China Pharma Holdings, Inc. Reports First Quarter 2015 Financial Results

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May 12, 2015, 06:00 ET

HAIKOU CITY, China, May 12, 2015 /PRNewswire/ -- China Pharma Holdings, Inc. (NYSE MKT: CPHI) ("China Pharma" or the "Company"), an NYSE MKT listed corporation with its fully-integrated specialty pharmaceuticals subsidiary based in China, today announced financial results for the quarter ended March 31, 2015.

First Quarter Highlights

Revenue decreased 20% to $5.7 million in the first quarter of 2015 from $7.1 million in the first quarter of 2014.
Gross margin was 18.6% in the first of quarter 2015, compared to 37.4% in the first quarter of 2014.
Loss from operations was $7.7 million in the first quarter 2015 compared to $2.3 million in the first quarter of 2014.
Net loss was $8.0 million in the first quarter of 2015 compared to $2.4 million in the first quarter of 2014. Loss per common share was $0.18 per basic and diluted share in the first quarter of 2015 compared with $0.05 per basic and diluted share in the same period of 2014.

"We have experienced some market-loss in the first quarter of 2015 due to the production-suspension of our injectable product lines in 2014. We continued controlling our marketing by limiting our credit sales and executed a prudent marketing strategy, specifically by screening our existing and potential distributors and hospital customers based on their payment speed in order to gradually improve our trade turnover, especially in terms of the collection of our accounts receivable. This strategy has temporarily impacted our sales in the current period by limiting our credit sales." said Ms. Zhilin Li, China Pharma's Chairman and CEO. Ms Li continued, "We received new GMP certificates for the new injectable production lines in our new factory and initiated production on those lines in November 2014. In January 2015 we also received new GMP certificates for the tablet and capsule production lines in our old factories. We plan to upgrade the dry powder injectable production line, granule production line, and cephalosporin production line in our old factories in 2015."

First Quarter Results

Revenue for the three months ended March 31, 2015 were $5.7 million, a decrease of 20% from revenue of $7.1 million for the same period of 2014. This decrease primarily resulted from decreases in sales throughout all our product categories, especially our Anti-Viro/ Infection & Respiratory products (decreased by roughly $1 million).

For the three months ended March 31, 2015, our cost of revenue was $4.4 million, or 78% of total revenue, while it remained flat in terms of dollar amount as compared to $4.4 million in the same period last year, or 63% of total revenue, in the first quarter of 2014.The increase in cost of revenue as a percentage of revenues was mainly due to the outsourced production costs for certain products incurred during 2014 when our injectable product lines were suspended. These outsourced finished goods were sold during the three months ended March 31, 2015. There were no outsourced production costs for the three months ended March 31, 2014. In addition, we believe our new production lines have not yet reached their optimal efficiency resulting in higher costs for the three months ended March 31, 2015.

There was $0.2 million inventory obsolescence recorded for the three months ended March 31, 2015, and no inventory obsolescence for the three months ended March 31, 2014. We started recording inventory obsolescence allowance on a quarterly basis from this period as we believe it may result in material modification in our financial statements; while previously, we tested and recorded inventory obsolescence allowance on an annual basis.

Gross profit for the three months ended March 31, 2015 was $1.1 million, a decrease of $1.6 million, from gross profit of $2.7 million in the same period of 2014. Our gross profit margin in the first quarter of 2015 was 19% compared to 37% in the same period of 2014.

Selling, general and administrative expenses in first quarter of 2015 were $1.5 million, or 25.7% of sales, compared to $1.2 million, or 17.5% of sales, in the same period of 2014. For the three months ended March 31, 2015, the Company's research and development expense was $0.2 million, compared to $0.4 million in the same period of 2014. The change in research and development expenses was mainly due to the costs related to the reduction of costs related to the upgrading new production lines compared to the three months ended March 31, 2014.

