x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
|
Nevada
|
|
51-0539830
|
(State or other jurisdiction of
|
|
(IRS Employer
|
incorporation or organization)
|
|
Identification No.)
|
Large accelerated filer
¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
(Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Page
|
|||
PART
I FINANCIAL INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
3
|
|
Consolidated
Balance Sheets
|
|||
As
of June 30, 2010 (Unaudited) and December 31, 2009
|
3
|
||
Consolidated
Statements of Income and Other Comprehensive Income (Loss)
|
|||
For
the Three Months Ended June 30, 2010 and 2009 and for the Six Months Ended
June 30, 2010 and 2009 (Unaudited)
|
4
|
||
Consolidated
Statement of Changes in Equity
For the Year Ended December 31, 2009 and for the
Six Months Ended June 30, 2010 and 2009 (Unaudited)
|
5
|
||
Consolidated
Statements of Cash Flows
|
|||
For
the Six Months Ended June 30, 2010 and 2009 (Unaudited)
|
6
|
||
Notes
to Consolidated Financial Statements as of June 30, 2010
(Unaudited)
|
7
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
35
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
46
|
|
Item
4.
|
Controls
and Procedures.
|
46
|
|
PART
II OTHER INFORMATION
|
|||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
48
|
|
Item
6.
|
Exhibits
|
48
|
|
Signatures
|
49
|
||
Exhibits/Certifications
|
50
|
Item
1.
|
Financial
Statements
|
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Unaudited
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 9,004,104 | $ | 471,769 | ||||
Restricted
Cash
|
53,889,986 | 1,760,400 | ||||||
Accounts
receivable, trade, net of allowance for doubtful accounts of $157,725
and $157,083 as of June 30, 2010 and December 31,
2009, respectively
|
24,877,145 | 22,314,660 | ||||||
Inventories
|
3,883,201 | 2,731,097 | ||||||
Advances
to suppliers
|
6,383,691 | 2,518,396 | ||||||
Other
current assets
|
1,199,197 | 465,407 | ||||||
Total
current assets
|
99,237,324 | 30,261,729 | ||||||
PLANT
AND EQUIPMENT, NET
|
11,550,038 | 12,000,687 | ||||||
OTHER
ASSETS
|
||||||||
Long
term prepayments
|
7,876,181 | 7,900,212 | ||||||
Intangible
assets, net
|
16,479,014 | 16,681,854 | ||||||
Total
other assets
|
24,355,195 | 24,582,066 | ||||||
Total
assets
|
$ | 135,142,557 | $ | 66,844,482 | ||||
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Short
term loans
|
$ | 4,873,052 | $ | 9,506,160 | ||||
Accounts
payable, trade
|
2,523,532 | 1,324,269 | ||||||
Other
payables and accrued liabilities
|
672,035 | 939,887 | ||||||
Customer
deposits
|
690,122 | 483,358 | ||||||
Taxes
payable
|
2,808,197 | 2,119,745 | ||||||
Liquidated
damages payable
|
44,003 | 44,003 | ||||||
Total
current liabilities
|
11,610,941 | 14,417,422 | ||||||
Fair
value of warrant liabilities
|
634,659 | 6,918,068 | ||||||
Total
liabilities
|
12,245,600 | 21,335,490 | ||||||
Commitments
and contingencies
|
||||||||
Redeemable
convertible preferred stock, $0.0001 par value, 1,653,333 and Nil
shares
issued and outstanding at June 30, 2010 and December 31, 2009,
respectively
|
49,600,000 | - | ||||||
SHAREHOLDERS'
EQUITY
|
||||||||
Common
stock, $0.0001 par value; 90,000,000 shares authorized, 23,097,806 and
15,451,105
shares issued and outstanding at June 30, 2010 and December 31, 2009,
respectively
|
2,309 | 1,544 | ||||||
Stock
Subscription
|
2,088,000 | - | ||||||
Paid-in
capital
|
39,181,305 | 13,380,444 | ||||||
Statutory
reserves
|
4,389,665 | 4,293,116 | ||||||
Retained
earnings
|
22,536,568 | 22,875,987 | ||||||
Accumulated
other comprehensive income
|
4,733,199 | 4,438,094 | ||||||
Total
shareholders' equity
|
72,931,046 | 44,989,185 | ||||||
NONCONTROLLING
INTERESTS
|
365,911 | 519,807 | ||||||
Total
equity
|
73,296,957 | 45,508,992 | ||||||
Total
liabilities and shareholders' equity
|
$ | 135,142,557 | $ | 66,844,482 |
For Three Months Ended June 30,
|
For Six Months Ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
REVENUES
|
||||||||||||||||
Distribution
products
|
$ | 15,153,848 | $ | 14,553,440 | $ | 24,708,356 | $ | 24,199,863 | ||||||||
Proprietary
products
|
2,036,239 | 501,653 | 2,904,308 | 953,620 | ||||||||||||
Medical
technology
|
- | - | 149,712 | - | ||||||||||||
Total
revenues
|
17,190,087 | 15,055,093 | 27,762,376 | 25,153,483 | ||||||||||||
COST
OF REVENUES
|
||||||||||||||||
Distribution
products
|
10,022,502 | 11,154,440 | 16,791,185 | 18,171,868 | ||||||||||||
