purchased technological know-how includes confidential formulas, manufacturing processes, and technical and procedural manuals, and is amortized using the straight-line method over an estimated useful life of between five to eleven years that reflects the period over which such confidential formulas, manufacturing processes, and technical and procedural manuals are kept confidential by the Company as agreed between the Company and the selling parties. |
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Impairment of intangible assets —Intangible assets are evaluated at least annually for impairment if events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets by comparing the asset's estimated fair value with its carrying value, based on cash flow methodology. Based on its review, the Company believes that, as of June 30, 2014 and December 31, 2013, there was no impairment of its intangible assets. |
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Comprehensive Income, Policy [Policy Text Block] | ' |
Comprehensive income |
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Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Accumulated other comprehensive income is comprised of the foreign currency translation adjustments. |
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Shipping and Handling Cost, Policy [Policy Text Block] | ' |
Shipping and handling costs |
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Shipping and handling costs related to costs of goods sold are included in selling expenses, and totaled $533,741 and $443,640 for the three months ended June 30, 2014 and 2013, respectively, and $725,789 and $647,489 for the six months ended June 30, 2014 and 2013, respectively. |
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Advertising Costs, Policy [Policy Text Block] | ' |
Advertising costs |
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Advertising costs are charged to selling expenses as incurred. Advertising costs were insignificant for both the three and six months ended June 30, 2014 and 2013. |
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Research and Development Expense, Policy [Policy Text Block] | ' |
Research and development costs |
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Research and development costs are charged to expense as incurred and include the cost of raw materials, salaries, professional fees, and technical support fees related to such efforts. |
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Income Tax, Policy [Policy Text Block] | ' |
Income taxes |
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The Company accounts for income taxes using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized. |
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A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. As of June 30, 2014 and December 31, 2013, there are no unrecognized tax benefits, and the Company does not expect a significant change in tax benefits in the next 12 months. Penalties and interest levied by taxing authorities, if any, are classified as income tax expense in the year incurred. No significant penalties or interest relating to income taxes have been incurred during the three and six months ended June 30, 2014 and 2013. |
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According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational or other errors made by the taxpayer or the withholding agent. The statute of limitations extends to five years under special circumstances. In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. Accordingly, the income tax returns of the Company’s PRC operating subsidiaries for the years ended December 31, 2008 through 2013 are open to examination by the PRC state and local tax authorities. |
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Government Grants [Policy Text Block] | ' |
Government grants |
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The Company’s subsidiaries in China receive government subsidies from local Chinese government agencies in accordance with relevant Chinese government policies. In general, the Company presents the government subsidies received as part of other income unless the subsidies received are earmarked to compensate for a specific expense, which have been accounted for by offsetting the specific expense, such as research and development expense or interest expenses. Unearned government subsidies received are deferred for recognition until the criteria for such recognition could be met. |
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For research and development expenses, the Company matches and offsets the government grants with the expenses of the research and development activities as specified in the grant approval document in the corresponding period when such expenses are incurred. No government grants were offset against the research and development expenses for the three and six months ended June 30, 2014 and government grants of $480,840 were offset against the research and development expenses for the three and six months ended June 30, 2013. |
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No government grants were offset against the finance costs for the three and six months ended June 30, 2014 and 2013. |
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Government grants of $12,424 and $167,327 were received and recognized as other income during the three and six months ended June 30, 2014. There were no government grants recognized as other income during the three and six months ended June 30, 2013. |
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | ' |
Stock-based compensation |
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The Company records and reports stock-based compensation by measuring the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which services are received. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. |
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Earnings Per Share, Policy [Policy Text Block] | ' |
Earnings per share |
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Basic earnings per share is based upon the weighted-average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares, including convertible preferred shares, warrants and stock options were converted or exercised. Further, the method requires that stock dividends or stock splits be accounted for retroactively if the stock dividends or stock splits occur during the period or after the end of the period but before the release of the financial statements, by considering it outstanding for the entirety of each period presented. Diluted earnings per share is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. |
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Related Party [Policy Text Block] | ' |
Related parties |
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Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of such principal owners and management, and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. |
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Operating Segments [Policy Text Block] | ' |
Operating segments |
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While the chief operating decision-makers monitor the revenue streams of the various products lines, operations are managed and financial performance is evaluated on a Company-wide basis. Product lines are aggregated into one as operating results for all product lines are similar. Accordingly, all of the major product lines (micro-organism, veterinary medicine, feed additives and vaccines) are considered by management to be aggregated in one reportable operating segment. |
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As the Company primarily generates its revenues from customers in the PRC, no geographical segments are presented. |
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Reclassification, Policy [Policy Text Block] | ' |
Reclassification |
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Certain amounts included in the 2013 condensed consolidated statements of comprehensive income and cash flows have been reclassified to conform to the 2014 financial statement presentation as follows; |
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The Company has separately presented interest income of $124,986 and $273,831 on the face of condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2013, instead of presenting it net of interest expenses. |
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As a result of such reclassification, interest expense, net for the three months ended June 30, 2013, has changed from $96,082 to $221,068; and interest expense, net for the six months ended June 30, 2013, has changed from $136,629 to $410,460. |
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The change in due to related parties of $303,328 was classified into cash flows from financing activities in the Company’s condensed consolidated statements of cash flows for the six months ended June 30, 2013. The Company has reclassified this amount as a component of cash flows from operating activities. |
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As a result of such reclassification, net cash provided by financing activities for the six months ended June 30, 2013 has changed from $4,951,448 to $4,648,120 and net cash used in operating activities has changed from $10,937,852 to $10,634,524. |
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New Accounting Pronouncements, Policy [Policy Text Block] | ' |
Recently issued accounting pronouncements |
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In April 2014, the FASB issued ASU 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal that “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The standard is required to be adopted by public business entities in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. Entities may “early adopt” the guidance for new disposals. The Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance. |
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In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" which clarifies and improves the principles for recognizing revenue and develops a common revenue standard for United States generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) that among other things, improves comparability of revenue recognition practices and provides more useful information to users of financial statements through improved disclosure requirements. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently reviewing the effect of ASU 2014-09 on its revenue recognition. |
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In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718)" which provides explicit guidance on the treatment of awards with performance targets that could be achieved after the requisite service period. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect that the adoption will have a material impact on its consolidated financial statements. |
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