Attached files
file | filename |
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EX-32.2 - CERTIFICATION - BIOPHARM ASIA, INC. | ex32-2.htm |
EX-32.1 - CERTIFICATION - BIOPHARM ASIA, INC. | ex32-1.htm |
EX-31.2 - CERTIFICATION - BIOPHARM ASIA, INC. | ex31-2.htm |
EX-31.1 - CERTIFICATION - BIOPHARM ASIA, INC. | ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q/A
(Mark
One)
|X| QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2009
OR
|_| TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE
TRANSITION FROM _______ TO ________.
COMMISSION
FILE NUMBER: 000-25487
BIOPHARM ASIA,
INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
NEVADA
|
88-0409159
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
New
Agriculture Development Park, Daquan Village,
Tonghua County, Jilin
Province, P.R. China. 134115
(Address
of principal executive offices) (Zip code)
Issuer's
telephone number: 011-86-435-5211803
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was
required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes |X|
No |_|
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
|_| Accelerated
filer |_|
Non-accelerated
filer |_| Smaller
reporting company |X|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes |_| No |X|
At August
10, 2009, the Registrant had outstanding 50,000,000 shares of
common stock.
Explanatory
Note
This
amendment has been filed to amend Note 1 to our Notes to Consolidated Financial
Statements and Item 4 of Part I (“Evaluation of Disclosure Controls and
Procedures”) in response to comments received from the staff of the Securities
and Exchange Commission.
FORM
10-Q
BIOPHARM
ASIA, INC.
INDEX
Page
|
||
PART I
|
FINANCIAL
INFORMATION
|
|
Item
1. Financial Statements (Unaudited)
|
3
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and
December 31, 2008
|
3
|
|
Condensed Consolidated
Statements of Income for the Three and Six Months Ended June 30, 2009 and
2008 (Unaudited)
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2009 and 2008 (Unaudited)
|
5
|
|
Notes
to Consolidated Financial Statements as of June 30, 2009
(Unaudited)
|
6
|
|
Item
4. Controls and Procedures
|
21
|
|
PART II
|
OTHER
INFORMATION
|
|
Item
6. Exhibits
|
22
|
2
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 5,088,205 | $ | 5,869,607 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $302,352
and
|
||||||||
$417,029
at June 30, 2009 and December 31, 2008, respectively
|
9,642,499 | 14,937,074 | ||||||
Other
receivables, net of allowance for doubtful accounts of $13,587
and
|
||||||||
$302,195
at June 30, 2009 and December 31, 2008, respectively
|
1,641,556 | 553,076 | ||||||
Advances
to suppliers
|
897,371 | 108,146 | ||||||
Inventories
|
7,762,911 | 7,908,494 | ||||||
Due
from the related parties
|
1,180,595 | 4,129,531 | ||||||
Deferred
expense
|
57,963 | - | ||||||
Total
Current Assets
|
26,271,100 | 33,505,928 | ||||||
Property,
plant and equipment, net of accumulated depreciation of $3,680,566
and
|
||||||||
$3,293,973
at June 30, 2009 and December 31, 2008, respectively
|
7,778,141 | 7,407,966 | ||||||
Intangible
asset, net
|
246,061 | 250,807 | ||||||
Long-term
deferred expense
|
614,763 | 819,360 | ||||||
Total
Assets
|
$ | 34,910,065 | $ | 41,984,061 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Short-term
loans
|
$ | 5,181,575 | $ | 5,185,840 | ||||
Accounts
payable and accrued expenses
|
8,375,082 | 5,180,312 | ||||||
Advances
from customers
|
338,799 | 315,885 | ||||||
Taxes
payable
|
1,271,811 | 2,825,457 | ||||||
Other
payables
|
1,374,191 | 945,037 | ||||||
Dividends
payable
|
155,047 | - | ||||||
Due
to related parties
|
406,231 | 777,810 | ||||||
Total
Current Liabilities
|
17,102,736 | 15,230,341 | ||||||
Stockholders'
Equity:
|
||||||||
Preferred
stock ($0.001 Par Value; 20,000,000 shares authorized; No
shares
|
||||||||
issued
and outstanding)
|
- | - | ||||||
Common
stock ($0.001 par value, 150,000,000 shares authorized,
|
||||||||
50,000,000
issued and outstanding)
|
50,000 | 50,000 | ||||||
Additional
paid in capital
|
8,066,293 | 8,066,293 | ||||||
Statutory
surplus reserves
|
2,553,700 | 2,117,010 | ||||||
Retained
earnings
|
5,001,512 | 14,393,409 | ||||||
Accumulated
other comprehensive income
|
2,135,824 | 2,127,008 | ||||||
Total
Stockholders' Equity
|
17,807,329 | 26,753,720 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 34,910,065 | $ | 41,984,061 |
See
notes to unaudited consolidated financial
statements
|
3
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
For
the Three Months
Ended
June 30,
|
For
the Six Months
Ended
June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Sales
|
$ | 19,929,325 | $ | 16,329,885 | $ | 42,607,748 | $ | 33,410,592 | ||||||||
Cost
of goods sold
|
13,991,241 | 11,054,310 | 30,645,666 | 23,487,751 | ||||||||||||
Gross
profit
|
5,938,084 | 5,275,575 | 11,962,082 | 9,922,841 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative expenses
|
209,350 | 352,419 | 552,313 | 759,846 | ||||||||||||
Selling
expenses
|
1,834,468 | 1,891,064 | 3,142,534 | 3,400,826 | ||||||||||||