Proprietary
products
|
1,060,143 | 371,426 | 1,616,361 | 672,760 | ||||||||||||
Medical
technology
|
- | - | - | - | ||||||||||||
Total
cost of revenues
|
11,082,645 | 11,525,866 | 18,407,546 | 18,844,628 | ||||||||||||
GROSS
PROFIT
|
6,107,442 | 3,529,227 | 9,354,830 | 6,308,855 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Research
and development
|
344,517 | 432,764 | 708,924 | 763,506 | ||||||||||||
Selling,
general and administrative
|
1,974,259 | 1,318,152 | 3,610,912 | 1,999,474 | ||||||||||||
Total
operating expenses
|
2,318,776 | 1,750,916 | 4,319,836 | 2,762,980 | ||||||||||||
INCOME FROM
OPERATIONS
|
3,788,666 | 1,778,311 | 5,034,994 | 3,545,875 | ||||||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Other
income (expense), net
|
(46,257 | ) | (26,400 | ) | (166,960 | ) | (20,847 | ) | ||||||||
Change
in fair value of warrant liabilities
|
1,371,780 | (1,213,218 | ) | 2,481,474 | (1,971,907 | ) | ||||||||||
INCOME
BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS
|
5,114,189 | 538,693 | 7,349,508 | 1,553,121 | ||||||||||||
PROVISION
FOR INCOME TAXES
|
1,089,308 | 570,014 | 1,602,263 | 1,115,500 | ||||||||||||
NET
INCOME (CHINA MEDICINE CORPORATION AND NONCONTROLLING
INTERESTS)
|
4,024,881 | (31,321 | ) | 5,747,245 | 437,621 | |||||||||||
Add:
Net loss attributable to noncontrolling interests
|
78,444 | 73,317 | 153,885 | 154,457 | ||||||||||||
NET
INCOME ATTRIBUTABLE TO CHINA MEDICINE CORPORATION
|
4,103,325 | 41,996 | 5,901,130 | 592,078 | ||||||||||||
OTHER
COMPREHENSIVE INCOME (LOSS)
|
||||||||||||||||
Foreign
currency translation adjustment
|
289,762 | (277 | ) | 295,105 | (58,985 | ) | ||||||||||
Foreign
currency translation attributable to noncontrolling
interests
|
15 | 68 | (11 | ) | (1,065 | ) | ||||||||||
COMPREHENSIVE
INCOME
|
$ | 4,393,102 | $ | 41,787 | $ | 6,196,224 | $ | 532,028 | ||||||||
Less:
Deemed preferred stock dividend
|
- | - | (6,144,000 | ) | - | |||||||||||
NET
INCOME (LOSS) AVAILABLE TO CHINA MEDICINE CORPORATION COMMON
SHAREHOLDERS
|
$ | 4,103,325 | $ | 41,996 | $ | (242,870 | ) | $ | 592,078 | |||||||
EARNINGS
(LOSS) PER SHARE
|
||||||||||||||||
Basic
|
$ | 0.19 | $ | - | $ | (0.01 | ) | $ | 0.04 | |||||||
Diluted
|
$ | 0.10 | $ | - | $ | (0.01 | ) | $ | 0.04 | |||||||
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
||||||||||||||||
Basic
|
21,885,645 | 15,231,214 | 20,419,738 | 15,228,966 | ||||||||||||
Diluted
|
39,992,703 | 15,355,660 | 20,419,738 | 15,248,178 |
Accumulated
|
||||||||||||||||||||||||||||||||||||
Retained Earnings
|
other
|
|||||||||||||||||||||||||||||||||||
Common Stock
|
Stock
|
Paid-in
|
Statutory
|
comprehensive
|
Noncontrolling
|
|||||||||||||||||||||||||||||||
Shares
|
Par Value
|
subscription
|
capital
|
reserves
|
Unrestricted
|
income
|
interests
|
Total
|
||||||||||||||||||||||||||||
BALANCE,
January 1, 2009
|
15,226,742 | $ | 1,522 | $ | - | 12,469,477 | $ | 3,178,861 | $ | 22,272,565 | $ | 4,428,294 | $ | 835,532 | 43,186,251 | |||||||||||||||||||||
Net
income (loss)
|
592,078 | (154,457 | ) | 437,621 | ||||||||||||||||||||||||||||||||
Adjustment
of statutory reserve
|
- | |||||||||||||||||||||||||||||||||||
Stock
options exercised at $1.25
|
17,500 | 2 | 21,873 | 21,875 | ||||||||||||||||||||||||||||||||
Stock
option and warrant compensation
|
9,622 | 9,622 | ||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustments
|
(58,985 | ) | (1,065 | ) | (60,050 | ) | ||||||||||||||||||||||||||||||
BALANCE,
June 30, 2009 (Unaudited)
|
15,244,242 | 1,524 | - | 12,500,972 | 3,178,861 | 22,864,643 | 4,369,309 | 680,010 | 43,595,319 | |||||||||||||||||||||||||||
Net
income (loss)
|
1,125,599 | (161,074 | ) | 964,525 | ||||||||||||||||||||||||||||||||
Adjustment
of statutory reserve
|
1,114,255 | (1,114,255 | ) | - | ||||||||||||||||||||||||||||||||
Stock
options exercised at $1.25
|
22,500 | 2 | 28,123 | 28,125 | ||||||||||||||||||||||||||||||||
Warrants
exercised in a cashless manner
|
184,363 | 18 | 729,844 | - | 729,862 | |||||||||||||||||||||||||||||||
Stock
option and warrant compensation
|
121,505 | 121,505 | ||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustments
|
68,785 | 871 | 69,656 | |||||||||||||||||||||||||||||||||
BALANCE,
December 31, 2009
|
15,451,105 | 1,544 | - | 13,380,444 | 4,293,116 | 22,875,987 | 4,438,094 | 519,807 | 45,508,992 | |||||||||||||||||||||||||||
Net
income (loss)
|
5,901,130 | (153,885 | ) | 5,747,245 | ||||||||||||||||||||||||||||||||
