Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Jun. 30, 2013 | Oct. 28, 2013 | |
DocumentAndEntityInformationAbstract | ' | ' |
Entity Registrant Name | 'AMERICAN ORIENTAL BIOENGINEERING INC | ' |
Entity Central Index Key | '0001090514 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Jun-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'No | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 36,566,765 |
Document Fiscal Period Focus | 'Q2 | ' |
Document Fiscal Year Focus | '2013 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
CURRENT ASSETS | ' | ' |
Cash and cash equivalents | $7,004,814 | $7,097,098 |
Restricted cash | 2,055,175 | 6,514,224 |
Accounts receivable, net of allowance for doubtful accounts of $17,599,876 and $18,134,912 as of June 30, 2013 and December 31, 2012, respectively | 29,239,741 | 45,543,611 |
Bank acceptance notes from customers | 115,156 | 4,682,607 |
Inventories, net of provision for slow-moving inventories of $45,952 and $47,281 as of June 30, 2013 and December 31, 2012 , respectively | 21,337,078 | 20,570,846 |
Advances to suppliers and prepaid expenses | 7,591,431 | 10,292,360 |
Deferred tax assets | 33,616 | 28,660 |
Other current assets | 327,395 | 719,075 |
Total Current Assets | 67,704,406 | 95,448,481 |
LONG-TERM ASSETS | ' | ' |
Property, plant and equipment, net | 172,982,812 | 171,381,389 |
Land use rights, net | 146,574,962 | 145,314,928 |
Capitalized agricultural costs | 17,804,002 | 17,443,475 |
Acquired intangible assets, net | 12,217,588 | 13,116,380 |
Investments in and advances to equity investments | 1,504,579 | 3,337,485 |
Deferred financing costs | 16,279 | 266,786 |
Total Long-Term Assets | 351,100,222 | 350,860,443 |
TOTAL ASSETS | 418,804,628 | 446,308,924 |
CURRENT LIABILITIES | ' | ' |
Accounts payable | 7,874,890 | 11,005,423 |
Accrued expenses and other payables | 19,684,117 | 16,339,129 |
Bank acceptance notes to vendors | 4,110,349 | 11,054,449 |
Taxes payable | 266,498 | 762,943 |
Accrued taxes | 11,829,261 | 11,015,810 |
Convertible notes, in default | 49,161,000 | 49,161,000 |
Short-term bank loans | 10,827,058 | 6,807,999 |
Current portion of long-term bank loans | 65,578 | 64,811 |
Total Current Liabilities | 103,818,751 | 106,211,564 |
LONG-TERM LIABILITIES | ' | ' |
Long-term bank loans, net of current portion | 521,198 | 554,590 |
Deferred tax liabilities | 12,571,241 | 11,956,064 |
Total Long-Term Liabilities | 13,092,439 | 12,510,654 |
TOTAL LIABILITIES | 116,911,190 | 118,722,218 |
COMMITMENTS AND CONTINGENCIES | ' | ' |
SHAREHOLDERS' EQUITY | ' | ' |
Preferred stock, $0.001 par value; 2,000,000 shares authorized; 1,000,000 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively | 1,000 | 1,000 |
Common stock, $0.002 par value; 75,000,000 shares authorized; 36,419,706 and 36,644,288 shares issued as of June 30, 2013 and December 31, 2012, respectively; 36,419,706 shares outstanding as of June 30, 2013 and December 31, 2012 | 72,887 | 73,336 |
Common stock to be issued (766,205 shares and 611,971 shares as of June 30, 2013 and December 31, 2012, respectively) | 525,561 | 450,561 |
Additional paid-in capital | 177,978,746 | 177,974,127 |
Retained earnings | 44,141,967 | 78,097,723 |
Less: Treasury stock, at cost (224,582 shares as of December 31, 2012) | 0 | -799,999 |
Accumulated other comprehensive income | 79,173,277 | 71,789,958 |
TOTAL SHAREHOLDERS' EQUITY | 301,893,438 | 327,586,706 |
TOTAL LIABILITIES AND EQUITY | $418,804,628 | $446,308,924 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Statement of Financial Position [Abstract] | ' | ' |
Preferred stock, par value | $0.00 | $0.00 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Preferred stock, shares issued | 1,000,000 | 1,000,000 |
Preferred stock, shares outstanding | 1,000,000 | 1,000,000 |
Common stock, par value | $0.00 | $0.00 |
Common stock, shares authorized | 75,000,000 | 75,000,000 |
Common stock, shares issued | 36,419,706 | 36,644,288 |
Common stock, shares outstanding | 36,419,706 | 36,419,706 |
Common stock to be issued | 766,205 | 611,971 |
Treasury stock, shares | 0 | 224,582 |
Allowance for doutbful accounts | $17,599,876 | $18,134,912 |
Provision for slow-moving inventories | $45,952 | $47,281 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Revenues | $20,224,137 | $27,446,926 | $41,230,900 | $53,192,202 |
Cost of sales | 15,238,203 | 24,254,680 | 31,744,091 | 42,318,134 |
GROSS PROFIT | 4,985,934 | 3,192,246 | 9,486,809 | 10,874,068 |
Selling, general and administrative expenses | 11,018,304 | 12,060,135 | 23,495,026 | 24,042,204 |
Advertising costs | 2,708,324 | 7,976,078 | 6,353,778 | 14,132,431 |
Research and development costs | 1,722,671 | 1,729,301 | 3,129,716 | 3,296,234 |
Depreciation and amortization expenses | 1,855,076 | 1,578,733 | 3,719,283 | 3,659,432 |
Provision for reserves and doubtful accounts | -1,998,441 | 2,067,462 | -234,489 | 3,053,248 |
Long term crop inventory costs | ' | ' | 2,361,383 | ' |
Total operating expenses | 15,305,934 | 25,411,709 | 38,824,697 | 48,183,549 |
LOSS FROM OPERATIONS | -10,320,000 | -22,219,463 | -29,337,888 | -37,309,481 |
Equity in losses from equity method investments | -1,004,141 | -1,297,597 | -1,972,373 | -1,489,047 |
Interest expense, net | -1,003,307 | -1,808,010 | -1,766,998 | -3,551,280 |
Other income (expense), net | 185,630 | 67,702 | 171,829 | 348,749 |
LOSS BEFORE INCOME TAX | -12,141,818 | -25,257,368 | -32,905,430 | -42,001,059 |
Provision for income taxes | 699,081 | 510,897 | 1,050,326 | 953,965 |
NET LOSS | -12,840,899 | -25,768,265 | -33,955,756 | -42,955,024 |
(Income) loss attributable to non-controlling interest | ' | -18,932 | ' | 10,902 |
NET LOSS ATTRIBUTABLE TO AMERICAN ORIENTAL BIOENGINEERING, INC. COMMON SHAREHOLDERS | -12,840,899 | -25,787,197 | -33,955,756 | -42,944,122 |
OTHER COMPREHENSIVE INCOME | ' | ' | ' | ' |
Foreign currency translation gain | 6,700,988 | 1,395,552 | 7,383,319 | 3,987,336 |
COMPREHENSIVE LOSS | ($6,139,911) | ($24,391,645) | ($26,572,437) | ($38,956,786) |
LOSS PER COMMON SHARE, basic and diluted | ($0.35) | ($0.66) | ($0.93) | ($1.09) |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, basic and diluted | 36,494,567 | 39,310,889 | 36,569,427 | 39,393,125 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 6 Months Ended | |
Jun. 30, 2013 | Jun. 30, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net loss | ($33,955,756) | ($42,955,024) |
Adjustments to reconcile net loss to net cash used in operating activities: | ' | ' |
Depreciation and amortization | 6,121,201 | 5,922,899 |
Amortization of deferred financing cost | 196,445 | 437,103 |
Loss on property, plant and equipment | 0 | 1,707 |
Provision (recovery) for reserves and doubtful accounts | -241,482 | 2,780,471 |
Deferred taxes | 610,221 | 118,639 |
Stock-based consulting expenses | 0 | 32,500 |
Stock-based compensation expenses | 804,168 | 1,297,935 |
Independent director stock compensation | 75,000 | 97,525 |
Losses from equity method investments | 1,972,373 | 1,489,047 |
Changes in operating assets and liabilities: | ' | ' |
Accounts receivable | 16,838,907 | 4,897,830 |
Inventories | -764,903 | -5,301,147 |
Advances to suppliers and prepaid expenses | 2,700,929 | -2,326,994 |
Other current assets | 278,237 | 1,951,304 |
Accounts payable | -3,152,521 | 622,928 |
Accrued expenses and other payables | 3,326,358 | -4,135,928 |
Taxes payable | -496,445 | -512,029 |
Accrued taxes | 813,451 | 1,143,645 |
Net cash used in operating activities | -4,873,817 | -34,437,589 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Purchases of property, plant and equipment | -1,376,141 | -8,034,542 |
Capitalized agricultural costs | 0 | -3,395,407 |
Proceeds from payment of bank acceptance notes from customers | 4,567,451 | 23,068,432 |
Cash proceeds from disposal of NuoHua affiliate | 0 | 18,278,815 |
Purchase of land use rights and other intangible assets | 0 | -870 |
Deposit for long-term assets | 0 | -3,895,508 |
Investments in and advances to equity investments | -596,837 | 151 |
Net cash provided by investing activities | 2,594,473 | 26,021,071 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
Restricted cash | 4,459,049 | -3,822,208 |
Proceeds from bank loans and bank acceptance notes to vendors | 9,743,101 | 7,322,431 |
Repayment of bank loans and bank acceptance notes to vendors | -12,995,352 | -305,502 |
Repurchase of common stock | 0 | -1,270,603 |
Net cash provided by financing activities | 1,206,798 | 1,924,118 |
Effect of exchange rate changes on cash and cash equivalents | 980,262 | 1,494,507 |
NET DECREASE IN CASH AND CASH EQUIVALENTS | -92,284 | -4,997,893 |
Cash and cash equivalents, beginning of the period | 7,097,098 | 52,627,928 |
CASH AND CASH EQUIVALENTS, END OF THE PERIOD | 7,004,814 | 47,630,035 |
SUPPLEMENTARY CASH FLOW INFORMATION | ' | ' |
Cash paid for interest | 223,362 | 3,050,773 |
Cash paid for income taxes | 538,052 | 235,864 |
Non-cash investing and financing activities: | ' | ' |
Transfer from construction in progress to property, plant and equipment | 420,860 | 122,167 |
Retirement of treasury shares | $799,999 | $1,270,603 |
1_DESCRIPTION_OF_BUSINESS_AND_
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | 6 Months Ended |
Jun. 30, 2013 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | ' |
American Oriental Bioengineering, Inc. (“AOB” or “the Company”) is a fully integrated pharmaceutical company dedicated to improving health through the development, manufacture, commercialization and distribution of a broad range of pharmaceutical and healthcare products in the People’s Republic of China (the “PRC”). | |
Basis of presentation | |
The accompanying unaudited interim condensed consolidated financial statements of the Company and its subsidiaries as of and for the three and six months ended June 30, 2013 and 2012 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods and include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2013 and for all periods presented. Information as of December 31, 2012 has been derived from the audited consolidated financial statements of the Company for the year ended December 31, 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on June 11, 2013. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results to be expected for the full year ending December 31, 2013. | |
Basis of Consolidation | |
The unaudited consolidated financial statements include the financial statements of American Oriental Bioengineering, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Results of acquired subsidiaries are consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date that control ceases. | |
Going Concern | |
The accompanying consolidated financial statements are prepared under a going concern basis in accordance with U.S. generally accepted accounting principles (“GAAP”) which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. For the six months ended June 30, 2013, the Company recorded a loss from operations of $29,337,888 and utilized cash in operations of $4,873,817. As of June 30, 2013, the Company had a working capital deficit of $36,114,345. In addition, the Company was in default of its convertible notes (the “Notes”) due July 15, 2015 (see Note 12), which had a balance of $49,161,000 as of June 30, 2013. On April 8, 2013, four of the holders of the Notes (the “Plaintiffs”) filed an action claiming a default under the Notes, which allegedly resulted in an acceleration of the maturity of the Notes. The Plaintiffs had previously commenced a similar action in federal court in New Jersey, which action was withdrawn and the present action interposed. The action seeks payment of $20,378,608 plus prejudgment interest and other fees and costs. The Company has been served with the complaint, and Plaintiffs agreed to extend the Company’s time to answer. When that time passed on June 3, 2013, Plaintiffs refused to grant additional time and have now made a motion seeking entry of a default. The Company filed its answer on June 5, 2013 (see Note 14). The Company presently does not have the ability to pay the Notes. The Company’s ability to continue as a going concern is dependent upon its ability to return to profitability or to develop additional sources of financing or capital. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in their report on the Company’s 2012 consolidated financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of these uncertainties. | |