Total
operating expenses
|
2,043,818 | 2,243,483 | 3,694,847 | 4,160,672 | ||||||||||||
Income
from operations
|
3,894,266 | 3,032,092 | 8,267,235 | 5,762,169 | ||||||||||||
Interest
expense
|
(106,511 | ) | (110,360 | ) | (219,715 | ) | (222,763 | ) | ||||||||
Income
before income taxes
|
3,787,755 | 2,921,732 | 8,047,520 | 5,539,406 | ||||||||||||
Income
taxes
|
1,050,381 | 775,358 | 2,127,768 | 1,403,831 | ||||||||||||
Net
income
|
2,737,374 | 2,146,374 | 5,919,752 | 4,135,575 | ||||||||||||
Other comprehensive income:
|
||||||||||||||||
Unrealized
foreign currency translation adjustment
|
6,326 | 367,183 | 8,816 | 909,238 | ||||||||||||
Comprehensive
income
|
$ | 2,743,700 | $ | 2,498,288 | $ | 5,928,568 | $ | 4,940,812 | ||||||||
Net
income per share - basic and diluted
|
$ | 0.05 | $ | 0.04 | $ | 0.12 | $ | 0.08 | ||||||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 | ||||||||||||
See
notes to unaudited consolidated financial statements
|
4
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
(Unaudited)
|
For
the Six Months Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
income
|
$ | 5,919,752 | $ | 4,135,575 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
and amortization
|
880,076 | 602,671 | ||||||
Recovery
of bad debt allowance
|
(403,490 | ) | - | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
5,414,249 | 6,950,879 | ||||||
Other
receivables
|
(799,376 | ) | 338,811 | |||||
Advances
to suppliers
|
(789,026 | ) | 494,186 | |||||
Inventories
|
148,679 | (3,483,509 | ) | |||||
Deferred
expense
|
(57,952 | ) | (5,797 | ) | ||||
Accounts
payables and accrued expenses
|
3,192,098 | 1,231,607 | ||||||
Other
payables
|
428,696 | 1,028,925 | ||||||
Advances
from customers
|
22,785 | (503,329 | ) | |||||
Taxes
payable
|
(1,554,456 | ) | (527,848 | ) | ||||
Total
adjustments
|
6,482,283 | 6,126,596 | ||||||
Net
cash provided by operating activities
|
12,402,035 | 10,262,171 | ||||||
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
||||||||
Purchase
of property, plant and equipment
|
(1,037,526 | ) | (432,353 | ) | ||||
Net
cash used in investing activities
|
(1,037,526 | ) | (432,353 | ) | ||||
CASH
FLOWS USED IN FINANCING ACTIVITIES
|
||||||||
Dividend
paid
|
(14,719,942 | ) | (3,718,476 | ) | ||||
Repayments
of short-term loans
|
(3,771,725 | ) | (3,637,968 | ) | ||||
Proceeds
from short-term loans
|
3,765,412 | 3,637,968 | ||||||
Due
from related parties
|
2,949,985 | (5,296,519 | ) | |||||
Due
to related parties
|
(371,806 | ) | 4,778,084 | |||||
Net
cash used in financing activities
|
(12,148,076 | ) | (4,236,911 | ) | ||||
NET
(DECREASE) INCREASE IN CASH
|
(783,567 | ) | 5,592,907 | |||||
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
2,165 | 457,854 | ||||||
CASH,
BEGINNING OF YEAR
|
5,869,607 | 4,213,762 | ||||||
CASH,
END OF PERIOD
|
$ | 5,088,205 | $ | 10,264,523 | ||||
SUPPLEMENTAL
DISCLOSURES:
|
||||||||
Cash
paid during the periods for:
|
||||||||
Interest
paid
|
$ | 219,715 | $ | 222,763 | ||||
Income
tax paid
|
$ | 1,430,855 | $ | 2,040,878 |
See
notes to unaudited consolidated financial
statements
|
5
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Domain
Registration, Corp. (the "Registrant" or “Domain”) is a Nevada corporation.
Domain on April 28, 2009 created its newly-formed wholly owned subsidiary, DOMR
Merger Sub, Inc. (“Merger Sub”). On April 30, 2009, Domain and Merger Sub
entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and
among the Domain, Merger Sub, China Northern Pharmacy Holding Group Limited
("CNPH"), a British Virgin Islands Corporation, and their shareholders. On May
7, 2009, Merger Sub merged with and into CNPH, (the “Merger”) with CNPH as the
surviving corporation. CNPH is a holding company that had acquired on November
25, 2008 all of the outstanding stock of China Northern Pharmacy Holding Group
Limited, a Hong Kong company ("CNPH HK") incorporated on October 16, 2008. CNPH
HK is a holding company that on November 21, 2008 acquired all of the equity
interests of Tonghua Huachen Herbal Planting Company Limited ("HERB"), and
Tonghua S&T Medical & Pharmacy Company Limited ("PHARMACY"). Both HERB
and PHARMACY are companies registered in the People’s Republic of China (the
“PRC”).
HERB is
an operating company incorporated in Tonghua City, Jilin Province, the PRC on
March 23, 2004, engaged in planting, processing and selling herbs (Chinese
Magnolia Vine, Ussuriensis Fritillary Bulb, Membranous Milk Vetch Root, Chinese
Thorowax Root, Manchurian Wild Ginger, Ginseng, and Kudzurine Root) in China.
HERB owns 100% of the equity interests of Tonghua Huachen Pharmaceutical Company
Limited ("HUACHEN"), a PRC company founded in 1989 in Tonghua City, Jilin
Province, and incorporated in Tonghua City, Jilin Province, on August 31, 2000.
HUACHEN is engaged in the sale and production of herbal products, such as
Qiweixiaoke Capsule, Shengan Bujin Tablets, Tongqiaobiyan Tablets,
Huatanpingchuan Tablets, Wujiarongxue Oral Liquid, and Methocarbamol
Capsule.