Adjustment
of statutory reserve
|
96,549 | (96,549 | ) | - | ||||||||||||||||||||||||||||||||
Issuance
of common stock
|
4,000,000 | 400 | 11,999,600 | 12,000,000 | ||||||||||||||||||||||||||||||||
Redeemable
convertible preferred stock - beneficial conversion
feature
|
6,144,000 | 6,144,000 | ||||||||||||||||||||||||||||||||||
Redeemable
convertible preferred stock - deemed dividend
|
(6,144,000 | ) | (6,144,000 | ) | ||||||||||||||||||||||||||||||||
Conversion
of redeemable convertible preferred stock
|
2,666,667 | 267 | 7,999,733 | 8,000,000 | ||||||||||||||||||||||||||||||||
Cash
exercise of warrants at $2.43
|
440,475 | 44 | 2,095,734 | 2,095,778 | ||||||||||||||||||||||||||||||||
Cashless
exercise of warrants at $2.43
|
486,179 | 49 | 2,776,447 | 2,776,496 | ||||||||||||||||||||||||||||||||
Cashless
exercise of warrants at $0.85
|
53,380 | 5 | (5 | ) | - | |||||||||||||||||||||||||||||||
Stock
option compensation
|
92,904 | 92,904 | ||||||||||||||||||||||||||||||||||
Stock
subscription
|
2,088,000 | (2,088,000 | ) | - | ||||||||||||||||||||||||||||||||
Financing
related fees
|
(3,219,552 | ) | (3,219,552 | ) | ||||||||||||||||||||||||||||||||
Foreign
currency translation adjustments
|
295,105 | (11 | ) | 295,094 | ||||||||||||||||||||||||||||||||
BALANCE,
June 30, 2010 (Unaudited)
|
23,097,806 | $ | 2,309 | $ | 2,088,000 | $ | 39,181,305 | $ | 4,389,665 | $ | 22,536,568 | $ | 4,733,199 | $ | 365,911 | 73,296,957 |
Six months ended June 30,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income attributable to China Medicine Corporation
|
$ | 5,901,130 | $ | 592,078 | ||||
Net
loss attributable to noncontrolling interests
|
(153,885 | ) | (154,457 | ) | ||||
Net
income
|
5,747,245 | 437,621 | ||||||
Adjustments
to reconcile net income to cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
929,154 | 433,934 | ||||||
Bad
debt expense
|
118,848 | - | ||||||
Loss
on sale of assets
|
- | 27,816 | ||||||
Stock-based
compensation
|
92,904 | 48,050 | ||||||
Change
in fair value of warrants liabilities
|
(2,481,474 | ) | 1,971,907 | |||||
Change
in operating assets and liabilities:
|
||||||||
Accounts
receivable, trade
|
(2,460,984 | ) | 3,845,752 | |||||
Inventories
|
(1,136,217 | ) | (3,288,910 | ) | ||||
Advances
to suppliers
|
(3,957,879 | ) | (1,538,563 | ) | ||||
Other
current assets
|
(729,086 | ) | 39,706 | |||||
Accounts
payable, trade
|
1,188,906 | 139,758 | ||||||
Other
payables and accrued liabilities
|
(269,764 | ) | (25,157 | ) | ||||
Customer
deposits
|
203,939 | 157,601 | ||||||
Taxes
payable
|
676,969 | (717,560 | ) | |||||
Net
cash provided by (used in) operating activities
|
(2,077,439 | ) | 1,531,955 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of plant and equipment
|
(172,056 | ) | (381,321 | ) | ||||
Purchase
of intangible assets
|
- | (234,512 | ) | |||||
Proceeds
from sale of equipment
|
- | 21,986 | ||||||
Advances
on long-term prepayments
|
56,109 | (1,934,767 | ) | |||||
Net
cash used in investing activities
|
(115,947 | ) | (2,528,614 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from exercise of options and warrants
|
1,070,338 | 21,875 | ||||||
Repayments
on short-term loans
|
(8,416,339 | ) | - | |||||
Proceeds
from short-term loans
|
3,763,699 | - | ||||||
Proceeds
from issuance of common stock
|
12,000,000 | - | ||||||
Proceeds
from issuance of redeemable preferred stock
|
57,600,000 | - | ||||||
Payments
on private placement related expenses
|
(3,219,552 | ) | - | |||||
Increase
in restricted cash
|
(52,122,386 | ) | - | |||||
Net
cash provided by financing activities
|
10,675,760 | 21,875 | ||||||
EFFECT
OF EXCHANGE RATE ON CASH
|
49,961 | (2,830 | ) | |||||
CHANGE
IN CASH
|
8,532,335 | (977,614 | ) | |||||
CASH,
beginning of period
|
471,769 | 2,791,814 | ||||||
CASH,
end of period
|
$ | 9,004,104 | $ | 1,814,200 | ||||
Supplemental
disclosure of cash flows:
|
||||||||
Cash
paid interest
|
$ | 177,927 | $ | - | ||||
Cash
paid income tax
|
$ | 742,846 | $ | 1,092,747 |
Buildings
and leasehold improvements
|
50
years
|
Leasehold
improvements
|
5
years
|
Production
equipment
|
10
-12 years
|
Furniture,
fixtures and office equipment
|
5
years
|
Motor
vehicles
|
5 -
10 years
|
Intangible assets
|
|
Weighted average
estimated useful
lives
|
Land
use rights
|
41-46
years
|
|
Manufacturing
patents
|
16
years
|
|
rADTZ
patent
|
11
years
|
|
·
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