Historically, the Company’s main source of cash was through the sales of its products, proceeds from the issuance of common stock, and debt financing. However, due to the decrease in sales, the Company’s ability to meet contractual obligations and payables depends on its ability to implement cost reductions effectively and obtain additional financing. The Company believes that the ongoing economic challenges and uncertainties experienced in 2012 and the first half of 2013 will continue to negatively impact its business in the remainder of 2013. Thus, the Company expects that for 2013 it will continue to generate losses from operations, and its operating cash flows will not be sufficient to cover operating expense; therefore, the Company expects to continue to incur net losses. | |
To meet its capital needs, the Company is considering multiple alternatives, including, but not limited to, additional debt financing and credit lines, delaying capital spending for future periods, and/or operating cost reductions. The Company believes it can utilize its currently unencumbered buildings and land use rights located in Beijing, PRC with an aggregate net book value of approximately $103,000,000 at June 30, 2013 to secure financing. No assurance can be given that the financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on its operations, in the case of debt financing or cause substantial dilution to shareholders, in the case of equity financing. | |
Use of Estimates | |
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates reflected in the consolidated financial statements include, but are not limited to, the recoverability of the carrying amount of property, plant, and equipment and intangible assets, allowance for accounts receivable, realizable values for inventories and capitalized agricultural costs, valuation allowance of deferred tax assets, and valuation of share-based compensation expenses. Changes in facts and circumstances may result in revised estimates. Actual results could differ from these estimates. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended | ||
Jun. 30, 2013 | |||
Accounting Policies [Abstract] | ' | ||
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' | ||
Fair Value of Financial Instruments | |||
FASB ASC 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. | |||
These tiers include: | |||
· | Level 1 - defined as observable inputs such as quoted prices in active markets; | ||
· | Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and | ||
· | Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions | ||
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts and notes receivable, short-term bank loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of long-term loans approximate their fair values due to the fact that the interest rates on these loans are reset each year based on prevailing market interest rates. The convertible notes are initially recognized based on residual proceeds after allocation to the derivative financial liabilities, if any, at fair value and subsequently carried at amortized cost using the effective interest rate method, with any accrued and unpaid interest included under other payables and accrued expenses. | |||
Earnings per share | |||
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the year. The diluted earnings per share calculation gives effect to all potentially dilutive common shares outstanding during the year. As of June 30, 2013, common stock equivalents were composed of options convertible into 850,539 shares of the Company’s common stock and notes convertible into 6,084,282 shares of the Company’s common stock. For the three and six months ended June 30, 2013 and 2012, common stock equivalents have been excluded from the calculation of earnings per share as their effect is anti-dilutive. | |||
Impairment | |||
In evaluating long-lived assets for recoverability, including finite-lived intangibles and property and equipment, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell. | |||
In evaluating capitalized agriculture costs, the Company uses its best estimate of the future cash flows expected to result from future market values, yields and costs to harvest. To the extent that estimated future cash inflows attributable to the asset, less estimated future, cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the excess of the carrying value over the estimated fair values of the capitalized agricultural costs. | |||
The Company’s annual impairment testing is performed in the fourth quarter of each year. | |||
In the fourth quarter of 2012, the Company had impairment write-offs to property and equipment and land use rights of $12,577,507 and $10,255,550, respectively, based on their annual review. Also in the fourth quarter of 2012, the Company recorded a write-off related to the estimated recoverability of capitalized agriculture costs of $8,525,587. | |||
Recent Accounting Pronouncements | |||
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2012-02, “Intangibles – Goodwill and Other”. This update presents an entity with the option to first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, “Intangibles – Goodwill and Other – General Intangibles Other than Goodwill”. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. ASU No. 2012-02 will be effective for annual and impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company’s adoption of this update did not have a material effect on its consolidated financial statements. | |||
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. This guidance is effective for annual and interim reporting periods beginning January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations. | |||
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The new guidance requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income unless the amounts are not reclassified in their entirety to net income. For amounts that are not required to be reclassified in their entirety to net income in the same reporting period, entities are required to cross-reference other disclosures that provide additional detail about those amounts. The new guidance is effective prospectively for all interim and annual periods beginning after December 15, 2012, with early adoption permitted. The Company’s adoption of this update did not have a material effect on its consolidated financial statements. | |||
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements. |
3_CONCENTRATION_OF_RISKS
3. CONCENTRATION OF RISKS | 6 Months Ended |
Jun. 30, 2013 | |
Risks and Uncertainties [Abstract] | ' |
3. CONCENTRATION OF RISKS | ' |
Concentration of credit risks | |
Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, accounts receivable and prepaid forward repurchase contract. As of June 30, 2013, substantially all of the Company’s cash and cash equivalents were deposited in financial institutions located in the PRC, which management believes are of high credit quality. Accounts receivable are typically unsecured and mainly derived from revenue earned from customers in the PRC, which are exposed to credit risk. The risk is mitigated by credit evaluations the Company performs on its customers and its ongoing monitoring process of outstanding balances. The Company maintains reserves for estimated credit losses, which have generally been within its expectations. | |
Current vulnerability due to certain other concentrations | |
The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than 30 years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective. | |
Currency convertibility risk | |
The Company transacts the majority of its business in the Renminbi (“RMB”), which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China (the “PBOC”). However, the unification of the exchange rates does not imply that the RMB may be readily convertible into United States dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the Peoples Bank of China (PBOC) or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market. |
4_ACCOUNTS_RECEIVABLE
4. ACCOUNTS RECEIVABLE | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Receivables [Abstract] | ' | ||||||||
4. ACCOUNTS RECEIVABLE | ' | ||||||||
Accounts receivable consist of the following: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Accounts receivable | $ | 46,839,617 | $ | 63,678,523 | |||||
Allowance for doubtful accounts | (17,599,876 | ) | (18,134,912 | ) | |||||
Accounts receivable, net | $ | 29,239,741 | $ | 45,543,611 | |||||
Accounts receivable arise from sales to our customers and are generally due on terms ranging from 30 to 180 days beginning after the invoice date. The Company assessed distributors’ credit history, operation performance, financial position, and reputation among peers to assign credit terms. The Company’s management reviews credit terms and conditions of the account receivable balance for each distributor on a quarterly basis. The Company estimates that the remaining net receivables will be collected. | |||||||||
From time to time we receive bank acceptance notes that are payable to the Company from our customers, for goods we sell to those customers. If the notes are not yet due and payable, we may exchange them at a bank in exchange for notes payable to our suppliers, and deliver those notes to our vendors. |
5_INVENTORIES
5. INVENTORIES | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Inventory Disclosure [Abstract] | ' | ||||||||
5. INVENTORIES | ' | ||||||||
Inventories are summarized as follows: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Raw materials | $ | 9,643,157 | $ | 6,390,360 | |||||
Work in process | 1,627,634 | 4,042,287 | |||||||
Finished goods | 10,112,239 | 10,185,480 | |||||||
Total inventories | 21,383,030 | 20,618,127 | |||||||
Less: provision against slow-moving inventories | (45,952 | ) | (47,281 | ) | |||||
Inventories, net | $ | 21,337,078 | $ | 20,570,846 | |||||
Capitalized agricultural costs are summarized as follows: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Growing crops | $ | 6,818,162 | $ | 6,643,146 | |||||
Payments for long-term crop contracts | 6,759,639 | 6,622,758 | |||||||
Prepaid land leasing costs for long-term supply contracts and others | 4,226,201 | 4,177,571 | |||||||
Capitalized agricultural costs | $ | 17,804,002 | $ | 17,443,475 | |||||
The Company has reflected capitalized agriculture costs for Millettia and Xanthoceras Sorbifolia Bge (“XSB”) as a long term asset as it does not expect to utilize these assets currently. These pre-harvest agricultural costs usually require substantial investment in the early stages, gradually decreasing to maintenance costs during the growing stage. During the six months ended June 30, 2013, pre-harvest agricultural costs incurred during the period of $2,361,383 were expensed. |
