10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____________ to ____________

Commission File Number 001-34471

CHINA PHARMA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada	75-1564807
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

Second Floor, No. 17, Jinpan Road

Haikou, Hainan Province, China 570216

(Address of principal executive offices) (Zip Code)

+86- 898-6681-1730 (China)

(Issuer's telephone number, including area code)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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. (Check One):

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 43,579,557 shares of Common Stock, $.001 par value, were outstanding as of November 8, 2016.

2

CHINA PHARMA HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page

PART I FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (Unaudited)	5
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2016 and 2015 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II OTHER INFORMATION		31
Item 6.	Exhibits	31

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying unaudited condensed consolidated balance sheets, statements of operations and comprehensive income, and statements of cash flows and the related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by U.S. GAAP for complete financial statements. The financial statements reflect all adjustments, consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods.

The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.

The results of operations for the nine-month period ended September 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

4

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,		December 31,
	2016		2015
ASSETS
Current Assets:
Cash and cash equivalents	$	3,650,039	$	6,248,760
Restricted cash		1,470,014		-
Banker's acceptances		21,546		-
Trade accounts receivable, less allowance for doubtful
accounts of $29,380,197 and $28,644,398, respectively		4,014,862		5,882,509
Other receivables, less allowance for doubtful
accounts of $78,618 and $74,400, respectively		390,450		290,739
Advances to suppliers		2,614,053		2,533,354
Inventory, less allowance for obsolescence
of $6,682,357 and $8,417,095, respectively		8,569,479		9,662,750
Prepaid expenses		259,234		339,140
Total Current Assets		20,989,677		24,957,252
Advances for purchases of intangible assets		39,457,197		42,030,649
Property and equipment, net of accumulated depreciation of
$11,521,705 and $9,422,912, respectively		26,339,719		29,393,257
Intangible assets, net of accumulated amortization of
$4,440,106 and $4,360,004, respectively		621,631		841,075
TOTAL ASSETS	$	87,408,224	$	97,222,233
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable	$	3,478,404	$	2,824,521
Accrued expenses		91,701		143,409
Other payables		1,801,087		1,710,283
Advances from customers		1,006,776		595,681
Other payables - related parties		1,354,567		1,354,567
Current portion of construction loan facility		1,499,390		1,540,666
Short-term notes payable		2,249,085		4,621,998
Banker's acceptance notes payable		1,470,014		-
Total Current Liabilities		12,951,024		12,791,125
Non-current Liabilities:
Construction loan facility		8,996,338		10,784,661
Deferred revenue		172,357		708,408
Long-term deferred tax liability		353,100		296,890
Total Liabilities		22,472,819		24,581,084
Stockholders' Equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
no shares issued or outstanding		-		-
Common stock, $0.001 par value; 95,000,000 shares authorized;
43,579,557 shares and 43,579,557 shares outstanding, respectively		43,580		43,580
Additional paid-in capital		23,590,204		23,590,204
Retained earnings		28,183,391		33,939,998
Accumulated other comprehensive income		13,118,230		15,067,367
Total Stockholders' Equity		64,935,405		72,641,149
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	87,408,224	$	97,222,233

5

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2016			2015			2016			2015
Revenue	$	3,125,596		$	4,479,113		$	10,308,320		$	15,848,218
Cost of revenue		2,695,900			3,720,447			8,635,392			12,667,104
Inventory obsolescence		79,728			436,666			200,044			1,855,814
Gross (loss) profit		349,968			322,000			1,472,884			1,325,300
Operating expenses:
Selling expenses		927,187			1,155,137			2,753,388			3,156,553
General and administrative expenses		294,367			384,412			1,394,250			1,315,867
Research and development expenses		99,095			405,438			289,189			741,116
Bad debt expense (benefit)		(69,899	)		(3,160,862	)		1,005,949			6,045,352
Impairment of long term assets		644,696			-			1,467,235			-
Total operating expenses		1,895,446			(1,215,875	)		6,910,011			11,258,888
Subsidy income		(2,325	)		1,655,683			346,347			1,655,683
Income (loss) from operations		(1,547,803	)		3,193,558			(5,090,780	)		(8,277,905	)
Other income (expense):
Interest income		32,434			36,185			99,149			93,262
Interest expense		(213,740	)		(279,113	)		(699,932	)		(915,310	)
Net other expense		(181,306	)		(242,928	)		(600,783	)		(822,048	)
Income (loss) before income taxes		(1,729,109	)		2,950,630			(5,691,563	)		(9,099,953	)
Income tax  expense		(20,800	)		(18,906	)		(65,044	)		(57,618	)
Net income (loss)		(1,749,909	)		2,931,724			(5,756,607	)		(9,157,571	)
Other comprehensive income (loss) - foreign currency
translation adjustment		(275,928	)		(3,794,761	)		(1,949,137	)		(2,959,348	)
Comprehensive income (loss)	$	(2,025,837	)	$	(863,037	)	$	(7,705,744	)	$	(12,116,919	)
Income (loss) per share:
Basic	$	(0.04	)	$	0.07		$	(0.13	)	$	(0.21	)
Diluted	$	(0.04	)	$	0.07		$	(0.13	)	$	(0.21	)

6

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Nine Months
	Ended September 30,
	2016			2015
Cash Flows from Operating Activities:
Net loss	$	(5,756,607	)	$	(9,157,571	)
Depreciation and amortization		2,583,066			2,769,761
Bad debt expense		1,005,949			6,045,352
Deferred income taxes		65,044			677,209
Inventory obsolescence reserve		(1,529,912	)		460,537
Impairment of long-term assets		1,467,235			-
Changes in assets and liabilities:
Trade accounts and other receivables		(709,257	)		(2,642,445	)
Advances to suppliers		(150,606	)		(1,746,117	)
Inventory		3,157,553			3,314,458
Trade accounts payable		739,551			2,061,895
Accrued taxes payable		(74,080	)		16,307
Other payables and accrued expenses		119,085			(18,951	)
Advances from customers		432,904			(1,128,459	)
Prepaid expenses		71,790			-
Net Cash Provided by Operating Activities		1,421,715			651,976
Cash Flows from Investing Activities:
Purchases of property and equipment		(86,350	)		(310,247	)
Bankers acceptances redeemed for cash		-			306,904
Net Cash Used in Investing Activities		(86,350	)		(3,343	)
Cash Flows from Financing Activities:
Payments of construction term loan		(1,519,932	)		-
Payments of short term debt		(2,279,899	)		-
Net Cash Used by Financing Activity		(3,799,831	)		-
Effect of Exchange Rate Changes on Cash		(134,255	)		(226,914	)
Net (Decrease) Increase in Cash and Cash Equivalents		(2,598,721	)		421,719
Cash and Cash Equivalents at Beginning of Period		6,248,760			5,319,990
Cash and Cash Equivalents at End of Period	$	3,650,039		$	5,741,709
Supplemental Cash Flow Information:
Cash paid for interest	$	689,773		$	905,151
Supplemental Noncash Investing and Financing Activities:
Accounts payable for purchases of property and equipment		-			137,854
Accounts receivable collected with banker's acceptances		803,655			1,968,818
Inventory purchased with banker's acceptances		781,814			1,400,447
Restricted cash related to letter of credit		1,490,154			-
Advances for intangible assets purchased with banker's acceptances		-			395,445

7

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations – China Pharma Holdings, Inc., a Nevada corporation, owns 100% of Onny Investment Limited (Onny), a British Virgin Islands corporation, which owns 100% of Hainan Helpson Medical & Biotechnology Co., Ltd (Helpson), a company organized under the laws of the People's Republic of China (the PRC). China Pharma Holdings, Inc. and its subsidiaries are referred to herein as the Company.

On December 31, 2012, China Pharma Holdings, Inc. consummated a reincorporation merger for the purpose of changing its state of incorporation from Delaware to Nevada pursuant to the terms and conditions of an Agreement and Plan of Merger dated December 27, 2012.  The reincorporation merger was approved by stockholders holding the majority of the Company's outstanding shares of common stock on December 21, 2012.

The Foreign Investment Industrial Catalogue(the "Catalogue") jointly issued by China's Ministry of Commerce and the National Development and Reform Commission (the latest version is the 2015 version, effective April 10, 2015) classified various industries/businesses into three different categories: (i) encouraged for foreign investment; (ii) restricted to foreign investment; and (iii) prohibited from foreign investment. For any industry/business not covered by any of these three categories, they will be deemed industries/businesses permitted for foreign investment. A typical foreign investment ownership restriction in the pharmaceutical industry is that a foreign investment enterprise (the "FIE") shall not have the whole or majority of its equity interests owned by a foreign owner if the FIE establishes more than 30 branch stores and distributes a variety of brands in those franchise stores, which is not the case for the Company's business.

Helpson manufactures and markets generic and branded pharmaceutical products as well as biochemical products primarily to hospitals and private retailers located throughout the PRC. The Company believes Helpson's business is not subject to any ownership restrictions prescribed under the Catalogue. Onny acquired 100% of the ownership in Helpson on May 25, 2005 by entering into an Equity Transfer Agreement with Helpson's three former shareholders. The transaction was approved by the Commercial Bureau of Hainan Province on June 12, 2005 and Helpson received the Certificate of Approval for Establishing of Enterprises with Foreign Investment in the PRC on the same day and its business license evidencing its WFOE (Wholly Foreign Owned Enterprise) status on June 21, 2005.

The Company has acquired and continues to acquire well-accepted medical formulas to add to its diverse portfolio of Western and Chinese medicines.

Consolidation and Basis of Presentation – The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in United States dollars. The accompanying consolidated financial statements include the accounts and operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.

Helpson's functional currency is the Chinese Renminbi. Helpson's revenue and expenses are translated into United States dollars at the average exchange rate for the period. Assets and liabilities are translated at the exchange rate as of the end of the reporting period. Gains or losses from translating Helpson's financial statements are included in accumulated other comprehensive income, which is a component of stockholders' equity. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity that is party to the transaction are included in the results of operations.

Accounting Estimates - The methodology used to prepare for the Company's financial statements is in conformity with the accounting principles generally accepted in the United States of America, which requires the management of the Company ("Management") to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Therefore, actual results could differ from those estimates.

Cash and Cash Equivalents – Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term banker's acceptances purchased with maturities of three months or less.

Restricted Cash–Restricted cash includes cash that has been deposited with a bank to satisfy obligations outstanding under banker's acceptance notes issued by the Company as discussed in Note 8.

Trade Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivables are carried at the original invoiced amounts less an allowance for doubtful accounts. The allowances for doubtful accounts are calculated based on a detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company's customer base. The Company reviews a customer's credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additions to the allowance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Charges to bad debt expense totaled $1,005,949 and $6,045,352 for the nine months ended September 30, 2016 and 2015, respectively.

Trade accounts receivable that have been fully allowed for and determined to be uncollectible are charged against the allowance in the period the determination is made. It is common practice in the pharmaceutical industry in the PRC for receivables to extend beyond one year. Customer balances outstanding for more than one year are allowed for at a greater rate when calculating the allowance for doubtful accounts. As of September 30, 2016, the Company had trade accounts receivable amounting to $30 million from sales that occurred more than one year from that date, most of which the Company believes are collectable.

8

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

Advances to Suppliers and Advances from Customers – Common practice in the pharmaceutical industry in the PRC is to make advances to suppliers for materials and to receive advances from customers for finished products. Advances to suppliers are applied to trade accounts payable when the materials are received. Advances received from customers are applied against trade accounts receivable when finished products are sold. The Company reviews a supplier's credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would recognize bad debt expenses in the period they are considered unlikely to be collected.

Inventory – Inventory is stated at the lower of cost or net realizable value, computed on an average cost basis. We charge inventory obsolescence expense for inventory allowance to write down our inventory to the lower of cost or estimated market value or to completely write off obsolete or excess inventory. Charges to inventory obsolescence expense totaled $200,044 and $1,855,814 for the nine months ended September 30, 2016 and 2015, respectively. The Company recognized an inventory obsolescence reserve of $6,682,357 and $8,417,095 as of September 30, 2016 and December 31, 2015, respectively.

Valuation of Long-Lived Assets – The carrying values of long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying values may not be recoverable. When such an event occurs, the Company projects the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset. If projections indicate that the carrying value of an asset will not be recovered, it is reduced by the estimated excess of the carrying value over the projected discounted cash flows estimated to be generated by the asset. During the nine months ended September 30, 2016 the Company recognized an impairment related to Advances for purchases of intangible assets in the amount of $1,467,235 as more fully discussed in Note 5. There was no impairment adjustment required for the nine months ended September 30, 2015.

Property and Equipment – Property and equipment are stated at cost. Maintenance and repairs are charged to expenses as incurred and major improvements are capitalized. Gains or losses on sale, trade-in or retirement are included in operations during the period of disposition.

Revenue Recognition – Revenue is considered earned when the Company obtains persuasive evidence of an arrangement with the customer, when delivery of the products has occurred, when the sales price is fixed or determinable, and when collectability is reasonably assured. Delivery does not occur until products have been shipped to the customer, the risk of loss has transferred to the customer and customer acceptance has been obtained, customer acceptance provisions have lapsed, or the Company obtains objective evidence that the criteria specified in the customer acceptance provisions have been satisfied. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.  Revenue is deferred when collectability is not considered to be reasonably assured.

Cost of Revenues – Cost of revenues includes wages, materials, depreciation, handling charges, and other expenses associated with the manufacture and delivery of products.

Research and Development – Research and development expenditures are recorded as expenses in the period in which they occur. Research and development expenses were $289,189 and $741,116 for the nine months ended September 30, 2016 and 2015, respectively. 

Basic and Diluted Earnings (Loss) per Common Share - Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated to give effect to potentially issuable dilutive common shares.  There were no potential dilutive common shares outstanding during the three and nine months ended September 30, 2016 and 2015, respectively. 

The following table is a presentation of the numerators and denominators used in the calculation of basic and diluted (loss) earnings per share:

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2016			2015		2016			2015
Net (loss) income	$	(1,749,909	)	$	2,931,724	$	(5,756,607	)	$	(9,157,571	)
Basic weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Effect of dilutive securities:
Warrants		-			-		-			-
Options		-			-		-			-
Diluted weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Basic (loss) earnings per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)
Diluted loss per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)

Credit Risk – The carrying amount of accounts receivable included in the balance sheet represents the Company's exposure to credit risk in relation to its financial assets. No other financial asset carries a significant exposure to credit risk. The Company performs ongoing credit evaluations of each customer's financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate have not exceeded Management's estimates.

9

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

The Company has its cash in bank deposits primarily at state owned banks located in the PRC. Historically, deposits in PRC banks have been secured due to the state policy of protecting depositors' interests. The PRC promulgated a new Bankruptcy Law in August 2006, effective June 1, 2007, which contains provisions for the implementation of measures for the bankruptcy of PRC banks. In the event that bankruptcy laws are enacted for banks in the PRC, the Company's deposits may be at a higher risk of loss.

