BEIJING, Nov. 23 /Xinhua-PRNewswire/ -- China Biopharmaceuticals Holdings, Inc. , a leading Chinese pharmaceutical company focused on the development, manufacturing and marketing of innovative drugs in China (the ''Company''), today announced its results for the third quarter ended September 30, 2007.
Revenue for the three months ended September 30, 2007 increased 65% to $8.6 million compared to $5.2 million for the period ended September 30, 2006. The increase in revenues was attributable to the revenue growth of the Company's subsidiary Eyre Pharmaceutical Limited Company (''Erye''). Additionally, the Company did not realize quarterly revenue from Shenyang Enshi Pharmaceutical Limited Company (''Enshi''), as this subsidiary was returned to RimAsia Capital Partners. Management believes that recent industry developments in China have provided Erye a great opportunity to continue to grow its core business going forward.
Gross profit increased 102% for the three months ended September 30, 2007 to $2.6 million compared to $1.3 million for the same period in 2006. The gross profit margin for the three months ended September 30, 2007 was 30.5% compared to 25% for the same period in 2006.
Income from operations for the three months ended September 30, 2007 decreased to $135 thousand compared to $486 thousand for the same period in 2006. The decrease in operating profit was related to an increase in operating expenses from $2.48 million for the three months ended September 30, 2007 versus $807 thousand a year ago. The increase in these expenses was mainly attributable to new R&D initiatives, consulting, accounting, and legal expenses related to our recent financial and operational restructuring related to Enshi which did not exist during the three months ended September 30, 2006.
The Company reported a net loss for the third quarter of 2007 of $822 thousand compared to a net loss of $542 thousand for the third quarter of 2006, before one-time losses on discontinued operations. This net loss for the quarter was mainly attributable to the higher payment and accrued interest expenses as a result of the acquisition financing loan due to RimAsia Capital Partners for Enshi. During this quarter the Company took a one-time charge of $10.8 million related to the write-off of the Enshi subsidiary which it no longer owns. The Company has commenced legal proceedings for recession and damages against Mr. Li Xiaobo, the previous owner and controlling shareholder of Enshi, and his related parties for breach of representations and warranties and fraud. The Hong Kong courts have frozen approximately $10,000,000 worth of assets and the Defendants lost their opposition actions against the seizure order. The Company reasonably expects to prevail in the lawsuit against the Defendants. T he recovered value of Enshi after the completion of the litigation against Li Xiaobo, if any, will be recognized as income and will cover RimAsia's debt. During the third quarter of 2006, the Company had a one-time gain from discontinue operations of $438 thousand. Therefore, the net loss for the three month period ending September 30, 2007 was $11.6 million versus $107 thousand for the same period one year ago.
Ms. Zhang Jian, Chairwoman of the Board, commented, ''While this quarters results were strongly impacted by the write-off of Enshi and the associated expenses, we are very pleased with our 65% top line growth and increase in gross profit of 102%. Management believes that these trends point to a positive future for our Company. As we continue to grow and focus on our new product pipeline, shareholders will be rewarded. There is still a great opportunity for pharmaceutical firms like ours to prosper in China and provide investors with access to this rapidly growing and evolving industry.''
Nine Month Financial Results
Revenue for the nine months ended September 30, 2007 increased 34% to $22.5 million compared to $16.8 million for the period ended September 30, 2006. The increase in revenues again was attributable to the revenue growth of the Company's subsidiary Eyre. Additionally, the Company had to restate revenues and earnings from its Enshi subsidiary as it was determined that the previous owner had booked false accounts.
Gross profit increased 44% for the nine months ended September 30, 2007 to $6 million compared to $4.18 million for the same period in 2006. The gross profit margin for the nine months ended September 30, 2007 was 26.5% compared to 25% for the same period in 2006.
Income from operations for the nine months ended September 30, 2007 was approximately the same at $1.42 million compared to $1.44 million for the same period in 2006. The slight decrease in operating profit was related to an increase in operating expenses from $4.55 million for the nine months ended September 30, 2007 versus $2.73 million a year ago. The increase in these expenses was mainly realized in the third quarter for the reasons detailed above.