PHARMACY
is an operating company incorporated in Tonghua City, Jilin Province, the PRC on
September 1, 2002. It is engaged in drug logistics and distribution in the
PRC. PHARMACY owns 100% of the equity interests of Yunnan Silin
Pharmaceutical Company Limited ("SILIN"), a PRC company incorporated in Kunming
City, Yunnan Province, on October 25, 2004, and is engaged in the sale of
medicine products to hospitals and pharmacy shops.
Pursuant
to the terms of the Merger on May 7, 2009, in exchange for their shares in the
CNPH, the shareholders of the CNPH received stock consideration consisting of
42,500,000 newly issued shares of the Registrant’s common stock, divided
proportionally among the CNPH shareholders in accordance with their respective
ownership interests in the CNPH. Prior to the merger, the Registrant had
outstanding 7,500,000 shares of common stock.
As a
result of the Merger, the shareholders of the CNPH acquired approximately 85% of
the outstanding stock of the Registrant, effectively obtaining operational and
management control of the Registrant.
For
accounting purposes, the Merger has been accounted for as a recapitalization of
CNPH, whereby CNPH is considered the acquirer for accounting purposes, and the
Registrant’s historical financial statements before the Merger have been
replaced with the historical financial statements of CNPH before the Merger in
all subsequent filings with the Securities and Exchange Commission (the
“SEC”).
On July
17, 2009, Domain filed an amendment to its Articles of Incorporation changing
its corporate name from Domain Registration, Corp., to BioPharm Asia, Inc.,
authorizing the issuance of 20 million shares of "blank check" preferred stock
and increasing the number of authorized shares of common stock to 150 million
shares from 50 million shares, as previously discussed in its Information
Statement mailed to
6
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
shareholders
on June 26, 2009.
The
Registrant, Merger Sub, CNPH, CNPH HK, HERB, PHARMACY, HUACHEN, and SILIN are to
be referred to as the “Company” unless specific reference is made to a specific
entity of the consolidated Company.
On May 4,
2009, the Board of Directors of CNPH, prior to the merger, declared a dividend
to the former shareholders of approximately $14,870,000 (RMB 101,644,311). This
was distributed in the form of cash amounting $14,719,942. As of June 30, 2009,
there was $155,047 recorded by BioPharm as dividends payable to the former
shareholders of CNPH.
Basis of Presentation and
Consolidation
The
accompanying unaudited consolidated financial statements for the three and six
months periods ended June 30, 2009 and 2008 have been prepared in conformity
with accounting principles generally accepted ("GAAP") in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X, as promulgated by the US Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. The financial
information as of December 31, 2008 is derived from our Form 8-K filed on May 8,
2009 with the Securities and Exchange Commission. Certain information or
footnote disclosures normally included in financial statements prepared in
accordance with GAAP in the United States of America have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The financial statements for the three and six months periods ended
June 30, 2009 and 2008 are unaudited and include all adjustments considered
necessary by management for a fair presentation of the results of operations for
the three and six months periods ended June 30, 2009 and 2008. All such
adjustments are of a normal recurring nature. The results of the Company’s
operations for any interim period are not necessarily indicative of the
Company’s operations for a full fiscal year
Principles of
Consolidation
The
consolidated financial statements include the accounts of BioPharm Asia, Inc.
and its subsidiaries, (collectively the “Company”). All material intercompany
accounts, transactions and profits have been eliminated in
consolidation.
Use of
Estimates
The
Company's consolidated financial statements have been prepared in accordance
with GAAP and this requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the related
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances. Accordingly, actual results may differ significantly from these
estimates under different assumptions or conditions. Significant estimates
include the allowance for doubtful accounts, the allowance for obsolete
inventory, the useful life of property and equipment, intangible assets,
long-term deferred expenses, and accruals for taxes due.
Cash and Cash
Equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less and
money market accounts to be cash
7
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
equivalents.
The Company maintains cash and cash equivalents with various financial
institutions mainly in the PRC. Balances at financial institutions or
state-owned banks within the PRC are not covered by insurance. Non-performance
by these institutions could expose the Company to losses for amounts in excess
of insured balances. At June 30, 2009 and December 31, 2008, the Company's China
bank balances of $5.1 million and $5.9 million, respectively, are uninsured. The
Company has not experienced, nor does it anticipate, non-performance by these
institutions.
Accounts
Receivable
The
Company records accounts receivable net of an allowance for doubtful accounts.
The Company maintains allowances for doubtful accounts for estimated losses. The
Company reviews the accounts receivable on a periodic basis and makes general
and specific allowances when there is doubt as to the collectability of
individual balances. In evaluating the collectability of individual receivable
balances, the Company considers many factors, including the age of the balance,
customer's historical payment history, its current credit-worthiness and current
economic trends. The amount of the provision, if any is recognized in the
consolidated statement of operations within "General and administrative
expenses". Accounts are written off after appropriate collection efforts. The
activities in the allowance for doubtful accounts for the six months ended June
30, 2009 and for the year ended December 31, 2008 is as follows:
For the
six months ended June 30, 2009:
Allowance
for Doubtful Accounts
|
||||
Balance,
January 1, 2009
|
$ | 417,029 | ||
Recovery
|
(114,819 | ) | ||
Foreign
currency translation adjustments
|
142 | |||
Balance,
June 30, 2009
|
$ | 302,352 |
For the
year ended December 31, 2008:
Allowance
for Doubtful Accounts
|
||||
Balance,
January 1, 2008
|
$ | 390,196 | ||
Recovery
|
-- | |||
Foreign
currency translation adjustments
|
26,833 | |||
Balance,
December 31, 2008
|
$ | 417,029 |
Inventories
Inventories
are stated at the lower of cost or market utilizing the moving average method.