6_ADVANCES_TO_SUPPLIERS_AND_PR
6. ADVANCES TO SUPPLIERS AND PREPAID EXPENSES | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ' | ||||||||
6. ADVANCES TO SUPPLIERS AND PREPAID EXPENSES | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Advances to suppliers | $ | 5,057,213 | $ | 10,065,358 | |||||
Prepaid expenses | 2,534,218 | 227,002 | |||||||
Advances to suppliers and prepaid expenses | $ | 7,591,431 | $ | 10,292,360 | |||||
Advances to suppliers mainly represent interest-free cash deposits paid to suppliers for future purchases of raw materials. Prepaid expenses mainly relate to the prepaid research and development expenses to external contractors. |
7_PROPERTY_PLANT_AND_EQUIPMENT
7. PROPERTY, PLANT AND EQUIPMENT | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
7. PROPERTY, PLANT AND EQUIPMENT | ' | ||||||||
Property, plant and equipment consist of the following: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Original cost: | |||||||||
Buildings | $ | 142,140,262 | $ | 139,294,146 | |||||
Machinery and equipment | 29,247,762 | 28,451,421 | |||||||
Motor vehicles | 2,143,734 | 2,091,043 | |||||||
Office equipment | 3,804,814 | 3,168,422 | |||||||
Other equipment | 2,441,565 | 2,392,323 | |||||||
Construction in progress | 34,639,070 | 33,389,418 | |||||||
214,417,207 | 208,786,773 | ||||||||
Less: Accumulated depreciation | (41,434,395 | ) | (37,405,384 | ) | |||||
Property, plant and equipment, net | $ | 172,982,812 | $ | 171,381,389 | |||||
Depreciation expense for the six months ended June 30, 2013 and 2012 was $3,234,708 and $3,390,361, respectively. As of June 30, 2013 and December 31, 2012, the net book value of property, plant and equipment pledged as collateral for bank loans was $8,701,259 and $6,099,734, respectively (see Note 11). As of June 30, 2013, the Company had entered into capital commitments for $36,585,847 due within one year and $6,948,709 due after one year but within three years (see Note 14). |
8_LAND_USE_RIGHTS
8. LAND USE RIGHTS | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Net loss for reportable segments | ' | ||||||||
8. LAND USE RIGHTS | ' | ||||||||
Land use rights consist of the following: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Cost of land use rights | $ | 161,733,404 | $ | 158,458,327 | |||||
Less: Accumulated amortization | (15,158,442 | ) | (13,143,399 | ) | |||||
Land use rights, net | $ | 146,574,962 | $ | 145,314,928 | |||||
Amortization expense for the six months ended June 30, 2013 and 2012 was $1,727,477 and $1,780,782, respectively. As of June 30, 2013 and December 31, 2012, the net book value of land use rights pledged as collateral was $25,887,350 and $20,664,778, respectively (see Note 11). |
9_ACQUIRED_INTANGIBLE_ASSETS
9. ACQUIRED INTANGIBLE ASSETS | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||
9. ACQUIRED INTANGIBLE ASSETS | ' | ||||||||
Acquired intangible assets are summarized as follows: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
At cost: | |||||||||
Product licenses | $ | 13,718,668 | $ | 13,440,868 | |||||
Trademarks | 6,842,561 | 6,704,001 | |||||||
Patents | 3,479,887 | 3,409,420 | |||||||
Software | 191,343 | 187,469 | |||||||
Liaoning Baicao pharmaceutical trade license | 5,678,549 | 5,563,560 | |||||||
29,911,008 | 29,305,318 | ||||||||
Less: Accumulated amortization | |||||||||
Product licenses | (8,499,310 | ) | (7,947,887 | ) | |||||
Trademarks | (5,997,327 | ) | (5,514,005 | ) | |||||
Patents | (2,785,984 | ) | (2,616,351 | ) | |||||
Software | (126,872 | ) | (110,695 | ) | |||||
Liaoning Baicao pharmaceutical trade license | (283,927 | ) | – | ||||||
(17,693,420 | ) | (16,188,938 | ) | ||||||
Acquired intangible assets, net | $ | 12,217,588 | $ | 13,116,380 | |||||
Amortization expense for the six months ended June 30, 2013 and 2012 was $1,159,016 and $714,829, respectively. | |||||||||
At December 31, 2012, the Liaoning Baicao pharmaceutical trade license was accounted for as an indefinite lived intangible asset. The Company’s assessment of indefinite life is reviewed annually. At December 31, 2012, the Company determined that based on various factors, including the changing nature of the pharmaceutical industry in China, it would reclassify the Liaoning Baicao pharmaceutical trade license to a finite lived asset to be amortized over an estimated useful life of 10 years. Beginning January 1, 2013, the formally indefinite lived intangible asset was reclassified to definite lived intangible asset, and the change in amortization is being made on a prospective basis. | |||||||||
The Company conducts impairment tests on a regular basis to determine if the carrying values of acquired intangible assets are in excess of the fair value, and that such assets are active, being used in production of products, or are intended to be utilized in future production. No impairment charges were recognized in the six months ended June 30, 2013 or 2012. |
10_INVESTMENTS_IN_AND_ADVANCES
10. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTMENTS | 6 Months Ended | |||||||||||
Jun. 30, 2013 | ||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | ' | |||||||||||
10. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTMENTS | ' | |||||||||||
At June 30, 2013, the Company owned a 33.7% equity interest in AXN, a 49% equity interest in Yushuntang, and a 40% equity interest in Jinji. For the six months ended June 30, 2013, the changes in investments in and advances to equity method investments are summarized as follows: | ||||||||||||
AXN | Jinji | Yushuntang | Total | |||||||||
Balance, December 31, 2012 | $ | 2,957,077 | $ | 147,512 | $ | 232,896 | $ | 3,337,485 | ||||
Advances (net of repayments) | -6,600 | 140,902 | 462,535 | 596,837 | ||||||||
Provision for uncollectible advances | – | – | -462,535 | -462,535 | ||||||||
Income (loss) | -1,919,878 | 62 | -52,557 | -1,972,373 | ||||||||
Foreign currency translations | – | 3,919 | 1,246 | 5,165 | ||||||||
Balance, June 30, 2013 | $ | 1,030,599 | $ | 292,395 | $ | 181,585 | $ | 1,504,579 | ||||
The Company had previously consolidated the financial statements of Yushuntang as a 55% majority owned subsidiary. Effective December 31, 2012, the Company’s ownership decreased below 50% to 49% and this entity no longer qualified for consolidation and is treated as a long term investment using the equity method. For the six months ended June 30, 2012, Yushuntang reported revenues of $7,997,571, gross profit of $577,250, loss from operations of $25,027, and net loss of $24,227, which are included in the accompanying consolidated statement of operations. The provision for uncollectible advances is against advances made to Yushuntang during 2013. |
11_DEBT
11. DEBT | 6 Months Ended |
Jun. 30, 2013 | |
Debt Disclosure [Abstract] | ' |
11. DEBT | ' |
At June 30, 2013 and December 31, 2012, bank acceptance notes to vendors were $4,110,349 and $11,054,449, respectively and due at various dates from July 6, 2013 to November 30, 2013. These short-term notes payable are lines of credit extended by the banks, which in turn issue to the Company a bank acceptance note that can be endorsed and assigned to vendors as payments for purchases. The short-term notes payable are generally payable within three to six months, and guaranteed by the bank. The banks do not charge interest on these notes, but usually charge a transaction fee of 0.05% of the total note value. In addition, the banks usually require the Company to deposit a certain amount of cash at the bank as a guarantee deposit which is classified on the balance sheet as restricted cash. At June 30, 2013 and December 31, 2012, restricted cash as a guarantee for the notes payable amounted to $2,055,175 and $6,514,224, respectively. | |
At June 30, 2013 and December 31, 2012, short-term loans obtained from local banks were $10,827,058 and $6,807,999, respectively. The short-term loans payable are due on various dates through June 26, 2014, with interest ranging from 6.00% to 6.56% per annum, and secured by property, plant and equipment and land use rights owned by the Company. At June 30, 2013 and December 31, 2012, the short-term loans are secured by property, plant and equipment owned by the Company of $7,491,801 and $6,099,734, respectively, and land use rights owned by the Company of $25,887,350 and $20,664,778, respectively. | |
At June 30, 2013 and December 31, 2012, the Company had an outstanding long-term bank loan of $586,776 and $619,401, respectively. The long-term bank loan bears interest at 2.50% per annum, is due December 31, 2021, and is secured by property, plant, and equipment with a net book value of $1,209,458 at June 30, 2013. |
12_CONVERTIBLE_NOTES
12. CONVERTIBLE NOTES | 6 Months Ended |
Jun. 30, 2013 | |
15. CONVERTIBLE NOTES | ' |
12. CONVERTIBLE NOTES | ' |
On July 15, 2008 the Company issued $115,000,000, 5% unsecured senior convertible notes (the “Notes”), due July 15, 2015, for net proceeds of $110,358,550. The Notes are in default, which was caused by the delisting of the Company’s common stock by the New York Stock Exchange (“NYSE”) as described in the Form 25NSE filed on April 16, 2012 by the NYSE; and by the non-payment of the semiannual interest payment due on July 15, 2012 and January 15, 2013. Through December 31, 2012, the Company had repurchased a total of $65,839,000 in principal amount of the Notes for cash consideration of $21,638,892, leaving an aggregate of $49,161,000 in principal amount outstanding. During the three and six months ended June 30, 2013 and 2012, there were no repurchases of Notes. | |
On February 19, 2013, the Company received a notice of acceleration under the terms of the Notes. The notice was sent by certain holders of the Senior Notes that together hold more than 25% of the aggregate principal amount of the Notes. As of March 31, 2013, the aggregate principal amount of the Notes, and unpaid, but accrued interest was $52,536,329. The notice of acceleration resulted in the principal amount of the Notes plus accrued and all unpaid interest and accrued and unpaid additional interest on the Notes through February 19, 2013, to become immediately due and payable. | |
On April 8, 2013, four of the holders of the Notes filed this action claiming a default under the Notes, which allegedly resulted in an acceleration of the maturity of the Notes. The Plaintiffs had previously commenced a similar action in federal court in New Jersey, but that action was withdrawn and the present action was interposed. The action seeks payment of $20,378,608 plus prejudgment interest and other fees and costs. The Company has been served with the complaint, and Plaintiffs agreed to extend the Company’s time to answer. When that time passed on June 3, 2013, Plaintiffs refused to grant additional time and have now made a motion seeking entry of a default. The Company filed its answer on June 5, 2013. | |
The Notes are convertible, at the option of the holder, at an initial conversion price of $9.29 per share, adjusted to $8.08 on January 15, 2009. The conversion rate is subject to certain adjustments. Pursuant to the terms of the Notes, holders may require the Company to repurchase all or a portion of their Notes on July 15, 2013 for cash at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, up to, but excluding, the repurchase date. | |
The effective interest rate of the Notes for the six months ended June 30, 2013 and 2012 was 5.94%. Interest cost recognized for the six months ended June 30, 2013 and 2012 was $1,435,025 and $2,712,500, respectively. | |