Interest Rate Risk – The Company is exposed to the risk arising from changing interest rates, which may affect the ability of repayment of existing debts and viability of securing future debt instruments within the PRC.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  In July 2015, the FASB decided to delay the effective date of the new standard by one year; as a result, the new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption will be permitted, but no earlier than 2017 for calendar year-end entities. 

The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has not yet determined its method of transition and are evaluating the impact that this guidance will have on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, a new standard on accounting for leases. The ASU introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in the current accounting guidance as well as the FASB's new revenue recognition standard. However, the ASU eliminates the use of bright-line tests in determining lease classification as required in the current guidance. The ASU also requires additional qualitative disclosures along with specific quantitative disclosures to better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The pronouncement is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, using a modified retrospective approach. Early adoption is permitted. The Company has not completed an evaluation of the impact the pronouncement will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard provides a new requirement to record all of the tax effects related to share-based payments at settlement (or expiration) through the income statement. This pronouncement is effective for annual reporting periods beginning after December 15, 2016. The Company has completed an evaluation of the pronouncement and determined that its impact upon adoption will not be material to the Company's consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The standard addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The amendments in this ASU should be applied using a retrospective approach.  The Company has not completed an evaluation of the impact the pronouncement will have on its consolidated financial statements and related disclosures, but does not expect the impact to be material.

Other accounting standards that have been issued by FASB or other standards-setting bodies are not expected to have a material effect on the Company's financial position, result of operations or cash flows.

NOTE 2 – INVENTORY

Inventory consisted of the following:

	September 30,			December 31,
	2016			2015
Raw materials	$	12,106,727		$	14,699,736
Work in process		413,756			-
Finished goods		2,731,353			3,380,109
		15,251,836			18,079,845
Obsolescence reserve		(6,682,357	)		(8,417,095	)
Total Inventory	$	8,569,479		$	9,662,750

10

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	September 30,			December 31,
	2016			2015
Permit of land use	$	422,330		$	433,956
Building		10,274,394			10,557,234
Plant, machinery and equipment		26,651,565			27,325,440
Motor vehicle		259,369			242,860
Office equipment		253,766			256,679
Total		37,861,424			38,816,169
Less: accumulated depreciation		(11,521,705	)		(9,422,912	)
Property and Equipment, net	$	26,339,719		$	29,393,257

 

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Asset	Life - years
Permit of land use	40 - 70
Building	20 - 49
Plant, machinery and equipment	5 - 10
Motor vehicle	5 - 10
Office equipment	3-5

 

Depreciation relating to office equipment was included in general and administrative expenses, while all other depreciation was included in cost of revenue. For the three months ended September 30, 2016 and 2015, depreciation expense was $789,150 and $911,515, respectively. For the nine months ended September 30, 2016 and 2015, depreciation expense was $2,383,457 and $2,523,752, respectively.

NOTE 4 - INTANGIBLE ASSETS

Intangible assets represent the cost of medical formulas approved for production by China Food and Drug Administration ("CFDA"). The Company did not obtain CFDA production approval for any medical formula during the nine months ended September 30, 2016 and 2015 and no costs were reclassified from advances to intangible assets during the nine months ended September 30, 2016 and 2015, respectively.

Approved medical formulas are amortized from the date CFDA approval is obtained over their individually identifiable estimated useful lives, which range 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 $65,643 and $73,498, respectively for the three months ended September 30, 2016 and 2015 and $199,609 and $246,009 for the nine months ended September 30, 2016 and 2015, 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 periods.

The Company evaluates each approved medical formula for impairment on the date of CFDA approval is obtained, when indications of impairment are present and on the date each financial statement is issued. 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. No impairment loss was recognized during the nine months ended September 30, 2016 and 2015.

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

	September 30,			December 31,
	2016			2015
Gross carrying amount	$	5,061,737		$	5,201,079
Accumulated amortization		(4,440,106	)		(4,360,004	)
Net carrying amount	$	621,631		$	841,075

11

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 5 – ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS

In order to expand the number of medicines the Company manufactured and marketed, it has entered into contracts with independent laboratories and others for the purchase of medical formulas. Although CFDA approval had not been obtained for these medical formulas at the dates of the respective contracts, the objective of the contracts is for the Company to purchase CFDA-approved medical formulas once the CFDA approval process is completed. The Company received the titles to two patents that relate to medical formulas currently in the CFDA approval process as of September 30, 2016. These patents have not expired.

Prior to entering into contracts with the Company, laboratories typically are required to complete all research and development to determine the content of the medical formula and the method to produce the generic medicine. The application to the CFDA for production approval must be made by the production facility that will produce the related product. As a result, a contract typically provides that the Company buys the medical formula from the laboratory and the laboratory is required to assist the Company in applying for and obtaining the production approval from the CFDA.

A typical CFDA approval process for the production of a generic medical product involves a number of steps that generally require three to five years to complete. If the medical formula is purchased at the point when the generic medical product receives the CFDA's approval for a clinical study, which is very typical for the Company, the clinical study that follows will usually take from one and a half to three years to complete. After completing the clinical study, the results are submitted to the CFDA and a production approval application is filed with the CFDA. In most cases, it will take between eight to eighteen months to prepare and submit the production approval application and obtain CFDA approval. Upon approving the generic medical product, the CFDA issues a production certificate and the Company can commence the production and sales of the generic medical product. As a result of this process, CFDA approval is expected to be received in approximately two to five years from the date  the Company signs the medical formula contracts.

Under the terms of the contracts, the laboratories are required to assist the Company in obtaining production approval for the medical formulas from the CFDA. Management monitors the status of each medical formula on a regular basis in order to assess whether the laboratories are performing adequately under the contracts. If a medical product is not approved by the CFDA, as evidenced by their issuance of a denial letter, or if the laboratory breaches the contract, the laboratory is required under the contract to provide a refund to the Company of the full amount of the payments made to the laboratory for that formula, or the Company can require the application of those payments to another medical formula with the same laboratory, if the laboratory is in existence and solvent. As a result of the refund right, the Company is ultimately purchasing an approved medical product. Accordingly, payments made prior to the issuance of production approval by the CFDA are recorded as advances for purchases of intangible assets. Impairment is recorded when an asset's carrying amount is not recoverable based on refund rights or otherwise, which can be caused due to laboratory's insolvency or loss of operating license.

To date, no formula has failed to receive CFDA production approval nor has the Company been informed or become aware of any formula that may fail to receive such approval. However, there is no assurance that the medical products will receive production approval and if the Company does not receive such approval, it will enforce its contractual rights to receive the refund from the laboratory or have the payments applied to another medical formula with the same laboratory.

As of September 30, 2016, the Company was obligated to pay laboratories and others approximately $4,400,000 upon the completion of various phases of contracts to obtain CFDA production approval of medical formulas.

During the nine months ended September 30, 2016, with CFDA's tightened scrutiny procedure in connection with its review of GMP applications and based on the Company's monitoring and assessment process, the Company determined three advanced payments to three independent laboratories were impaired. As a result, the Company recognized an impairment loss for the advances made to these laboratories in the amount of $1,467,235.

NOTE 6 – RELATED PARTY TRANSACTIONS

A member of the Company's board of directors had previously advanced the Company an aggregate amount of $1,354,567 as of September 30, 2016 and December 31, 2015 which are recorded as other payables – related parties on the accompanying consolidated balance sheets. The advances bear interest at a rate of 1.0% per year.  Total interest expense for the three months ended September 30, 2016 and 2015 was $3,386 and $3,386. Total interest expense for the nine months ended September 30, 2016 and 2015 was $10,159 and $10,158, respectively.

12

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 7 – NOTES PAYABLE

Line of Credit

In November 2014, the Company entered into a line of credit with a bank in the amount of RMB30,000,000 (approximately $4,498,169).  Advances on the line of credit were due one year from the date of the advance and were collateralized by certain land use rights, buildings and accounts receivable and bear interest at an annual rate of 6.16% (based upon 110% of the PRC government's short term rate of 5.6% in November 2014). In addition, the Company's Chief Executive Officer and Chair of the board of directors ("Board") personally guaranteed the line of credit. In November, 2015 the Company renewed its line of credit in the amount of RMB30,000,000 (approximately $4,498,169 with the same bank.  The line of credit is payable in two equal installments of RMB15,000,000 (approximately $2.25 million) payable on September 16, 2016 and October 19, 2016, respectively. The Company made the payment due for RMB15,000,000 according to the terms of the agreement as of September 30, 2016.  Advances on the line of credit are collateralized by certain land use rights, buildings and accounts receivable and bear interest at an annual rate of 5.06% (based upon 110% of the PRC government's current short term rate of 4.6%). In addition, the Company's Chief Executive Officer and Chairman of the Board personally guaranteed the line of credit.

The outstanding balance due under the revolving line of credit was RMB15,000,000 and RMB30,000,000 as of September 30, 2016 and December 31, 2015, respectively ($2,249,085 as of September 30, 2016 and $4,621,998 as of December 31, 2015).  The Company has no additional amounts available to it under this line of credit.  This amount has been classified as short-term notes payable in the accompanying condensed consolidated balance sheets as of September 30, 2016. Subsequent to the nine-month period ended September 30, 2016, the Company made the second installment payment of RMB15,000,000.

Fair Value of Notes Payable – Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the carrying amounts of notes payable outstanding as of September 30, 2016 and December 31, 2015 approximated their fair value because of the immediate or short-term maturity of these financial instruments and because the underlying instruments bear interest rates that approximated current market rates.

NOTE 8 – BANKER'S ACCEPTANCE NOTES PAYABLE

In April 2016, the Company entered into a "Banker's Acceptance Note Agreement" with a bank. Pursuant to the terms of the agreement, the Company can issue banker's acceptance notes (the "Banker's Notes") to any third party as payment of amounts owing to that third party. The Company is required to deposit with the bank an amount equal to the amounts represented by the Banker's Notes issued to the third parties. The amount of these deposited balances is shown as "Restricted cash" on the accompanying balance sheets as of September 30, 2016. The maximum amount that the Company can issue under this agreement is limited to the lesser of RMB30,000,000 (approximately $4.5 million) or the amount of cash available to deposit against the Banker's Notes. In addition, the agreement calls for the payment of fees equal to 0.05% of the note amount to the bank. During 2016, the Company issued Banker's Notes in the amount of $1,470,014.

NOTE 9 – CONSTRUCTION LOAN FACILITY

The Company obtained a construction loan facility in the amount of RMB80,000,000 (approximately $12.0 million) from a construction loan facility dated June 21, 2013. The loan facility is for an eight-year term, which commenced on July 11, 2013, the initial draw-down date and is from the same bank that currently provides the line of credit as discussed in Note 7.  The proceeds of the loan were used for and are collateralized by the construction of the Company's new production facility and the included production line equipment and machinery. The loan currently bears weighted interest at 5.73%, based upon 110% of the PRC government's eight-year term rate effective on the actual draw-down date, subject to annual adjustments based on 110% of the floating rate for the same type of loan on the anniversary from the draw-down date and its subsequent anniversary dates. On July 10, 2015 the interest rate was adjusted to 5.94% and on July 10, 2016 the interest rate was further adjusted to 5.39%.  The loan required interest only payments for the first two years. Beginning July 11, 2015, the balance of the principal is due in at least two (2) annual installments with the first annual payment being due within six month period after July 10, 2015 and the second annual payment being due July 10, 2016 and each following year over the next five years through July 11, 2022 on the identical terms as described above for 2015. In January 2016, the Company made a principal payment in the amount of approximately $309,000 (RMB2,000,000) and on July 13, 2016 the Company made a payment in the amount of approximately $1,196,548 (RMB8,000,000). As of September 30, 2016, the Company had no additional amounts available to it under this facility.

Principal payments required for the next five years as of September 30, 2016 are as follows:

Twelve Months Ending September 30,	Amount
2017	$	1,499,390
2018		2,249,085
2019		2,249,085
2020		2,249,085
2021		2,249,083
	$	10,495,728

Fair Value of Construction Loan Facility – Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the carrying amounts of the construction loan facility outstanding as of September 30, 2016 approximated its fair value because the underlying instrument bears an interest rate that approximated current market rates. 

13

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 10 - INCOME TAXES

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income in the period that includes the enactment date.

Undistributed earnings of Helpson, the Company's foreign subsidiary, since its acquisition, amounted to approximately $34.5 million as of September 30, 2016. Those earnings, as well as the investment in Helpson of approximately $23.3 million, are considered to be indefinitely reinvested and, accordingly, no U.S. federal or state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. federal and state income taxes (net of an adjustment for foreign tax credits) and withholding taxes payable to the PRC. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits may be available to reduce a portion of the U.S. tax liability.

Liabilities are established for uncertain tax positions expected to be taken in income tax return when such positions are judged to meet the "more-likely-than-not" threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of other expenses. Through September 30, 2016, the Company has not identified any uncertain tax positions that it has taken. U.S. income tax returns for the years ended December 31, 2012 through December 31, 2015 and the Chinese income tax return for the year ended December 31, 2015 are open for possible examination.

On March 16, 2007, the National People's Congress of China passed the Enterprise Income Tax Law (EIT Law) and on December 6, 2007, the State Council of China issued the Implementation Regulations for the EIT Law which took effect on January 1, 2008. The EIT Law and Implementation Regulations Rules impose a unified EIT of 25% on all domestic-invested enterprises and Foreign Invested Entities, or FIEs, unless they qualify under certain limited exceptions.

The Company is located in a special region, which had a 15% corporate income tax rate before the new EIT Law. The new EIT Law abolished the preferential corporate income tax rate in the special region. The Company transitioned to the new 25% tax rate over a five year period which began on January 1, 2008. During 2010, the Company applied for and received a favorable tax rate of 15% for fiscal 2011 through 2013 due to its status in the PRC as a high technology enterprise. In 2013, the Company again applied for and received the same favorable tax rate for 2014 to 2016.  Under the current tax law in the PRC, the Company is and will be subject to the following enterprise income tax rates:

	Enterprise Income
Year	Tax Rate
2015	15%
2016	15%
Thereafter	25%

The provision for income taxes consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Current	$	-	$	-	$	-	$	-
Deferred		20,800		18,906		65,044		57,618
Total income tax expense	$	20,800	$	18,906	$	65,044	$	57,618

As of September 30, 2016, the Company had net operating loss carryforwards for PRC tax purposes of approximately $38.9 million, which are available to offset any future taxable income through 2021. The Company also has net operating losses for United States federal income tax purposes of approximately $4.2 million which are available to offset future taxable income, if any, through 2036.