·
|
Level
2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
|
|
Carrying Value as
of
June 30, 2010
|
|
Fair Value Measurements at June
30, 2010
Using Fair Value Hierarchy
|
|||||||
(Unaudited)
|
Level
1
|
Level
2
|
Level
3
|
|||||||
Warrant
liabilities
|
$
|
634,659
|
$
|
634,659
|
|
June 30, 2010
|
December 31, 2009
|
||||||
(Unaudited)
|
||||||||
Trade
accounts receivable
|
$ | 25,034,870 | $ | 22,471,743 | ||||
Allowance
for doubtful accounts
|
(157, 725 | ) | (157,083 | ) | ||||
Trade
accounts receivable, net
|
$ | 24,877,145 | $ | 22,314,660 |
|
June 30, 2010
|
December 31, 2009
|
||||||
|
(Unaudited)
|
|||||||
Beginning
allowance for doubtful accounts
|
$ | 157,083 | $ | 96,609 | ||||
Additions
charged to bad debt expense
|
- | 60,474 | ||||||
Foreign
currency translation adjustments
|
642 | - | ||||||
Ending
allowance for doubtful accounts
|
$ | 157,725 | $ | 157,083 |
|
|
June 30, 2010
|
December 31, 2009
|
|
||||
(Unaudited)
|
|
|||||||
Raw
materials
|
$
|
339,656
|
$
|
328,586
|
||||
Work
in progress
|
323,551
|
389,346
|
||||||
Finished
goods
|
3,219,994
|
2,013,165
|
||||||
Total
|
$
|
3,883,201
|
$
|
2,731,097
|
June 30, 2010
|
December 31, 2009
|
|||||||
(Unaudited)
|
||||||||
Buildings
and leasehold improvements
|
$ | 5,110,692 | $ | 5,089,384 | ||||
Production
equipment
|
7,234,878 | 7,025,291 | ||||||
Furniture,
fixture and office equipment
|
324,950 | 270,661 | ||||||
Motor
vehicles
|
463,685 | 409,396 | ||||||
Construction
in progress
|
2,948,357 | 3,051,360 | ||||||
Total
|
16,082,562 | 15,846,092 | ||||||
Less
accumulated depreciation
|
(4,532,524 | ) | (3,845,405 | ) | ||||
Buildings
and equipment, net
|
$ | 11,550,038 | $ | 12,000,687 |
|
June 30, 2010
|
December 31, 2009
|
||||||
(Unaudited)
|
|
|||||||
Prepayment
for exclusive distribution rights
|
$ | 883,800 | $ | 880,200 | ||||
Advances
to suppliers
|
1,281,492 | 1,276,272 | ||||||
Long
term deferred expense
|
35,720 | 71,150 | ||||||
Deposit
for exclusive distribution rights
|
2,182,686 | 2,225,140 | ||||||
Deposit
for technology know-how
|
2,356,800 | 2,347,200 | ||||||
Deposit
for construction design project
|
1,135,683 | 1,100,250 | ||||||
Total
long term prepayment
|
$ | 7,876,181 | $ | 7,900,212 |
|
June 30, 2010
|
December 31, 2009
|
||||||
(Unaudited)
|
|
|||||||
Land
use rights
|
$ | 11,918,410 | $ | 11,877,954 | ||||
Patents
|
5,082,593 | 5,063,202 | ||||||
Total
|
17,001,003 | 16,941,156 | ||||||
Less:
accumulated amortization
|
(521,989 | ) | (259,302 | ) | ||||
Intangible
assets, net
|
$ | 16,479,014 | $ | 16,681,854 |
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
||||||||||||||||||
Amortization
expense
|
$ | 328,546 | $ | 657,091 | $ | 657,091 | $ | 657,091 | $ | 657,091 | $ | 13,522,104 |
|
June 30, 2010
|
December 31, 2009
|
||||||
|
(Unaudited)
|
|
||||||
Two
loans with Industrial and Commercial Bank of China due on August 13, 2010
with an annual interest rate of 5.31%, secured by the Company's
properties
|
$ | - | $ | 5,838,660 | ||||
Four
loans under a facility with Bank of China, due on December 1, 2010 with an
annual interest rate of 5.31%, guaranteed and secured by Co-Win and the
Company’s officers (a)
|
2,958,152 | 3,667,500 | ||||||
One
loan with Bank of China, due on July 4, 2010 with an annual interest rate
of 4.37%, secured by $2.5M of cash (b)
|
1,914,900 | - | ||||||
Total
– bank loans
|
$ | 4,873,052 | $ | 9,506,160 |
(a)
|
The
Chinese government refunded a partial amount of interest paid by the
Company as grants. For the six months ended June 30, 2010, the Company
received refunds of $6,049 which was recognized as a reduction of interest
expense. The effective interest rate of these loans was 4.63% for the six
months ended June 30, 2010. These loans are a credit facility in the
amount of $3.7 million. The four loans would be due
on August 31, 2010, September 27, 2010, October 25, 2010 and November 22,
2010, respectively.
|
|
(b)
|
Due
to the currency exchange limitation imposed by the PRC government, the
Company pledged $2.5 million funds available from the Stock Subscription
Agreement to obtain the loan for working capital purpose. The $2.5 million
is classified as restricted cash as of June 30, 2010 and was subsequently
released.
|
a.
|
The
new standard EIT rate of 25% replaced the 33% rate currently applicable to
both DES and FIEs, except for High Tech companies who pay a reduced rate
of 15%;
|
b.