Our bad debt expenses for the three months ended March 31, 2015 were $7.1 million, which represented an increase of $3.8 million from $3.3 million in the same period last year. The increase in bad debt expenses was mainly due to the increased amount in the accounts receivable with older age. We continued the marketing strategy of priority supply to customers with high-quality accounts receivable payment history, which in turn affected our relationship with customers with poor accounts receivable payment performance, and their payment has been further slowed down. Nevertheless, even if the aging of the accounts receivable remains old, the management endeavors to facilitate and incentivize the repayment from such customers and may consider favored policies for that purpose.

Our operating loss for the three months ended March 31, 2015 was $7.7 million, compared to $2.3 million in the same period of 2014. The increase of the operating loss was the primarily due to the decrease in revenue and the bad debt expense recognized for the three months ended March 31, 2015.

For the three months ended March 31, 2015 and 2014, our income tax rate was 15%. Income tax benefit was $0.02 million for the three months ended March 31, 2015, remaining to be the similar comparing to $0.02 million for the three months ended March 31, 2014. The income taxes recognized for the three months ended March 31, 2015 and 2014 were related to changes in deferred tax assets and liabilities. We renewed our "National High-Tech Enterprise" status ("National HT 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 will continue to enjoy a preferential tax rate of 15% which is notably lower than the statutory income tax rate of 25%.

Net loss for three months ended March 31, 2015 was $8.0 million, or $0.18 per basic and diluted common share, compared to net loss of $2.4 million, or $0.05 per basic and diluted share in the same period of 2014. The increase of the net loss was primarily due to the decrease in revenue and the bad debt expense recognized for the three months ended March 31, 2015.

Financial Condition

As of March 31, 2015, the Company had cash and cash equivalents of $5.3 million, remained the same to the condition as of December 31, 2014. Working capital decreased to $33.4 million in March 31, 2015 from $40.3 million in December 31, 2014 and the current ratio was 3.3 times at March 31, 2015, decreased from 3.8 times as of December 31, 2014.

Our accounts receivable balance decreased to $18.8 million at March 31, 2015 from $24.9 million at December 31, 2014. Our receivables decreased due to our enhanced collection efforts, decrease in sales, and increase in bad debt allowance.

Conference Call

The Company will hold a conference call at 8:30 am ET on May 12, 2015 to discuss the financial results for the first quarter of 2015. Listeners may access the call by dialing 1-866-519-4004 or 65-672-393-81 for international callers, Conference ID # 43241585. A webcast will also be available through CPHI's website at http://www.chinapharmaholdings.com. A replay of the call will be accessible through May 20, 2015 by dialing 1-855-452-5696 or 61-281-990-299 for international callers, Conference ID # 43241585.

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 http://www.chinapharmaholdings.com. The Company routinely posts important information on its website.

Safe Harbor Statement

Certain statements in this press release constitute forward-looking statements for purposes of the safe harbor provisions 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 the achievability of financial guidance, success of new product development, unanticipated changes in product demand, increased competition, downturns in the Chinese economy, uncompetitive levels of research and development, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations except as required by applicable law or regulation.

Contact:

China Pharma Holdings, Inc.
Phone: +86-898-6681-1730 (China)
Email: [email protected]

- FINANCIAL TABLES FOLLOW -

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	March 31,	December 31,
	2015	2014
ASSETS
Current Assets:
Cash and cash equivalents	$ 5,268,856	$ 5,295,790
Banker's acceptances	120,766	458,233
Trade accounts receivable, less allowance for doubtful
accounts of $40,638,941 and $33,350,109, respectively	18,806,377	24,851,086
Other receivables, less allowance for doubtful
accounts of $67,988 and $60,325, respectively	250,248	272,199
Advances to suppliers	8,082,226	7,889,009
Inventory, less allowance for obsolescence
of $7,169,389 and $6,934,044, respectively	15,348,939	15,321,856
Prepaid expenses	231,637	404,370
Total Current Assets	48,109,049	54,492,543

Advances for purchases of intangible assets	42,594,188	42,390,186
Property and equipment, net of accumulated depreciation of
$7,530,897 and $6,640,718, respectively	33,234,025	33,881,878
Intangible assets, net of accumulated amortization of
$4,299,549 and $4,186,273, respectively	1,226,411	1,317,221
TOTAL ASSETS	$ 125,163,673	$ 132,081,828