The Company reported a net loss for the nine month period of 2007 of $917 thousand compared to a net income of $117 thousand for the nine months of 2006, before one-time losses on discontinued operations. The net loss for the quarter was mainly attributable to the higher payment and accrued interest expenses as a result of the acquisition financing loan due to RimAsia Capital Partners for Enshi.
As discussed above, the Company took a one-time charge of $10.8 million related to the write-off of the Enshi subsidiary which it no longer owns. Additionally, the Company had a one-time loss from discontinue operations of $2 million during the same nine month period in 2006. Therefore, the net loss for the nine month period ending September 30, 2007 was $11.7 million versus a net loss of $1.9 million for the same period one year ago.
Balance Sheet and Debt Conversion
As of September 30, 2007, total assets were $34.4 million and total liabilities plus minority interest were $36.1 million. Subsequent to the quarter, the Company entered into an agreement on November 19, 2007, under which the principal amount of the $11.5 million Loan owed to RimAsia in connection with the Enshi acquisitions plus unpaid interest of $1,008,534, which totals $12,508,534 will be conditionally converted in full into 6,185,607 shares of senior redeemable convertible preferred shares of the Company. Thus the above listed liabilities would be decreased $12.5 million while the book value of the Company would increase by the same amount. Therefore current shareholder equity of negative $1.7 million, would improve to $10.8 million or $.30 per share based on the 36.5 million shares currently outstanding, and $.22 per fully diluted share with the preferred included.
These new preferred shares have an effective conversion price of $1.011. Additionally, the exercise price of $1.375 for the 12 million existing warrants exercisable into the Company's common stock previously issued to and currently held by RimAsia in connection with the extension of the Loan financing will be lowered to $1.26 per share and the term of the Existing Warrants extended to 4.5 years from the closing date. This is conditioned on the Company signing a letter of intent for acquisition of a new company or for the injection of the remaining 49% equity stake of Erye not already owned by the Company before January 15, 2008, having such acquisition closed before June 30, 2008.
Subsequent Events -- New Drug Development Agreement
Subsequent to the end of our third quarter on November 5, 2007, the Company entered into a new drug development contract with a third party. Pursuant to the contract, the Developer will transfer a drug patent to the Company, and also is responsible for obtaining the New Drug Certificate and the Drug Manufacturing Approval from the PRC Drug Administration Authority no later than July 1, 2009. In exchange, the Company will pay up to RMB12 million (approximately $1.6 million) to the Developer. Of the total $1.6 million, approximately $933,800 and $266,800 will need to be paid before December 31, 2007 and February 25, 2008, respectively, and the final payment ranging from $0 to $400,200, depending on the date of the Manufacturing Approval, needs to be paid no later than 10 days after the grant date of the Manufacturing Approval. Further, the two parties agreed that the Company will pay sales commission to the Developer based on the sales volume of the contracted new drug during a 10 year period after this drug is put into production. If the PRC Drug Administration Authority denies the application of the Drug Manufacturing, all payments made by the Company would be fully returned to the Company by the Developer.
Ms. Zhang Jian, continued, ''We believe that many of the distractions of the failed acquisition of Enshi are behind us. This has taken considerable management time and money away from our primary focus of building a strong pharmaceutical company in China. We now have the conditional conversion of $12.5 million of debt to equity, and believe that we will dramatically improve our cash position and have a one-time gain to income when we prevail in our Enshi litigation. We are happy to be working on new drug launches, which include an exciting new drug development agreement. We look forward to updating shareholder on these new products that we are working on to ensure our continued organic growth, as well as other potential accretive acquisition opportunities to increase our earnings and have a profitable 2008.
About China Biopharmaceuticals Holdings, Inc.
China Biopharmaceuticals Holdings, Inc is a vertically integrated pharmaceutical company dedicated to the discovery, development, manufacturing and marketing of small and large molecule pharmaceutical products, including medicines, vaccines, and active pharmaceutical ingredients for various categories of diseases. CHBP's product portfolio includes 260 drugs already approved for manufacturing and marketing by the Chinese State Food and Drug Administration (SFDA). CHBP also has submitted 15 drug applications to the SFDA for its review during the calendar year of 2006. CHBP is a U.S.-listed public company with operating subsidiaries and senior management based in China. For further information, please visit our website at http://www.cbioinc.com .
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Web site: http://www.cbioinc.com/