Record Revenues Increased Year-over-year 92% to $5 Million;
Gross Margin Increased to 50%
HAIKOU CITY, Hainan Province, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- China Pharma Holdings, Inc. (''China Pharma’’) today announced its operating results for the third quarter ended September 30, 2006.
Q3 Highlights -- Revenues increased 92% year-over-year to $5 million -- Gross margin increased to 50% from 37.8% in the third quarter 2005 -- Net income increased 231% year-over-year to $1.7 million
Revenues for the third quarter 2006 were $5.0 million, an increase of 92.8% from $2.6 million in the third quarter of 2005, and up 26.2% from $4.0 million in the previous quarter. Operating income for the quarter increased to $2.1 million, up 198.6% from $0.7 million in the third quarter 2005 and up 53.3% from $1.4 million in the second quarter of 2006. Net income increased 231.4% to $1.7 million from $0.5 million in the same quarter a year ago and declined 6.8% from $1.8 million in the second quarter of 2006. Fully diluted earnings per share for the quarter was $0.05 compared to $0.11 for the third quarter of 2005 and $0.05 for the second quarter of 2006. Earnings per share in fiscal 2006 reflect an increase in China Pharma’s weighted average shares outstanding from 4.7 million in the third quarter of 2005 to 34.7 million in the third quarter of 2006.
''We are pleased with the record revenues and strong net income growth we achieved in the third quarter. We have made some significant strides this year in expanding our portfolio, with approvals for four new products. We have already started manufacturing and selling ozagrel sodium injection and gastrodin injection, both of which have contributed to our top line growth as well as the significant increase in gross margin to 50%,’' commented Ms. Zhi-Lin Li, China Pharma’s President and CEO.
Revenue growth in the third quarter was driven by increased sales of China Pharma’s PuSenOK, the Company’s first OTC drug and anti-flu medicine, which represented about 18% of revenue for the quarter. The Company’s revenue growth was also positively impacted from the newly launched ozagrel sodium injection, a prescription anti-coagulant drug, and gastrodin injection, a prescription drug used to treat the central nervous system. Gastrodin injection is now the company’s fifth largest revenue generator with year-to-date revenue of $1.3 million. Sales of roxithromycin and rhaAFGA continued to do well, as each represented about 15% of total revenue for the quarter.
Gross profit for the third quarter 2006 was $2.5 million, up 153.5% from gross profit in the third quarter 2005 of $1.0 million, and up 33.3% from gross profit in the previous quarter of $1.9 million. Gross profit was favorably impacted by increased sales of higher margin products such as PuSenOK, hepatocyte growth-promoting factor and ozagrel, each of which have gross margins greater than 50%. Gross margin was 49.7% for the quarter, up from 37.8% from the same quarter a year ago and 47.0% from the previous quarter.
Selling expenses were $42,966 in the third quarter of 2006 compared to $43,098 in the third quarter of 2005 and down from $82,133 in the second of quarter 2006.
Research and development expenses were $125,000 in the third quarter of 2006. Research and development expenses were added as a separate line item on the income statement this quarter which represents payment for clinical trials for R&D performed at other institutes.
For the quarter, general and administrative (G&A) expenses were $100,650, or 2.0% of revenue, compared to $77,346 in the third quarter of 2005, or 3.0% of revenue. China Pharma intends to keep G&A expenses under $1.0 million in fiscal 2006.
Operating income for the third quarter of 2006 increased to $2.1 million, up 198.6% from $0.7 million in the third quarter of 2005 and up 53.3% from $1.4 million in the previous quarter. Operating margin for the quarter was 41.3%, up from 26.7% in the third quarter 2005 and up from 34.0% in the second quarter of 2006. Operating margin was favorably impacted by the increase in gross margin and the decrease in operating expenses.
Net income for the quarter increased to $1.7 million for an increase of 231.4% from net income of $0.5 million in the third quarter 2005 and down 6.8% from the second quarter 2006. The decrease in sequential net income for the quarter is attributed to the recognition of bad debt recovery of $627,861, which favorably impacted results in the second quarter of 2006.
Revenue for the first nine months of 2006 was $13.7 million, gross profit was $6.6 million and net income was $5.1 million.
Financial Condition
As of September 30, 2006, China Pharma had $193,390 in cash and cash equivalents, $14.1 million in working capital and total debt of $8.4 million. Inventories increased by $1.8 million from $6.8 million as of June 30, 2006 to $8.6 million in advance of anticipated brisk fourth quarter sales. Days sales outstanding (DSO) were 207 during the third quarter 2006, a modest reduction from 209 days at the end of the second quarter of 2006. The Company has targeted reducing DSOs to 180 days in 2007. Shareholder equity stood at $17.1 million, up from $11.7 million at year-end 2005.