|
Companies
established before March 16, 2007 will continue to enjoy tax holiday
treatment approved by local government for a grace period of either the
next 5 years or until the tax holiday term is completed, whichever is
sooner. These companies will pay the standard tax rate as defined in point
“a” above when the grace period
expires.
|
|
For the six months ended
June
30,
|
For the three months ended
June 30,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Provision
for China income tax
|
$ | 1,602,263 | $ | 1,115,500 | $ | 1,089,308 | $ | 570,014 | ||||||||
Provision
for local tax
|
- | - | - | |||||||||||||
Tax
provision – PRC
|
$ | 1,602,263 | $ | 1,115,500 | $ | 1,089,308 | $ | 570,014 |
|
For the six months ended
June 30,
|
For the three months ended
June 30,
|
||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
U.S.
statutory rates
|
34.0 | % | 34.0 | % | 34.0 | % | 34.0 | % | ||||||||
Foreign
income not recognized
|
(34.0 | ) | (34.0 | ) | (34.0 | ) | (34.0 | ) | ||||||||
China
tax rates
|
25.0 | 25.0 | 25.0 | 25.0 | ||||||||||||
China
income tax exemption
|
- | - | - | - | ||||||||||||
Other
items
|
(3.2 | ) | 46.8 | (3.7 | ) | 80.8 | ||||||||||
Effective
income tax rates
|
21.8 | % | 71.8 | % | 21.3 | % | 105.8 | % |
|
June 30, 2010
|
December 31, 2009
|
||||||
(Unaudited)
|
||||||||
Income
taxes payable
|
$ | 1,529,955 | $ | 664,248 | ||||
Value
added tax
|
1,218,827 | 1,451,693 | ||||||
Other
taxes
|
59,415 | 3,804 | ||||||
Total
|
$ | 2,808,197 | $ | 2,119,745 |
For the year ended December 31,
|
Amount
|
|||
2010
|
$ | 84,832 | ||
2011
|
82,044 | |||
2012
|
10,099 | |||
2013
|
1,264 | |||
Thereafter
|
- | |||
Total
|
$ | 178,239 |
2010
|
2009
|
|||||||
Annual
dividend yield
|
- | - | ||||||
Expected
life (years)
|
5.00 | 4.00 - 5.00 | ||||||
Risk-free
interest rate
|
2.18% - 2.52 | % | 1.52% - 2.02 | % | ||||
Expected
volatility
|
87.6% - 88.0 | % | 88.0% - 90.0 | % |
|
Outstanding
Options
|
Weighted
Average
Exercise
Price
|
Average
Remaining
Contractual
Term
(Year)
|
Exercisable
Options
|
Weighted
Average
Exercise
Price
|
Intrinsic Value
|
||||||||||||||||||
12/31/2008
|
380,000 | $ | 1.35 | 372,500 | $ | 1.34 | $ | - | ||||||||||||||||
Granted
|
255,000 | 1.67 | 15,000 | 1.81 | ||||||||||||||||||||
Exercised
|
(40,000 | ) | 1.25 | (40,000 | ) | 1.25 | 29,825 | |||||||||||||||||
Forfeited
|
(240,000 | ) | 1.70 | - - | - | |||||||||||||||||||
12/31/2009
|
355,000 | 1.39 | 347,500 | 1.38 | 1,033,050 | |||||||||||||||||||
Granted
|
165,000 | 3.04 | - | - | - | |||||||||||||||||||
Exercised
|
- | - | - | - | ||||||||||||||||||||
Forfeited
|
- | - | - | - | - | |||||||||||||||||||
6/30/2010
(unaudited)
|
520,000 | $ | 1.91 | 2.46 | 347,500 | $ | 1.38 | $ | 372,550 | |||||||||||||||
Exercisable
at 6/30/2010
|
1.24 | $ | 371,625 |
|
June 30, 2010
|
December 31, 2009
|
||||||
(Unaudited)
|
||||||||
Annual
dividend yield
|
- | - | ||||||
Expected
life (years)
|
0.61 | 1.10 | ||||||
Risk-free
interest rate
|
0.22 | % | 0.54 | % | ||||
Expected
volatility
|
61 | % | 95 | % |
|
Outstanding
|
Weighted
Average
Exercise
Price
|
Average
Remaining
Contractual
Term (Years)
|
|||||||||
December
31, 2008
|
3,418,686 | $ | 2.35 | 2.17 | ||||||||
Granted
|
70,000 | |||||||||||
Exercised
|
(485,422 | ) | ||||||||||
Forfeited
|
- | |||||||||||
December
31, 2009
|
3,003,264 | $ | 2.38 | 1.15 | ||||||||
Granted
|
- | |||||||||||
Exercised
|
(1,536,949 | ) | ||||||||||
Forfeited
|
- | |||||||||||
June
30, 2010 (Unaudited)
|
1,466,315 | $ | 2.41 | 0.64 |
For the six months ended
June 30,
|
For the three months ended
June 30,
|
|||||||||||||||
For the six months ended
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Net
income
|
$ | 5,901,130 | $ | 592,078 | $ | 4,103,325 | $ | 41,996 | ||||||||
Less:
Deemed preferred stock dividend
|
(6,144,000 | ) | - | - | - | |||||||||||
Net
income (loss) available to common shareholders
|
$ | (242,870 | ) | $ | 592,078 | $ | 4,103,325 | $ | 41,996 | |||||||
Shares
of common stock and common stock equivalents:
|
||||||||||||||||
Weighted
average common shares used in basic computation
|
20,419,738 | 15,228,966 | 21,885,645 | 15,231,214 | ||||||||||||
Diluted