Note issuance costs incurred by the Company were deferred and are recognized using the effective interest rate method over the term of the Notes. As of June 30, 2013 and December 31, 2012, the unamortized portion of the deferred financing fees was $16,279 and $212,724, respectively. |
13_SHAREHOLDERS_EQUITY
13. SHAREHOLDERS' EQUITY | 6 Months Ended | ||||||||||||
Jun. 30, 2013 | |||||||||||||
Equity [Abstract] | ' | ||||||||||||
13. SHAREHOLDERS' EQUITY | ' | ||||||||||||
Common Stock Awards | |||||||||||||
During the six months ended June 30, 2013 and 2012, the Company recorded selling, general and administrative expenses of $544,486 and $709,555, respectively, of stock based compensation cost based on the vesting of the common stock awards granted to employees in prior periods. The total fair value of the stock awards granted to employees at the respective grant dates was $5,665,535, of which the unrecognized portion of $1,898,438 at June 30, 2013 is expected to be recognized following the straight-line method over the remaining weighted average vesting period of 1.9 years. | |||||||||||||
During the six months ended June 30, 2012, the Company recorded research and development costs of $32,500 of stock based compensation cost based on the vesting of the common stock awards granted to consultants in prior periods. At June 30, 2013, these common stock awards were fully amortized. | |||||||||||||
During the six months ended June 30, 2013 and 2012, the Company recorded selling, general and administrative expenses of $75,000 and $97,525, respectively of earned director share-based compensation. Independent directors earned common stock awards on a monthly basis, with grants generally made in the following year for shares earned. Shares earned but not granted are reflected in “Common Stock to be issued” on the accompanying condensed consolidated financial statements. During the six months ended June 30, 2013 and 2012, the Company did not issue any shares of common stock related to the director awards. | |||||||||||||
Stock options | |||||||||||||
The Company calculates the estimated fair value of granted options on the grant date, using the Black-Scholes-Merton Option Pricing Model. During the six months ended June 30, 2013 and 2012, the Company recorded selling, general and administrative expenses of $259,682 and $588,380, respectively, of stock based compensation based on the vesting of options granted to employees in prior periods. The total fair value of the options granted to employees at the respective grant dates was $9,194,987, of which the unrecognized portion of $238,184 is expected to be recognized following the straight-line method over the remaining weighted average vesting period of 0.2 years as of June 30, 2013. | |||||||||||||
The following table summarizes the stock option activities of the Company: | |||||||||||||
Weighted | |||||||||||||
Average | |||||||||||||
Activity | Exercise Price | ||||||||||||
Outstanding as of January 1, 2013 | 883,639 | $ | 15.7 | ||||||||||
Granted | – | – | |||||||||||
Forfeited | -33,100 | 10.7 | |||||||||||
Outstanding as of June 30, 2013 | 850,539 | $ | 15.9 | ||||||||||
Vested and expected to vest as of June 30, 2013 | 850,539 | ||||||||||||
The following table summarizes information about stock options outstanding as of June 30, 2013: | |||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||
Weighted | Weighted Average | Weighted | |||||||||||
Average | Remaining | Average | |||||||||||
Number of | Exercise | Contractual Life | Number of | Exercise | |||||||||
Range of Exercise Prices | Shares | Price | (in years) | Shares | Price | ||||||||
$17.08 - 21.48 | 409,850 | $ | 20.09 | 3.91 | 409,850 | $ | 20.09 | ||||||
$9.90 - 16.70 | 307,040 | $ | 13.72 | 5.05 | 280,210 | $ | 14.09 | ||||||
$8.02 | 133,649 | $ | 8.02 | 5.78 | 106,919 | $ | 8.02 | ||||||
850,539 | 796,979 | ||||||||||||
Options granted have no intrinsic value at the date of these financial statements as the exercise price of all vested and unvested options was greater than the market price of the Company’s Common Stock. | |||||||||||||
The weighted average value per share of the 883,639 options issued under the Company’s 2006 Plan is $10.41 per share. | |||||||||||||
Treasury Stock | |||||||||||||
During 2011, the Company repurchased 224,582 shares of its common stock at a total cost of $799,999 that were retired in May 2013. |
14_COMMITMENTS_AND_CONTINGENCI
14. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2013 | |
Commitments and Contingencies Disclosure [Abstract] | ' |
14. COMMITMENTS AND CONTINGENCIES | ' |
Commitments | |
As of June 30, 2013, the Company had entered into capital commitments for the manufacturing facilities under construction in the PRC. The capital commitments were $36,585,847 that are due within one year and $6,948,709 due after one year but within three years. In addition, the Company had research and development commitments of $5,611,002 within one year and $698,103 after one year but within three years, and purchase commitments for Millettia of $2,398,626 within one year and $2,141,172 after one year but within three years. | |
The Company also has an unconditional purchase commitment in connection with the Millettia long-term supply contracts, which is not expected to be harvested until after 2018 (See Note 5). The purchase amount will be based on fair value discounted at a pre-determined rate pursuant to the long-term supply contracts. At June 30, 2013, the Company had a commitment to pay maintenance fees of approximately $111,000 (RMB 700,000) per year from 2013 to 2019 related to the XSB long-term supply contract. | |
Legal proceedings | |
On June 23, 2010, Haining Zhang asserted breach of contract, fraudulent dealing, and breach of fiduciary duty claims against the Company and its Chief Executive Officer, Shu Jun Liu (together “Defendants”). Zhang’s claims arose out of an alleged 2003 investment banking advisory and consultant agreement, whereby Zhang allegedly arranged for the Company to receive an equity line of credit and was allegedly given the exclusive right to arrange financing transactions for the Company for a period of one year. Zhang sought damages for allegedly unpaid financing commission and advisory compensation in the amount of $2,410,000, plus interest and expenses. On September 12, 2011, the District Court granted a motion by Defendants to dismiss Zhang’s claims as either barred by the applicable statute of limitations or as failing to state a claim. Zhang filed a notice of appeal on October 11, 2011. On April 23, 2013, the Second Circuit Court of Appeals affirmed the District Court’s dismissal of Zhang’s claims. Although Zhang has 90 days from the date of the Second Circuit’s decision in which to seek an appeal to the United States Supreme Court, the Company does not believe the Supreme Court would hear an appeal of Zhang’s case. | |
On June 22, 2012, a putative class action complaint was filed by Kevin McGee against American Oriental Bioengineering Inc, Eileen Brody, Binsheng Li, Yangchun Li, Tony Liu, Cosimo Patti, Xianmin Wang, and Lawrence Wizel alleging violations of Section 10b of the Securities Exchange Act of 1934 and liability pursuant to Section 20(a) thereunder. The complaint, as subsequently amended (see below) centers on the accounting treatment of the sale of an interest held by the Company’s subsidiary, Nuo Hua Investment Company Limited and the Company’s Restatement filed on November 14, 2011. Several motions were filed for appointment as lead plaintiff, and on October 16, 2012, the Court appointed lead plaintiff, consolidated the cases, and ordered that a consolidated complaint be filed, which occurred on November 19, 2012. The served defendants (AOB, Brody, Wizel and Patti) moved to dismiss the consolidated complaint, and on March 25, 2013 those motions were granted with leave to amend. On April 15, 2013, Plaintiffs filed a Second Amended Complaint, which the served Defendants moved to dismiss on May 15, 2013. In the interim, the Court granted Plaintiffs’ motion for leave to serve most of the remaining Defendants by alternative means, and on May 15, 2013, the parties entered into a stipulation consenting to the filing of a Third Amended Complaint (“TAC,” setting forth no new paragraphs), deeming the TAC served on all defendants, deeming the motion to dismiss the Second Amended Complaint interposed against the TAC, and reserving all rights of the un-served Defendants. | |
On October 1, 2012, Peter Barbato filed a shareholder derivative Complaint against Tony Liu, Yanchun Li, Binsheng Li, Lawrence Wizel, Cosimo Patti, Xianmin Wang, Eileen Brody, Jun Min, and Baiqing Zhang (collectively, “Defendants”), and the Company as a nominal Defendant. The Complaint asserts causes of action for Breach of Fiduciary Duty and Unjust Enrichment. These claims similarly arise out of alleged accounting errors that were made the Company’s financial statements for in the periods between the third quarters ending September 30, 2009 and September 30, 2011, which were filed with the SEC. The alleged accounting errors were related to the Company’s sale of an interest held by the Company’s subsidiary, Nuo Hua Investment Company Limited, and were disclosed in the Company’s Restatement filed on November 14, 2011. The Complaint also alleges that its claims arise out of alleged inconsistencies that the Company’s then auditor, Ernst and Young Hua Ming, discovered throughout the course of the Company’s audit for the year ending 2011. The Parties have agreed that Defendants need not respond to the complaint until motions to dismiss the class action Complaint filed against the Company in the Central District of California are resolved. | |
On December 6, 2012, David Bravetti filed a shareholder derivative Complaint against Tony Liu, Yanchun Li, Binsheng Li, Jun Min, Lawrence Wizel, Cosimo Patti, Xianmin Wang, Baiqing Zhang, Eileen Brody (collectively, “Defendants”). Because the complaint sets forth a shareholder derivative claim, the Company is named as a nominal Defendant, although no relief is sought for the Company and any relief obtained from the Defendants would inure to the benefit of the Company. The Complaint asserts causes of action for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. Bravetti’s claims arose out of alleged accounting errors that were made in the Company’s financial statements for the periods between the third quarters ending September 30, 2009 and September 30, 2011, which financial statements were included in filings made with the SEC. The alleged accounting errors were related to the Company’s sale of an interest held by the Company’s subsidiary, Nuo Hua Investment Company Limited and were disclosed in the Company’s Restatement filed on November 14, 2011. The Complaint also alleges that its claims arise out of alleged inconsistencies that the Company’s then auditor, Ernst and Young Hua Ming, discovered throughout the course of the Company’s audit for the year ending 2011. Although the Complaint claims that jurisdiction is proper in federal court in New Jersey because of diversity of citizenship, according to the Complaint, Bravetti is a New Jersey citizen, as is one of the Defendants. The Company did not file a responsive pleading to Bravetti’s Complaint, and subsequent to seeking and obtaining a default against the Company, Bravetti agreed to dismiss his claim and file elsewhere. Subsequently, however, Bravetti “corrected” his complaint now to claim to be a Florida citizen. On March 26, 2013, Bravetti undertook to provide Defendants proof of his citizenship. That proof has been provided, and Defendants have not come to a conclusion whether this was sufficient. | |