Costs of work-in-progress and finished goods are composed of direct materials,
direct labor and an attributable portion of manufacturing overhead. An allowance
is established when management determines that certain inventories may not be
saleable. If inventory costs exceed expected market value due to obsolescence or
quantities in excess of expected demand, the Company will record reserves for
the difference between the cost and the market value. These reserves are
recorded based on estimates and reflected in cost of sales. There were no
allowances deemed necessary by management as of June 30, 2009 and December 31,
2008.
8
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
Property, Plant and
Equipment
Property,
plant and equipment is recorded at cost and depreciation is provided using the
straight-line method over the estimated useful lives of the assets. Expenditures
for major additions or improvements, which extend the useful lives of assets,
are capitalized. Minor replacements, maintenance and repairs, which do not
improve or extend the lives of the assets, are charged to operations as
incurred. Disposals are removed at cost less accumulated depreciation, and any
resulting gain or loss is reflected in current operations. In accordance with
the Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" (“SFAS 144”), the Company
examines the possibility of decreases in the value of fixed assets when events
or changes in circumstances reflect the fact that their recorded value may not
be recoverable.
Biological
Assets
Biological
assets, included in property plant and equipment, consist primarily of
Schisandra berry trees, which provide the extract used to manufacture several
traditional Chinese medicines. The costs to purchase and cultivate these trees
and the expenditures related to labor and materials to prepare the land, to
construct staking and wiring on the field, and labor costs for grafting and
pruning during the early stages of the trees’ development. These costs are
capitalized until the trees become commercially productive, at which time annual
depreciation is recognized using the straight-line method over the economic
useful life of the trees, which is estimated to be 27 years. Depreciation
expenses pertaining to the biological assets aggregated to $71,284 and $68,871
for the six months ended June 30, 2009 and 2008, respectively, and are included
in inventory costs and ultimately become a component of cost of goods
sold.
Impairment of Long-lived
Assets
In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company periodically reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company
recognizes an impairment loss when the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset. The amount of impairment is
measured as the difference between the asset’s estimated fair value and its book
value. The Company did not consider it necessary to record any impairment
charges during the six months ended June 30, 2009 and the year ended December
31, 2008.
Fair Value of Financial
Instruments
Effective
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), for assets and liabilities measured at fair
value on a recurring basis. SFAS 157 establishes a common definition for
fair value to be applied to existing generally accepted accounting principles
that require the use of fair value measurements, establishes a framework for
measuring fair value and expands disclosure about such fair value measurements.
The adoption of SFAS 157 did not have an impact on the Company’s financial
position or operating results, but did expand certain disclosures.
SFAS 157
defines fair value as the price that would be received upon sale of an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Additionally, SFAS 157 requires the
use of valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are prioritized
below:
Level 1:
|
Observable
inputs such as quoted market prices in active markets for identical assets
or liabilities
|
|
Level 2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market
data
|
|
Level 3:
|
Unobservable
inputs for which there is little or no market data, which require the use
of the reporting entity’s own
assumptions.
|
Cash and
cash equivalents include money market securities and commercial paper that are
considered to be highly liquid and easily tradable. These securities are valued
using inputs observable in active markets for
9
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
identical
securities and are therefore classified as Level 1 within the fair value
hierarchy.
In
addition, SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (“SFAS 159”), was effective for January 1, 2008.
SFAS 159 expands opportunities to use fair value measurements in financial
reporting and permits entities to choose to measure many financial instruments
and certain other items at fair value. The Company did not elect the fair value
options for any of its qualifying financial instruments.
Reporting Currency and
Translation
The
reporting currency of the Company is the U.S. dollar. The functional currency of
the Company is the local currency, the Chinese Renminbi ("RMB"), the currency of
the PRC. Results of operations and cash flows are translated at average exchange
rates during the period, assets and liabilities are translated at the unified
exchange rate at the end of the period, and equity is translated at historical
exchange rates. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred.
The
Company has adopted SFAS 52 in translating financial statement amounts from RMB
to the Company's reporting currency, United States dollars ("US$" or "$"). Asset
and liability accounts at June 30, 2009 and December 31, 2008 were translated at
6.8319 RMB to $1.00 and at 6.8346 RMB to $1.00, respectively. Equity accounts
were stated at their historical rate. The average translation rates applied to
income statements for the six months ended June 30, 2009 and 2008 were 6.8331
RMB and 6.9391 RMB to $1.00, respectively. In accordance with the SFAS No. 95,
"Statement of Cash Flows", cash flows from the Company's operations are
calculated based upon the local currencies using the average translation rate.
As a result, amounts related to assets and liabilities reported on the statement
of cash flows will not necessarily agree with changes in the corresponding
balances on the balance sheet. The resulting translation adjustments are
reported under other comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income as a Component of Shareholders'
Equity".
Revenue
Recognition
Product
sales are generally recognized when title to the product has transferred to
customers in accordance with the terms of the sale. The Company recognizes
revenue in accordance with the Securities and Exchange Commission's ("SEC")
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements" as amended by SAB No. 104 (together, "SAB 104"). SAB 104 states that
revenue should not be recognized until it is realized or realizable and earned.
In general, the Company records revenue when persuasive evidence of an
arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured.
Shipping and Handling
Expenses
Shipping
and handling expenses totaled $657,915 and $609,140 for the six months periods
ended June 30, 2009 and 2008, respectively, and are included in selling expenses
in accordance with guidance established by the Emerging Issues Task Force, issue
No. 00-10, “Accounting for Shipping and Handling Costs.”
Income
Taxes
The
Company is subject to the Income Tax Law of the People’s Republic of China.