effect of convertible preferred stock, stock options and
warrants
|
- | 19,212 | 18,107,058 | 124,446 | ||||||||||||
Weighted
average common shares used in diluted computation
|
20,419,738 | 15,248,178 | 39,992,703 | 15,355,660 | ||||||||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | (0.01 | ) | $ | 0.04 | $ | 0.19 | $ | 0.003 | |||||||
Diluted
|
$ | (0.01 | ) | $ | 0.04 | $ | 0.10 | $ | 0.003 |
Fair value
|
Book value
|
|||||||
Cash
and cash equivalent
|
$ | 165,945 | $ | 165,945 | ||||
Other
current assets
|
2,271,310 | 2,271,310 | ||||||
Buildings
and equipment
|
5,778,383 | 4,155,122 | ||||||
Intangible
assets
|
15,278,544 | 1,474,346 | ||||||
Total
assets
|
23,494,182 | 8,066,723 | ||||||
Total
liabilities
|
(15,306,412 | ) | (15,306,412 | ) | ||||
Net
Assets
|
$ | 8,187,770 | $ | (7,239,689 | ) |
Six months ended
|
Three months ended
|
|||||||
June 30, 2009
|
June 30, 2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Sales
|
$ | 27,625,188 | $ | 16,502,643 | ||||
Cost
of sales
|
20,054,762 | 12,199,972 | ||||||
Gross
profits
|
7,570,426 | 4,302,671 | ||||||
Operating
expenses
|
3,373,384 | 1,978,450 | ||||||
Income
from operations
|
$ | 4,197,042 | $ | 2,324,221 | ||||
Other
Income (expense) net
|
(1,997,818 | ) | (924,983 | ) | ||||
Income
tax
|
(1,115,500 | ) | (570,014 | ) | ||||
Net
income before noncontrolling interest
|
$ | 1,083,724 | $ | 829,224 | ||||
Net
income attributable to controlling interest
|
$ | 1,238,181 | $ | 902,541 |
LifeTech
|
Konzern
|
Elimination
|
Total
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
Revenues
|
2,843,182 | 24,980,919 | (61,725 | ) | 27,762,376 | |||||||||||
Gross
Profit
|
1,240,380 | 8,114,450 | - | 9,354,830 | ||||||||||||
Operating
income (loss)
|
230,618 | 4,804,376 | - | 5,034,994 | ||||||||||||
Capital
expenditures
|
158,148 | 13,908 | - | 172,056 |
LifeTech
|
Konzern
|
Elimination
|
Total
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
Revenues
|
2,002,637 | 15,249,175 | (61,725 | ) | 17,190,087 | |||||||||||
Gross
Profit
|
950,635 | 5,156,807 | - | 6,107,442 | ||||||||||||
Operating
income (loss)
|
43,188 | 3,745,478 | - | 3,778,666 | ||||||||||||
Capital
expenditures
|
96,296 | 11,743 | - | 108,039 |
(a)
|
Since
the LifeTech was acquired in October 2009, there is no comparable
operating information for the six and three months ended June 30,
2009.
|
Total Assets
|
||||||||||||||||
LifeTech
|
Konzern
|
Elimination
|
Total
|
|||||||||||||
As
of June 30, 2010 (Unaudited)
|
26,805,414 | 194,739,414 | (86,509,193 | ) | 135,065,635 | |||||||||||
As
of December 31, 2010
|
25,385,141 | 114,721,802 | (73,262,461 | ) | 66,844,482 |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenue
|
$ | 17,190,087 | $ | 15,055,093 | $ | 27,762,376 | $ | 25,153,483 | ||||||||
Costs
of goods sold
|
11,082,645 | 11,525,866 | 18,407,546 | 18,844,628 | ||||||||||||
Gross
profit
|
6,107,442 | 3,529,227 | 9,354,830 | 6,308,855 | ||||||||||||
R&D
expenses
|
344,517 | 432,764 | 708,924 | 763,506 | ||||||||||||
Selling,
general and administrative expenses
|
1,974,259 | 1,318,152 | 3,610,912 | 1,999,474 | ||||||||||||
Income
from operations
|
3,788,666 | 1,778,311 | 5,034,994 | 3,545,875 | ||||||||||||
Other
income (expense), net
|
(46,257 | ) | (26,400 | ) | (166,960 | ) | (20,847 | ) | ||||||||
Change
in fair value of warrants liabilities
|
1,371,780 | (1,213,218 | ) | 2,481,474 | (1,971,907 | ) | ||||||||||
Income
before income taxes and noncontrolling interest
|
5,114,189 | 538,693 | 7,349,508 | 1,553,121 | ||||||||||||
Provision
for income taxes
|
1,089,308 | 570,014 | 1,602,263 | 1,115,500 | ||||||||||||
Net
income (loss) before noncontrolling interest
|
4,024,881 | (31,321 | ) | 5,747,245 | 437,621 | |||||||||||
Add:
net income attributable to noncontrolling interest
|
78,444 | 73,317 | 153,885 | 154,457 | ||||||||||||
Consolidated
net income attributable to CHINA MEDICINE CORPORATION
|
$ | 4,103,325 | $ | 41,996 | $ | 5,901,130 | $ | 592,078 |
Three Months Ended June 30,
|
||||||||||||||||||||||||
2010
|
2009
|
$ Increase
|
% Increase
|
|||||||||||||||||||||
Distribution
products
|
$ | 15,153,848 | 88.2 | % | $ | 14,553,440 | 96.7 | % | $ | 600,408 | 4.1 | % | ||||||||||||