On April 8, 2013, four of the holders of the Company’s 5% senior convertible notes issued July 15, 2008 (the “Notes”) filed this action claiming a default under the Notes, which allegedly resulted in an acceleration of the maturity of the Notes. The Plaintiffs had previously commenced a similar action in federal court in New Jersey, but that action was withdrawn and the present action was interposed. The action seeks payment of $20,378,608 plus prejudgment interest and other fees and costs. The Company has been served with the complaint, and Plaintiffs agreed to extend the Company’s time to answer. When that time passed on June 3, 2013, Plaintiffs refused to grant additional time and have now made a motion seeking entry of a default. The Company filed its answer on June 5, 2013. On August 9, 2013, Plaintiffs submitted to the Court a Request for Final Judgment by Default. The Company has not received notice of any action taken by the Court with regard to that application. | |
There are no other known legal proceedings against the Company. |
15_SEGMENT_REPORTING
15. SEGMENT REPORTING | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Segment Reporting [Abstract] | ' | ||||||||
15. SEGMENT REPORTING | ' | ||||||||
For the three months ended June 30, 2013 and 2012, the Company’s segments were as follows: | |||||||||
Three Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Manufacturing Segment | |||||||||
Revenue from pharmaceutical products | $ | 12,268,177 | $ | 15,887,829 | |||||
Revenue from nutraceutical products | 1,838,307 | 1,285,884 | |||||||
Total manufacturing revenue | 14,106,484 | 17,173,713 | |||||||
Cost of sales | 9,429,046 | 14,668,068 | |||||||
Depreciation and amortization expense | 1,194,275 | 1,064,123 | |||||||
Selling, general and administrative expenses, research and development | |||||||||
costs and advertising costs | 12,222,619 | 17,935,432 | |||||||
Provision for reserves and doubtful accounts-manufacturing segment | 2,954,946 | (1,315,842 | ) | ||||||
Operating loss of manufacturing segment | (5,780,571 | ) | (17,793,664 | ) | |||||
Distribution Segment | |||||||||
Distribution revenue | 6,117,653 | 10,273,213 | |||||||
Cost of sales | 5,809,157 | 9,586,612 | |||||||
Depreciation and amortization expense-distribution segment | 176,827 | 47,911 | |||||||
Provision for reserves and doubtful accounts-distribution segment | (953,605 | ) | (713,150 | ) | |||||
Operating loss of distribution segment | (1,268,848 | ) | (777,573 | ) | |||||
Reconciliation to Consolidated Net Loss Attributable to Controlling Interest: | |||||||||
Net loss for reportable segments | (7,049,419 | ) | (18,571,237 | ) | |||||
Net loss for corporate segment | (5,791,480 | ) | (7,215,960 | ) | |||||
Consolidated Net Loss Attributable to Controlling Interest | $ | (12,840,899 | ) | $ | (25,787,197 | ) | |||
For the six months ended June 30, 2013 and 2012, the Company’s segments were as follows: | |||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Manufacturing Segment | |||||||||
Revenue from pharmaceutical products | $ | 24,010,946 | $ | 30,111,084 | |||||
Revenue from nutraceutical products | 3,531,529 | 3,211,136 | |||||||
Total manufacturing revenue | 27,542,475 | 33,322,220 | |||||||
Cost of sales | 18,860,301 | 23,951,747 | |||||||
Depreciation and amortization expense | 2,400,865 | 2,626,337 | |||||||
Selling, general and administrative expenses, research and development | |||||||||
costs and advertising costs | 29,191,644 | 34,148,569 | |||||||
Provision for reserves and doubtful accounts-manufacturing segment | 926,302 | (649,706 | ) | ||||||
Operating loss of manufacturing segment | (21,980,094 | ) | (29,370,323 | ) | |||||
Distribution Segment | |||||||||
Distribution revenue | 13,688,425 | 19,869,982 | |||||||
Cost of sales | 12,883,790 | 18,366,387 | |||||||
Depreciation and amortization expense-distribution segment | 356,643 | 97,252 | |||||||
Provision for reserves and doubtful accounts-distribution segment | (658,070 | ) | (713,150 | ) | |||||
Operating loss of distribution segment | (1,245,406 | ) | (835,755 | ) | |||||
Reconciliation to Consolidated Net Loss Attributable to Controlling Interest: | |||||||||
Net loss for reportable segments | (23,225,500 | ) | (30,206,078 | ) | |||||
Net loss for corporate segment | (10,730,256 | ) | (12,738,044 | ) | |||||
Consolidated Net Loss Attributable to Controlling Interest | $ | (33,955,756 | ) | $ | (42,944,122 | ) | |||
All operating revenues comprise amounts received from external third party customers. All of the Company’s operations are located in the PRC. | |||||||||
As of June 30, 2013 and December 31, 2012, total assets of the manufacturing and distribution segments are as follows: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Manufacturing | $ | 262,826,955 | $ | 276,885,064 | |||||
Distribution | 2,501,501 | 8,741,917 | |||||||
Corporate | 153,476,172 | 160,681,943 | |||||||
Total assets | $ | 418,804,628 | $ | 446,308,924 | |||||
16_INCOME_TAX
16. INCOME TAX | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||
16. INCOME TAX | ' | ||||||||
The provisions for income taxes for the six months ended June 30, 2013 and 2012 are summarized as follows: | |||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Current tax provision-PRC | $ | 440,105 | $ | 835,326 | |||||
Deferred taxes-PRC | 610,221 | 118,639 | |||||||
Total provision for income taxes | $ | 1,050,326 | $ | 953,965 | |||||
The reconciliation of tax computed by applying the statutory income tax rate applicable to the PRC operations to income tax expenses was as follows: | |||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Income tax benefit at PRC statutory tax rate of 25% | $ | (8,226,358 | ) | $ | (10,500,265 | ) | |||
Preferential PRC tax rate of 10% | 2,178,372 | 2,923,955 | |||||||
Effect of prior year income tax | 38,572 | – | |||||||
Effect of different tax rates on non-PRC operations | 1,120,359 | 1,434,595 | |||||||
Non-recognition of income tax benefit for current year losses | 4,116,826 | 4,315,479 | |||||||
Provision for taxes on deemed interest income | 648,186 | 752,374 | |||||||
Non-deductible expenses in current year | 1,104,079 | 956,016 | |||||||
Other permanent differences | 70,290 | 1,071,811 | |||||||
Total provision for income taxes | $ | 1,050,326 | $ | 953,965 | |||||
The tax effects of temporary differences that give rise to the Company’s net deferred tax liabilities as of June 30, 2013 and December 31, 2012 were as follows: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Deferred tax assets | |||||||||
Current | |||||||||
Provision for doubtful accounts receivable | $ | 25,911 | $ | 25,386 | |||||
Expenses not deductible in current period | 7,705 | 3,274 | |||||||
Total current deferred tax assets | 33,616 | 28,660 | |||||||
Deferred tax liabilities | |||||||||
Non-current | |||||||||
Amortization | (1,144,120 | ) | (1,156,516 | ) | |||||
Depreciation | (778,620 | ) | (323,750 | ) | |||||
Step up of acquired assets | (10,648,501 | ) | (10,475,798 | ) | |||||
Total non-current deferred tax liabilities | (12,571,241 | ) | (11,956,064 | ) | |||||
Net deferred tax liabilities | $ | (12,537,625 | ) | $ | (11,927,404 | ) | |||
The Company has not recorded a provision for U.S. federal income tax for the six months ended June 30, 2013 and 2012 due to the cumulative tax net operating losses in the United States. As of June 30, 2013, the Company had net operating tax losses carried forward of approximately $26,000,000, $80,000,000 and $8,000,000 in the U.S., PRC, and Hong Kong, respectively. Those losses carried forward in the U.S. expire between years 2025 and 2030, and in the PRC expire between years 2015 and 2018. Losses incurred in Hong Kong are carried forward indefinitely. In the PRC and Hong Kong the subsidiaries with loss carryforwards are taxed on a separate return basis and the Company has determined all amounts should have full valuation allowances. At June 30, 2013, the tax benefit of the loss carryforwards had not been recorded and therefore is not presented in the table above. | |||||||||
The Company’s PRC subsidiaries that are deemed “high technology” enterprises are subject to preferred tax rates (tax holiday). The table below shows the effect of using the higher rates and earnings per share. | |||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Income (loss) per common share-basic | $ | (0.93 | ) | $ | (1.09 | ) | |||
Effect of tax holiday | 0 | 0 | |||||||
Pro forma income (loss) per common share-basic | $ | (0.93 | ) | $ | (1.09 | ) | |||
Accrued Taxes | |||||||||
Effective January 1, 2007, the Company adopted guidance for accounting for uncertainty in income taxes which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. As of June 30, 2013, the Company has recorded an accrued tax of $11,829,261 mainly related to tax positions associated with deemed interest on non-trade intercompany transactions. It is possible that the amount accrued will change in the next 12 months; however, an estimate of the range of the possible change cannot be made at this time. The accrued taxes, if ultimately recognized will impact the effective tax rate. | |||||||||
The Company has various open tax years between 2007 and 2012 in its significant operating jurisdictions. | |||||||||
All of the Company’s operations are conducted in the PRC. At June 30, 2013, the Company’s unremitted foreign earnings of its PRC subsidiaries totaled approximately $124 million and the Company held approximately $9 million of cash and cash equivalents in the PRC. These unremitted earnings are planned to be reinvested indefinitely into the operations of the Company in the PRC. While repatriation of some cash held in the PRC may be restricted by local PRC laws, most of the Company's foreign cash balances if be repatriated to the United States then, under current U.S. income tax laws, could be subject to U.S. federal income taxes less applicable foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability on the unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation, and as the Company does not plan to repatriate any cash in the PRC to the United States, no deferred tax liability has not been accrued for cash to be repatriated. |
17_RELATED_PARTY_TRANSACTIONS
17. RELATED PARTY TRANSACTIONS | 6 Months Ended |
Jun. 30, 2013 | |
Related Party Transactions [Abstract] | ' |
17. RELATED PARTY TRANSACTIONS | ' |
During the six months ended June 30, 2013, the Company’s Chairman and Chief Executive Office made advances to the Company of $193,923, which were repaid in July, 2013. |
18_SUBSEQUENT_EVENTS
18. SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2013 | |
Subsequent Events [Abstract] | ' |
18. SUBSEQUENT EVENTS | ' |
On October 7, 2013, the Company filed an Amendment to the Certificate of Designation of the Preferred Stock of the Company with the Secretary of State of Nevada. Paragraph 5 of the Certificate of Designation, which governs the voting power with respect to the Company’s Preferred Stock, was amended to include a provision that allows the 1,000,000 issued and outstanding shares of Preferred Stock to have an aggregate voting power of 25% of the shares of the Company’s common stock with respect to any matters upon which only a vote of the holders of the Company’s Common stock is required. This right is in addition to the aggregate voting power of 25% of the combined voting power of the entire Company’s shares of Common Stock and Preferred Stock with respect to any matters upon which the Common Stock and Preferred Stock may vote, which is already provided for in Paragraph 5 of the Certificate of Designation. | |