Business Outlook
The fourth quarter historically is the strongest quarter for China Pharma. The Company expects to see continued increased demand based on seasonality of several of its drugs and increased market penetration for drugs introduced earlier in 2006. In addition to ozagrel sodium injection and gastrodin injection, the Company launched hepatocyte growth promoting factor, a prescription drug for the treatment of hepatitis, earlier this year and is experiencing solid demand. China Pharma is maintaining its guidance for year-end revenue of $20.0 million and net income of $8.0 million.
Ms. Li concluded, ''We anticipate a strong year-end as the fourth quarter is typically the strongest selling season for many of our pharmaceutical products. We are also now seeing traction in the market from drugs launched in the fist half of 2006 -- hepatocyte growth promoting factor, gastrodin injection and ozagrel sodium -- all of which generate attractive gross margins. We are continuing to focus on expanding our portfolio with high margin therapeutics which provide diverse revenue base and minimize overall portfolio risk.’'
Conference Call
China Pharma will host a conference call on Tuesday, November 14th at 10:00 am ET to discuss results for the third quarter of 2006. Joining Ms. Zhilin Li, President and CEO of China Pharma, will be Mr. Xinhua Wu, Chief Financial Officer, and Mr. Donald Xu, Vice President, Strategic Planning and Business Development. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time (888) 419.5570. International callers should dial (617) 896.9871. The conference passcode is 66962583.
If you are unable to participate in the call at this time, a replay will be available on Tuesday, November 14 at 12:00 am EST, through Tuesday, November 21 at 12:00 am EST. To access the replay, dial (888) 286-8010. International callers should dial (617) 801-6888. The conference passcode is 84660865.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://phx.corporate- ir.net/playerlink.zhtml?c=145098&s=wm&e=1414793 . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.
Comparative Period Results
Onny Investment Limited (“Onny”) was incorporated in the British Virgin Islands on January 12, 2005. On June 16, 2005, Onny acquired all of the outstanding shares of Hainan Helpson Medical & Biotechnology Co., Ltd (“Helpson”). On October 19, 2005, Onny was reorganized as a wholly-owned subsidiary of China Pharma. The reorganization was accomplished through a share exchange between Onny and China Pharma, plus China Pharma’s commitment to issue additional shares upon amending its articles of incorporation. The reorganization of Onny into China Pharma was recognized as a stock split of the common stock of Onny and the effective issuance by Onny of approximately 2.5 million shares of common stock to the China Pharma’s pre-reorganization shareholders and the assumption of certain liabilities. The reverse acquisition of the Company was recognized as a non-monetary exchange. China Pharma was formerly known as TS Electronics, Inc. On May 4, 2006, TS Electronics, Inc. filed an 8-K with the Securities and Exchange Commission, reporting its name change to ''China Pharma Holdings, Inc.’' For more information, refer to the company’s filings with the Securities and Exchange Commission.
About China Pharma Holdings, Inc.
China Pharma Holdings, Inc. develops, manufactures, and markets generic and brand bio-pharmaceutical products in China that treat a wide range of conditions, including infections, hepatitis, vascular, CNS and other prevailing diseases. Helpson Bio-pharmaceutical Co., Ltd (Helpson), a specialty bio-pharmaceutical company headquartered in Haikou City, Hainan province in China, is a wholly owned subsidiary of China Pharma Holdings.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as unanticipated changes in product demand, increased competition, failure to obtain or maintain intellectual property protection, downturns in the Chinese economy, uncompetitive levels of research and development, failure to obtain regulatory approvals, and other information detailed from time to time in the Company’s filings and future filings with the United States Securities and Exchange Commission.