Proprietary
products
|
2,036,239 | 11.8 | % | 501,653 | 3.3 | % | 1,534,586 | 305.9 | % | |||||||||||||||
Medical
technology
|
- | - | - | - | - | - | ||||||||||||||||||
Total
revenues
|
$ | 17,190,087 | 100.0 | % | $ | 15,055,093 | 100.0 | % | $ | 2,134,994 | 14.2 | % |
Three Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Western
prescription products
|
10,089,061 | 66.6 | % | 8,831,869 | 60.7 | % | ||||||||||
Western
Over-the-Counter products
|
1,328,984 | 8.8 | % | 1,817,777 | 12.5 | % | ||||||||||
TCM
prescription products
|
1,962,024 | 13.0 | % | 1,808,275 | 12.4 | % | ||||||||||
TCM
Over-the-Counter products
|
874,709 | 5.8 | % | 1,628,241 | 11.2 | % | ||||||||||
Other
products
|
899,070 | 5.9 | % | 467,278 | 3.2 | % | ||||||||||
Total
distribution products
|
15,153,848 | 100.0 | % | 14,553,440 | 100.0 | % |
Three Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Western
prescription products
|
96,080 | 4.7 | % | 475,108 | 94.7 | % | ||||||||||
Western
Over-the-Counter products
|
- | - | % | - | - | % | ||||||||||
TCM
prescription products
|
1,644,093 | 80.7 | % | 2,093 | 0.4 | % | ||||||||||
TCM
Over-the-Counter products
|
278,244 | 13.7 | % | - | - | % | ||||||||||
Other
products
|
17,822 | 0.9 | % | 24,452 | 4.9 | % | ||||||||||
Total
proprietary products
|
2,036,239 | 100.0 | % | 501,653 | 100.0 | % |
Three Months Ended June 30
|
||||||||||||||||
2010
|
2009
|
$ Increase
|
% Increase
|
|||||||||||||
Distribution
products
|
||||||||||||||||
Revenues
|
$
|
15,153,848
|
$
|
14,553,440
|
$
|
600,408
|
4.1
|
%
|
||||||||
Cost
of revenues
|
10,022,502
|
11,154,440
|
(1,131,938
|
)
|
(10.1
|
)%
|
||||||||||
Gross
profit
|
$
|
5,131,346
|
$
|
3,399,000
|
$
|
1,732,345
|
51.0
|
%
|
||||||||
Gross
margin %
|
33.9
|
%
|
23.4
|
%
|
||||||||||||
Proprietary
products
|
||||||||||||||||
Revenues
|
$
|
2,036,239
|
$
|
501,653
|
$
|
1,534,586
|
305.9
|
%
|
||||||||
Cost
of revenues
|
1,060,143
|
371,426
|
688,717
|
185.4
|
%
|
|||||||||||
Gross
profit
|
$
|
976,096
|
$
|
130,226
|
$
|
845,870
|
649.5
|
%
|
||||||||
Gross
margin %
|
47.9
|
%
|
26.0
|
%
|
||||||||||||
Total
|
||||||||||||||||
Revenues
|
$
|
17,190,087
|
$
|
15,055,093
|
$
|
2,134,994
|
14.2
|
%
|
||||||||
Cost
of revenues
|
11,082,645
|
11,525,866
|
(443,221
|
)
|
(3.8
|
)%
|
||||||||||
Gross
profit
|
$
|
6,107,442
|
$
|
3,529,227
|
$
|
2,578,215
|
73.1
|
%
|
||||||||
Gross
margin %
|
35.5
|
%
|
23.4
|
%
|
Three Months Ended
|
||||||||
June 30,
|
||||||||
2010
|
2009
|
|||||||
Net
Income available to common shareholders
|
$ | 4,103,325 | $ | 41,996 | ||||
Change
in fair value of warrant liabilities
|
(1,371,780 | ) | 1,213,218 | |||||
Adjusted
Net Income
|
$ | 2,731,545 | $ | 1,255,214 | ||||
Diluted
EPS
|
$ | 0.10 | $ | 0.00 | ||||
Add
back (Deduct):
|
||||||||
Change
in fair value of warrant liabilities
|
(0.03 | ) | 0.08 | |||||
Adjusted
EPS
|
$ | 0.07 | $ | 0.08 | ||||
Diluted
weighted average common shares outstanding
|
39,992,703 | 15,355,660 |
Six months ended June 30,
|
||||||||||||||||||||||||
2010
|
2009
|
$ Increase
|
% Increase
|
|||||||||||||||||||||
Distribution
products
|
$ | 24,708,356 | 89.0 | % | $ | 24,199,863 | 96.2 | % | $ | 508,493 | 2.1 | % | ||||||||||||
Proprietary
products
|
2,904,308 | 10.5 | % | 953,620 | 3.8 | % | 1,950,688 | 204.6 | % | |||||||||||||||
Medical
technology
|
149,712 | 0.5 | % | - | - | % | 149,712 | 100.0 | % | |||||||||||||||
Total
revenues
|
$ | 27,762,376 | 100.0 | % | $ | 25,153,483 | 100.0 | % | $ | 2,608,893 | 10.4 | % |
Six Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Western
prescription products
|
$ | 17,744,453 | 71.8 | % | $ | 13,695,554 | 56.6 | % | ||||||||
Western
Over-the-Counter products
|
1,689,196 | 6.8 | % | 2,180,711 | 9.0 | % | ||||||||||
TCM
prescription products
|
2,999,286 | 12.1 | % | 4,330,201 | 17.9 | % | ||||||||||
TCM
Over-the-Counter products
|
1,040,711 | 4.2 | % | 3,429,207 | 14.2 | % | ||||||||||
Other
products
|
1,234,710 | 5.0 | % | 564,190 | 2.3 | % | ||||||||||
Total
distribution products
|
$ | 24,708,356 | 100.0 | % | $ | 24,199,863 | 100.0 | % |
Six Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Western
