2.4.0.8118 - Disclosure - COMMITMENTS AND CONTINGENCIEStruefalsefalse1false falsefalseP01_01_2013To06_30_2013http://www.sec.gov/CIK0001369868duration2013-01-01T00:00:002013-06-30T00:00:001true 1us-gaap_CommitmentsAndContingenciesDisclosureAbstractus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00falsefalsefalsexbrli:stringItemTypestringfalse0Commitments and Contingencies Disclosure [Abstract]2false 2us-gaap_CommitmentsAndContingenciesDisclosureTextBlockus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalseverboseLabel1falsefalsefalse00 <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <strong>NOTE 13  COMMITMENTS AND CONTINGENCIES</strong></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u>Capital commitments</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> As of June 30, 2013, commitments outstanding for the purchase of property, plant and equipment approximated $5,200,000.</div> </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u>Legal proceedings</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <strong><em>Dispute among Guizhou Taibang Shareholders over Raising Additional Capital</em></strong></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <strong><em> </em></strong></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In May 2007, a <font style=" FONT-SIZE: 10pt">91</font>% majority of Guizhou Taibang’s shareholders approved a plan to raise additional capital from private strategic investors through the issuance of an additional <font style=" FONT-SIZE: 10pt"> 20,000,000</font> shares of Guizhou Taibang at RMB<font style=" FONT-SIZE: 10pt">2.80</font> per share. The plan required all existing Guizhou Taibang shareholders to waive their rights of first refusal to subscribe for the additional shares. The remaining <font style=" FONT-SIZE: 10pt">9</font>% minority shareholder of Guizhou Taibang’s shares, Guizhou Jie’an Company (“Jie’an”), did not support the plan and did not waive its right of first refusal. In May 2007, the majority shareholders caused Guizhou Taibang to sign an Equity Purchase Agreement with certain investors, pursuant to which the investors agreed to invest an aggregate of $<font style=" FONT-SIZE: 10pt">7,475,832</font> (or RMB<font style=" FONT-SIZE: 10pt">50,960,000</font>) in exchange for <font style=" FONT-SIZE: 10pt">18,200,000</font> shares, or <font style=" FONT-SIZE: 10pt">21.4</font>%, of Guizhou Taibang’s equity interests. At the same time, Jie’an also subscribed for <font style=" FONT-SIZE: 10pt">1,800,000</font> shares, representing its pro rata share of the <font style=" FONT-SIZE: 10pt"> 20,000,000</font> shares being offered. The proceeds from all parties were received by Guizhou Taibang in accordance with the agreement.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In June 2007, Jie’an brought suit in the High Court of Guizhou province , China, against Guizhou Taibang and the three other original shareholders of Guizhou Taibang, alleging the illegality of the Equity Purchase Agreement. In its complaint, Jie’an claimed that it had a right to acquire the <font style=" FONT-SIZE: 10pt">18,200,000</font> shares offered to the strategic investors under the Equity Purchase Agreement. In September 2008, the Guizhou High Court ruled against Jie’an and sustained the Equity Purchase Agreement. In November 2008, Jie’an appealed the Guizhou High Court judgment to the People’s Supreme Court in Beijing. In May 2009, the People’s Supreme Court sustained the original ruling and denied the rights of first refusal of Jie’an over the <font style=" FONT-SIZE: 10pt"> 18,200,000</font> shares.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> During the second quarter of 2010, Jie’an requested that Guizhou Taibang register its 1.8 million shares of additional capital injection with the local Administration for Industry and Commerce, or AIC, pursuant to the Equity Purchase Agreement, and such request was approved by the majority shareholders of Guizhou Taibang in a shareholders meeting held in the second quarter of 2010. However, the Board of Directors of the Company is withholding its required ratification of the shareholders’ approval of Jie’an’s request , pending the outcome of the ongoing litigation. In March 2012, the Company received a subpoena that Jie’an brought suit in the People’s Court of Huaxi District, Guizhou Province, against Guizhou Taibang, alleging Guizhou Taibang’s withholding of its request. Jie’an requested that Guizhou Taibang register its 1.8 million shares of capital injection, pay dividends associated with these shares, as well as the related interest and penalty from May 2007 to December 2011 amounting to $<font style=" FONT-SIZE: 10pt">3,967,500</font> (or RMB<font style=" FONT-SIZE: 10pt">25,000,000</font>) in aggregate, and return the over-paid subscription of $<font style=" FONT-SIZE: 10pt">228,528</font> (or RMB<font style=" FONT-SIZE: 10pt">1,440,000</font>), as well as the interest and penalty, amounting to $<font style=" FONT-SIZE: 10pt">1,587,000</font> (or RMB<font style=" FONT-SIZE: 10pt">10,000,000</font>) in aggregate. The People’s Court of Huaxi District, Guizhou Province, has accepted Jie’an’s suit. In May 2012, Guizhou Taibang was informed by the court that the case was postponed upon the request from Jie’an and no exact hearing date has been provided as of the date of this report . If the Company decides to ratify the approval or the case is ruled in Jie’an’s favor, Dalin’s ownership in Guizhou Taibang will be diluted from <font style=" FONT-SIZE: 10pt">54</font>% to <font style=" FONT-SIZE: 10pt">52.54</font>% and Jie’an may be entitled to receive its pro rata share of Guizhou Taibang’s profits since the date of Jie’an’s capital contribution became effective. As this case is closely tied to the outcome of the strategic investors’ dispute stated below, the Company does not expect Jie’an to prevail. As of June 30, 2013, the Company had recorded, in its balance sheet, payables to Jie’an in the amounts of RMB<font style=" FONT-SIZE: 10pt">5,040,000</font> (approximately $<font style=" FONT-SIZE: 10pt">816,480</font>) for the additional funds received in relation to the <font style=" FONT-SIZE: 10pt"> 1.8</font> million shares of capital infusion, RMB<font style=" FONT-SIZE: 10pt">1,440,000</font> (approximately $<font style=" FONT-SIZE: 10pt">233,280</font>) for the over-paid subscription and RMB<font style=" FONT-SIZE: 10pt">2,736,575</font> (approximately $<font style=" FONT-SIZE: 10pt">443,325</font>) for the accrued interest.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> As a result of this dispute, the strategic investors’ equity ownership in Guizhou Taibang and the related increase in registered capital of Guizhou Taibang have not been registered with the local AIC. In January 2010, the strategic investors brought suit in the High Court of Guizhou Province against Guizhou Taibang alleging Guizhou Taibang’s failure to register their equity interest in Guizhou Taibang with the local AIC and requesting the distribution of their share of Guizhou Taibang’s dividends declared since 2007. Dalin was also joined as a co-defendant as it is the majority shareholder and exercises control over Guizhou Taibang’s day-to-day operations.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In October, 2010, the High Court of Guizhou ruled in favor of the Company and denied the strategic investors’ right as shareholders of Guizhou Taibang, as well as their entitlement to the dividends. In light of the Guizhou ruling, the Company returned the proceeds of $1,699,040 (or RMB11,200,000) to one of the strategic investors in November 2010. In October 2010, the other strategic investors appealed to the PRC Supreme Court in Beijing on the ruling of the High Court of Guizhou. The PRC Supreme Court overruled the decision of the High Court of Guizhou and remanded the case to the High Court of Guizhou for retrial. In January 2012, the strategic investors re-filed their case to the High Court of Guizhou requesting, in addition to the share distribution, the distribution of dividends and interest in the amount of RMB<font style=" FONT-SIZE: 10pt">18,349,345</font> (approximately $<font style=" FONT-SIZE: 10pt">2,972,594</font>) and RMB2,847,000 (approximately $<font style=" FONT-SIZE: 10pt">461,214</font>), respectively. In December 2012, the High Court of Guizhou affirmed the judgment against the strategic investors. In January 2013, the strategic investors appealed to the PRC Supreme Court in Beijing on the ruling again. The PRC Supreme Court accepted the case for retrial. The Company does not expect the strategic investors to prevail because, upon evaluation of the Equity Purchase Agreement, the Company believe that the Equity Purchase Agreement is void due to certain invalid pre-conditions and the absence of shareholder authorization of the initial investment.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;TEXT-ALIGN: justify; MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <font style="COLOR: black">In April 2013, the Company countersued the strategic investors in the Intermediate Court of Guiyang City alleging their breach of the Security Law in the PRC and requested a consideration of $<font style=" FONT-SIZE: 10pt">6,064,800</font> (or RMB<font style=" FONT-SIZE: 10pt">38,000,000</font>) for the related expenses and losses, and Guizhou Intermediate Court accepted the case.</font> The Company is awaiting the hearing of the above cases as of the date of this report. As of June 30, 2013, <font style="COLOR: black">Guizhou Taibang has set aside the strategic investors’ initial fund along with RMB15,942,138 (approximately $<font style=" FONT-SIZE: 10pt">2,582,626</font>) in accrued interest, and RMB<font style=" FONT-SIZE: 10pt">509,600</font> (approximately $<font style=" FONT-SIZE: 10pt">82,555</font>) for the <font style=" FONT-SIZE: 10pt">1</font>% penalty imposed by the agreement</font> for any breach in the event that Guizhou Taibang is required to return their original investment amount to the strategic investors. If strategic investors prevail in their suit, Dalin’s interests in Guizhou Taibang may be reduced to approximately <font style=" FONT-SIZE: 10pt">41.3</font>%.</div> </div> </div> falsefalsefalsenonnum:textBlockItemTypenaThe entire disclosure for commitments and contingencies.Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.25) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 460 -SubTopic 10 -Section 50 -Paragraph 8 -URI http://asc.fasb.org/extlink&oid=6398077&loc=d3e12565-110249 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 450 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=25496072&loc=d3e14435-108349 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 440 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6394976&loc=d3e25287-109308 false0COMMITMENTS AND CONTINGENCIESfalseCOMMITMENTS AND CONTINGENCIESUnKnownUnKnownUnKnownUnKnowntruefalsefalseSheethttp://www.chinabiologic.com/role/CommitmentsAndContingencies12