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible or tax loss carry forwards are utilized.  Management considers projected future taxable income and tax planning strategies in making this assessment.  Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods on which the deferred tax assets are deductible or can be utilized, Management believes it is not likely for the Company to realize all benefits of the deferred tax assets as of September 30, 2016 and December 31, 2015.  Therefore, the Company provided for a valuation allowance against its deferred tax assets of $13,457,238 and $12,798,572 as of September 30, 2016 and December 31, 2015, respectively.

The Company also incurred various other taxes, comprised primarily of business taxes, value-added taxes, urban construction taxes, education surcharges and others. Any unpaid amounts are reflected on the balance sheets as accrued taxes payable.

14

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 11 – FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The banker's acceptances are recorded at cost which approximates fair value.  The Company held the following assets and liabilities recorded at fair value as of September 30, 2016:

			Fair Value Measurements at
			Reporting Date Using
Description	September 30, 2016		Level 1		Level 2		Level 3
Banker's acceptances	$	21,546	$	-	$	21,546	$	-
Total	$	21,546	$	-	$	21,546	$	-

NOTE 12 - STOCKHOLDERS' EQUITY

The Company is authorized to issue 95,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. The preferred stock may be issued in series with such designations, preferences, stated values, rights, qualifications or limitations as determined solely by the Company's Board.

Employee Stock Options

2010 Incentive Plan

On November 12, 2010, the Company's Board adopted the Company's 2010 Incentive Plan (the "Plan"), which was then approved by stockholders on December 22, 2010. The Plan gave the Company the ability to grant stock options, restricted stock, stock appreciation rights and performance units to its employees, directors and consultants, or those who will become employees, directors and consultants of the Company and/or its subsidiaries. The Plan currently allows for equity awards of up to 4,000,000 shares of common stock. Through September 30, 2016, there were 175,000 shares of restricted stock granted and outstanding under the Plan.  No options were outstanding as of September 30, 2016 under the Plan.

There were no securities issued from the Plan during each of the nine months ended September 30, 2016 and 2015. 

The Company recognized no compensation expense related to the awards of common shares and the grants and modifications of stock options during each of the three and nine months ended September 30, 2016 and 2015.

The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model. Expected volatility is based on the historical volatility of the Company's common stock prices. The Company uses historical data to estimate employee termination rates. The expected term of options granted is determined by the simplified method, which is one-half of the original contractual term. The simplified method is used due to the lack of historical share option exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

As of September 30, 2016, there was no remaining unrecognized compensation expense related to stock options or restricted stock grants.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Economic environment - Substantially all of the Company's operations are conducted in the PRC, and therefore the Company is subject to special considerations and significant risks not typically associated with companies operating in the United States of America. These risks include, among others, the political, economic and legal environments and fluctuations in the foreign currency exchange rate. The Company's results from operations may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The unfavorable changes in global macroeconomic factors may also adversely affect the Company's operations.

In addition, all of the Company's revenue is denominated in the PRC's currency of Renminbi (RMB), which must be converted into other currencies before remittance out of the PRC. Both the conversion of RMB into foreign currencies and the remittance of foreign currencies abroad require approval of the PRC government.

15

CHINA PHARM HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2016 and 2015

NOTE 14 – CONCENTRATIONS

For the nine months ended September 30, 2016, no customer accounted for more than 10% of sales and one supplier accounted for 21.7% of raw material purchases. At September 30, 2016, three customers accounted for 28.3%, 11.3% and 11% of accounts receivable, respectively. 

For the nine months ended September 30, 2015, one customer accounted for 10.0% of sales. For the nine months ended September 30, 2015, purchases from one supplier accounted for 20.5% of raw material purchases. At September 30, 2015, two customers accounted for 17.6% and 10.8% of accounts receivable, respectively.  

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ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The statements contained in this report with respect to our financial condition, results of operations and business that are not historical facts are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology, such as "anticipate", "believe", "expect", "plan", "intend", "seek", "estimate", "project", "could", "may" or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the readers of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employees, and general business factors affecting our operations, markets, growth, products and other factors, some of which are described in this report and some of which are discussed in our other periodic filings with the Securities and Exchange Commission. These forward-looking statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward- looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

Business Overview & Recent Developments

In order to implement the requests from Central Committee of the Communist Party of China and State Council to take the strictest standard to monitor and regulate food and drug, to further rectify and standardize the order of drug distribution, and to take severe measures against illegal business activities, the China Food and Drug Administration ("CFDA") issued "Notice on Rectification Against Illegal Operation on Drug Logistic & Distribution" on May 3, 2016.  As it had become the top priority for all pharmaceutical distributors, including our distributors, to take measures to comply with this government policy, their time and efforts had been arranged around the inspection from CFDA, which delayed their ordinary promoting practices, purchase and distribution activities, and further negatively impacted the sales performance of our company during the second and third quarter of 2016. In addition, due to the fact that we only received new GMP certificate for the injectable production lines at our new manufacturing facility in November 2014, we missed drug biddings in several provinces prior to November 2014. Those missed biddings negatively impacted our market shares previously secured in those provinces, and dragged our sales in 2015 and extended its impact to this year.

17

In order to support our existing product mix on the market, we have continuously focused on pipeline development.  However, we have experienced delays in obtaining approvals for products in our pipeline due to revisions and enhancements in the approval criteria and processes issued by CFDA. These revisions result in additional supplemental materials and trials, higher cost, and longer approval time for certain applications of various types of our new products. On March 5, 2016, the PRC State Council issued "Opinions on Carrying out Consistency Evaluation on Quality and Efficacy of Generic Drugs" (the "Opinions"). The Opinions require all chemical generic pipeline products to carry out "Consistency Evaluation" before receiving the final registration approval, which has further prolonged the procedures for our pipeline products obtaining the final approvals. "Consistency Evaluation" requires currently marketed generic products to prove consistency in terms of quality, therapeutic effect, and substitutability during clinical trials with the original drug.

As a result, the status of our pipeline products remains the same as we reported in our Annual Report on Form 10-K for the year ended December 31, 2015.

Market Trends

Per the Report on the "Work of the Government" delivered by Premier Li Keqiang at the Fourth Session of the 12th National People's Congress of the People's Republic of China on March 5, 2016, the government aimed to realize full coverage of the serious disease insurance plan, and increase government funding for the plan to reduce the financial burdens on more people suffering from serious diseases. The central government will allocate RMB16 billion for medical assistance and subsidiesin both rural and urban areas, an increase of 9.6% over last year. The government would merge the basic medical insurance systems for rural and non-working urban residents and raise government subsidies for the plan from RMB380 to RMB420 per capita per annum. The government reforms the methods for making medical insurance payouts and expedite the building of a nationwide network for basic medical insurance so that medical expenses can be settled wherever they are incurred via basic medical insurance accounts. The government would carry out trials for tiered medical services in around 70% of prefecture-level cities, increase basic annual per capita government subsidies for public health services from RMB40 to RMB45, and ensure that more medical resources are channeled toward rural areas.

In addition, the Chinese People's Political Consultative Conference ("CPPCC") held a special meeting titled "To Deepen Health Reform" in Beijing on May 10, 2016 with National Development and Reform Commission (NDRC), Ministry of Finance (MOF), CFDA and other governmental departments participated. The participants concluded that China's healthcare reform had achieved significant initial results; however, the results so far had not fulfilled people's expectations. To be specific, the problems of inadequate and overly expensive medical services have not been fundamentally resolved. The participants therefore suggested:

(a) deepen the reform of management model and compensation system of healthcare institutions;

18

(b) promote the reform of medical insurance payment;

(c) strengthen basic-level health care services, and promote the establishment of diagnosis and treatment hierarchy;

(d) strengthen medical and health information technology to promote the realization of information sharing among different healthcare institutions; and

(e) strengthen the leadership of healthcare reform to reduce cost and create synergy.

The policy named "Clinical Trial Data Verification Upon 1622 Drugs with Production or Import Application" issued on July 22, 2015 by CFDA preluded Chinese drug review policy reform and stricter quality control. Since then, several important policies have been issued, such as marketing authorization holder pilot implementation,  generic drug consistency evaluation, chemical drug registration classification reform, normalization of drug clinical trial data on-site verification. Those drug review and healthcare reform-related policies issued by CFDA, with its unprecedented efficiency and implementation intensity, are expected to have subversive impact upon Chinese pharmaceutical market, and an industry reshuffle appears to be on the horizon.

We believe that the pharmaceutical industry is still facing a lot of challenges, but with the continuous improvement of the national pharmaceutical management system and pharmaceutical companies to enhance their own strength, as well as China's huge pharmaceutical consumer market, the pharmaceutical industry still has bright prospects for development.

Results of Operations for the Three Months Ended September 30, 2016 and 2015

Under the industrial reform and modification background guided by the government's healthcare reform policies, we have actively completed the new GMP upgrading for the majority of our current production facility, and have been aggressively promoting our sales to regain our original market shares. Although there was no immediate reversal of sales trends so far due to the special characteristics of pharmaceutical industry, we strongly believe that our current operations and financial position will allow us to have a foundation for steady business growth in the future.

Net loss for the three months ended September 30, 2016 was $1.7 million, compared to net income of $2.9 million for three months ended September 30, 2015. The difference in performance between the third quarters in 2016 and 2015 was mainly due to the decrease in revenue, bad debt benefit and subsidiary income in the three months ended September 30, 2016, compared to the same period in 2015.

19

Revenue

Revenue decreased by 30.2% to $3.1 million for the three months ended September 30, 2016, as compared to $4.5 million for the three months ended September 30, 2015. This decrease was primarily due to the rectification and standardization upon drug distributors by CFDA as discussed under "Business Overview & Recent Developments" section, whose significant negative impact upon distributors had continued in the three months ended September 30, 2016. which also impacted the sales performance in the third quarter of upstream suppliers like us. In addition, the government's healthcare-price-controls also maintained continuous pressure upon our sales.

Sales Revenue by Major Category (Dollars in Millions)

Set forth below are our revenues by product category in millions USD for the three months ended September 30, 2016 and 2015:

Product Category	Three Months Ended September 30,		Net Change	% Change
	2016	2015
CNS Cerebral & Cardio Vascular	0.57	0.60	-0.03	-6%
Anti-Viro/ Infection & Respiratory	1.78	2.84	-1.06	-37%
Digestive Diseases	0.22	0.19	0.03	15%
Other	0.56	0.85	-0.29	-34%

The most significant revenue drop in terms of dollar amount was in our "Anti-Viro/Infection & Respiratory" category which has decreased by $1.06 million to $1.78 million in the third quarter of 2016 as compared to $2.84 million in the same period of 2015, which was mainly affected by the market fluctuation caused by CFDA rectification and standardization upon the drug distributors as discussed under "Business Overview & Recent Developments".

Our "Digestive Diseases" category generated $0.22 million of sales in the third quarter of 2016 as compared to $0.19 million in the same period of the previous year, which represented an increase of $0.03 million.

"Other" product category, which generated $0.56 million in sales revenue in the third quarter of 2016, as compared to $0.85 million in the same period of 2015, a decrease of $0.29 million. This decrease was mainly due to the decrease in sales of Vitamin B6 in this category, which was caused by loss of market shares as discussed above.

Sales in our "CNS Cerebral & Cardio Vascular" category generated $0.57 million in sales revenue in the third quarter of 2016 as compared to $0.60 million in the same period of 2015, a decrease of $0.03 million.

20

Product Category	Three Months Ended September 30,
	2016	2015
CNS Cerebral & Cardio Vascular	18%	13%
Anti-Viro/ Infection & Respiratory	57%	63%
Digestive Diseases	7%	4%
Other	18%	19%

For the three months ended September 30, 2016, revenue breakdown by product category remained comparable to that of the prior year. Sales of the "Anti-Viro/Infection & Respiratory" products category represented 57% and 63% of total sales in the three months ended September 30, 2016 and 2015. The "CNS, Cerebral & Cardio Vascular" category represented 18% and 13% of total sales in the three months ended September 30, 2016 and 2015. The "Other" category represented 18% and 19% of total sales in the three months ended September 30, 2016 and 2015. The "Digestive Diseases" category represented 7% of total revenue in the third quarter of 2016 compared to 4% in the third quarter of 2015.

Cost of Revenue

For the three months ended September 30, 2016, our cost of revenue was $2.7 million, or 86.3% of total revenue, which represented a decrease of $1.0 million from $3.7 million, or 83.1% of total revenue in the same period of 2015. The decrease in cost of revenue during the third quarter of 2016 was due to the revenue decrease.

Inventory Obsolescence

We have had decreases in the sales estimates between the time when raw materials were purchased and the time when the sales performance is realized for certain products. We assess  the inventory obsolescence levels on a quarterly basis. As a result, we determined that certain inventory was slow moving or obsolete. Based on the developed estimates, we recognized an inventory obsolescence expense of $0.1 million and $0.4 million for the three months ended September 30, 2016 and 2015, respectively.

Gross Profit and Gross Margin

Gross profit was $0.3 million for each of the three months ended September 30, 2016 and 2015.  Our gross profit margin in the third quarter of 2016 was 11.2% compared to 7.2% in the same period 2015. Without the effect of inventory obsolescence, management estimates that our gross profit margin would have been approximately 13.8% in the third quarter of 2016 and 17.0% in the third quarter of 2015.  The decrease in gross profit margin was mainly because the Company sold more products with lower gross margin in this period.

21

Selling Expenses

Our selling expenses for the three months ended September 30, 2016 was $0.9 million, which accounted for 29.7% of the total revenue in the third quarter of 2016 as, compared to $1.0 million for the same period 2015, which accounted for 25.8% of the total revenue in the third quarter of 2015.  Due to many adjustments in our selling processes under healthcare reform policies, despite the decrease in sales, we still need to maintain personnel and continue our sales activities to support the sales and collection of accounts receivable, therefore our selling expenses did not decrease proportionally to our sales.

General and Administrative Expenses

Our general and administrative expenses for the three months ended September 30, 2016 were $0.3 million as compared to $0.4 million in the three months ended September 30, 2015. General and administrative expenses accounted for 9.4% and 8.6% of our total revenues in the third quarter of 2016 and 2015, respectively.

Research and Development Expenses

Our research and development expenses for the three months ended September 30, 2016 were $0.1 million, a decrease of $0.3 million from $0.4 million in the three months ended September 30, 2015. Research and development expenses accounted for 3.2% and 9.1% of our total revenues in the third quarters of 2016 and 2015, respectively.

22

Bad Debt Benefit

Our bad debt benefit for the three months ended September 30, 2016 was $0.1 million, compared to $3.2 million in the three months ended September 30, 2015. The change was due to our revision of estimate of allowance for doubtful accounts in 2015, which resulted in the decrease in aged accounts receivable balance that hadn't been allowed prior to the third quarter of 2015, and therefore incurred the bad debt benefit in that period.