Income taxes are accounted for under SFAS No. 109 "Accounting for Income Taxes"
(“SFAS 109”). Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases and
tax loss carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled.
10
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
Concentrations of Credit
Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk consists principally of cash and trade accounts receivable. Substantially
all of the Company's cash is maintained with state-owned banks within the
People’s Republic of China of which no deposits are covered by insurance. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any risks on its cash in bank accounts. A significant portion of the
Company's sales are credit sales which are primarily to customers whose ability
to pay is dependent upon the industry economics prevailing in these areas;
however, concentrations of credit risk with respect to trade accounts
receivables is limited due to generally short payment terms. The Company also
performs ongoing credit evaluations of its customers to help further reduce
credit risk.
Accumulated Other
Comprehensive Income
Accumulated
other comprehensive income consisted of unrealized gains or losses on foreign
currency translation adjustments from the translation of financial statements
from RMB to US dollars. For the six months periods ended June 30, 2009 and 2008,
the unrealized foreign currency translation adjustments were a gain of $8,816
and a gain of $909,238, respectively.
Recently Adopted Accounting
Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R is a revision to SFAS 141 and includes
substantial changes to the acquisition method used to account for business
combinations (formerly the “purchase accounting” method), including broadening
the definition of a business, as well as revisions to accounting methods for
contingent consideration and other contingencies related to the acquired
business, accounting for transaction costs, and accounting for adjustments to
provisional amounts recorded in connection with acquisitions. SFAS 141R retains
the fundamental requirement of SFAS 141 that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. SFAS 141R is effective for periods
beginning on or after December 15, 2008, and applies to all business
combinations occurring after the effective date. The Company has adopted SFAS
141 effective January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, “Non controlling Interests in
Consolidated Financial Statements--an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements” (“SFAS 160”). This Statement amends
ARB 51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS 160 is effective for periods beginning after
December 15, 2008. The Company has adopted and evaluated SFAS 160 and determined
that there was no impact as of June 30, 2009.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" (“SFAS 161”). The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company has evaluated SFAS 161 and determined that there was no
impact as of June 30, 2009.
In May
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May
Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”. FSP APB
14-1 clarifies that convertible debt instruments that may be settled in cash
upon either mandatory or optional conversion (including partial cash settlement)
are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants”. Additionally,
FSP APB 14-1 specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect
the entity’s non-convertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company has evaluated FSP APB
14-1 and determined that there was no impact as of June 30, 2009.
11
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
New Accounting
Pronouncements
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). This standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with generally accepted accounting principles
in the United States for non-governmental entities. SFAS 162 is effective 60
days following approval by the SEC of the Public Company Accounting Oversight
Board’s amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.” We do not expect SFAS
162 to have a material impact on the preparation of our consolidated financial
statements.
In May
2009, Statement of Financial Accounting Standards No. 165, “Subsequent Events”,
was issued. The objective of this Statement is to establish general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15, 2009.
In June
2009, the FASB approved its Accounting Standards Codification (“Codification”)
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities, with the exception of
the SEC and its staff. The Codification which changes the referencing of
financial standards is effective for interim or annual periods ending after
September 15, 2009. Therefore in the third quarter of fiscal year 2009, all
references made to US GAAP will use the new Codification numbering system
prescribed by the FASB. As the codification is not intended to change or alter
existing US GAAP, it is not expected to have any impact on the Company’s
financial position or results of operations, upon adoption.
On June
16, 2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities,” to address the question of whether instruments
granted in share-based payment transactions are participating securities prior
to vesting. The FSP determines that unvested share-based payment awards that
contain rights to dividend payments should be included in earning per share
calculations. The guidance will be effective for fiscal years beginning after
December 15, 2008. The Company has adopted and evaluated FSP 03-6-1 and
determined that there was no impact as of June 30, 2009.
A variety
of proposed or otherwise potential accounting standards are currently under
study by standard setting organizations and various regulatory agencies. Due to
the tentative and preliminary nature of those proposed standards, management has
not determined whether implementation of such proposed standards would be
material to our unaudited consolidated financial statements.
12
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 2 - ACCOUNTS
RECEIVABLE
At June
30, 2009 and December 31, 2008, accounts receivable consists of the
following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Accounts
receivable
|
$ | 9,944,851 | $ | 15,354,103 | ||||
Less:
allowance for doubtful accounts
|
(302,352 | ) | (417,029 | ) | ||||
$ | 9,642,499 | $ | 14,937,074 |
Based on
the Company’s periodic review of accounts receivable balances, the Company
recorded the recovery of the allowance for doubtful accounts of $114,819 and $0
for the six months ended June 30, 2009 and 2008, respectively, after considering
management’s evaluation of the collectability of individual receivable balances,
including the analysis of subsequent collections, the customers’ collection
history, and recent economic events. Such recovery is included in the general
and administrative expenses.
NOTE 3 - OTHER
RECEIVABLES
At June
30, 2009 and December 31, 2008, other receivables consisted of the
following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Security
deposits
|
$ | 361,680 | $ | 361,344 | ||||
Advances
to employees
|
1,293,463 | 493,927 | ||||||
1,655,143 | 855,271 | |||||||
Less:
allowance for doubtful accounts
|
(13,587 | ) | (302,195 | ) | ||||
$ | 1,641,556 | $ | 553,076 |
Advances
to employees are primarily advances made to employees/salesmen for travel
expenses to be incurred by these individuals in service to the
Company.
Based on
the Company’s periodic review of other receivable balances, the Company recorded
the recovery of the allowance for doubtful accounts of $288,671 and $0 for the
six months ended June 30, 2009 and 2008, respectively, after considering
management’s evaluation of the collectability of individual receivable balances,
including the analysis of subsequent collections, the customers’ collection
history, and recent economic events. Such recovery is included in general and
administrative expenses.