prescription products
|
$ | 204,265 | 7.0 | % | $ | 923,998 | 96.9 | % | ||||||||
Western
Over-the-Counter products
|
- | - | % | - | - | % | ||||||||||
TCM
prescription products
|
2,236,468 | 77.1 | % | 4,098 | 0.4 | % | ||||||||||
TCM
Over-the-Counter products
|
445,643 | 15.3 | % | - | - | % | ||||||||||
Other
products
|
17,932 | 0.6 | % | 25,524 | 2.7 | % | ||||||||||
Total
Proprietary products
|
$ | 2,904,308 | 100.0 | % | $ | 953,620 | 100.0 | % |
Six
months ended June 30,
|
||||||||||||||||
2010
|
2009
|
$ Increase
|
% Increase
|
|||||||||||||
Distribution
products
|
||||||||||||||||
Revenues
|
$ | 24,708,356 | $ | 24,199,863 | $ | 508,493 | 2.1 | % | ||||||||
Cost
of revenues
|
16,791,185 | 18,171,868 | (1,380,683 | ) | (7.6 | ) % | ||||||||||
Gross
profit
|
$ | 7,917,171 | $ | 6,027,995 | $ | 1,889,176 | 31.3 | % | ||||||||
Gross
margin %
|
32.0 | % | 24.9 | % | ||||||||||||
Proprietary
products
|
||||||||||||||||
Revenues
|
$ | 2,904,308 | $ | 953,620 | $ | 1,950,688 | 204.6 | % | ||||||||
Cost
of revenues
|
1,616,361 | 672,760 | 943,601 | 140.3 | % | |||||||||||
Gross
profit
|
$ | 1,287,947 | $ | 280,860 | $ | 1,007,087 | 358.6 | % | ||||||||
Gross
margin %
|
44.3 | % | 29.5 | % | ||||||||||||
Total
|
||||||||||||||||
Revenues
|
$ | 27,762,376 | $ | 25,153,483 | $ | 2,608,893 | 10.4 | % | ||||||||
Cost
of revenues
|
18,407,546 | 18,844,628 | (437,082 | ) | (2.3 | ) % | ||||||||||
Gross
profit
|
$ | 9,354,830 | $ | 6,308,855 | $ | 3,045,975 | 48.3 | % | ||||||||
Gross
margin %
|
33.7 | % | 25.1 | % |
Six Months Ended
|
||||||||
June 30
|
||||||||
2010
|
2009
|
|||||||
Net
income (loss) available to common shareholders
|
$ | (242,870 | ) | $ | 592,078 | |||
Add
back (deduct):
|
||||||||
Deemed
preferred stock dividend
|
6,144,000 | |||||||
Change
in fair value of warrant liabilities
|
(2,481,474 | ) | 1,971,907 | |||||
Adjusted
net income
|
$ | 3,419,656 | $ | 2,563,985 | ||||
Diluted
EPS
|
$ | (0.01 | ) | $ | 0.04 | |||
Add
back (deduct):
|
||||||||
Deemed
preferred stock dividend
|
0.30 | |||||||
Change
in fair value of warrant liabilities
|
(0.12 | ) | 0.13 | |||||
Adjusted
EPS
|
$ | 0.17 | $ | 0.17 | ||||
Diluted
weighted average common shares outstanding
|
20,419,738 | 15,248,178 |
Balance Sheet Caption
|
Change in US dollars
12/31/09 to 6/30/10
|
Percentage Change
12/31/09 to 6/30/10
|
||||||
Accounts
receivable
|
2,460,984 | 11.0 | % | |||||
Inventories
|
1,136,217 | 41.6 | % | |||||
Advances
to suppliers
|
3,957,879 | 157.2 | % | |||||
Accounts
payable, trade
|
1,188,906 | 89.8 | % | |||||
Customer
deposits
|
203,939 | 42.2 | % |
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Item
4.
|
Controls
and Procedures
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Period
|
(a)
Total Number of
Shares Purchased
|
(b)
Average Price Paid
per Share
|
(c)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
|
||||||||||||
April1
to April 30, 2010
|
—
|
—
|
—
|
$
|
N/A
|
|||||||||||
May
1 to May 31, 2010
|
—
|
—
|
—
|
N/A
|
||||||||||||
June
1 to June 30, 2010
|
—
|
—
|
—
|
2,000,000
|
||||||||||||
Total
|
—
|
—
|
—
|
2,000,000
|
|
(1)
|
On
June 30, 2010 our board of directors authorized the repurchase and
retirement of up to $2,000,000 worth of our common stock in open market
transactions or in privately negotiated transactions. No repurchases where
made in the quarter ended June 30, 2010. As of August 10, 2010, 73,062
shares of common stock have been repurchased under the repurchase
program.
|
Item
6.
|
Exhibits
|
CHINA
MEDICINE CORPORATION
|
||
Date:
August 12, 2010
|
By:
|
/s/
Senshan Yang
|
Senshan
Yang
|
||
President
and Chief Executive Officer
(Principal
Executive Officer)
|
||
Date:
August 12, 2010
|
By:
|
/s/
Fred W. Cheung
|
Fred
W. Cheung
|
||
Chief
Financial Officer
(Principal
Financial Officer and
Accounting
officer)
|
Exhibit
Number
|
Exhibit Title
|
|
31.1
*
|
Certification
of our Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
*
|
Certification
of our Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
*
|
Certification
of our Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
*
|
Certification
of our Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
*
|
Filed
herewith
|