On October 25, 2013, the Board of Directors of the Company adopted a resolution approving a 1-for-1001 Reverse Stock split of the issued and outstanding shares of Common Stock of the Company. Subsequently, on October 25, 2013, stockholders holding a majority of the voting power of the Common Shares then outstanding approved the Reverse Stock Split. The Reverse Stock Split is part of a transaction structured to reduce the number of record holders of Common Shares to less than 300, allowing the Company to suspend its reporting obligations under Section 13(a) of the Securities Exchange Act of 1934, as amended, and terminate registration of our Common Shares under Section 12(g) of the Exchange Act. This action is being taken to eliminate the significant expense required to comply with the reporting and related requirements of being a publicly traded company in the U.S. The Reverse Stock Split will become effective no earlier than 20 calendar days after an Information Statement on Schedule 14C is mailed to the Company’s stockholders. All references to quantities of common stock or per share amounts herein will not be adjusted until the Reverse Stock Split is effective. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU1
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended | ||
Jun. 30, 2013 | |||
Accounting Policies [Abstract] | ' | ||
Fair Value of Financial Instruments | ' | ||
Fair Value of Financial Instruments | |||
FASB ASC 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. | |||
These tiers include: | |||
· | Level 1 - defined as observable inputs such as quoted prices in active markets; | ||
· | Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and | ||
· | Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions | ||
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts and notes receivable, short-term bank loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of long-term loans approximate their fair values due to the fact that the interest rates on these loans are reset each year based on prevailing market interest rates. The convertible notes are initially recognized based on residual proceeds after allocation to the derivative financial liabilities, if any, at fair value and subsequently carried at amortized cost using the effective interest rate method, with any accrued and unpaid interest included under other payables and accrued expenses. | |||
Earnings per share | ' | ||
Earnings per share | |||
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the year. The diluted earnings per share calculation gives effect to all potentially dilutive common shares outstanding during the year. As of June 30, 2013, common stock equivalents were composed of options convertible into 850,539 shares of the Company’s common stock and notes convertible into 6,084,282 shares of the Company’s common stock. For the three and six months ended June 30, 2013 and 2012, common stock equivalents have been excluded from the calculation of earnings per share as their effect is anti-dilutive. | |||
Impairment | ' | ||
Impairment | |||
In evaluating long-lived assets for recoverability, including finite-lived intangibles and property and equipment, the Company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition. To the extent that estimated future, undiscounted cash inflows attributable to the asset, less estimated future, undiscounted cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal, whether through sale or abandonment, are reported at the lower of carrying value or fair value less costs to sell. | |||
In evaluating capitalized agriculture costs, the Company uses its best estimate of the future cash flows expected to result from future market values, yields and costs to harvest. To the extent that estimated future cash inflows attributable to the asset, less estimated future, cash outflows, are less than the carrying amount, an impairment loss is recognized in an amount equal to the excess of the carrying value over the estimated fair values of the capitalized agricultural costs. | |||
The Company’s annual impairment testing is performed in the fourth quarter of each year. | |||
In the fourth quarter of 2012, the Company had impairment write-offs to property and equipment and land use rights of $12,577,507 and $10,255,550, respectively, based on their annual review. Also in the fourth quarter of 2012, the Company recorded a write-off related to the estimated recoverability of capitalized agriculture costs of $8,525,587. | |||
Recent Accounting Pronouncements | ' | ||
Recent Accounting Pronouncements | |||
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2012-02, “Intangibles – Goodwill and Other”. This update presents an entity with the option to first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, “Intangibles – Goodwill and Other – General Intangibles Other than Goodwill”. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. ASU No. 2012-02 will be effective for annual and impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company’s adoption of this update did not have a material effect on its consolidated financial statements. | |||
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. This guidance is effective for annual and interim reporting periods beginning January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations. | |||
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The new guidance requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income unless the amounts are not reclassified in their entirety to net income. For amounts that are not required to be reclassified in their entirety to net income in the same reporting period, entities are required to cross-reference other disclosures that provide additional detail about those amounts. The new guidance is effective prospectively for all interim and annual periods beginning after December 15, 2012, with early adoption permitted. The Company’s adoption of this update did not have a material effect on its consolidated financial statements. | |||
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements. |
4_ACCOUNTS_RECEIVABLE_Tables
4. ACCOUNTS RECEIVABLE (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Receivables [Abstract] | ' | ||||||||
Schedule of Accounts receivable | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Accounts receivable | $ | 46,839,617 | $ | 63,678,523 | |||||
Allowance for doubtful accounts | (17,599,876 | ) | (18,134,912 | ) | |||||
Accounts receivable, net | $ | 29,239,741 | $ | 45,543,611 |
5_INVENTORIES_Tables
5. INVENTORIES (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Inventory Disclosure [Abstract] | ' | ||||||||
Summary of Inventories | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Raw materials | $ | 9,643,157 | $ | 6,390,360 | |||||
Work in process | 1,627,634 | 4,042,287 | |||||||
Finished goods | 10,112,239 | 10,185,480 | |||||||
Total inventories | 21,383,030 | 20,618,127 | |||||||
Less: provision against slow-moving inventories | (45,952 | ) | (47,281 | ) | |||||
Inventories, net | $ | 21,337,078 | $ | 20,570,846 | |||||
Summary of Capitalized agricultural costs | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Growing crops | $ | 6,818,162 | $ | 6,643,146 | |||||
Payments for long-term crop contracts | 6,759,639 | 6,622,758 | |||||||
Prepaid land leasing costs for long-term supply contracts and others | 4,226,201 | 4,177,571 | |||||||
Capitalized agricultural costs | $ | 17,804,002 | $ | 17,443,475 | |||||
6_ADVANCES_TO_SUPPLIERS_AND_PR1
6. ADVANCES TO SUPPLIERS AND PREPAID EXPENSES (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ' | ||||||||
ADVANCES TO SUPPLIERS AND PREPAID EXPENSES | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Advances to suppliers | $ | 5,057,213 | $ | 10,065,358 | |||||
Prepaid expenses | 2,534,218 | 227,002 | |||||||
Advances to suppliers and prepaid expenses | $ | 7,591,431 | $ | 10,292,360 |
7_PROPERTY_PLANT_AND_EQUIPMENT1
7. PROPERTY, PLANT AND EQUIPMENT (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Property, Plant and Equipment [Abstract] | ' | ||||||||
Schedule of Property, plant and equipment | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Original cost: | |||||||||
Buildings | $ | 142,140,262 | $ | 139,294,146 | |||||
Machinery and equipment | 29,247,762 | 28,451,421 | |||||||
Motor vehicles | 2,143,734 | 2,091,043 | |||||||
Office equipment | 3,804,814 | 3,168,422 | |||||||
Other equipment | 2,441,565 | 2,392,323 | |||||||
Construction in progress | 34,639,070 | 33,389,418 | |||||||
214,417,207 | 208,786,773 | ||||||||
Less: Accumulated depreciation | (41,434,395 | ) | (37,405,384 | ) | |||||
Property, plant and equipment, net | $ | 172,982,812 | $ | 171,381,389 |
8_LAND_USE_RIGHTS_Tables
8. LAND USE RIGHTS (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Payments for long-term crop contracts | ' | ||||||||
Schedule of Land use rights | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Cost of land use rights | $ | 161,733,404 | $ | 158,458,327 | |||||
Less: Accumulated amortization | (15,158,442 | ) | (13,143,399 | ) | |||||
Land use rights, net | $ | 146,574,962 | $ | 145,314,928 |
9_ACQUIRED_INTANGIBLE_ASSETS_T
9. ACQUIRED INTANGIBLE ASSETS (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ' | ||||||||
Summary of Acquired intangible assets | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
At cost: | |||||||||
Product licenses | $ | 13,718,668 | $ | 13,440,868 | |||||
Trademarks | 6,842,561 | 6,704,001 | |||||||
Patents | 3,479,887 | 3,409,420 | |||||||
Software | 191,343 | 187,469 | |||||||
Liaoning Baicao pharmaceutical trade license | 5,678,549 | 5,563,560 | |||||||
29,911,008 | 29,305,318 | ||||||||
Less: Accumulated amortization | |||||||||
Product licenses | (8,499,310 | ) | (7,947,887 | ) | |||||
Trademarks | (5,997,327 | ) | (5,514,005 | ) | |||||
Patents | (2,785,984 | ) | (2,616,351 | ) | |||||
Software | (126,872 | ) | (110,695 | ) | |||||
Liaoning Baicao pharmaceutical trade license | (283,927 | ) | – | ||||||
(17,693,420 | ) | (16,188,938 | ) | ||||||
Acquired intangible assets, net | $ | 12,217,588 | $ | 13,116,380 |
10_INVESTMENTS_IN_AND_ADVANCES1
10. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTMENTS (Tables) | 6 Months Ended | |||||||||||
Jun. 30, 2013 | ||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | ' | |||||||||||
Summary of changes in investments and advances to equity method investments | ' | |||||||||||
AXN | Jinji | Yushuntang | Total | |||||||||
Balance, December 31, 2012 | $ | 2,957,077 | $ | 147,512 | $ | 232,896 | $ | 3,337,485 | ||||
Advances (net of repayments) | -6,600 | 140,902 | 462,535 | 596,837 | ||||||||
Provision for uncollectible advances | – | – | -462,535 | -462,535 | ||||||||
Income (loss) | -1,919,878 | 62 | -52,557 | -1,972,373 | ||||||||
Foreign currency translations | – | 3,919 | 1,246 | 5,165 | ||||||||
Balance, June 30, 2013 | $ | 1,030,599 | $ | 292,395 | $ | 181,585 | $ | 1,504,579 |
13_SHAREHOLDERS_EQUITY_Tables
13. SHAREHOLDERS' EQUITY (Tables) | 6 Months Ended | ||||||||||||
Jun. 30, 2013 | |||||||||||||
Equity [Abstract] | ' | ||||||||||||
Stock option activity | ' | ||||||||||||
Weighted | |||||||||||||
Average | |||||||||||||
Activity | Exercise Price | ||||||||||||
Outstanding as of January 1, 2013 | 883,639 | $ | 15.7 | ||||||||||
Granted | – | – | |||||||||||
Forfeited | -33,100 | 10.7 | |||||||||||
Outstanding as of June 30, 2013 | 850,539 | $ | 15.9 | ||||||||||