NOTE 4 - ADVANCES TO
SUPPLIERS
Advances
to suppliers at June 30, 2009 and December 31, 2008 totaled $897,371 and
$108,146, respectively, and includes prepayments to suppliers for merchandise
that had not yet been shipped to the Company, as well as services that had not
yet been provided to the Company. The Company recognizes advances as inventory
or expense as suppliers make delivery of goods or provide services.
13
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 5 -
INVENTORIES
At June
30, 2009 and December 31, 2008, inventories consisted of the
following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Raw
materials
|
$ | 847,078 | $ | 336,758 | ||||
Work
in process
|
2,785,972 | 1,246,482 | ||||||
Finished
goods
|
4,109,543 | 6,304,620 | ||||||
Low-value
materials
|
20,318 | 20,634 | ||||||
7,762,911 | 7,908,494 | |||||||
Less:
reserve for obsolete inventory
|
-- | -- | ||||||
Total
|
$ | 7,762,911 | $ | 7,908,494 |
As of
June 30, 2009 and December 31, 2008 no provision for obsolete inventory was
deemed necessary by the Company.
NOTE 6 - PROPERTY, PLANT AND
EQUIPMENT
At June
30, 2009 and December 31, 2008, property, plant and equipment, consisted of
the following:
Estimated
Useful Life (Years)
|
June
30, 2009
|
December
31, 2008
|
||||||||||
(Unaudited)
|
||||||||||||
Buildings
|
20
|
$ | 4,925,875 | $ | 4,923,929 | |||||||
Biological
assets
|
27
|
4,460,034 | 3,706,031 | |||||||||
Machinery
|
10
|
1,527,132 | 1,526,529 | |||||||||
Vehicle
|
5
|
306,407 | 344,686 | |||||||||
Equipment
|
5
|
239,259 | 200,764 | |||||||||
11,458,707 | 10,701,939 | |||||||||||
Less:
accumulated depreciation
|
(3,680,566 | ) | (3,293,973 | ) | ||||||||
$ | 7,778,141 | $ | 7,407,966 |
The
Company recorded depreciation expense of $670,350 and $501,065 for the six
months ended June 30, 2009 and 2008, respectively. There were no impairment
provisions made at June 30, 2009 and December 31, 2008.
14
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 7 - INTANGIBLE
ASSETS
At June
30, 2009 and December 31, 2008, intangible assets consisted of the
following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Manufacturing
right (China Pharmaceutical manufacturing permit)
|
$ | 409,842 | $ | 409,680 | ||||
License
fees (Medicine patent)
|
162,836 | 162,772 | ||||||
Software
(Accounting system)
|
4,391 | 4,389 | ||||||
577,069 | 576,841 | |||||||
Less:
accumulated amortization
|
(331,008 | ) | (326,034 | ) | ||||
$ | 246,061 | $ | 250,807 |
Amortization
expense amounted to $4,845 and $28,083 for the six months ended June 30, 2009
and 2008.
NOTE 8 - LONG-TERM DEFERRED
EXPENSES
Long-term
deferred expenses of $614,763 and $819,360 as of June 30, 2009 and December 31,
2008, respectively, were prepaid lease payments for the two farms the Company
used to plant Schisandra trees. Schisandra is harvested once a year with the
highest production yield beginning three years after initial planting, The
Schisandra berries can be used to produce the Chinese medicine for a variety of
diseases. The Company has leased two parcels of lands from third parties to
plant Schisandra.
One of
the land parcels is approximately 330 acres (2,000 Chinese acres) and is leased
over 30 years, beginning January 1, 2003. The total lease payment of $12,295,262
(RMB 84,000,000) is to be paid in four installment dates, June 30, 2003, June
30, 2011, June 30, 2019, and June 30, 2027. The annual lease expense has been
straight-lined over the life of the lease and is approximately $410,000 (RMB
2,800,000) per year. As of June 30, 2009 and December 31, 2008, the
Company has a long-term deferred expense on this parcel of land of $614,763 and
$819,360, respectively. The following table reflects the scheduled future
payment dates for the installments:
Scheduled
Future Payment Dates of the 330 acres Rental Land
|
Amount
|
|||
June
30, 2011
|
$ | 3,278,737 | ||
June
30, 2019
|
3,278,737 | |||
June
30, 2027
|
2,459,051 | |||
$ | 9,016,525 |
The
Company had leased a second parcel of land comprised of approximately 165 acres
(1,000 Chinese acres) pursuant to a 25 year lease commencing January 1, 2008.
The total payments of $5,123,026 (RMB 35,000,000), over the 25 years of the
lease, were to be paid in four installment dates, June 30, 2008, June 30, 2009,
June 30, 2017, and June 30, 2025. The average annual rental expense was
approximately $205,000 (RMB 1,400,000) based on a straight-lined expensing of
lease. In June 2009, the Company cancelled the 165 acres lease agreement and
signed a new purchase agreement with the land owners that the Company will
purchase the harvested Schisandra berries from the owners based on the market
price basis.
