Global Pharm Holdings Group Announces Third Quarter 2011 Financial Results

SHENZHEN, China, Nov. 21, 2011/PR Newswire-Asia/ Global Pharm Holdings Group, Inc. (OTCBB: GPHG) (“Global Pharm” or the “Company”), a growing vertically integrated pharmaceutical company engaged in the distribution of pharmaceutical-related products, Traditional Chinese Medicine (“TCM”) processing, and herbal cultivation and sales in China through its subsidiaries in Anhui, Jilin, Guangdong and Shandong provinces, today announced its unaudited financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

• Net revenues were $69.0 million, an increase of 125.4% as compared to the third quarter of 2010.
• Gross profit was $9.6 million, an increase of 62.1% as compared to the third quarter of 2010, with gross margin of 13.9%.
• Operating income was $6.1 million, an increase of 449.8% as compared to the third quarter of 2010.
• Net income was $3.7 million, or $0.12 per diluted share, as compared to net loss of $0.07 million, or nil per diluted share, for the same period in 2010.
• In July 2011, Global Pharm successfully acquired a TCM herbal pieces processing plant in Bozhou, Anhui Province.
• In August 2011, Global Pharm successfully acquired a city-level pharmaceutical distributor in Weifang, Shandong Province. Furthermore, through its acquisition in August 2011 of the management and supply distribution rights to one of the largest pharmaceutical franchise of drugstores in Guangdong Province, the Company currently manages over 1,200 retail and chain drugstores in the area.
• In September and October 2011, the Company issued redeemable convertible bonds in the aggregate principal amount of $15,000,000 to Blazer Delight Limited, an investment vehicle owned by a fund managed by Asia-based Gen2 Partners Limited.

“We’re pleased to report a successful quarter marked by strong financial performance and important operational achievements. During the third quarter of 2011, we have further expanded our distribution network coverage in Shandong Province and Guangdong Province through new acquisitions, and completed the $15,000,000 convertible bonds financing, the proceeds of which will be used for our future growth,” stated Mr. Yunlu Yin, Chief Executive Officer of Global Pharm.

Total net revenue was $69.0 million for the three months ended September 30, 2011, an increase of 125.4%, as compared with the same period in 2010. The increase was primarily due to the additional revenue contributed by the distribution business of our newly-acquired subsidiaries in 2011, amounting to $23.6 million, and the increased sales of $11.9 million by Shandong Global Pharm Group, Ltd. (“Shandong Global”).

Below is a breakdown of sales per business segment for the three months ended September 30, 2011 and 2010, respectively:

Revenue from the pharmaceutical products distribution segment increased by $37.8 million, or approximately 152.5%, to $62.7 million for the three months ended September 30, 2011, as compared to $24.8 million for the same period in 2010. The increase was primarily due to the additional revenue contribution from our four newly-acquired distribution subsidiaries in 2011. Revenue from the Company’s TCM processing and distribution segment increased to $5.6 million for the third quarter of 2011, as compared to $4.5 million for the comparable period in 2010. The increase is mainly due to $2.5 million in additional revenue from our newly-acquired subsidiary, Bozhou Xinghe Pharmaceutical Co., Ltd. (“Bozhou Xinghe”), offset by an approximately $1.0 million decrease in the revenue of our other subsidiary, Anhui Xuelingxian Pharmaceutical Co., Ltd. (“Xuelingxian”). Our flower tea bags operations have been suspended since April 25, 2011, as such, we had nil revenue from this business, as compared to sales of $0.8 million for the three months ended September 30, 2010. Revenue from our herbal cultivation and sales segment was $0.8 million for the three months ended September 30, 2011, a decrease of approximately $0.6 million, or 41.7%, as compared to $1.3 million for the same period in 2010. The decrease was mainly due to reduced sales by Xuelingxian for three months ended September 30, 2011, because our herbal products were harvested in late September 2011 and sold after September 30, 2011, as compared to our earlier harvest of herbal products for the comparable period in 2010, of which some sales were recorded in the same quarter.

Gross profit for the third quarter of 2011 was $9.6 million, an increase of 62.1%, from $5.9 million for the comparable period in 2010. Gross margin decreased to 13.9% for the third quarter of 2011 from 19.3%, for the comparable period in 2010, primarily attributable to the lower gross profit margin of our four newly-acquired subsidiaries, which had an average gross profit margin of 6.47%.

Operating expenses for the third quarter of 2011 were $1.1 million, an increase of $0.7 million, as compared to the same period in 2010, primarily due to the additional operating expenses attributed to our newly-acquired subsidiaries in 2011, as well as to the increased advertising, freight and labor costs to support our business growth and expansion.

Income from operation for the third quarter of 2011 increased 449.8% to $6.1 million, or 8.8% of total revenue, from $1.1 million, or 3.6% of total revenue for the comparable period in 2010.

Net income for the third quarter of 2011 increased to $3.7 million, or $0.12 per fully diluted share, compared to a net loss of $72,376 for the same period in 2010, based on 28.9 million and 26.0 million weighted average diluted shares outstanding, respectively. This increase was primarily due to the one-time expense of the $3.0 million in stock-based compensation, which was recorded as general and administrative expenses in the three months period ended September 30, 2010, and had a significant impact on our net income.