Vested and expected to vest as of June 30, 2013 | 850,539 | ||||||||||||
Stock options outstanding information | ' | ||||||||||||
Options Outstanding | Options Exercisable | ||||||||||||
Weighted | Weighted Average | Weighted | |||||||||||
Average | Remaining | Average | |||||||||||
Number of | Exercise | Contractual Life | Number of | Exercise | |||||||||
Range of Exercise Prices | Shares | Price | (in years) | Shares | Price | ||||||||
$17.08 - 21.48 | 409,850 | $ | 20.09 | 3.91 | 409,850 | $ | 20.09 | ||||||
$9.90 - 16.70 | 307,040 | $ | 13.72 | 5.05 | 280,210 | $ | 14.09 | ||||||
$8.02 | 133,649 | $ | 8.02 | 5.78 | 106,919 | $ | 8.02 | ||||||
850,539 | 796,979 |
15_SEGMENT_REPORTING_Tables
15. SEGMENT REPORTING (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Segment Reporting [Abstract] | ' | ||||||||
Segment Reporting | ' | ||||||||
For the three months ended June 30, 2013 and 2012, the Company’s segments were as follows: | |||||||||
Three Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Manufacturing Segment | |||||||||
Revenue from pharmaceutical products | $ | 12,268,177 | $ | 15,887,829 | |||||
Revenue from nutraceutical products | 1,838,307 | 1,285,884 | |||||||
Total manufacturing revenue | 14,106,484 | 17,173,713 | |||||||
Cost of sales | 9,429,046 | 14,668,068 | |||||||
Depreciation and amortization expense | 1,194,275 | 1,064,123 | |||||||
Selling, general and administrative expenses, research and development | |||||||||
costs and advertising costs | 12,222,619 | 17,935,432 | |||||||
Provision for reserves and doubtful accounts-manufacturing segment | 2,954,946 | (1,315,842 | ) | ||||||
Operating loss of manufacturing segment | (5,780,571 | ) | (17,793,664 | ) | |||||
Distribution Segment | |||||||||
Distribution revenue | 6,117,653 | 10,273,213 | |||||||
Cost of sales | 5,809,157 | 9,586,612 | |||||||
Depreciation and amortization expense-distribution segment | 176,827 | 47,911 | |||||||
Provision for reserves and doubtful accounts-distribution segment | (953,605 | ) | (713,150 | ) | |||||
Operating loss of distribution segment | (1,268,848 | ) | (777,573 | ) | |||||
Reconciliation to Consolidated Net Loss Attributable to Controlling Interest: | |||||||||
Net loss for reportable segments | (7,049,419 | ) | (18,571,237 | ) | |||||
Net loss for corporate segment | (5,791,480 | ) | (7,215,960 | ) | |||||
Consolidated Net Loss Attributable to Controlling Interest | $ | (12,840,899 | ) | $ | (25,787,197 | ) | |||
For the six months ended June 30, 2013 and 2012, the Company’s segments were as follows: | |||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Manufacturing Segment | |||||||||
Revenue from pharmaceutical products | $ | 24,010,946 | $ | 30,111,084 | |||||
Revenue from nutraceutical products | 3,531,529 | 3,211,136 | |||||||
Total manufacturing revenue | 27,542,475 | 33,322,220 | |||||||
Cost of sales | 18,860,301 | 23,951,747 | |||||||
Depreciation and amortization expense | 2,400,865 | 2,626,337 | |||||||
Selling, general and administrative expenses, research and development | |||||||||
costs and advertising costs | 29,191,644 | 34,148,569 | |||||||
Provision for reserves and doubtful accounts-manufacturing segment | 926,302 | (649,706 | ) | ||||||
Operating loss of manufacturing segment | (21,980,094 | ) | (29,370,323 | ) | |||||
Distribution Segment | |||||||||
Distribution revenue | 13,688,425 | 19,869,982 | |||||||
Cost of sales | 12,883,790 | 18,366,387 | |||||||
Depreciation and amortization expense-distribution segment | 356,643 | 97,252 | |||||||
Provision for reserves and doubtful accounts-distribution segment | (658,070 | ) | (713,150 | ) | |||||
Operating loss of distribution segment | (1,245,406 | ) | (835,755 | ) | |||||
Reconciliation to Consolidated Net Loss Attributable to Controlling Interest: | |||||||||
Net loss for reportable segments | (23,225,500 | ) | (30,206,078 | ) | |||||
Net loss for corporate segment | (10,730,256 | ) | (12,738,044 | ) | |||||
Consolidated Net Loss Attributable to Controlling Interest | $ | (33,955,756 | ) | $ | (42,944,122 | ) | |||
As of June 30, 2013 and December 31, 2012, total assets of the manufacturing and distribution segments are as follows: | |||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Manufacturing | $ | 262,826,955 | $ | 276,885,064 | |||||
Distribution | 2,501,501 | 8,741,917 | |||||||
Corporate | 153,476,172 | 160,681,943 | |||||||
Total assets | $ | 418,804,628 | $ | 446,308,924 | |||||
16_INCOME_TAX_Tables
16. INCOME TAX (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2013 | |||||||||
Income Tax Disclosure [Abstract] | ' | ||||||||
Schedule of provisions for income taxes | ' | ||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Current tax provision-PRC | $ | 440,105 | $ | 835,326 | |||||
Deferred taxes-PRC | 610,221 | 118,639 | |||||||
Total provision for income taxes | $ | 1,050,326 | $ | 953,965 | |||||
Schedule of reconciliation of tax | ' | ||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Income tax benefit at PRC statutory tax rate of 25% | $ | (8,226,358 | ) | $ | (10,500,265 | ) | |||
Preferential PRC tax rate of 10% | 2,178,372 | 2,923,955 | |||||||
Effect of prior year income tax | 38,572 | – | |||||||
Effect of different tax rates on non-PRC operations | 1,120,359 | 1,434,595 | |||||||
Non-recognition of income tax benefit for current year losses | 4,116,826 | 4,315,479 | |||||||
Provision for taxes on deemed interest income | 648,186 | 752,374 | |||||||
Non-deductible expenses in current year | 1,104,079 | 956,016 | |||||||
Other permanent differences | 70,290 | 1,071,811 | |||||||
Total provision for income taxes | $ | 1,050,326 | $ | 953,965 | |||||
Schedule of Deferred Tax Assets and Liabilities | ' | ||||||||
June 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Deferred tax assets | |||||||||
Current | |||||||||
Provision for doubtful accounts receivable | $ | 25,911 | $ | 25,386 | |||||
Expenses not deductible in current period | 7,705 | 3,274 | |||||||
Total current deferred tax assets | 33,616 | 28,660 | |||||||
Deferred tax liabilities | |||||||||
Non-current | |||||||||
Amortization | (1,144,120 | ) | (1,156,516 | ) | |||||
Depreciation | (778,620 | ) | (323,750 | ) | |||||
Step up of acquired assets | (10,648,501 | ) | (10,475,798 | ) | |||||
Total non-current deferred tax liabilities | (12,571,241 | ) | (11,956,064 | ) | |||||
Net deferred tax liabilities | $ | (12,537,625 | ) | $ | (11,927,404 | ) | |||
Schedule of earnings per share | ' | ||||||||
Six Months Ended June 30, | |||||||||
2013 | 2012 | ||||||||
Income (loss) per common share-basic | $ | (0.93 | ) | $ | (1.09 | ) | |||
Effect of tax holiday | 0 | 0 | |||||||
Pro forma income (loss) per common share-basic | $ | (0.93 | ) | $ | (1.09 | ) |
1_DESCRIPTION_OF_BUSINESS_AND_1
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Details Narrative) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Commitments And Contingencies Details Narrative | ' | ' | ' | ' |
Loss from operations | $10,320,000 | $22,219,463 | $29,337,888 | $37,309,481 |
Cash used in operations | ' | ' | 4,873,817 | 34,437,589 |
Working capital | ($36,114,345) | ' | ($36,114,345) | ' |
2_SUMMARY_OF_SIGNIFICANT_ACCOU2
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) | 6 Months Ended |
Jun. 30, 2013 | |
Options | ' |
Anti-dilutive shares | 850,539 |
Notes Convertible | ' |
Anti-dilutive shares | 6,084,282 |
4_ACCOUNTS_RECEIVABLE_Details
4. ACCOUNTS RECEIVABLE (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Receivables [Abstract] | ' | ' |
Accounts receivable | $46,839,617 | $63,678,523 |
Allowance for doubtful accounts | -17,599,876 | -18,134,912 |
Accounts receivable, net | $29,239,741 | $45,543,611 |
5_INVENTORIES_Details
5. INVENTORIES (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Inventory Disclosure [Abstract] | ' | ' |
Raw materials | $9,643,157 | $6,390,360 |
Work in process | 1,627,634 | 4,042,287 |
Finished goods | 10,112,239 | 10,185,480 |
Total inventories | 21,383,030 | 20,618,127 |
Less: provision against slow-moving inventories | -45,952 | -47,281 |
Inventories, net | $21,337,078 | $20,570,846 |
5_INVENTORIES_Capitalized_agri
5. INVENTORIES (Capitalized agricultural costs) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Inventory Disclosure [Abstract] | ' | ' |
Growing crops | $6,818,162 | $6,643,146 |
Payments for long-term crop contracts | 6,759,639 | 6,622,758 |
Prepaid land leasing costs for long-term supply contracts | 4,226,201 | 4,177,571 |
Capitalized agricultural costs | $17,804,002 | $17,443,475 |
5_INVENTORIES_Narrative
5. INVENTORIES (Narrative) (USD $) | 6 Months Ended |
Jun. 30, 2013 | |
Inventories Narrative | ' |
Pre-harvest agricultural costs incurred | $2,361,383 |
6_ADVANCES_TO_SUPPLIERS_AND_PR2
6. ADVANCES TO SUPPLIERS AND PREPAID EXPENSES (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ' | ' |
Advances to suppliers | $5,057,213 | $10,065,358 |
Prepaid expenses | 2,534,218 | 227,002 |
Advances to suppliers and prepaid expenses | $7,591,431 | $10,292,360 |
7_PROPERTY_PLANT_AND_EQUIPMENT2
7. PROPERTY, PLANT AND EQUIPMENT (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Original cost: | ' | ' |
Property, plant and equipment, gross | $214,417,207 | $208,786,773 |
Less: Accumulated depreciation | -41,434,395 | -37,405,384 |
Property, plant and equipment, net | 172,982,812 | 171,381,389 |
Building [Member] | ' | ' |
Original cost: | ' | ' |
Property, plant and equipment, gross | 142,140,262 | 139,294,146 |
Machinery and Equipment [Member] | ' | ' |
Original cost: | ' | ' |
Property, plant and equipment, gross | 29,247,762 | 28,451,421 |
Vehicles [Member] | ' | ' |
Original cost: | ' | ' |
Property, plant and equipment, gross | 2,143,734 | 2,091,043 |
Office Equipment [Member] | ' | ' |
Original cost: | ' | ' |
Property, plant and equipment, gross | 3,804,814 | 3,168,422 |
Other Machinery and Equipment [Member] | ' | ' |
Original cost: | ' | ' |
Property, plant and equipment, gross | 2,441,565 | 2,392,323 |
Construction in Progress [Member] | ' | ' |
Original cost: | ' | ' |
Property, plant and equipment, gross | $34,639,070 | $33,389,418 |
7_PROPERTY_PLANT_AND_EQUIPMENT3
7. PROPERTY, PLANT AND EQUIPMENT (Narrative) (USD $) | 6 Months Ended | |||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Dec. 31, 2012 | |
Property, Plant and Equipment [Member] | Property, Plant and Equipment [Member] | |||
Depreciation expense | $3,234,708 | $3,390,361 | ' | ' |
Property pledged as collateral | ' | ' | 8,701,259 | 6,099,734 |
Capital commitment | 36,585,847 | ' | ' | ' |
Capital commitment due 1-3 years | $6,948,709 | ' | ' | ' |
8_LAND_USE_RIGHTS_Details
8. LAND USE RIGHTS (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Payments for long-term crop contracts | ' | ' |
Cost of land use rights | $161,733,404 | $158,458,327 |
Less: Accumulated amortization | -15,158,442 | -13,143,399 |
Land use rights, net | $146,574,962 | $145,314,928 |
8_LAND_USE_RIGHTS_Narrative
8. LAND USE RIGHTS (Narrative) (USD $) | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2012 | Mar. 31, 2012 | Jun. 30, 2013 | Jun. 30, 2013 | Dec. 31, 2012 | |
Land Use Rights | Land Use Rights | Land Use Rights | Land Use Rights | ||
Amortization expense | $714,829 | $1,780,782 | $1,727,477 | ' | ' |
Land use rights pledged as collateral | ' | ' | ' | $25,887,350 | $20,664,778 |
9_ACQUIRED_INTANGIBLE_ASSETS_D
9. ACQUIRED INTANGIBLE ASSETS (Details) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Acquired intangible assets, at cost | $29,911,008 | $29,305,318 |
Less: Accumulated amortization | -17,693,420 | -16,188,938 |
Acquired intangible assets, net | 12,217,588 | 13,116,380 |