In general, our regular credit or payment terms extended to customers are 90 days. This has not changed in recent years. Due to the peculiarity of the Chinese pharmaceutical market environment, deferred payments to pharmaceutical companies by state-owned hospitals and local medicine distributors are a normal phenomenon.Our customers are primarily pharmaceutical distributors who sell our products to mostly government-backed hospitals. Therefore, the aging of our receivables from our customers tend to be long.

The amount of accounts receivable that were past due (or the amount of accounts receivable that were more than 90 days old) was $2.8 million and $5.6 million as of September 30, 2016 and December 31, 2015, respectively.

The following table illustrates our accounts receivable aging distribution in terms of percentage of total accounts receivable as of September 30, 2016 and December 31, 2015:

		September 30,			December 31,
		2016			2015
1 - 90 Days			2.8%			4.0%
90 - 180 Days			3.3%			2.2%
180 - 360 Days			3.4%			7.9%
360 - 720 Days			11.6%			14.6%
> 720 Days			78.9%			71.3%
Total			100.0%			100.0%

Our bad debt allowance estimate is currently the sum of 10% of accounts receivable that are less than 365 days old, 70% of accounts receivable that are between 365 days and 720 days old and 100% of accounts receivable that are greater than 720 days old.

We recognize bad debt expense per actual write-offs as well as the changes of allowance for doubtful accounts. To the extent that our current allowance for doubtful accounts is higher than that of the previous period, we recognize a bad debt expense for the difference during the current period, and when the current allowance is lower than that of the previous period, we recognize a bad debt benefit for the difference. The allowance for doubtful accounts was $29.4 million and $28.6 million as of September 30, 2016 and December 31, 2015, respectively.

Impairment of Long-Term Assets

During the third quarter of 2016, the Company reviewed the contracts relating to advances made for purchases of intangible assets with independent laboratories and determined that the advances made by the Company for one formula to one of the independent laboratories were impaired. As a result, the Company recognized an impairment loss for the advances made to this laboratory in the amount of $644,696.

Income (Loss) from Operations

Our operating loss for the three months ended September 30, 2016 was $1.5 million, compared to operating income of $3.2 million in the same period 2015.  The deterioration in operating result for this period is mainly due to the decrease in revenues, impairment loss and lower subsidy income.

23

Interest Expense

Interest expense for the three months ended September 30, 2016 was $0.2 million, compared to $0.3 million in the same period 2015, which represented a decrease of $0.1 million.

Income Tax Expense

For the three months ended September 30, 2016 and 2015, our income tax rate was 15%. Income tax expense was $0.02 million for each of the three months ended September 30, 2016 and 2015. We renewed our "National High-Tech Enterprise" status from the PRC government in the third quarter of 2013. With this designation, for the years ending December 31, 2014, 2015 and 2016, we have enjoyed a preferential tax rate of 15% which is notably lower than the statutory income tax rate of 25%.

The recentnet loss result has put the Company in an unfavorable position for the potential renewal of  "National High-Tech Enterprise" status in 2017. After evaluating the feasibility of the renewal, the Company has decided not to renew this status.

Net Income (Loss)

Net loss for three months ended September 30, 2016 was $1.7 million, compared to net income of $2.9 million for the three months ended September 30, 2015. The change in the net result was mainly due to the decrease in revenues, impairment loss and lower subsidy income in the third quarter of 2016 as compared to the same period of 2015.

For the three months ended September 30, 2016, loss per basic and diluted common share was $0.04, compared to net income per basic and diluted share of $0.07 for the three months ended September 30, 2015.

The number of basic and diluted weighted-average outstanding shares used to calculate loss per share was 43,579,557 for both the three months ended September 30, 2016 and 2015.

Results of Operations for the Nine Months Ended September 30, 2016 and 2015

Revenue

For the nine months ended September 30, 2016, our sales revenue was $10.3 million, which represented a decrease of $5.5 million, or 35%, from the $15.8 million in the corresponding period of 2015. This decrease was primarily due to several missed provincial tenders back in 2014 due to the fact that our new GMP certificates were not received until November 2014. As a result, we lost related market shares and negatively impacted sales afterwards. To be specific, the original tender practice actually lasted until April 2015 given the necessary process and timing of tender. The sales decrease in the nine months ended September 30, 2016 compared to its corresponding period in 2015 reflected the outcome of that event. In addition, the government's healthcare-price-controls also maintained continuous pressure upon our sales.

24

Set forth below are our revenues by product categories in millions USD for each of the nine months ended September 30, 2016 and 2015.

Sales Revenue by Major Category (Dollars in Millions)

Product Category	Nine Months Ended September 30,		Net Change	% Change
	2016	2015
CNS Cerebral & Cardio Vascular	1.78	2.21	-0.44	-20%
Anti-Viro/ Infection & Respiratory	6.76	10.63	-3.87	-36%
Digestive Diseases	0.58	0.54	0.04	6%
Other	1.19	2.46	-1.27	-51%

The most significant decrease in revenue in terms of dollar amount was in our "Anti-Viro/ Infection & Respiratory" product category, which generated $6.76 million in sales revenue in the nine months ended September 30, 2016, compared to $10.63 million in the nine months ended September 30, 2015, a decrease of $3.87 million. This decrease was mainly caused by the loss of market share due the missed drug tenders in 2014.

"Other" category decreased by $1.27 million to $1.19 million in the nine months ended September 30, 2016 compared to $2.46 million in the same period of 2015 and the decrease was mainly due to the sales decrease in Vitamin B6 for Injection due to the missed tenders in 2014.

Our "CNS Cerebral & Cardio Vascular" category generated $1.78 million of sales in the nine months ended September 30, 2016, compared to $2.21 million in the same period of 2015, which represented a decrease of $0.44 million. This decrease was mainly due to the sales decrease of Ozagrel product due to market fluctuation.

Sales of the "Digestive Diseases" generated $0.58 million and $0.54 million in the nine months ended September 30, 2016 and 2015, respectively.

Cost of Revenue

For the nine months ended September 30, 2016, our cost of revenue was $8.6 million, or 84% of total revenue, which represented a decrease of $4.0 million from $12.7 million, or 80% of total revenue, in the same period of 2015. The decrease in cost of revenue in the nine months ended September 30, 2016 was mainly due to the decrease in revenue.

25

Inventory Obsolescence

There was $0.2 million inventory obsolescence recorded for the nine months ended September 30, 2016, compared to $1.9 million for the nine months ended September 30, 2015. We started recording inventory obsolescence allowance on a quarterly basis since the first quarter of 2015, and this practice helped us to better monitor and assess our inventory condition and future needs.

Gross Margin and Gross Profit

Gross profit for the nine months ended September 30, 2016 was $1.5 million, compared to $1.3 million in the same period of 2015. Gross profit margin for the nine months ended September 30, 2016 and 2015 were 14% and 8%, respectively.  Without considering the effect of inventory obsolescence, management estimates that our gross profit margin would have been approximately 16% for the nine months ended September 30, 2016, and 20% for the nine months ended September 30, 2015.

Selling Expenses

Our selling expenses for the nine months ended September 30, 2016 were $2.8 million, a decrease of $0.4 million, or 13%, compared to $3.2 million for the same period of 2015. Selling expenses accounted for 26.7% and 20.0% of the total revenue in the first nine months of 2016 and 2015 respectively. This increase in percentage to revenue was mainly due to many adjustments in our selling processes under healthcare reform policies in the recent quarters. Despite the decrease in sales, we still rely on comparable personnel and expenses to support our revenue and collection of accounts receivable. In addition, once received new GMP certificate for our new building, we intended to recover our market share and that requires additional selling expenses and marketing efforts.

General Administrative Expenses

Our general and administrative expenses for the nine months ended September 30, 2016 were $1.4 million, an increase of $0.1 million, or 6%, compared to $1.3 million for the same period of 2015. The increase in general and administrative expenses in this period was mainly due to the property tax incurred for our new GMP building since the first quarter of 2016, as well as the increased professional service expenses in the first half of 2016 as compared to the same period of 2015.

26

Research and Development Expenses

Our research and development expenses for the nine months ended September 30, 2016 was $0.3 million, compared to $0.7 million in the same period of 2015.

Bad Debt Expenses

Our bad debt expenses for the nine months ended September 30, 2016 was $1.0 million, compared to $6.0 million for the same period of 2015. Please see additional discussion of bad debt and account receivables in the section above named "Bad Debt Benefit". The changes in the allowance for doubtful accounts during the nine months ended September 30, 2016 and 2015 were as follows:

	For the Nine Months Ended
	September 30,
	2016				2015
Balance, Beginning of Period		$	28,644,398			$	44,347,451
Bad debt expense			1,005,949				6,045,352
Foreign currency translation adjustment			(270,150	)			(1,712,543	)
Balance, End of Period		$	29,380,197			$	48,680,260

Impairment of Long-Term Assets

During the nine months ended September 30, 2016, the Company reviewed the contracts relating to advances made for purchases of intangible assets with independent laboratories and determined that the advances made by the Company for three formulas to three of the independent laboratories were impaired.  As a result, the Company recognized an impairment loss for the advances made to these laboratories in the amount of $1.5 million.

Loss from Operations

Our operating loss for the nine months ended September 30, 2016 was approximately $5.1 million, compared to $8.3 million for the same period of 2015, which represented an improvement of $3.2 million. The decrease in operating loss was primarily due to lower inventory obsolescence and lower bad debt expense in the current period as compared to the corresponding period in the prior year.

27

Net Loss

Our net loss for the nine months ended September 30, 2016 and 2015 was $5.8 million and $9.2 million, respectively, which represented an improvement of $3.4 million. The decrease in net loss was primarily due to lower inventory obsolescence and lower bad debt expenses in the current period compared to the corresponding period in the prior year.

Liquidity and Capital Resources

Our principal sources of liquidity are cash generated from operations and short-term bank loans. Our cash and cash equivalents was $3.7 million, which represents 4.2% of our total assets as of September 30, 2016, as compared to $6.2 million, which represents 6.4% of our total assets as of December 31, 2015. All of the $3.7 million of cash and cash equivalents as of September 30, 2016 is considered to be reinvested indefinitely in Helpson and is not expected to be available for payment of dividends, for other payments to our parent company or to its shareholders.

As of September 30, 2016, we had a principal balance of $2.2 million in short-term bank loans. The line of credit is payable in two equal installments of RMB 15,000,000 (approximately $2.2 million) payable on September 16, 2016 and October 19, 2016 and were both paid back per the contract. We are currently renewing the line of credit with our bank. There can be no assurances that this line of credit will be renewed on terms acceptable to the Company. In addition, we entered into an eight-year construction loan facility with a bank on September 21, 2013. The total loan facility amount is RMB80,000,000 (approximately $13 million), which had been fully utilized through May 7, 2014. The cash flow generated from operating activities was used to fund the remaining construction of our GMP upgrading project in our new facility. Both the short-term bank loan and the construction loan facility are from the same bank. The current portion of the construction loan facility is $1.5 million as of September 30, 2016. Beginning July 11, 2015, the balance of the principal is and will be due in annual installments which are due prior to July 10 of the following year over the next six years through July 11, 2021. The Company has made all required principal payments under the construction loan facility as of the date of this report.

Based on our current operating plan, management believes that our cash provided by operations will be sufficient to meet our working capital needs and our anticipated capital expenditures, including expenditures for new formula acquisitions and the remaining new GMP upgrading related construction and equipment in our prior facility for the next twelve months. However, if circumstances change and we do not meet our operating plan as expected, we may be required to seek additional capital and/or to reduce certain discretionary spending, which could have a material adverse effect on our ability to achieve our business objectives. Notwithstanding the foregoing, we may seek additional financing as necessary for expansion purposes and when we believe market conditions are most advantageous, which may include debt and/or equity financing.  There can be no assurance that any additional financing will be available on acceptable terms, if at all.

28

Operating Activities

Net cash provided by operating activities was $1.4 million in the nine months ended September 30, 2016 compared to $0.7 million for the nine months ended September 30, 2015.

As of  September 30, 2016, our accounts receivable was $4.0 million, compared to $5.9 million as of December 31, 2015.

As of September 30, 2016, net inventory was $8.6 million, compared to $9.7 million as of December 31, 2015. This decrease was mainly due to the decrease in purchases in the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. 

Investing Activities

During the nine months ended September 30, 2016, net cash used in investing activities was $86,350, primarily for the purchase of fixed asset, compared to $3,343 for the nine months ended September 30, 2015.

Financing Activities

Cash flow used in financing activities was $3.8 million in the nine months ended September 30, 2016, which related to the payment of the construction term loan and the payment on the line of credit, while there was no comparable activity incurred in the nine months ended September 30, 2015.

According to relevant PRC laws, companies registered in the PRC, including our PRC subsidiary, Helpson, are required to allocate at least ten percent (10%) of their after-tax net income, as determined under accounting standards and regulations in the PRC, to statutory surplus reserve accounts until the reserve account balances reach fifty percent (50%) of the companies' registered capital prior to their remittance of funds out of the PRC.  Allocations to these reserves and funds can only be used for specific purposes and are not transferrable to the parent company in the form of loans, advances or cash dividends. As of September 30, 2016 and December 31, 2015, the net assets of Helpson were $60,800,000 and $68,240,000 respectively.  Due to the restriction on dividend distribution to overseas shareholders, the amount of Helpson's net assets that were designated for general and statutory capital reserves, and thus could not be transferred to our parent company as cash dividends, were $8,145,000 and $8,145,000 (50% of registered capital) as of September 30, 2016 and December 31, 2015 respectively. Since the amount that Helpson must set aside for the statutory surplus fund only accounts for 13.4% and 11.9%, respectively, of its total net assets as of September 30, 2016 and December 31, 2015, this reserve does not have a major impact on our liquidity.  There were no allocations to the statutory surplus reserve accounts during the nine months ended September 30, 2016.

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC.  Our businesses and assets are primarily denominated in RMB.  All foreign exchange transactions take place either through the People's Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China. Approval of foreign currency payments by the People's Bank of China or other regulatory institutions requires submitting a payment application form together with applicable invoices and signed contracts. These currency exchange control procedures imposed by the PRC government authorities may restrict the ability of Helpson, our PRC subsidiary, to transfer its net assets to our parent company through loans, advances or cash dividends.

29

Off-Balance Sheet Arrangements

As of September 30, 2016, we did not have any off-balance sheet arrangements.

Commitments

As of September 30, 2016, we were obligated to pay laboratories and others approximately $4.4 million over approximately the next four years upon completion of the various phases of contracts to provide CFDA production approval of medical formulas.

Critical Accounting Policies

Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. The discussion of our critical accounting policies contained in Note 1 to our consolidated financial statements, "Organization and Significant Accounting Policies", is incorporated herein by reference.

30

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and interim Chief Financial Officer, evaluated the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (b) is accumulated and communicated to management, including our Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above. Based on this evaluation, our Chief Executive Officer and interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 6. Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

31

SIGNATURES

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.