CHINA PHARMA HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the period For the from January 12, nine 2005 (Date of For the three months months Inception) ended September 30, ended through September September 30, 30, 2006 2005 2006 2005 Revenue 5,015,272 2,601,294 13,721,587 3,093,824 Cost of revenue 2,521,205 1,617,399 7,151,898 1,942,393 Gross profit 2,494,067 983,895 6,569,689 1,151,431 Operating expenses: Selling expenses 42,966 43,098 213,350 47,588 Research and development 125,359 -- 124,715 -- General and administrative 100,650 77,346 333,654 35,772 Bad debt expense (recovery) 152,142 169,229 (28,349) 230,881 Total operating expenses 421,117 289,673 643,370 314,241 Income from operations 2,072,950 694,222 5,926,319 837,190 Non-operating income (expenses): Interest income 408 266 588 266 Interest expense (39,872) (124,734) (87,690) (153,629) Total non-operating income (expense) (39,464) (124,468) (87,102) (153,363) Income before taxes 2,033,486 569,754 5,839,217 683,827 Income tax expense (326,621) (54,726) (730,560) (64,247) Net income 1,706,865 515,028 5,108,657 619,580 Comprehensive income - Foreign currency Translation adjustments 25,307 -- 137,964 -- Comprehensive income 1,732,172 515,028 5,246,621 619,580 Basic and diluted earnings per common share $0.05 $0.11 $0.15 $0.07 Weighted-average common shares outstanding 34,723,056 4,731,413 34,723,056 9,377,713 CHINA PHARMA HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) September 30, December 31, 2006 2005 ASSETS (unaudited) Current assets Cash and cash equivalents 193,390 461,220 Trade accounts receivables 11,297,389 5,709,762 Other non-trade receivables 494,473 385,957 Advances to suppliers 2,011,603 2,123,729 Inventory 8,552,037 5,785,196 Total current assets 22,548,892 14,465,864 Property and equipment, net of accumulated depreciation 2,771,944 2,808,342 Intangible assets, net of accumulated amortization 70,104 96,406 Deferred tax asset 124,908 130,458 Total non-current assets 2,966,956 3,035,206 Total assets $25,515,848 $17,501,070 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Trade accounts payable 1,051,080 679,104 Accrued expenses 347,371 15,625 Taxes payable 376,174 565,236 Other accounts payable 69,158 250,317 Advances from customers 83,749 50,755 Dividend payable 4,209,889 Short-term notes payable 2,147,335 -- Short-term notes payable to former shareholders 4,304,371 Total current liabilities $8,379,238 $5,770,926 Long-term liability Research and development commitment 31,578 30,966 Total liabilities 8,410,816 5,801,892 Shareholders’ equity Common shares, 1.00 ($0.12) par value; 23,000,000, 23,000,000, 28,000,000 shares authorized, issued and outstanding 34,722 34,723 Additional paid-in capital 7,764,979 7,764,979 Statutory reserves 397,124 99,926 Retained earnings 8,908,207 3,799,550 Total shareholders’ equity 17,105,032 11,699,178 Total liabilities and shareholders’ equity $25,515,848 $17,501,070 CHINA PHARMA HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the period from January 12, 2005 (Date of For the nine Inception) months ended through September 30, September 30, 2006 2005 Cash Flows from Operating Activities: Net income $5,108,657 $619,580 Depreciation and amortization 288,142 77,841 Loss on disposal of property and equipment -- -- Accretion of discount on notes payable -- 86,505 Deferred tax assets 8,029 (12,721) Changes in assets and liabilities: Trade accounts receivable (5,405,382) (1,523,777) Non-trade receivables (99,868) (433,383) Advances to suppliers 152,181 1,148,183 Inventory (2,618,835) (1,433,501) Trade accounts payable 354,002 1,725,177 Accounts payable related parties -- 109,959 Accrued expenses 11,071 55,912 Taxes payable (197,707) 28,751 Other payables 144,450 (475,013) Advances from customers 31,586 14,933 Net Cash Used in Operating Activities (2,223,674) (11,554) Cash Flows from Investing Activities: Capital expenditures (169,508) (14,597) Net cash received in purchase of Subsidiary -- 132,016 Proceeds from note receivable -- 11,336 Net Cash (Used) Provided by (169,508) 128,755 Investing Activities Cash Flows from Financing Activities: Payment of dividend payable -- (65,818) Proceeds from notes payable 2,120,150 -- Proceeds from issuance of common stock -- 3,509,698 Net Cash Proceeds from Financing Activities 2,120,150 3,443,880 Effect of Exchange Rate Changes in Cash 5,199 -- Net Change in Cash (267,833) 3,561,081 Cash and Cash Equivalents at 461,220 1 Beginning of Period Cash and Cash Equivalents at End of Period $193,387 $3,561,082 Supplemental Cash Flow Disclosures: Cash paid for interest $87,690 -- Cash paid for income taxes $851,335 -- Non-cash Financing Activities: Interest accrued on dividends payable $11,212 -- For more information, please contact: Crocker Coulson, President Leslie Richardson, Financial Writer CCG Elite Tel: +1-310-231-8600 x103 Email: crocker.coulson@ccgir.com Donald Xu Vice President, Strategic Planning and Business Development China Pharma Holdings, Inc. Tel: +1-858-776-8880 Email: dxu@chinapharmaholdings.com
China Pharma Holdings, Inc.
CONTACT: Crocker Coulson, President/Leslie Richardson, Financial Writer,CCG Elite, +1-310-231-8600 x103, or crocker.coulson@ccgir.com, for ChinaPharma; or Donald Xu,Vice President, Strategic Planning and BusinessDevelopment, China Pharma Holdings, Inc., +1-858-776-8880, ordxu@chinapharmaholdings.com
