China Pharma Holdings, Inc. Reports Second Quarter 2014 Financial Results

HAIKOU CITY, China, August 15, 2014 /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 its financial results for the three months ended June 30, 2014.

Second Quarter Highlights

  • Revenue was $6.1 million in the second quarter of 2014, which represented a decrease of 24% from $8.0 million in the second quarter of 2013.
  • Loss from operations was $8.5 million in the second quarter of 2014 compared to $4.8 million in the second quarter of 2013.
  • Net loss was $8.6 million in the second quarter of 2014 compared to $4.5 million in the second quarter of 2013. Loss per common share was $0.20 per basic and diluted share in the second quarter of 2014 compared with $0.10 in the second quarter of 2013.
  • Gross profit margin was 39% in the second quarter of 2014, compared to 27% in second quarter of 2013. The increase in gross profit margin was mainly due to the decrease in purchasing prices of certain raw materials and the increase in selling prices of certain products due to market fluctuation.

“We have submitted the application for a new GMP certificate at the end of June 2014. We believe that the GMP upgrading will be successful and expect the new GMP certificate to be issued in approximately three to six months from our submission of the application,” said Ms. Zhilin Li, China Pharma’s Chairman and CEO. Ms. Li continued, “The national CFDA staff was originally scheduled for an on-site-review of our new facility and production lines in late July of 2014. The review is a mandatory and major step in order for us to receive the new GMP certification. However, due to a once-in-forty-year 16 grade super typhoon Rammasun hitting Haikou on July 18, 2014, the on-site-review was postponed and the typhoon caused considerable damage to our manufacturing facilities and inventory. We have taken emergency measures to restore and recover post-typhoon to be ready for the rescheduled on-site-review in mid-August.”

Second Quarter 2014 Results

Revenue decreased by 24% to $6.1 million for the three months ended June 30, 2014, as compared to $8.0 million for the three months ended June 30, 2013, due to the suspension of our injectable production lines this year.

Our cost of revenue was $3.7 million, or 61% of total revenue in the second quarter of 2014, which represented a decrease of $2.1 million from $5.8 million, or 73% of total revenue, in the second quarter of 2013. The decrease in cost of revenue was mainly due to a decrease in purchasing prices of certain raw materials result from market fluctuation.

Gross profit was $2.4 million in the second quarter of 2014, an increase of $0.3 million, from $2.2 million in the same period of 2013. Our gross profit margin in the second quarter of 2014 was 39% compared to 27% in the same period 2013. The increase in gross profit margin was mainly due to the decrease in purchasing prices of certain raw materials and the increase in selling prices of certain products result from market fluctuation.

Selling, general and administrative expenses were $1.0 million, or 16% of sales in the second quarter of 2014, compared to $1.3 million, or 16% of sales, in the same period in 2013. The Company’s research and development expense was $1.9 million in the second quarter of 2014, compared to $0.9 million in the same period last year. The increase in R&D expense was mainly due to the costs related to testing of the new production lines and the payment schedule per milestone stated in the contracts.

Our bad debt expenses were $8.0 million in the second quarter of 2014, compared to $4.8 million in the same period in 2013. The increase in bad debt expenses was mainly due to the increase in the aged accounts receivable.

Our operating loss was $8.5 million in the second quarter of 2014, compared to $4.8 million in the same period in 2013. The increase in operating loss was primarily due to the decrease in sales, the increase in bad debt expense and R&D expense recognized during the three months ended June 30, 2014.

For the three months ended June 30, 2014 and 2013, our income tax rate was 15%. Income tax expense was $0.02 million for the three months ended June 30, 2014, and income tax benefit was $0.4 million for the three months ended June 30, 2013. The income taxes recognized for the three months ended June 30, 2014 and 2013 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 was $8.6 million or $0.20 per basic and diluted share in the second quarter of 2014, compared to $4.5 million, or $0.10 per basic and diluted share in the same period in 2013. The increase in net loss was primarily due to the decrease in sales, the increase in bad debt expense and R&D expense recognized for the three months ended June 30, 2014.

Six Months Results

Revenue for the six months ended June 30, 2014 was $13.2 million, down 19% from revenue of $16.3 million for the six months ended June 30, 2013.

Gross profit for the six months ended June 30, 2014 was $5.1 million for the six months ended June 30, 2014, compared to $0.6 million for the corresponding period of 2013. Gross profit for the six months ended June 30, 2013 was impacted by an inventory obsolescence amount of $3.7 million during that period.

Operating loss was $10.9 million for the six months ended June 30, 2014, decreased by $3.1 million from $7.8 million for the same period of 2013.

Net loss was $11.0 million, or $0.25 per basic and diluted share for the six months ended June 30, 2014, compared to $4.2 million, or $0.17 per basic and diluted share, for the same period a year ago.

Financial Condition

As of June 30, 2014, the Company had cash and cash equivalents of $4.4 million compared to $6.0 million as of December 31, 2013. Working capital decreased to $57.1 million as of June 30, 2014 from $72.0 million as of December 31, 2013 and the current ratio was 5.8 times as of June 30, 2014 compared to 7.0 times as of December 31, 2013.

Our accounts receivable balance decreased to $35.9 million at June 30, 2014 from $45.1 million at December 31, 2013. The decrease was due to our enhanced collection efforts as well as the increased allowance for doubtful accounts at June 30, 2014 compared to December 31, 2013.

For the three months ended June 30, 2014, cash flow from operating activities was $2.4 million, as compared to $3.1 million in the same period in 2013.