	CHINA PHARMA HOLDINGS, INC.
Date: November 14, 2016	By: /s/ Zhilin Li Name: Zhilin Li Title: President and Chief Executive Officer (principal executive officer)
Date: November 14, 2016	By: /s/ Zhilin Li Name: Zhilin Li Title: Interim Chief Financial Officer (principal financial officer and principal accounting officer)

32

EXHIBIT INDEX

No. Description

31.1 - Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 - Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 - Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS - XBRL Instance Document

101.SCH - XBRL Taxonomy Extension Schema Document

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

33

EX-31.1

Exhibit 31.1

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Zhilin Li, certify that:

1. I have reviewed this report on Form 10-Q of China Pharma Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2016

/s/ Zhilin Li

Name: Zhilin Li

Title: Chief Executive Officer (principle executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Zhilin Li, certify that:

1. I have reviewed this report on Form 10-Q of China Pharma Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 14, 2016

/s/ Zhilin Li

Name: Zhilin Li

Title: Interim Chief Financial Officer

(principal financial officer and principal accounting officer)

EX-32.1

 Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in her capacity as Chief Executive Officer and interim Chief Financial Officer of China Pharma Holdings, Inc. (the "Company"), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of her knowledge:

(1) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 14, 2016

/s/ Zhilin Li

Name: Zhilin Li

President and Chief Executive Officer

(principal executive officer)

/s/ Zhilin Li

Name: Zhilin Li

Title: Interim Chief Financial Officer

(principal financial officer and principal

accounting officer)

This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 08, 2016
Document and Entity Information
Entity Registrant Name	CHINA PHARMA HOLDINGS, INC.
Entity Trading Symbol	cphi
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Entity Central Index Key	0001106644
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		43,579,557
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current Assets:
Cash and cash equivalents	$ 3,650,039	$ 6,248,760
Restricted cash	1,470,014	0
Banker's acceptances	21,546	0
Trade accounts receivable, less allowance for doubtful accounts of $29,380,197 and $28,644,398, respectively	4,014,862	5,882,509
Other receivables, less allowance for doubtful accounts of $78,618 and $74,400, respectively	390,450	290,739
Advances to suppliers	2,614,053	2,533,354
Inventory, less allowance for obsolescence of $6,682,357 and $8,417,095, respectively	8,569,479	9,662,750
Prepaid expenses	259,234	339,140
Total Current Assets	20,989,677	24,957,252
Advances for purchases of intangible assets	39,457,197	42,030,649
Property and equipment, net of accumulated depreciation of $11,521,705 and $9,422,912, respectively	26,339,719	29,393,257
Intangible assets, net of accumulated amortization of $4,440,106 and $4,360,004, respectively	621,631	841,075
TOTAL ASSETS	87,408,224	97,222,233
Current Liabilities:
Trade accounts payable	3,478,404	2,824,521
Accrued expenses	91,701	143,409
Other payables	1,801,087	1,710,283
Advances from customers	1,006,776	595,681
Other payables - related parties	1,354,567	1,354,567
Current portion of construction loan facility	1,499,390	1,540,666
Short-term notes payable	2,249,085	4,621,998
Banker's acceptance notes payable	1,470,014	0
Total Current Liabilities	12,951,024	12,791,125
Non-current Liabilities:
Construction loan facility	8,996,338	10,784,661
Deferred revenue	172,357	708,408
Long-term deferred tax liability	353,100	296,890
Total Liabilities	22,472,819	24,581,084
Stockholders' Equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.001 par value; 95,000,000 shares authorized; 43,579,557 shares and 43,579,557 shares outstanding, respectively	43,580	43,580
Additional paid-in capital	23,590,204	23,590,204
Retained earnings	28,183,391	33,939,998
Accumulated other comprehensive income	13,118,230	15,067,367
Total Stockholders' Equity	64,935,405	72,641,149
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 87,408,224	$ 97,222,233

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CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICALS - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Parentheticals
Allowance for doubtful accounts on trade accounts receivable	$ 29,380,197	$ 28,644,398
Allowance for doubtful accounts on other receivables	78,618	74,400
Allowance for obsolescence of inventory	6,682,357	8,417,095
Accumulated depreciation on Property and equipment	11,521,705	9,422,912
Accumulated amortization on Intangible assets	$ 4,440,106	$ 4,360,004
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	95,000,000	95,000,000
Common stock, shares issued	43,579,557	43,579,557
Common stock, shares outstanding	43,579,557	43,579,557

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUES:
Revenue	$ 3,125,596	$ 4,479,113	$ 10,308,320	$ 15,848,218
Cost of revenue	2,695,900	3,720,447	8,635,392	12,667,104
Inventory obsolescence	79,728	436,666	200,044	1,855,814
Gross (loss) profit	349,968	322,000	1,472,884	1,325,300
Operating expenses:
Selling expenses	927,187	1,155,137	2,753,388	3,156,553
General and administrative expenses	294,367	384,412	1,394,250	1,315,867
Research and development expenses	99,095	405,438	289,189	741,116
Bad debt expense (benefit)	(69,899)	(3,160,862)	1,005,949	6,045,352
Impairment of long term assets	644,696	0	1,467,235	0
Total operating expenses	1,895,446	(1,215,875)	6,910,011	11,258,888
Subsidy income	(2,325)	1,655,683	346,347	1,655,683
Income (loss) from operations	(1,547,803)	3,193,558	(5,090,780)	(8,277,905)
Other income (expense):
Interest income	32,434	36,185	99,149	93,262
Interest expense	(213,740)	(279,113)	(699,932)	(915,310)
Net other expense	(181,306)	(242,928)	(600,783)	(822,048)
Income (loss) before income taxes	(1,729,109)	2,950,630	(5,691,563)	(9,099,953)
Income tax expense	(20,800)	(18,906)	(65,044)	(57,618)
Net income (loss)	(1,749,909)	2,931,724	(5,756,607)	(9,157,571)
Other comprehensive income (loss) - foreign currency translation adjustment	(275,928)	(3,794,761)	(1,949,137)	(2,959,348)
Comprehensive income (loss)	$ (2,025,837)	$ (863,037)	$ (7,705,744)	$ (12,116,919)
Income (loss) per share:
Basic	$ (0.04)	$ 0.07	$ (0.13)	$ (0.21)
Diluted	$ (0.04)	$ 0.07	$ (0.13)	$ (0.21)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flows from Operating Activities:
Net loss	$ (5,756,607)	$ (9,157,571)
Depreciation and amortization	2,583,066	2,769,761
Bad debt expense	1,005,949	6,045,352
Deferred income taxes	65,044	677,209
Inventory obsolescence reserve	(1,529,912)	460,537
Impairment of long-term assets	1,467,235	0
Changes in assets and liabilities:
Trade accounts and other receivables	(709,257)	(2,642,445)
Advances to suppliers	(150,606)	(1,746,117)
Inventory	3,157,553	3,314,458
Trade accounts payable	739,551	2,061,895
Accrued taxes payable	(74,080)	16,307
Other payables and accrued expenses	119,085	(18,951)
Advances from customers	432,904	(1,128,459)
Prepaid expenses	71,790	0
Net Cash Provided by Operating Activities	1,421,715	651,976
Cash Flows from Investing Activities:
Purchases of property and equipment	(86,350)	(310,247)
Bankers acceptances redeemed for cash	0	306,904
Net Cash Used in Investing Activities	(86,350)	(3,343)
Cash Flows from Financing Activities:
Payments of construction term loan	(1,519,932)	0
Payments of short term debt	(2,279,899)	0
Net Cash Used by Financing Activity	(3,799,831)	0
Effect of Exchange Rate Changes on Cash	(134,255)	(226,914)
Net (Decrease) Increase in Cash and Cash Equivalents	(2,598,721)	421,719
Cash and Cash Equivalents at Beginning of Period	6,248,760	5,319,990
Cash and Cash Equivalents at End of Period	3,650,039	5,741,709
Supplemental Cash Flow Information:
Cash paid for interest	689,773	905,151
Supplemental Noncash Investing and Financing Activities:
Accounts payable for purchases of property and equipment	0	137,854
Accounts receivable collected with banker's acceptances	803,655	1,968,818
Inventory purchased with banker's acceptances	781,814	1,400,447
Restricted cash related to letter of credit	1,490,154	0
Advances for intangible assets purchased with banker's acceptances	$ 0	$ 395,445

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ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations – China Pharma Holdings, Inc., a Nevada corporation, owns 100% of Onny Investment Limited (Onny), a British Virgin Islands corporation, which owns 100% of Hainan Helpson Medical & Biotechnology Co., Ltd (Helpson), a company organized under the laws of the People's Republic of China (the PRC). China Pharma Holdings, Inc. and its subsidiaries are referred to herein as the Company.

On December 31, 2012, China Pharma Holdings, Inc. consummated a reincorporation merger for the purpose of changing its state of incorporation from Delaware to Nevada pursuant to the terms and conditions of an Agreement and Plan of Merger dated December 27, 2012.  The reincorporation merger was approved by stockholders holding the majority of the Company's outstanding shares of common stock on December 21, 2012.

The Foreign Investment Industrial Catalogue (the "Catalogue") jointly issued by China's Ministry of Commerce and the National Development and Reform Commission (the latest version is the 2015 version, effective April 10, 2015) classified various industries/businesses into three different categories: (i) encouraged for foreign investment; (ii) restricted to foreign investment; and (iii) prohibited from foreign investment. For any industry/business not covered by any of these three categories, they will be deemed industries/businesses permitted for foreign investment. A typical foreign investment ownership restriction in the pharmaceutical industry is that a foreign investment enterprise (the "FIE") shall not have the whole or majority of its equity interests owned by a foreign owner if the FIE establishes more than 30 branch stores and distributes a variety of brands in those franchise stores, which is not the case for the Company's business.

Helpson manufactures and markets generic and branded pharmaceutical products as well as biochemical products primarily to hospitals and private retailers located throughout the PRC. The Company believes Helpson's business is not subject to any ownership restrictions prescribed under the Catalogue. Onny acquired 100% of the ownership in Helpson on May 25, 2005 by entering into an Equity Transfer Agreement with Helpson's three former shareholders. The transaction was approved by the Commercial Bureau of Hainan Province on June 12, 2005 and Helpson received the Certificate of Approval for Establishing of Enterprises with Foreign Investment in the PRC on the same day and its business license evidencing its WFOE (Wholly Foreign Owned Enterprise) status on June 21, 2005.

The Company has acquired and continues to acquire well-accepted medical formulas to add to its diverse portfolio of Western and Chinese medicines.

Consolidation and Basis of Presentation – The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in United States dollars. The accompanying consolidated financial statements include the accounts and operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.

Helpson's functional currency is the Chinese Renminbi. Helpson's revenue and expenses are translated into United States dollars at the average exchange rate for the period. Assets and liabilities are translated at the exchange rate as of the end of the reporting period. Gains or losses from translating Helpson's financial statements are included in accumulated other comprehensive income, which is a component of stockholders' equity. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity that is party to the transaction are included in the results of operations.

Accounting Estimates - The methodology used to prepare for the Company's financial statements is in conformity with the accounting principles generally accepted in the United States of America, which requires the management of the Company ("Management") to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Therefore, actual results could differ from those estimates.

Cash and Cash Equivalents – Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term banker's acceptances purchased with maturities of three months or less.

Restricted Cash – Restricted cash includes cash that has been deposited with a bank to satisfy obligations outstanding under banker's acceptance notes issued by the Company as discussed in Note 8.

Trade Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivables are carried at the original invoiced amounts less an allowance for doubtful accounts. The allowances for doubtful accounts are calculated based on a detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company's customer base. The Company reviews a customer's credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additions to the allowance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Charges to bad debt expense totaled $1,005,949 and $6,045,352 for the nine months ended September 30, 2016 and 2015, respectively.

Trade accounts receivable that have been fully allowed for and determined to be uncollectible are charged against the allowance in the period the determination is made. It is common practice in the pharmaceutical industry in the PRC for receivables to extend beyond one year. Customer balances outstanding for more than one year are allowed for at a greater rate when calculating the allowance for doubtful accounts. As of September 30, 2016, the Company had trade accounts receivable amounting to $30 million from sales that occurred more than one year from that date, most of which the Company believes are collectable.

 Advances to Suppliers and Advances from Customers – Common practice in the pharmaceutical industry in the PRC is to make advances to suppliers for materials and to receive advances from customers for finished products. Advances to suppliers are applied to trade accounts payable when the materials are received. Advances received from customers are applied against trade accounts receivable when finished products are sold. The Company reviews a supplier's credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would recognize bad debt expenses in the period they are considered unlikely to be collected.

Inventory – Inventory is stated at the lower of cost or net realizable value, computed on an average cost basis. We charge inventory obsolescence expense for inventory allowance to write down our inventory to the lower of cost or estimated market value or to completely write off obsolete or excess inventory. Charges to inventory obsolescence expense totaled $200,044 and $1,855,814 for the nine months ended September 30, 2016 and 2015, respectively. The Company recognized an inventory obsolescence reserve of $6,682,357 and $8,417,095 as of September 30, 2016 and December 31, 2015, respectively.

Valuation of Long-Lived Assets – The carrying values of long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying values may not be recoverable. When such an event occurs, the Company projects the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset. If projections indicate that the carrying value of an asset will not be recovered, it is reduced by the estimated excess of the carrying value over the projected discounted cash flows estimated to be generated by the asset. During the nine months ended September 30, 2016 the Company recognized an impairment related to Advances for purchases of intangible assets in the amount of $1,467,235 as more fully discussed in Note 5. There was no impairment adjustment required for the nine months ended September 30, 2015.

Property and Equipment – Property and equipment are stated at cost. Maintenance and repairs are charged to expenses as incurred and major improvements are capitalized. Gains or losses on sale, trade-in or retirement are included in operations during the period of disposition.

Revenue Recognition – Revenue is considered earned when the Company obtains persuasive evidence of an arrangement with the customer, when delivery of the products has occurred, when the sales price is fixed or determinable, and when collectability is reasonably assured. Delivery does not occur until products have been shipped to the customer, the risk of loss has transferred to the customer and customer acceptance has been obtained, customer acceptance provisions have lapsed, or the Company obtains objective evidence that the criteria specified in the customer acceptance provisions have been satisfied. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.  Revenue is deferred when collectability is not considered to be reasonably assured.

Cost of Revenues – Cost of revenues includes wages, materials, depreciation, handling charges, and other expenses associated with the manufacture and delivery of products.

Research and Development – Research and development expenditures are recorded as expenses in the period in which they occur. Research and development expenses were $289,189 and $741,116 for the nine months ended September 30, 2016 and 2015, respectively. 

