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INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2012
INTANGIBLE ASSETS  
INTANGIBLE ASSETS

NOTE 4 - INTANGIBLE ASSETS

 

Intangible assets represent the cost of medical formulas approved for production by the State Food and Drug Administration (the “SFDA”) in China. The Company did not obtain SFDA production approval for any medical formula during the year ended December 31, 2011 and no costs were reclassified from advances to intangible assets in 2011. During the year ended December 31, 2012, the Company received production approval from the SFDA for one medical formula and reclassified $507,174 from advances to intangible assets. The new medical formula is being amortized from the date SFDA approval was received over its estimated useful life of thirteen years and is not expected to have a residual value at the end of its useful life.

 

Approved medical formulas are amortized from the date SFDA approval is obtained over their individually identifiable estimated useful life, which are from ten to thirteen years.  It is at least reasonably possible that a change in the estimated useful lives of the medical formulas could occur in the near term due to changes in the demand for the drugs and medicines produced from these medical formulas. Amortization expense relating to intangible assets was $611,724 and $596,525 for the years ended December 31, 2012 and 2011, respectively, and was included in the general and administrative expenses. Medical formulas typically do not have a residual value at the end of their amortization period.

 

The Company evaluates each approved medical formula for impairment at the date of SFDA approval, when indications of impairment are present and at the date of each financial statement. The Company’s evaluation is based on an estimated undiscounted net cash flow model, considering currently available market data for the related drug and the Company’s estimated market share. If the carrying value of the medical formula exceeds the estimated future net cash flows, an impairment loss is recognized for the excess of the carrying value over the fair value of the medical formula, which is determined by the estimated discounted future net cash flows. As a result of the evaluations, the Company determined that it is not likely that the carrying value of two medical formulas will be realized from future cash flows due to the failure to meet certain improved technical criteria for one formula and from pricing pressures on the other one. As a result, impairment losses relating to those intangible assets were $593,095 for the year ended December 31, 2012. No impairment losses were recognized during the year ended December 31, 2011. 

 

Intangible assets consisted solely of SFDA approved medical formulas as follows:

December 31,

2012

2011

Gross carrying amount

 $ 5,357,580

 $ 6,124,475

Accumulated amortization

  (2,944,726)

  (3,041,804)

Net carrying amount

 $ 2,412,854

 $ 3,082,671

 

 

 

The estimated aggregate annual amortization expense for each of the next five years and thereafter is as follows:

Year

 Amount

2013

 $    521,980

2014

       505,653

2015

       364,978

2016

       318,939

2017

       272,386

Thereafter

       428,918

Total

 $ 2,412,854