China Pharma Holdings, Inc. Reports Fiscal Year 2017 Financial Results

Full Year Highlights

• Revenue decreased 15.1% to $13.2 million in fiscal year 2017 from $15.6 million in fiscal year 2016;
• Gross margin was 18.7% in fiscal year 2017, compared to 20.7% in fiscal 2016.
• Impairment loss was $14.2 million in fiscal year 2017 compared to $4.0 million in 2016, which represented an increase of $10.2 million;
• Loss from operations was $18.7 million in fiscal year 2017 compared to $8.2 million in 2016, which represented an increase of $10.5 million;
• Net loss was $19.3 million in fiscal year 2017 compared to $9.2 million in 2016. Loss per common share was $(0.44) per basic and diluted share in fiscal 2017 compared with $(0.21) per basic and diluted share in fiscal year 2016.

"We tried to increase sales in 2017 but the speed of our sales recovery was not as fast as we expected. Nevertheless, increasing sales remains our top priority. Management will continue to vigorously promote sales through active participation in recent provincial market openings to receive new drug tender offers and through further research of the basic medical market," said Ms. Zhilin Li, China Pharma's Chairman and CEO. Ms. Li continued, "The ongoing generic drug consistency evaluations and reform of China's drug production registration and review policies will have a major impact on the future development of our industry and may change its business patterns. Under the requirements of the consistency evaluation policy, the company actively evaluated the technical difficulty, investment demand, time requirement, and investment return rate of all applicable marketed products and pipeline products, and recognized a significant impairment loss related to our intangible assets in 2017. We will continue to actively adapt to state policy guidance and further evaluate market conditions for our current existing products, pipeline products, and competition in the market in order to optimize our development strategy."

Full Year Results

Revenue decreased by 15.2% to $13.2 million for the year ended December 31, 2017, as compared to $15.6 million for the year ended December 31, 2016. This decrease was mainly due to the negative impact around Health-care insurance cost-control as well as policies for reducing the proportion of drug cost to total health-care spending.

Gross profit for the year ended December 31, 2017 was $2.5 million, compared to $3.2 million in 2016. Our gross profit margin in 2017 was 18.7% compared to 20.7% in 2016. This decline in our gross profit margin was mainly due to that our raw material prices have generally increased in recent quarters along with the improvement of industry standards and the strengthening of environmental protection requirements. In addition, adverse drug pricing control policies have negatively impacted our gross margins.

Our selling expenses for the year ended December 31, 2017 were $3.5 million, a decrease of $0.5 million compared to $4.0 million for the year ended December 31, 2016. Selling expenses accounted for 26.2% of the total revenue in 2017 compared to 25.9% in 2016. The increase was mainly the result of additional marketing, consulting and product promotional efforts in certain Chinese provinces. Because of adjustments in our sales practices resulting from healthcare reform policies, despite the overall decrease in sales, we require additional personnel and expenses to support our sales and the collection of accounts receivable.

Our general and administrative expenses for the year ended December 31, 2017 were $2.0 million, which represented an increase of $0.3 million compared to $2.3 million in 2016. General and administrative expenses accounted for 15.3% and 14.6% of our total revenues in 2017 and 2016, respectively.

Our bad debt expenses for the year ended December 31, 2017 was $1.4 million, which represented an increase of $0.3 million compared to $1.1 million in 2016. The increase in our bad debt expenses was mainly due to the change in the composition of aging of accounts receivables for the years ended December 31, 2017 compared to December 31, 2016.

Our impairments for the year ended December 31, 2017 were $14.2 million, compared to $4.0 million in 2016. It was mainly because of that as a pharmaceutical company, we have been focusing on the development and maintenance of our intangible assets, mainly in the form of medical formulas. Because of recently implemented government policies such as consistency evaluations, our management made certain assessments regarding the impairment of our intangible assets as of December 31, 2017 and December 31, 2016 respectively, and identified six and five formulas that would likely be unable to generate positive cash flow in the foreseeable future and therefore recognized impairment loss on them accordingly.

Net loss for year ended December 31, 2017 was $19.3 million, compared to net loss of $9.2 million for the year ended December 31, 2016. The decrease in net loss was mainly a result of the increase in impairment loss and bad debt expenses.

Financial Condition

As of December 31, 2017, the Company had cash and cash equivalents of $2.0 million compared to $2.7 million as of December 31, 2016. Working capital decreased to $3.1 million as of September 30, 2017 from $7.1 million as of December 31, 2016; and the current ratio was 1.3 and 1.7 times at December 31, 2017 and December 31, 2016, respectively.

As of December 31, 2017, our net accounts receivable was $2.3 million, compared to $4.0 million as of December 31, 2016.

For the year ended December 31, 2017, cash flow from operating activities was $0.8 million, as compared to $2.9 million in 2016.

Conference Call

The Company will hold a conference call at 8:30 am E.T. on April 3, 2018 to discuss the results of full year 2017. Listeners may access the call by dialing 1-866-519-4004 or 65-671-350-90 for international callers, Conference ID # 1264719. A replay of the call will be accessible through April 11, 2018 by dialing 1-855-452-5696 or 61-281-990-299 for international callers, Conference ID # 1264719.

About China Pharma Holdings, Inc.

China Pharma Holdings, Inc. is a specialty pharmaceutical company that develops, manufactures and markets a diversified portfolio of products focused on conditions with a high incidence and high mortality rates in China, including cardiovascular, CNS, infectious, and digestive diseases. The Company's cost-effective, high-margin business model is driven by market demand and supported by new GMP-certified product lines covering the major dosage forms. In addition, the Company has a broad and expanding nationwide distribution network across all major cities and provinces in China. The Company's wholly-owned subsidiary, Hainan Helpson Medical & Biotechnology Co., Ltd., is located in Haikou City, Hainan Province. For more information about China Pharma Holdings, Inc., please visit www.chinapharmaholdings.com. The Company routinely posts important information on its website.