Basic and Diluted Earnings (Loss) per Common Share - Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated to give effect to potentially issuable dilutive common shares.  There were no potential dilutive common shares outstanding during the three and nine months ended September 30, 2016 and 2015, respectively. 

The following table is a presentation of the numerators and denominators used in the calculation of basic and diluted (loss) earnings per share:

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2016			2015		2016			2015
Net (loss) income	$	(1,749,909	)	$	2,931,724	$	(5,756,607	)	$	(9,157,571	)
Basic weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Effect of dilutive securities:
Warrants		-			-		-			-
Options		-			-		-			-
Diluted weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Basic (loss) earnings per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)
Diluted loss per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)

Credit Risk – The carrying amount of accounts receivable included in the balance sheet represents the Company's exposure to credit risk in relation to its financial assets. No other financial asset carries a significant exposure to credit risk. The Company performs ongoing credit evaluations of each customer's financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate have not exceeded Management's estimates.

The Company has its cash in bank deposits primarily at state owned banks located in the PRC. Historically, deposits in PRC banks have been secured due to the state policy of protecting depositors' interests. The PRC promulgated a new Bankruptcy Law in August 2006, effective June 1, 2007, which contains provisions for the implementation of measures for the bankruptcy of PRC banks. In the event that bankruptcy laws are enacted for banks in the PRC, the Company's deposits may be at a higher risk of loss.

Interest Rate Risk – The Company is exposed to the risk arising from changing interest rates, which may affect the ability of repayment of existing debts and viability of securing future debt instruments within the PRC.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  In July 2015, the FASB decided to delay the effective date of the new standard by one year; as a result, the new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption will be permitted, but no earlier than 2017 for calendar year-end entities. 

The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has not yet determined its method of transition and are evaluating the impact that this guidance will have on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, a new standard on accounting for leases. The ASU introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in the current accounting guidance as well as the FASB's new revenue recognition standard. However, the ASU eliminates the use of bright-line tests in determining lease classification as required in the current guidance. The ASU also requires additional qualitative disclosures along with specific quantitative disclosures to better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The pronouncement is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, using a modified retrospective approach. Early adoption is permitted. The Company has not completed an evaluation of the impact the pronouncement will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard provides a new requirement to record all of the tax effects related to share-based payments at settlement (or expiration) through the income statement. This pronouncement is effective for annual reporting periods beginning after December 15, 2016. The Company has completed an evaluation of the pronouncement and determined that its impact upon adoption will not be material to the Company's consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The standard addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The amendments in this ASU should be applied using a retrospective approach.  The Company has not completed an evaluation of the impact the pronouncement will have on its consolidated financial statements and related disclosures, but does not expect the impact to be material.

Other accounting standards that have been issued by FASB or other standards-setting bodies are not expected to have a material effect on the Company's financial position, result of operations or cash flows.

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INVENTORY

9 Months Ended

Sep. 30, 2016

INVENTORY

INVENTORY

NOTE 2 – INVENTORY

Inventory consisted of the following:

	September 30,			December 31,
	2016			2015
Raw materials	$	12,106,727		$	14,699,736
Work in process		413,756			-
Finished goods		2,731,353			3,380,109
		15,251,836			18,079,845
Obsolescence reserve		(6,682,357	)		(8,417,095	)
Total Inventory	$	8,569,479		$	9,662,750

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PROPERTY AND EQUIPMENT

9 Months Ended

Sep. 30, 2016

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	September 30,			December 31,
	2016			2015
Permit of land use	$	422,330		$	433,956
Building		10,274,394			10,557,234
Plant, machinery and equipment		26,651,565			27,325,440
Motor vehicle		259,369			242,860
Office equipment		253,766			256,679
Total		37,861,424			38,816,169
Less: accumulated depreciation		(11,521,705	)		(9,422,912	)
Property and Equipment, net	$	26,339,719		$	29,393,257

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Asset	Life - years
Permit of land use	40 - 70
Building	20 - 49
Plant, machinery and equipment	5 - 10
Motor vehicle	5 - 10
Office equipment	3-5

Depreciation relating to office equipment was included in general and administrative expenses, while all other depreciation was included in cost of revenue. For the three months ended September 30, 2016 and 2015, depreciation expense was $789,150 and $911,515, respectively. For the nine months ended September 30, 2016 and 2015, depreciation expense was $2,383,457 and $2,523,752, respectively.

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2016

INTANGIBLE ASSETS

INTANGIBLE ASSETS

NOTE 4 - INTANGIBLE ASSETS

Intangible assets represent the cost of medical formulas approved for production by China Food and Drug Administration ("CFDA"). The Company did not obtain CFDA production approval for any medical formula during the nine months ended September 30, 2016 and 2015 and no costs were reclassified from advances to intangible assets during the nine months ended September 30, 2016 and 2015, respectively.

Approved medical formulas are amortized from the date CFDA approval is obtained over their individually identifiable estimated useful lives, which range 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 $65,643 and $73,498, respectively for the three months ended September 30, 2016 and 2015 and $199,609 and $246,009 for the nine months ended September 30, 2016 and 2015, 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 periods.

The Company evaluates each approved medical formula for impairment on the date of CFDA approval is obtained, when indications of impairment are present and on the date each financial statement is issued. 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. No impairment loss was recognized during the nine months ended September 30, 2016 and 2015.

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

	September 30,			December 31,
	2016			2015
Gross carrying amount	$	5,061,737		$	5,201,079
Accumulated amortization		(4,440,106	)		(4,360,004	)
Net carrying amount	$	621,631		$	841,075

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ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS.

9 Months Ended

Sep. 30, 2016

ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS

ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS.

NOTE 5 – ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS

In order to expand the number of medicines the Company manufactured and marketed, it has entered into contracts with independent laboratories and others for the purchase of medical formulas. Although CFDA approval had not been obtained for these medical formulas at the dates of the respective contracts, the objective of the contracts is for the Company to purchase CFDA-approved medical formulas once the CFDA approval process is completed. The Company received the titles to two patents that relate to medical formulas currently in the CFDA approval process as of September 30, 2016. These patents have not expired.

Prior to entering into contracts with the Company, laboratories typically are required to complete all research and development to determine the content of the medical formula and the method to produce the generic medicine. The application to the CFDA for production approval must be made by the production facility that will produce the related product. As a result, a contract typically provides that the Company buys the medical formula from the laboratory and the laboratory is required to assist the Company in applying for and obtaining the production approval from the CFDA.

A typical CFDA approval process for the production of a generic medical product involves a number of steps that generally require three to five years to complete. If the medical formula is purchased at the point when the generic medical product receives the CFDA's approval for a clinical study, which is very typical for the Company, the clinical study that follows will usually take from one and a half to three years to complete. After completing the clinical study, the results are submitted to the CFDA and a production approval application is filed with the CFDA. In most cases, it will take between eight to eighteen months to prepare and submit the production approval application and obtain CFDA approval. Upon approving the generic medical product, the CFDA issues a production certificate and the Company can commence the production and sales of the generic medical product. As a result of this process, CFDA approval is expected to be received in approximately two to five years from the date  the Company signs the medical formula contracts.

Under the terms of the contracts, the laboratories are required to assist the Company in obtaining production approval for the medical formulas from the CFDA. Management monitors the status of each medical formula on a regular basis in order to assess whether the laboratories are performing adequately under the contracts. If a medical product is not approved by the CFDA, as evidenced by their issuance of a denial letter, or if the laboratory breaches the contract, the laboratory is required under the contract to provide a refund to the Company of the full amount of the payments made to the laboratory for that formula, or the Company can require the application of those payments to another medical formula with the same laboratory, if the laboratory is in existence and solvent. As a result of the refund right, the Company is ultimately purchasing an approved medical product. Accordingly, payments made prior to the issuance of production approval by the CFDA are recorded as advances for purchases of intangible assets. Impairment is recorded when an asset's carrying amount is not recoverable based on refund rights or otherwise, which can be caused due to laboratory's insolvency or loss of operating license.

To date, no formula has failed to receive CFDA production approval nor has the Company been informed or become aware of any formula that may fail to receive such approval. However, there is no assurance that the medical products will receive production approval and if the Company does not receive such approval, it will enforce its contractual rights to receive the refund from the laboratory or have the payments applied to another medical formula with the same laboratory.

As of September 30, 2016, the Company was obligated to pay laboratories and others approximately $4,400,000 upon the completion of various phases of contracts to obtain CFDA production approval of medical formulas.

During the nine months ended September 30, 2016, with CFDA's tightened scrutiny procedure in connection with its review of GMP applications and based on the Company's monitoring and assessment process, the Company determined three advanced payments to three independent laboratories were impaired. As a result, the Company recognized an impairment loss for the advances made to these laboratories in the amount of $1,467,235.

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2016

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 6 – RELATED PARTY TRANSACTIONS

A member of the Company's board of directors had previously advanced the Company an aggregate amount of $1,354,567 as of September 30, 2016 and December 31, 2015 which are recorded as other payables – related parties on the accompanying consolidated balance sheets. The advances bear interest at a rate of 1.0% per year.  Total interest expense for the three months ended September 30, 2016 and 2015 was $3,386 and $3,386. Total interest expense for the nine months ended September 30, 2016 and 2015 was $10,159 and $10,158, respectively.

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2016

NOTES PAYABLES

NOTES PAYABLE

NOTE 7 – NOTES PAYABLE

Line of Credit

In November 2014, the Company entered into a line of credit with a bank in the amount of RMB30,000,000 (approximately $4,498,169).  Advances on the line of credit were due one year from the date of the advance and were collateralized by certain land use rights, buildings and accounts receivable and bear interest at an annual rate of 6.16% (based upon 110% of the PRC government's short term rate of 5.6% in November 2014). In addition, the Company's Chief Executive Officer and Chair of the board of directors ("Board") personally guaranteed the line of credit. In November, 2015 the Company renewed its line of credit in the amount of RMB30,000,000 (approximately $4,498,169 with the same bank.  The line of credit is payable in two equal installments of RMB15,000,000 (approximately $2.25 million) payable on September 16, 2016 and October 19, 2016, respectively. The Company made the payment due for RMB15,000,000 according to the terms of the agreement as of September 30, 2016.  Advances on the line of credit are collateralized by certain land use rights, buildings and accounts receivable and bear interest at an annual rate of 5.06% (based upon 110% of the PRC government's current short term rate of 4.6%). In addition, the Company's Chief Executive Officer and Chairman of the Board personally guaranteed the line of credit.

The outstanding balance due under the revolving line of credit was RMB15,000,000 and RMB30,000,000 as of September 30, 2016 and December 31, 2015, respectively ($2,249,085 as of September 30, 2016 and $4,621,998 as of December 31, 2015).  The Company has no additional amounts available to it under this line of credit.  This amount has been classified as short-term notes payable in the accompanying condensed consolidated balance sheets as of September 30, 2016. Subsequent to the nine-month period ended September 30, 2016, the Company made the second installment payment of RMB15,000,000.

Fair Value of Notes Payable – Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the carrying amounts of notes payable outstanding as of September 30, 2016 and December 31, 2015 approximated their fair value because of the immediate or short-term maturity of these financial instruments and because the underlying instruments bear interest rates that approximated current market rates.

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BANKER'S ACCEPTANCE NOTES PAYABLE

9 Months Ended

Sep. 30, 2016

BANKER'S ACCEPTANCE NOTES PAYABLE

BANKER'S ACCEPTANCE NOTES PAYABLE

NOTE 8 – BANKER'S ACCEPTANCE NOTES PAYABLE

In April 2016, the Company entered into a "Banker's Acceptance Note Agreement" with a bank. Pursuant to the terms of the agreement, the Company can issue banker's acceptance notes (the "Banker's Notes") to any third party as payment of amounts owing to that third party. The Company is required to deposit with the bank an amount equal to the amounts represented by the Banker's Notes issued to the third parties. The amount of these deposited balances is shown as "Restricted cash" on the accompanying balance sheets as of September 30, 2016. The maximum amount that the Company can issue under this agreement is limited to the lesser of RMB30,000,000 (approximately $4.5 million) or the amount of cash available to deposit against the Banker's Notes. In addition, the agreement calls for the payment of fees equal to 0.05% of the note amount to the bank. During 2016, the Company issued Banker's Notes in the amount of $1,470,014.

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CONSTRUCTION LOAN FACILITY

9 Months Ended

Sep. 30, 2016

CONSTRUCTION LOAN FACILITY

CONSTRUCTION LOAN FACILITY

NOTE 9 – CONSTRUCTION LOAN FACILITY

The Company obtained a construction loan facility in the amount of RMB80,000,000 (approximately $12.0 million) from a construction loan facility dated June 21, 2013. The loan facility is for an eight-year term, which commenced on July 11, 2013, the initial draw-down date and is from the same bank that currently provides the line of credit as discussed in Note 7.  The proceeds of the loan were used for and are collateralized by the construction of the Company's new production facility and the included production line equipment and machinery. The loan currently bears weighted interest at 5.73%, based upon 110% of the PRC government's eight-year term rate effective on the actual draw-down date, subject to annual adjustments based on 110% of the floating rate for the same type of loan on the anniversary from the draw-down date and its subsequent anniversary dates. On July 10, 2015 the interest rate was adjusted to 5.94% and on July 10, 2016 the interest rate was further adjusted to 5.39%.  The loan required interest only payments for the first two years. Beginning July 11, 2015, the balance of the principal is due in at least two (2) annual installments with the first annual payment being due within six month period after July 10, 2015 and the second annual payment being due July 10, 2016 and each following year over the next five years through July 11, 2022 on the identical terms as described above for 2015. In January 2016, the Company made a principal payment in the amount of approximately $309,000 (RMB2,000,000) and on July 13, 2016 the Company made a payment in the amount of approximately $1,196,548 (RMB8,000,000). As of September 30, 2016, the Company had no additional amounts available to it under this facility.

Principal payments required for the next five years as of September 30, 2016 are as follows:

Twelve Months Ending September 30,	Amount
2017	$	1,499,390
2018		2,249,085
2019		2,249,085
2020		2,249,085
2021		2,249,083
	$	10,495,728

Fair Value of Construction Loan Facility – Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the carrying amounts of the construction loan facility outstanding as of September 30, 2016 approximated its fair value because the underlying instrument bears an interest rate that approximated current market rates. 

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INCOME TAXES

9 Months Ended

Sep. 30, 2016

INCOME TAXES

INCOME TAXES

NOTE 10 - INCOME TAXES

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income in the period that includes the enactment date.

Undistributed earnings of Helpson, the Company's foreign subsidiary, since its acquisition, amounted to approximately $34.5 million as of September 30, 2016. Those earnings, as well as the investment in Helpson of approximately $23.3 million, are considered to be indefinitely reinvested and, accordingly, no U.S. federal or state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. federal and state income taxes (net of an adjustment for foreign tax credits) and withholding taxes payable to the PRC. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits may be available to reduce a portion of the U.S. tax liability.