Product licenses | ' | ' |
Acquired intangible assets, at cost | 13,718,668 | 13,440,868 |
Less: Accumulated amortization | -8,499,310 | -7,947,887 |
Trademarks | ' | ' |
Acquired intangible assets, at cost | 6,842,561 | 6,704,001 |
Less: Accumulated amortization | -5,997,327 | -5,514,005 |
Patents | ' | ' |
Acquired intangible assets, at cost | 3,479,887 | 3,409,420 |
Less: Accumulated amortization | -2,785,984 | -2,616,351 |
Software | ' | ' |
Acquired intangible assets, at cost | 191,343 | 187,469 |
Less: Accumulated amortization | -126,872 | -110,695 |
Liaoning Baicao pharmaceutical trade license | ' | ' |
Acquired intangible assets, at cost | 5,678,549 | 5,563,560 |
Less: Accumulated amortization | ($283,927) | $0 |
9_ACQUIRED_INTANGIBLE_ASSETS_N
9. ACQUIRED INTANGIBLE ASSETS (Narrative) (USD $) | 6 Months Ended | |
Jun. 30, 2012 | Jun. 30, 2013 | |
Finite-Lived Intangible Assets [Member] | ||
Amortization expense | $714,829 | $1,159,016 |
10_INVESTMENTS_IN_AND_ADVANCES2
10. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTMENTS (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Beginning Balance | ' | ' | $3,337,485 | ' |
Advances (net of repayments) | ' | ' | 596,837 | ' |
Provision for uncollectible advances | ' | ' | -462,535 | ' |
Income (loss) | -1,004,141 | -1,297,597 | -1,972,373 | -1,489,047 |
Foreign currency translations | ' | ' | 5,165 | ' |
Ending Balance | 1,504,579 | ' | 1,504,579 | ' |
AXN | ' | ' | ' | ' |
Beginning Balance | ' | ' | 2,957,077 | ' |
Advances (net of repayments) | ' | ' | -6,600 | ' |
Provision for uncollectible advances | ' | ' | 0 | ' |
Income (loss) | ' | ' | -1,919,878 | ' |
Foreign currency translations | ' | ' | 0 | ' |
Ending Balance | 1,030,599 | ' | 1,030,599 | ' |
Jinji | ' | ' | ' | ' |
Beginning Balance | ' | ' | 147,512 | ' |
Advances (net of repayments) | ' | ' | 140,902 | ' |
Provision for uncollectible advances | ' | ' | 0 | ' |
Income (loss) | ' | ' | 62 | ' |
Foreign currency translations | ' | ' | 3,919 | ' |
Ending Balance | 292,395 | ' | 292,395 | ' |
Yushuntang | ' | ' | ' | ' |
Beginning Balance | ' | ' | 232,896 | ' |
Advances (net of repayments) | ' | ' | 462,535 | ' |
Provision for uncollectible advances | ' | ' | -462,535 | ' |
Income (loss) | ' | ' | -52,557 | ' |
Foreign currency translations | ' | ' | 1,246 | ' |
Ending Balance | $181,585 | ' | $181,585 | ' |
11_DEBT_Narrative
11. DEBT (Narrative) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Document And Entity Information | ' | ' |
Short-term notes payable due to various banks in the PRC | $4,110,349 | $11,054,449 |
Restricted cash as a guarantee for the notes payable | 2,055,175 | 6,514,224 |
Short-term loans obtained from local banks | 10,827,058 | 6,807,999 |
Long-term bank loan | $586,776 | $619,401 |
12_CONVERTIBLE_NOTES_Narrative
12. CONVERTIBLE NOTES (Narrative) (USD $) | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Dec. 31, 2012 | |
ConvertibleNotesDetailsNarrativeAbstract | ' | ' | ' |
Convertible notes | $52,536,329 | ' | ' |
Effective interest rate on the convertible notes | 5.94% | ' | ' |
Interest expense | 1,435,025 | 2,712,500 | ' |
Deferred financing fees unamortized | $16,279 | ' | $212,724 |
13_SHAREHOLDERS_EQUITY_Details
13. SHAREHOLDERS EQUITY (Details) (Options, USD $) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2013 | Dec. 31, 2012 | |
Options | ' | ' |
Activity | ' | ' |
Stock options outstanding, beginning balance | 883,639 | 883,639 |
Granted | ' | ' |
Exercised | ' | ' |
Forfeited | -33,100 | ' |
Stock options outstanding, ending balance | 850,539 | 883,639 |
Vested and expeceted to vest | $850,539 | ' |
Weighted Average Exercise Price | ' | ' |
Stock options outstanding, beginning balance | $15.70 | $15.70 |
Granted | ' | ' |
Exercised | ' | ' |
Forfeited | $10.70 | ' |
Stock options outstanding, ending balance | $15.90 | $15.70 |
13_SHAREHOLDERS_EQUITY_Details1
13. SHAREHOLDERS EQUITY (Details 2) (USD $) | 6 Months Ended |
Jun. 30, 2013 | |
17.08-21.48 | ' |
Number of shares- outstanding | 409,850 |
Weighted average exercise price - outstanding | $20.09 |
Weighted average remaining contractual life - outstanding | '3 years 10 months 28 days |
Numer of shares - exercisable | 409,850 |
Weighted average exercise price - exercisable | $20.09 |
9.90-16.70 | ' |
Number of shares- outstanding | 307,040 |
Weighted average exercise price - outstanding | $13.72 |
Weighted average remaining contractual life - outstanding | '5 years 18 days |
Numer of shares - exercisable | 280,210 |
Weighted average exercise price - exercisable | $14.09 |
8.02 | ' |
Number of shares- outstanding | 133,649 |
Weighted average exercise price - outstanding | $8.02 |
Weighted average remaining contractual life - outstanding | '5 years 9 months 11 days |
Numer of shares - exercisable | 106,919 |
Weighted average exercise price - exercisable | $8.02 |
Options | ' |
Number of shares- outstanding | 850,539 |
Numer of shares - exercisable | 796,979 |
13_SHAREHOLDERS_EQUITY_Narrati
13. SHAREHOLDERS' EQUITY (Narrative) (USD $) | 6 Months Ended | |
Jun. 30, 2013 | Jun. 30, 2012 | |
Weighted average value per share | $10.41 | ' |
Common Stock Awards | ' | ' |
Fair value of the options granted | $5,665,535 | ' |
Unrecognized share based compensation | 1,898,438 | ' |
Weighted average period for Recognition | '1 year 10 months 24 days | ' |
Common Stock Awards | Selling, General and Administrative Expenses | Employees | ' | ' |
Stock based compensation | 544,486 | 709,555 |
Common Stock Awards | Selling, General and Administrative Expenses | Independent Directors | ' | ' |
Stock based compensation | 75,000 | 97,525 |
Common Stock Awards | Research and Development Expense | Consultants | ' | ' |
Stock based compensation | 0 | 32,500 |
Options | ' | ' |
Fair value of the options granted | 9,194,987 | ' |
Unrecognized share based compensation | 238,184 | ' |
Weighted average period for Recognition | '2 months 12 days | ' |
Options | Selling, General and Administrative Expenses | Employees | ' | ' |
Stock based compensation | $259,682 | $588,380 |
14_COMMITMENTS_AND_CONTINGENCI1
14. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) | Jun. 30, 2013 |
CommitmentsAndContingenciesDetailsNarrativeAbstract | ' |
Capital commitments | $36,585,847 |
Capital commitments due within one to three years | 6,948,709 |
R&D commitments, within one year | 5,611,002 |
R&D commitments, after one year but within five years | 698,103 |
Purchase commitments, within one year | 2,398,626 |
Purchase commitments, after one year but within five years | 2,141,172 |
Maintenance fees (approximately) per year from 2013 to 2019 | $111,000 |
15_SEGMENT_REPORTING_Details
15. SEGMENT REPORTING (Details) (USD $) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | Dec. 31, 2012 | |
Total revenue | $20,224,137 | $27,446,926 | $41,230,900 | $53,192,202 | ' |
Depreciation and amortization expense | 1,855,076 | 1,578,733 | 3,719,283 | 3,659,432 | ' |
Selling, general and administrative expenses, research and development costs and advertising costs | 11,018,304 | 12,060,135 | 23,495,026 | 24,042,204 | ' |
Provision for reserves doubtful accounts | -1,998,441 | 2,067,462 | -234,489 | 3,053,248 | ' |
Operating income (loss) of manufacturing and distribution segments | -12,141,818 | -25,257,368 | -32,905,430 | -42,001,059 | ' |
Reconciliation to Consolidated Net Loss Attributable to Controlling Interest: | ' | ' | ' | ' | ' |
Net loss for reportable segments | -7,049,419 | -18,571,237 | -23,225,500 | -11,634,841 | ' |
Net loss for corporate segment | -5,791,480 | -7,215,960 | -10,730,256 | -5,522,084 | ' |
Consolidated Net Loss Attributable to Controlling Interest | -12,840,899 | -25,787,197 | -33,955,756 | -42,944,122 | ' |
Total Assets | ' | ' | ' | ' | ' |
Total assets | 418,804,628 | ' | 418,804,628 | ' | 446,308,924 |
Manufacturing | ' | ' | ' | ' | ' |
Revenue from pharmaceutical products | 12,268,177 | 15,887,829 | 24,010,946 | 30,111,084 | ' |
Revenue from nutraceutical products | 1,838,307 | 1,285,884 | 3,531,529 | 3,211,136 | ' |
Total revenue | 14,106,484 | 17,173,713 | 27,542,475 | 33,322,220 | ' |
Cost of sales | 9,429,046 | 14,668,068 | 18,860,301 | 23,951,747 | ' |
Depreciation and amortization expense | 1,194,275 | 1,064,123 | 2,400,865 | 2,626,337 | ' |
Selling, general and administrative expenses, research and development costs and advertising costs | 12,222,619 | 17,935,432 | 29,191,644 | 34,148,569 | ' |
Provision for reserves doubtful accounts | 2,954,946 | -1,315,842 | 926,302 | -649,706 | ' |
Operating income (loss) of manufacturing and distribution segments | -5,780,571 | -17,793,664 | -21,980,094 | -29,370,323 | ' |
Total Assets | ' | ' | ' | ' | ' |
Total assets | 262,826,955 | ' | 262,826,955 | ' | 276,885,064 |
Distribution | ' | ' | ' | ' | ' |
Total revenue | 6,117,653 | 10,273,213 | 13,688,425 | 19,869,982 | ' |
Cost of sales | 5,809,157 | 9,586,612 | 12,883,790 | 18,366,387 | ' |
Depreciation and amortization expense | 176,827 | 47,911 | 356,643 | 97,252 | ' |
Provision for reserves doubtful accounts | -953,605 | -713,150 | -658,070 | -713,150 | ' |
Operating income (loss) of manufacturing and distribution segments | -1,268,848 | -777,573 | -1,245,406 | -835,755 | ' |
Total Assets | ' | ' | ' | ' | ' |
Total assets | 2,501,501 | ' | 2,501,501 | ' | 8,741,917 |
Corporate | ' | ' | ' | ' | ' |
Total Assets | ' | ' | ' | ' | ' |
Total assets | $153,476,172 | ' | $153,476,172 | ' | $160,681,943 |
16_INCOME_TAX_Details
16. INCOME TAX (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Income Tax Disclosure [Abstract] | ' | ' | ' | ' |
Current tax provision-PRC | ' | ' | $440,105 | $835,326 |
Deferred taxes-PRC | ' | ' | 610,221 | 118,639 |
Total provision for income taxes | $699,081 | $510,897 | $1,050,326 | $953,965 |
16_INCOME_TAX_Details_1
16. INCOME TAX (Details 1) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Income Tax Disclosure [Abstract] | ' | ' | ' | ' |
Income tax benefit at PRC statutory tax rate of 25% | ' | ' | ($8,226,358) | ($10,500,265) |
Preferential PRC tax rate of 10% | ' | ' | 2,178,372 | 2,923,955 |
Effect of prior year income tax | ' | ' | 38,572 | 0 |
Effect of different tax rates on non-PRC operations | ' | ' | 1,120,359 | 1,434,595 |
Non-recognition of income tax benefit for current year losses | ' | ' | 4,116,826 | 4,315,479 |
Provision for taxes on deemed interest income | ' | ' | 648,186 | 852,374 |
Non-deductible expenses in current year | ' | ' | 1,104,079 | 956,016 |
Other permanent differences | ' | ' | 70,290 | 1,071,811 |
Total provision for income taxes | $699,081 | $510,897 | $1,050,326 | $953,965 |
16_INCOME_TAX_Details_2
16. INCOME TAX (Details 2) (USD $) | Jun. 30, 2013 | Dec. 31, 2012 |
Current Deferred tax assets | ' | ' |
Provision for doubtful accounts receivable | $25,911 | $25,386 |
Other costs | 7,705 | 3,274 |
Total current deferred tax assets | 33,616 | 28,660 |
Non-current Deferred tax liabilities | ' | ' |
Amortization | -1,144,120 | -1,156,516 |
Depreciation | -778,620 | -323,750 |
Step up of acquired assets | -10,648,501 | -10,475,798 |
Total non-current deferred tax liabilities | -12,571,241 | -11,956,064 |
Net deferred tax liabilities | ($12,537,625) | ($11,927,404) |
16_INCOME_TAX_Details_3
16. INCOME TAX (Details 3) (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2013 | Jun. 30, 2012 | Jun. 30, 2013 | Jun. 30, 2012 | |
Income Tax Disclosure [Abstract] | ' | ' | ' | ' |
Loss per common share-basic | ($0.35) | ($0.66) | ($0.93) | ($1.09) |
Effect of tax holiday | ' | ' | $0 | $0 |
Pro forma loss per common share-basic | ' | ' | ($0.93) | ($1.09) |