15
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 9 - SHORT-TERM
LOANS
At June
30, 2009 and December 31, 2008, short-term loans, denominated in Chinese
Renminbi, consisted of the following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Loan
payable to City Credit Union (Construction Road) due on November 10, 2009
with annual interest rate of 11.02% and secured by buildings and
equipment.
|
$ | - | $ | 292,630 | ||||
Loan
payable to City Credit Union (Construction Road) due on June 21, 2009 with
annual interest rate of 10.5% and secured by buildings and
equipment.
|
- | 2,959,939 | ||||||
Loan
payable to City Credit Union (Construction Road) due on April 21, 2009
with annual interest rate of 10.5% and secured by buildings and
equipment.
|
- | 804,728 | ||||||
Loan
payable to City Credit Union (Construction Road) due on December 20, 2009
with annual interest rate of 10.5% and secured by buildings and
equipment.
|
758,208 | 757,909 | ||||||
Loan
payable to City Credit Union (Construction Road) due on July 21, 2009 with
annual interest rate of 10.5% and secured by buildings and
equipment.
|
144,908 | 151,162 | ||||||
Loan
payable to Agriculture Finance Bureau of TongHua government, due on
October 30, 2009, non-interest bearing and secured by
buildings.
|
292,744 | 219,472 | ||||||
Loan
payable to City Credit Union (Construction Road) due on April 20, 2010
with annual interest rate of 5.94% and secured by buildings and
equipment.
|
805,047 | - | ||||||
Loan
payable to Agriculture Finance Bureau of TongHua Government, due on
October 30, 2009, non-interest bearing and secured by
buildings.
|
219,559 | - | ||||||
Loan
payable to City Credit Union (Construction Road) due on April 20, 2010
with annual interest rate of 5.94%, secured by buildings and
equipment.
|
2,961,109 | - | ||||||
|
|
|||||||
$ | 5,181,575 | $ | 5,185,840 |
16
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 9 - ACCOUNTS PAYABLE
AND ACCRUED EXPENSES
At June
30, 2009 and December 31, 2008, accounts payable and accrued expenses were
$8,375,082 and $5,180,312, respectively. Accounts payable is primarily trade
debt to suppliers and vendors, with credit terms. Items included in accounts
payable and accrued expenses are the following:
.
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Accounts
payable
|
$ | 8,225,440 | $ | 4,966,343 | ||||
Rental
payable
|
102,461 | -- | ||||||
Payroll
and welfare payables
|
47,181 | 213,969 | ||||||
$ | 8,375,082 | $ | 5,180,312 |
NOTE 10 - ADVANCES FROM
CUSTOMERS
Advances
from customers represent prepayments to the Company for merchandise that had not
yet been shipped to customers or services that had not yet been rendered to
customers. The Company will recognize these advances as revenue as customers
take delivery of the goods or when the services have been rendered, in
compliance with the Company’s revenue recognition policy. Advances from
customers totaled $338,799 and $315,885 at June 30, 2009 and December 31,
2008, respectively.
NOTE 11 - TAXES
PAYABLE
At June
30, 2009 and December 31, 2008, taxes payable consists of the
following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Income
taxes payable
|
$ | 466,030 | $ | 1,318,603 | ||||
Value
added tax payable
|
726,846 | 1,211,905 | ||||||
Other
tax payable
|
78,935 | 294,949 | ||||||
$ | 1,271,811 | $ | 2,825,457 |
The
Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets
and liabilities for both the expected impact of differences between the
financial statements and the tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax losses and tax credit carry
forwards. As of June 30, 2009 and December 31, 2008, there were no material
differences between the bases of the Company’s accounts for financial statement
purpose and tax purpose. SFAS 109 additionally requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred tax
assets. Realization of deferred tax assets is depending upon future earnings, if
any, of which the timing and amount are uncertain. The Company is subject to the
Income Tax Laws of the PRC, Hong Kong and U.S.
Since
January 1, 2008, under the Income Tax Laws of PRC, Chinese companies are
generally subject to an income tax at an effective rate of 25% on income
reported in the their statutory financial statements after appropriate tax
adjustments. The Company's PRC subsidiaries are subject to these statutory
rates. HERB, one of the Company's Chinese operating subsidiaries, has engaged in
the agriculture and wholesale business. HERB’s business profits from these
agriculture operations are exempt from the income taxes in accordance with the
PRC Income Tax Laws. HERB’s operations, other than agriculture operations, are
subject to the effective PRC income tax rate of 25%.
17
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
CNPH HK
was incorporated in Hong Kong and is subject to Hong Kong profit tax on its
activities conducted in Hong Kong and any income arising in or derived from Hong
Kong. No provision for profits tax has been made as the Company has no
assessable income from Hong Kong for the periods through June 30, 2009. The
applicable statutory tax rate is 17.5%.
The
Company has had no assessable income within the United States.
NOTE 12 - OTHER
PAYABLES
At June
30, 2009 and December 31, 2008, other payables consisted of the
following:
June
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
Security
deposits from salesmen
|
$ | 425,835 | $ | 458,339 | ||||
Loans
from suppliers
|
371,098 | -- | ||||||
Bonus
and commissions to salesmen
|
534,059 | 7,603 | ||||||
Union
payable
|
17,299 | 2,302 | ||||||
Employees
benefits payables
|
25,900 | 33,895 | ||||||
Employees
payables
|
-- | 442,898 | ||||||
$ | 1,374,191 | $ | 945,037 |
NOTE 13 - RELATED PARTY
TRANSACTIONS
Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or corporate
entities.
Related
parties with whom the Company has had transactions are:
Related
Parties
|
Relationship
|
|
Yanhua
Han
|
Stockholder,
Chairman of Board of Directors
|
|
Hong
Lin
|
Stockholder
|
|
Xiandong
Meng
|
Senior
Manager
|
|
Xueye
Jing
|
Senior
Manager
|
|
Baoyou
Han
|
Senior
Manager
|
|
Giant
Fortune Ltd.
|
Stockholder
|
Due to/from Related
Parties
Prior to
the Merger (see Note 1), from time to time, the Company advanced funds to or
received funds from some shareholders. Since May 7, 2009, the date of the
Merger, the Company has not advanced money to the officers or shareholders.
These advances are non-interest bearing, unsecured and payable on demand. The
related parties make monthly payments on these advances.