Liabilities are established for uncertain tax positions expected to be taken in income tax return when such positions are judged to meet the "more-likely-than-not" threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of other expenses. Through September 30, 2016, the Company has not identified any uncertain tax positions that it has taken. U.S. income tax returns for the years ended December 31, 2012 through December 31, 2015 and the Chinese income tax return for the year ended December 31, 2015 are open for possible examination.

On March 16, 2007, the National People's Congress of China passed the Enterprise Income Tax Law (EIT Law) and on December 6, 2007, the State Council of China issued the Implementation Regulations for the EIT Law which took effect on January 1, 2008. The EIT Law and Implementation Regulations Rules impose a unified EIT of 25% on all domestic-invested enterprises and Foreign Invested Entities, or FIEs, unless they qualify under certain limited exceptions.

The Company is located in a special region, which had a 15% corporate income tax rate before the new EIT Law. The new EIT Law abolished the preferential corporate income tax rate in the special region. The Company transitioned to the new 25% tax rate over a five year period which began on January 1, 2008. During 2010, the Company applied for and received a favorable tax rate of 15% for fiscal 2011 through 2013 due to its status in the PRC as a high technology enterprise. In 2013, the Company again applied for and received the same favorable tax rate for 2014 to 2016.  Under the current tax law in the PRC, the Company is and will be subject to the following enterprise income tax rates:

	Enterprise Income
Year	Tax Rate
2015	15%
2016	15%
Thereafter	25%

The provision for income taxes consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Current	$	-	$	-	$	-	$	-
Deferred		20,800		18,906		65,044		57,618
Total income tax expense	$	20,800	$	18,906	$	65,044	$	57,618

As of September 30, 2016, the Company had net operating loss carryforwards for PRC tax purposes of approximately $38.9 million, which are available to offset any future taxable income through 2021. The Company also has net operating losses for United States federal income tax purposes of approximately $4.2 million which are available to offset future taxable income, if any, through 2036.

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible or tax loss carry forwards are utilized.  Management considers projected future taxable income and tax planning strategies in making this assessment.  Based upon an assessment of the level of historical taxable income and projections for future taxable income over the periods on which the deferred tax assets are deductible or can be utilized, Management believes it is not likely for the Company to realize all benefits of the deferred tax assets as of September 30, 2016 and December 31, 2015.  Therefore, the Company provided for a valuation allowance against its deferred tax assets of $13,457,238 and $12,798,572 as of September 30, 2016 and December 31, 2015, respectively.

The Company also incurred various other taxes, comprised primarily of business taxes, value-added taxes, urban construction taxes, education surcharges and others. Any unpaid amounts are reflected on the balance sheets as accrued taxes payable.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2016

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 11 – FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, a hierarchy has been established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The banker's acceptances are recorded at cost which approximates fair value.  The Company held the following assets and liabilities recorded at fair value as of September 30, 2016:

			Fair Value Measurements at
			Reporting Date Using
Description	September 30, 2016		Level 1		Level 2		Level 3
Banker's acceptances	$	21,546	$	-	$	21,546	$	-
Total	$	21,546	$	-	$	21,546	$	-

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2016

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 12 - STOCKHOLDERS' EQUITY

The Company is authorized to issue 95,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. The preferred stock may be issued in series with such designations, preferences, stated values, rights, qualifications or limitations as determined solely by the Company's Board.

Employee Stock Options

2010 Incentive Plan

On November 12, 2010, the Company's Board adopted the Company's 2010 Incentive Plan (the "Plan"), which was then approved by stockholders on December 22, 2010. The Plan gave the Company the ability to grant stock options, restricted stock, stock appreciation rights and performance units to its employees, directors and consultants, or those who will become employees, directors and consultants of the Company and/or its subsidiaries. The Plan currently allows for equity awards of up to 4,000,000 shares of common stock. Through September 30, 2016, there were 175,000 shares of restricted stock granted and outstanding under the Plan.  No options were outstanding as of September 30, 2016 under the Plan.

There were no securities issued from the Plan during each of the nine months ended September 30, 2016 and 2015. 

The Company recognized no compensation expense related to the awards of common shares and the grants and modifications of stock options during each of the three and nine months ended September 30, 2016 and 2015.

The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model. Expected volatility is based on the historical volatility of the Company's common stock prices. The Company uses historical data to estimate employee termination rates. The expected term of options granted is determined by the simplified method, which is one-half of the original contractual term. The simplified method is used due to the lack of historical share option exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

As of September 30, 2016, there was no remaining unrecognized compensation expense related to stock options or restricted stock grants.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Economic environment - Substantially all of the Company's operations are conducted in the PRC, and therefore the Company is subject to special considerations and significant risks not typically associated with companies operating in the United States of America. These risks include, among others, the political, economic and legal environments and fluctuations in the foreign currency exchange rate. The Company's results from operations may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. The unfavorable changes in global macroeconomic factors may also adversely affect the Company's operations.

In addition, all of the Company's revenue is denominated in the PRC's currency of Renminbi (RMB), which must be converted into other currencies before remittance out of the PRC. Both the conversion of RMB into foreign currencies and the remittance of foreign currencies abroad require approval of the PRC government.

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CONCENTRATIONS

9 Months Ended

Sep. 30, 2016

CONCENTRATIONS

CONCENTRATIONS

NOTE 14 – CONCENTRATIONS

For the nine months ended September 30, 2016, no customer accounted for more than 10% of sales and one supplier accounted for 21.7% of raw material purchases. At September 30, 2016, three customers accounted for 28.3%, 11.3% and 11% of accounts receivable, respectively. 

For the nine months ended September 30, 2015, one customer accounted for 10.0% of sales. For the nine months ended September 30, 2015, purchases from one supplier accounted for 20.5% of raw material purchases. At September 30, 2015, two customers accounted for 17.6% and 10.8% of accounts receivable, respectively. 

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ACCOUNTING POLICIES (POLICIES)

9 Months Ended

Sep. 30, 2016

Accounting Policies:

Organization and Nature of Operations

Organization and Nature of Operations – China Pharma Holdings, Inc., a Nevada corporation, owns 100% of Onny Investment Limited (Onny), a British Virgin Islands corporation, which owns 100% of Hainan Helpson Medical & Biotechnology Co., Ltd (Helpson), a company organized under the laws of the People's Republic of China (the PRC). China Pharma Holdings, Inc. and its subsidiaries are referred to herein as the Company.

On December 31, 2012, China Pharma Holdings, Inc. consummated a reincorporation merger for the purpose of changing its state of incorporation from Delaware to Nevada pursuant to the terms and conditions of an Agreement and Plan of Merger dated December 27, 2012.  The reincorporation merger was approved by stockholders holding the majority of the Company's outstanding shares of common stock on December 21, 2012.

The Foreign Investment Industrial Catalogue (the "Catalogue") jointly issued by China's Ministry of Commerce and the National Development and Reform Commission (the latest version is the 2015 version, effective April 10, 2015) classified various industries/businesses into three different categories: (i) encouraged for foreign investment; (ii) restricted to foreign investment; and (iii) prohibited from foreign investment. For any industry/business not covered by any of these three categories, they will be deemed industries/businesses permitted for foreign investment. A typical foreign investment ownership restriction in the pharmaceutical industry is that a foreign investment enterprise (the "FIE") shall not have the whole or majority of its equity interests owned by a foreign owner if the FIE establishes more than 30 branch stores and distributes a variety of brands in those franchise stores, which is not the case for the Company's business.

Helpson manufactures and markets generic and branded pharmaceutical products as well as biochemical products primarily to hospitals and private retailers located throughout the PRC. The Company believes Helpson's business is not subject to any ownership restrictions prescribed under the Catalogue. Onny acquired 100% of the ownership in Helpson on May 25, 2005 by entering into an Equity Transfer Agreement with Helpson's three former shareholders. The transaction was approved by the Commercial Bureau of Hainan Province on June 12, 2005 and Helpson received the Certificate of Approval for Establishing of Enterprises with Foreign Investment in the PRC on the same day and its business license evidencing its WFOE (Wholly Foreign Owned Enterprise) status on June 21, 2005.

The Company has acquired and continues to acquire well-accepted medical formulas to add to its diverse portfolio of Western and Chinese medicines.

Consolidation and Basis of Presentation

Consolidation and Basis of Presentation – The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in United States dollars. The accompanying consolidated financial statements include the accounts and operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation.

Helpson's functional currency is the Chinese Renminbi. Helpson's revenue and expenses are translated into United States dollars at the average exchange rate for the period. Assets and liabilities are translated at the exchange rate as of the end of the reporting period. Gains or losses from translating Helpson's financial statements are included in accumulated other comprehensive income, which is a component of stockholders' equity. Gains and losses arising from transactions denominated in a currency other than the functional currency of the entity that is party to the transaction are included in the results of operations.

Accounting Estimates

Accounting Estimates - The methodology used to prepare for the Company's financial statements is in conformity with the accounting principles generally accepted in the United States of America, which requires the management of the Company ("Management") to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Therefore, actual results could differ from those estimates.

Cash and Cash Equivalents, Policy

Cash and Cash Equivalents – Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term banker's acceptances purchased with maturities of three months or less.

Restricted Cash

Restricted Cash – Restricted cash includes cash that has been deposited with a bank to satisfy obligations outstanding under banker's acceptance notes issued by the Company as discussed in Note 8.

Trade Accounts Receivable and Allowance for Doubtful Accounts, Policy

Trade Accounts Receivable and Allowance for Doubtful Accounts – Trade accounts receivables are carried at the original invoiced amounts less an allowance for doubtful accounts. The allowances for doubtful accounts are calculated based on a detailed review of certain individual customer accounts and an estimation of the overall economic conditions affecting the Company's customer base. The Company reviews a customer's credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additions to the allowance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Charges to bad debt expense totaled $1,005,949 and $6,045,352 for the nine months ended September 30, 2016 and 2015, respectively.

Trade accounts receivable that have been fully allowed for and determined to be uncollectible are charged against the allowance in the period the determination is made. It is common practice in the pharmaceutical industry in the PRC for receivables to extend beyond one year. Customer balances outstanding for more than one year are allowed for at a greater rate when calculating the allowance for doubtful accounts. As of September 30, 2016, the Company had trade accounts receivable amounting to $30 million from sales that occurred more than one year from that date, most of which the Company believes are collectable.

Advances to Suppliers and Advances from Customers

Advances to Suppliers and Advances from Customers – Common practice in the pharmaceutical industry in the PRC is to make advances to suppliers for materials and to receive advances from customers for finished products. Advances to suppliers are applied to trade accounts payable when the materials are received. Advances received from customers are applied against trade accounts receivable when finished products are sold. The Company reviews a supplier's credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would recognize bad debt expenses in the period they are considered unlikely to be collected.

Inventory

Inventory – Inventory is stated at the lower of cost or net realizable value, computed on an average cost basis. We charge inventory obsolescence expense for inventory allowance to write down our inventory to the lower of cost or estimated market value or to completely write off obsolete or excess inventory. Charges to inventory obsolescence expense totaled $200,044 and $1,855,814 for the nine months ended September 30, 2016 and 2015, respectively. The Company recognized an inventory obsolescence reserve of $6,682,357 and $8,417,095 as of September 30, 2016 and December 31, 2015, respectively.

Valuation of Long-Lived Assets

Valuation of Long-Lived Assets – The carrying values of long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying values may not be recoverable. When such an event occurs, the Company projects the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset. If projections indicate that the carrying value of an asset will not be recovered, it is reduced by the estimated excess of the carrying value over the projected discounted cash flows estimated to be generated by the asset. During the nine months ended September 30, 2016 the Company recognized an impairment related to Advances for purchases of intangible assets in the amount of $1,467,235 as more fully discussed in Note 5. There was no impairment adjustment required for the nine months ended September 30, 2015.

Property and Equipment, Policy

Property and Equipment – Property and equipment are stated at cost. Maintenance and repairs are charged to expenses as incurred and major improvements are capitalized. Gains or losses on sale, trade-in or retirement are included in operations during the period of disposition.

Revenue Recognition

Revenue Recognition – Revenue is considered earned when the Company obtains persuasive evidence of an arrangement with the customer, when delivery of the products has occurred, when the sales price is fixed or determinable, and when collectability is reasonably assured. Delivery does not occur until products have been shipped to the customer, the risk of loss has transferred to the customer and customer acceptance has been obtained, customer acceptance provisions have lapsed, or the Company obtains objective evidence that the criteria specified in the customer acceptance provisions have been satisfied. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.  Revenue is deferred when collectability is not considered to be reasonably assured.

Cost of Revenues

Cost of Revenues – Cost of revenues includes wages, materials, depreciation, handling charges, and other expenses associated with the manufacture and delivery of products.

Research and Development

Research and Development – Research and development expenditures are recorded as expenses in the period in which they occur. Research and development expenses were $289,189 and $741,116 for the nine months ended September 30, 2016 and 2015, respectively. 

Basic and Diluted (Loss) Earnings per Common Share

Basic and Diluted Earnings (Loss) per Common Share - Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated to give effect to potentially issuable dilutive common shares.  There were no potential dilutive common shares outstanding during the three and nine months ended September 30, 2016 and 2015, respectively. 

The following table is a presentation of the numerators and denominators used in the calculation of basic and diluted (loss) earnings per share:

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2016			2015		2016			2015
Net (loss) income	$	(1,749,909	)	$	2,931,724	$	(5,756,607	)	$	(9,157,571	)
Basic weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Effect of dilutive securities:
Warrants		-			-		-			-
Options		-			-		-			-
Diluted weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Basic (loss) earnings per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)
Diluted loss per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)

Credit Risk

Credit Risk – The carrying amount of accounts receivable included in the balance sheet represents the Company's exposure to credit risk in relation to its financial assets. No other financial asset carries a significant exposure to credit risk. The Company performs ongoing credit evaluations of each customer's financial condition. The Company maintains allowances for doubtful accounts and such allowances in the aggregate have not exceeded Management's estimates.

The Company has its cash in bank deposits primarily at state owned banks located in the PRC. Historically, deposits in PRC banks have been secured due to the state policy of protecting depositors' interests. The PRC promulgated a new Bankruptcy Law in August 2006, effective June 1, 2007, which contains provisions for the implementation of measures for the bankruptcy of PRC banks. In the event that bankruptcy laws are enacted for banks in the PRC, the Company's deposits may be at a higher risk of loss.

Interest Rate Risk

Interest Rate Risk – The Company is exposed to the risk arising from changing interest rates, which may affect the ability of repayment of existing debts and viability of securing future debt instruments within the PRC.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which contains new accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  In July 2015, the FASB decided to delay the effective date of the new standard by one year; as a result, the new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption will be permitted, but no earlier than 2017 for calendar year-end entities. 