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable	$ 3,232,670	$ 2,550,816
Accrued expenses	260,796	269,870
Other payables	1,425,437	1,401,470
Advances from customers	1,844,518	2,078,866
Other payables - related parties	1,354,567	1,354,567
Current portion of construction loan facility	1,636,902	1,629,062
Short-term notes payable	4,910,707	4,887,187
Total Current Liabilities	14,665,597	14,171,838
Non-current Liabilities:
Construction loan facility	11,458,317	11,403,438
Long-term deferred tax liability	273,291	252,707
Total Liabilities	26,397,205	25,827,983
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	54,874,958	62,848,901
Accumulated other comprehensive income	20,257,726	19,771,160
Total Stockholders' Equity	98,766,468	106,253,845
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 125,163,673	$ 132,081,828

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)

	For the Three Months
	Ended March 31,
	2015	2014
Revenue	$ 5,694,930	$ 7,105,515
Cost of revenue	4,434,706	4,445,129
Inventory obsolescence	201,097	-

Gross profit	1,059,127	2,660,386

Operating expenses:
Selling expenses	988,953	820,405
General and administrative expenses	472,429	423,927
Research and development expenses	160,828	444,407
Bad debt expense	7,104,656	3,308,129
Total operating expenses	8,726,866	4,996,868

Loss from operations	(7,667,739)	(2,336,482)

Other income (expense):
Interest income	26,855	21,783
Interest expense	(313,775)	(56,447)
Net other expense	(286,920)	(34,664)

Loss before income taxes	(7,954,659)	(2,371,146)
Income tax expense	(19,284)	(19,347)
Net loss	(7,973,943)	(2,390,493)
Other comprehensive income - foreign currency
translation adjustment	486,566	(1,114,984)
Comprehensive loss	$ (7,487,377)	$ (3,505,477)
Loss per share:
Basic	$ (0.18)	$ (0.05)
Diluted	$ (0.18)	$ (0.05)

CHINA PHARMA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Three Months
	Ended March 31,
	2015	2014
Cash Flows from Operating Activities:
Net loss	$ (7,973,943)	$ (2,390,493)
Depreciation and amortization	951,212	298,955
Bad debt expense	7,104,656	3,308,129
Inventory obsolencence reserve	201,097
Deferred income taxes	19,284	19,347
Changes in assets and liabilities:
Trade accounts and other receivables	(1,408,092)	(1,502,564)
Advances to suppliers	(154,575)	(29,253)
Inventory	396,521	482,976
Trade accounts payable	917,765	2,504,292
Accrued taxes payable	18,019	321,134
Other payables and accrued expenses	(4,813)	(24,759)
Advances from customers	(243,289)	(66,326)
Prepaid expenses	173,919	(430,479)
Net Cash Provided by Operating Activities	(2,239)	2,490,959

Cash Flows from Investing Activities:
Purchases of property and equipment	(47,106)	(3,753,668)
Net Cash Used in Investing Activities	(47,106)	(3,753,668)

Cash Flows from Financing Activity:
Proceeds from construction term loan	-	607,733
Net Cash Provided by Financing Activity	-	607,733

Effect of Exchange Rate Changes on Cash	22,411	(46,204)
Net (Decrease) Increase in Cash and Cash Equivalents	(26,934)	(701,180)
Cash and Cash Equivalents at Beginning of Period	5,295,790	5,993,139
Cash and Cash Equivalents at End of Period	$ 5,268,856	$ 5,291,959

Supplemental Cash Flow Information:
Cash paid for interest	$ 310,390	$ 276,215
Cash paid for income taxes	-	-

Supplemental Noncash Investing and Financing Activities:
Accounts payable for purchases of property and equipment	$ -	$ 1,382
Accounts receivable collected with banker's acceptances	464,075	644,740
Inventory purchased with banker's acceptances	551,167	915,495