18
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
Due to
related parties:
Related
Party
|
June
30, 2009
|
December
31, 2008
|
||||||
(Unaudited)
|
||||||||
Hong
Lin
|
$ | -- | $ | 334,912 | ||||
Xueye
Jing
|
157,729 | 442,898 | ||||||
Giant
Fortune Ltd.
|
248,502 | -- | ||||||
$ | 406,231 | $ | 777,810 |
Due from
related parties:
Related
Party
|
June
30, 2009
|
December
31, 2008
|
||||||
(Unaudited)
|
||||||||
Yanhua
Han
|
$ | 733,461 | $ | 544,830 | ||||
Xiandong
Meng
|
- | 3,584,701 | ||||||
Hong
Lin
|
397,170 | - | ||||||
Baoyou
Han
|
49,964 | - | ||||||
$ | 1,180,595 | $ | 4,129,531 |
NOTE 14 - STATUTORY SURPLUS
RESERVE
In
accordance with generally accepted accounting principles of the PRC (“PRC
GAAP”), the Company is required to make appropriations to reserve funds, based
on after-tax net income, from their PRC incorporated subsidiaries, comprising
the statutory surplus reserve, statutory public welfare fund and discretionary
surplus reserve, collectively these are the statutory surplus reserves as
disclosed in the Company’s stockholders’ equity. Appropriations to the statutory
surplus reserve should be at least 10% of the after tax net income determined in
accordance with PRC GAAP until the statutory surplus reserve is equal to 50% of
the entity’s registered capital or members’ equity. Appropriations to the
statutory public welfare fund had been at a minimum of 5% of the after tax net
income determined in accordance with PRC GAAP. Commencing on January 1, 2006,
the new PRC regulations waived the requirement for appropriating retained
earnings to the public welfare fund.
HERB and
PHARMACY are required each year to transfer 15% of the profit after tax as
reported in their PRC statutory financial statements to these statutory reserve
funds until the balance reaches 50% of their registered capital. The reserves
can be used to make up any losses incurred or to increase the registered
capital. Except for the reduction of losses incurred, any other application
should not result in this reserve balance falling below 25% of the registered
capital. The statutory reserve funds of both PHARMACY and SILIN as of June 30,
2009 have reached 50% of their registered capital, and thus do not need to make
any further contributions.
As of
June 30, 2009 and December 31, 2008, the Company had statutory surplus reserve
balances of $2,553,700 and $2,117,010, respectively.
NOTE 15 - OFF-BALANCE SHEET
ARRANGEMENTS
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, revenues, and expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to our shareholders.
19
BIOPHARM
ASIA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
(Unaudited)
NOTE 16 - OPERATING
RISK
Currently,
the Company's revenues are primarily derived from the sale of pharmaceutical
products to customers in the PRC. The Company hopes to expand its operations to
countries outside the PRC, however, such expansion has not been commenced and
there are no assurances that the Company will be able to achieve such an
expansion successfully. Therefore, a downturn or stagnation in the economic
environment of the PRC could have a material adverse effect on the Company's
financial condition.
In
addition to competing with other manufacturers of pharmaceutical product
offerings, the Company competes with larger Chinese and International companies
who may have greater funds available for expansion, marketing, research and
development and the ability to attract more qualified personnel. These Chinese
companies may be able to offer products at a lower price. There can be no
assurance that the Company will remain competitive.
Currently,
PRC is in a period of growth and is openly promoting business development in
order to bring more business into PRC. Additionally PRC allows a Chinese
corporation to be owned by a United States corporation. If the laws or
regulations are changed by the PRC government, the Company's ability to operate
the PRC subsidiaries could be affected.
All of
the Company's operations and operational assets are located in China. The
Company may be adversely affected by possible political or economic instability
in this country. The effect of these factors cannot be accurately
predicted.
NOTE 17 – SUBSEQUENT
EVENTS
The
Company has evaluated subsequent events through August 14, 2009, and has
determined that there were no subsequent events to recognize or disclose in
these financial statements.
20
(a)
Our senior management is responsible for establishing and maintaining a system
of disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")
designed to ensure that the information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
issuer's management, including its principal executive officer or officers and
principal financial officer or officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
On May 7,
2009, we, then a public shell company, acquired CNPH in a transaction treated as
a reverse acquisition. At such time we adopted the system of disclosure controls
and procedures of CNPH as ours. Such disclosure controls and procedures were not
adequate for a public reporting company and our management began the process of
upgrading our disclosure controls and procedures.
Our chief
executive officer and chief financial officer conducted an evaluation of our
disclosure controls and procedures at the end of the period covered by this
report and determined that our disclosure controls and procedures were not
effective. To remediate deficiencies in our disclosure controls and
procedures, we have commenced the implementation of
certain improvements intended to ensure that information
required to be disclosed in our periodic filings under the Exchange Act is
accumulated and communicated to our management, to allow timely decisions
regarding required disclosure and that all transactions are recorded,
accumulated and processed to permit the preparation of financial statements
in accordance with generally accepted accounting principles on a timely basis to
allow compliance with our reporting obligations under the Exchange
Act
(b) There
have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during our most recently completed fiscal quarter which
is the subject of this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
21
OTHER
INFORMATION
The
following exhibits are filed with this report:
31.1 Rule
13a-14(a)/15d-14(a) - Certification of Chief Executive Officer.
31.2 Rule
13a-14(a)/15d-14(a) - Certification of Chief Financial Officer
32.1 Section
1350 Certification - Chief Executive Officer.
32.2 Section
1350 Certification - Chief Financial Officer.
22
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BIOPHARM ASIA, INC. | |||
Dated:
October 8, 2009
|
By:
|
/s/ Yunlu Yin | |
Yunlu
Yin
President
and Chief Executive Officer
|
|||
23