The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has not yet determined its method of transition and are evaluating the impact that this guidance will have on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, a new standard on accounting for leases. The ASU introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in the current accounting guidance as well as the FASB's new revenue recognition standard. However, the ASU eliminates the use of bright-line tests in determining lease classification as required in the current guidance. The ASU also requires additional qualitative disclosures along with specific quantitative disclosures to better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The pronouncement is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, using a modified retrospective approach. Early adoption is permitted. The Company has not completed an evaluation of the impact the pronouncement will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard provides a new requirement to record all of the tax effects related to share-based payments at settlement (or expiration) through the income statement. This pronouncement is effective for annual reporting periods beginning after December 15, 2016. The Company has completed an evaluation of the pronouncement and determined that its impact upon adoption will not be material to the Company's consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The standard addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The amendments in this ASU should be applied using a retrospective approach.  The Company has not completed an evaluation of the impact the pronouncement will have on its consolidated financial statements and related disclosures, but does not expect the impact to be material.

Other accounting standards that have been issued by FASB or other standards-setting bodies are not expected to have a material effect on the Company's financial position, result of operations or cash flows.

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BASIC AND DILUTED LOSS PER COMMON SHARE (TABLES)

9 Months Ended

Sep. 30, 2016

BASIC AND DILUTED LOSS PER COMMON SHARE (TABLES)

Presentation of the numerators and denominators used in the calculation of basic and diluted earnings per share

The following table is a presentation of the numerators and denominators used in the calculation of basic and diluted (loss) earnings per share:

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2016			2015		2016			2015
Net (loss) income	$	(1,749,909	)	$	2,931,724	$	(5,756,607	)	$	(9,157,571	)
Basic weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Effect of dilutive securities:
Warrants		-			-		-			-
Options		-			-		-			-
Diluted weighted-average common shares outstanding		43,579,557			43,579,557		43,579,557			43,579,557
Basic (loss) earnings per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)
Diluted loss per share	$	(0.04	)	$	0.07	$	(0.13	)	$	(0.21	)

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INVENTORY (TABLES)

9 Months Ended

Sep. 30, 2016

INVENTORY (TABLES)

Inventory consists

Inventory consisted of the following:

	September 30,			December 31,
	2016			2015
Raw materials	$	12,106,727		$	14,699,736
Work in process		413,756			-
Finished goods		2,731,353			3,380,109
		15,251,836			18,079,845
Obsolescence reserve		(6,682,357	)		(8,417,095	)
Total Inventory	$	8,569,479		$	9,662,750

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PROPERTY AND EQUIPMENT (TABLES)

9 Months Ended

Sep. 30, 2016

PROPERTY AND EQUIPMENT (Tables)

Property and equipment consists

Property and equipment consisted of the following:

	September 30,			December 31,
	2016			2015
Permit of land use	$	422,330		$	433,956
Building		10,274,394			10,557,234
Plant, machinery and equipment		26,651,565			27,325,440
Motor vehicle		259,369			242,860
Office equipment		253,766			256,679
Total		37,861,424			38,816,169
Less: accumulated depreciation		(11,521,705	)		(9,422,912	)
Property and Equipment, net	$	26,339,719		$	29,393,257

Useful lives of the assets

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:

Asset	Life - years
Permit of land use	40 - 70
Building	20 - 49
Plant, machinery and equipment	5 - 10
Motor vehicle	5 - 10
Office equipment	3-5

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INTANGIBLE ASSETS (TABLES)

9 Months Ended

Sep. 30, 2016

Intangible Assets (Tables)

Intangible Assets Medical Formulas

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

	September 30,			December 31,
	2016			2015
Gross carrying amount	$	5,061,737		$	5,201,079
Accumulated amortization		(4,440,106	)		(4,360,004	)
Net carrying amount	$	621,631		$	841,075

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SCHEDULE OF CONSTRUCTION LOAN FACILITY (TABLES)

9 Months Ended

Sep. 30, 2016

Schedule of Construction Loan Facility:

Schedule of Principal payments required for the next five years as of December 31, 2015

Principal payments required for the next five years as of September 30, 2016 are as follows:

Twelve Months Ending September 30,	Amount
2017	$	1,499,390
2018		2,249,085
2019		2,249,085
2020		2,249,085
2021		2,249,083
	$	10,495,728

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INCOME TAXES (TABLES)

9 Months Ended

Sep. 30, 2016

INCOME TAXES (Tables)

Schedule of Enterprise Income Tax Rates

In 2013, the Company again applied for and received the same favorable tax rate for 2014 to 2016.  Under the current tax law in the PRC, the Company is and will be subject to the following enterprise income tax rates:

	Enterprise Income
Year	Tax Rate
2015	15%
2016	15%
Thereafter	25%

Schedule of Provision for income taxes

The provision for income taxes consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Current	$	-	$	-	$	-	$	-
Deferred		20,800		18,906		65,044		57,618
Total income tax expense	$	20,800	$	18,906	$	65,044	$	57,618

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SCHEDULE OF FAIR VALUE MEASUREMENTS (TABLES)

9 Months Ended

Sep. 30, 2016

SCHEDULE OF FAIR VALUE MEASUREMENTS:

Company held the following assets and liabilities recorded at fair value as of December 31, 2014

The banker's acceptances are recorded at cost which approximates fair value.  The Company held the following assets and liabilities recorded at fair value as of September 30, 2016:

			Fair Value Measurements at
			Reporting Date Using
Description	September 30, 2016		Level 1		Level 2		Level 3
Banker's acceptances	$	21,546	$	-	$	21,546	$	-
Total	$	21,546	$	-	$	21,546	$	-

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Organization and Nature of Operations (Details)	Sep. 30, 2016
Organization and Nature of Operations Details
Percentage of share owned by China Pharma Holdings Inc of Onny Investment Limited	100.00%
Percentage of share owned by China Pharma Holdings Inc of Helpson Medical & Biotechnology Co., Ltd.	100.00%
Percetage of acquired by Onny in Helpson	100.00%

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Trade Accounts Receivable and Allowance for Doubtful Accounts (Details) - USD ($)	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Trade Accounts Receivable and Allowance for Doubtful Accounts Details
Bad debt expense	$ 1,005,949	$ 6,045,352
Company had trade accounts receivable amounting	30,000,000
Inventory
Charges to inventory obsolescence expense totaled	200,044	1,855,814
Company recognized an inventory obsolescence reserve	6,682,357		$ 8,417,095
Advances for purchases of intangible assets	1,467,235
Research and development expenses	$ 289,189	$ 741,116

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Numerators and denominators used in the calculation of basic and diluted loss per share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerators and denominators used in the calculation of basic and diluted loss per share details
Net loss	$ (1,749,909)	$ 2,931,724	$ (5,756,607)	$ (9,157,571)
Basic weighted-average common shares outstanding	43,579,557	43,579,557	43,579,557	43,579,557
Effect of dilutive securities:
Warrants	$ 0	$ 0	$ 0	$ 0
Options	$ 0	$ 0	$ 0	$ 0
Diluted weighted-average common shares outstanding	43,579,557	43,579,557	43,579,557	43,579,557
Basic loss per share	$ (0.04)	$ 0.07	$ (0.13)	$ (0.21)
Diluted loss per share	$ (0.04)	$ 0.07	$ (0.13)	$ (0.21)

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INVENTORY (DETAILS) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Inventory Details
Raw materials	$ 12,106,727	$ 14,699,736
Work in process	413,756	0
Finished goods	2,731,353	3,380,109
Inventory gross	15,251,836	18,079,845
Obsolescence reserve	(6,682,357)	(8,417,095)
Total Inventory	$ 8,569,479	$ 9,662,750

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PROPERTY AND EQUIPMENT CONSISTED OF THE FOLLOWING (DETAILS) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Property and equipment consisted of the following details
Permit of land use	$ 422,330	$ 433,956
Building	10,274,394	10,557,234
Plant, machinery and equipment	26,651,565	27,325,440
Motor vehicle	259,369	242,860
Office equipment	253,766	256,679
Property and equipment Gross Total	37,861,424	38,816,169
Less: accumulated depreciation	(11,521,705)	(9,422,912)
Property and Equipment, net	$ 26,339,719	$ 29,393,257

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ESTIMATED USEFUL LIVES OF THE ASSETS AS FOLLOWS (DETAILS)	Sep. 30, 2016
Estimated useful lives of the assets as follows:
Permit of land use minimum life	40
Permit of land use maximum life	70
Building minimum life	20
Building maximum life	49
Plant, machinery and equipment minimum life	5
Plant, machinery and equipment maximum life	10
Motor vehicle minimum life	5
Motor vehicle maximum life	10
Office equipment minimum life	3
Office equipment maximum life	5

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ASSETS DEPRECIATION (DETAILS) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Assets Depreciation
Depreciation Expense property and equipment	$ 789,150	$ 911,515	$ 2,383,457	$ 2,523,752

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Intangible assets amortization expenses (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Intangible assets amortization expenses
Amortization expenses relating to intangible assets	$ 65,643	$ 73,498	$ 199,609	$ 246,009

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INTANGIBLE ASSETS CFDA APPROVED MEDICAL FORMULAS (DETAILS) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Intangible assets CFDA approved medical formulas details
Gross carrying amount	$ 5,061,737	$ 5,201,079
Accumulated amortization	(4,440,106)	(4,360,004)
Net carrying amount	$ 621,631	$ 841,075

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ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS (DETAILS)	Sep. 30, 2016 USD ($)
Advances for purchase of intangible assets details
Company was obligated to pay laboratories and others	$ 4,400,000
Company recognized an impairment loss for the advances made to these laboratories	$ 1,467,235

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Interest (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest
Total interest expense	$ 3,386	$ 3,386	$ 10,159	$ 10,158

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RELATED PARTY TRANSACTIONS (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
RELATED PARTY TRANSACTIONS DETAILS
Advances owing to board of directors	$ 1,354,567	$ 1,354,567
Interest rate on advances from Member of BOD	1.00%	1.00%

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NOTES PAYABLE (DETAILS) - USD ($)	Oct. 19, 2016	Sep. 30, 2016	Sep. 16, 2016	Dec. 31, 2015	Nov. 30, 2015	Nov. 30, 2014
NOTES PAYABLE DETAILS
Revolving line of credit with a bank (RMB)						$ 30,000,000
Revolving line of credit with a bank (Dollars) approx						$ 4,498,169
Revolving line of credit renewed with the bank (RMB)					$ 30,000,000
Revolving line of credit renewed with the bank (Dollars) approx					$ 4,498,169
Annual interest rate based upon 110% of PRC government's current short term rate of 5.6%					6.16%	5.60%
Line of credit is payable in two equal installments of RMB 15,000,000	$ 2,250,000		$ 2,250,000
Annual interest rate based upon 110% of PRC government's current short term rate of 4.6%		5.06%
Outstanding balance due under revolving line of credit (RMB 15,000,000 and RMB 30,000,000)		$ 2,249,085		$ 4,621,998

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BANKER'S ACCEPTANCE NOTES PAYABLE (Details)	Sep. 30, 2016 USD ($)
BANKER'S ACCEPTANCE NOTES PAYABLE DETAILS
Amount of cash available to deposit against the Banker's Notes	$ 4,500,000
Payment of fees equal to percent of the note	0.05%
Company issued Banker's Notes in the amount	$ 1,470,014

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CONSTRUCTION LOAN FACILITY (DETAILS)	Jul. 13, 2016 USD ($)	Jul. 10, 2016	Jan. 31, 2016 USD ($)	Jul. 10, 2015	Jul. 11, 2013 USD ($)
Construction loan facility details
Obtained construction loan facility (RMB80,000,000)					$ 12,000,000
Term of the loan					8
Loan interest for an eight-year term					5.73%
Interest rate was adjusted to		5.39%		5.94%
Company principal payment (RMB2,000,000)			$ 309,000
Company made a payment in amount (RMB 80,000,000)	$ 1,196,548

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PRINCIPAL PAYMENTS REQUIRED FOR THE NEXT FIVE YEARS ARE AS FOLLOWS: (DETAILS)	Sep. 30, 2016 USD ($)
Principal payments required for the next five years are as follows:
Principal Payments 2017	$ 1,499,390
Principal Payments 2018	2,249,085
Principal Payments 2019	2,249,085
Principal Payments 2020	2,249,085
Principal Payments 2021	2,249,083
Total principal payments due	$ 10,495,728

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SUBSIDY INCOME (Details)	Sep. 30, 2016 USD ($)
SUBSIDY INCOME DETAILS
Company foreign subsidiary, since its acquisition	$ 34,500,000
Investment in Helpson	$ 23,300,000

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ENTERPRISE INCOME TAX RATES (DETAILS)	Sep. 30, 2016
Enterprise income tax rates details
Enterprise Income Tax Rate 2015	15.00%
Enterprise Income Tax Rate 2016	15.00%
Enterprise Income Tax Rate Thereafter	25.00%

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PROVISION FOR INCOME TAXES (DETAILS) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Provision for income taxes details
Current	$ 0	$ 0	$ 0	$ 0
Deferred	20,800	18,906	65,044	57,618
Total income tax expense	$ 20,800	$ 18,906	$ 65,044	$ 57,618

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DEFERRED INCOME TAX ASSETS AND LIABILITY (DETAILS) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Deferred income tax assets:
PRC net operating loss carry forward	$ 38,900,000
U.S. net operating loss carry forward	4,200,000
Valuation allowance	$ 13,457,238	$ 12,798,572

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FAIR VALUE MEASUREMENTS AT REPORTING DATE USING (DETAILS)	Sep. 30, 2016 USD ($)
FAIR VALUE MEASUREMENTS AT REPORTING DATE USING
Bankers acceptance notes	$ 21,546
Total	21,546
Bankers acceptance notes Level 1	0
Total Level 1	0
Bankers acceptance notes Level 2	21,546
Total Level 2	21,546
Bankers acceptance notes Level 3	0
Total Level 3	$ 0

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CAPITAL STOCK TRANSACTIONS (DETAILS) - $ / shares	Sep. 30, 2016	Nov. 12, 2010
Capital stock transactions:
Common stock shares authorized	95,000,000
Preferred stock shares authorized	5,000,000
Common stock par value	$ 0.001
Preferred stock par value	$ 0.001
Employee Stock Options 2010 Incentive Plan
Number of common shares		4,000,000
Shares of restricted stock granted and outstanding under the 2010 Incentive Plan		175,000

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CONCENTRATIONS (DETAILS)	Sep. 30, 2016	Dec. 31, 2015
Concentrations Details
No customer accounted for more than percentage of sales	10.00%
One supplier accounted for raw material purchases	21.70%	20.50%
One customers accounted for accounts receivable	28.30%	17.60%
Two customers accounted for accounts receivable	11.30%	10.80%
Three customers accounted for accounts receivable	11.00%
One customer accounted for sales		10.00%