Conference Call

The Company will hold a conference call at 8:30 am ET on August 15, 2014 to discuss its second quarter 2014 results. Listeners may access the call by dialing 1-866-519-4004 or 65-672-393-81 for international callers, Conference ID # 81036556. A webcast will also be available through CPHI’s website at http://www.chinapharmaholdings.com. A replay of the call will be accessible until August 23, 2014 by dialing 1-855-452-5696 or 61-281-990-299 for international callers, Conference ID # 81036556.

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 eight scalable 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: hps@chinapharmaholdings.com

– FINANCIAL TABLES FOLLOW –

CHINA PHARMA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2014

2013

ASSETS

Current Assets:

Cash and cash equivalents

$ 4,425,744

$ 5,993,139

Banker’s acceptances

92,832

336,003

Trade accounts receivable, less allowance for doubtful

accounts of $24,499,361 and $13,301,622, respectively

35,904,934

45,147,602

Other receivables, less allowance for doubtful

accounts of $60,083 and $43,064, respectively

482,862

175,739

Advances to suppliers

7,142,290

7,626,716

Inventory, less allowance for obsolescence

of $7,968,701 and $8,027,126, respectively

20,960,894

24,677,120

Total Current Assets

69,009,556

83,956,319

Advances for purchases of intangible assets

41,397,984

41,701,505

Property and equipment, net of accumulated depreciation of

$5,628,507 and $5,264,350, respectively

34,115,618

30,241,337

Intangible assets, net of accumulated amortization of

$3,978,083 and $3,812,992, respectively

1,506,490

1,711,793

TOTAL ASSETS

$ 146,029,648

$ 157,610,954

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Trade accounts payable

$ 2,541,166

$ 1,877,437

Accrued expenses

293,539

323,651

Other payables

1,179,720

1,312,361

Advances from customers

1,626,334

2,228,238

Other payables – related parties

1,354,567

1,354,567

Short-term notes payable

4,873,928

4,909,662

Total Current Liabilities

11,869,254

12,005,916

Non-current Liabilities:

Construction loan facility

12,997,141

12,484,183

Long-term deferred tax liability

213,575

176,414

Total Liabilities

25,079,970

24,666,513

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

77,862,833

88,896,276

Accumulated other comprehensive income

19,453,061

20,414,381

Total Stockholders’ Equity

120,949,678

132,944,441

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 146,029,648

$ 157,610,954

CHINA PHARMA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

For the Three Months

For the Six Months

Ended June 30,

Ended June 30,

2014

2013

2014

2013

Revenue

$ 6,130,544

$ 8,026,325

$ 13,236,059

$ 16,275,712

Cost of revenue

3,713,147

5,849,002

8,158,276

11,974,402

Inventory obsolescence

27,178

3,720,073

Gross profit

2,417,397

2,150,145

5,077,783

581,237

Operating expenses:

Selling expenses

627,442

701,687

1,447,847

1,513,741

General and administrative expenses

382,832

591,251

806,759

1,164,263

Research and development expenses

1,902,027

865,249

2,346,434

1,031,664

Bad debt expense

8,032,315

4,752,733

11,340,444

4,632,803

Total operating expenses

10,944,616

6,910,920

15,941,484

8,342,471

(Loss) income from operations

(8,527,219)

(4,760,775)

(10,863,701)

(7,761,234)

Other income (expense):

Interest income

16,828

1,016

38,611

2,602

Interest expense

(113,363)

(92,049)

(169,810)

(174,494)

Net other income (expense)

(96,535)

(91,033)

(131,199)

(171,892)

(Loss) income before income taxes

(8,623,754)

(4,851,808)

(10,994,900)

(7,933,126)

Income tax benefit (expense)

(19,196)

387,983

(38,543)

656,994

Net (loss) income

(8,642,950)

(4,463,825)

(11,033,443)

(7,276,132)

Other comprehensive income – foreign currency

translation adjustment

153,664

2,218,896

(961,320)

3,038,663

Comprehensive (loss) income

$ (8,489,286)

$ (2,244,929)

$ (11,994,763)

$ (4,237,469)

(Loss) earnings per share:

Basic

$ (0.20)

$ (0.10)

$ (0.25)

$ (0.17)

Diluted

$ (0.20)

$ (0.10)

$ (0.25)

$ (0.17)

CHINA PHARMA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months

Ended June 30,

2014

2013

Cash Flows from Operating Activities:

Net loss

$ (11,033,443)

$ (7,276,132)

Depreciation and amortization

596,819

697,549

Bad debt expense

11,340,444

4,632,803

Deferred income taxes

38,543

(656,994)

Inventory obsolescence reserve

3,720,073

Changes in assets and liabilities:

Trade accounts receivable

(3,398,497)

1,672,236

Other receivables

(309,181)

(468,509)

Advances to suppliers

429,998

(648,436)

Inventory

4,781,501

1,745,256

Trade accounts payable

714,380

1,403,638

Accrued taxes payable

(35,513)

(1,767,344)

Other payables and accrued expenses

(124,072)

(15,103)

Advances from customers

(587,165)

19,003

Net Cash Provided by Operating Activities

2,413,814

3,058,040

Cash Flows from Investing Activities:

Advances for purchases of intangible assets

(4,572,982)

Purchases of property and equipment and

construction in process

(4,543,490)

(49,030)

Net Cash Used in Investing Activities

(4,543,490)

(4,622,012)

Cash Flows from Financing Activities:

Proceeds from construction term loan

605,347

Net Cash Provided by Financing Activity

605,347

Effect of Exchange Rate Changes on Cash

(43,066)

58,787

Net (Decrease) Increase in Cash and Cash Equivalents

(1,567,395)

(1,505,185)

Cash and Cash Equivalents at Beginning of Period

5,993,139

4,029,708

Cash and Cash Equivalents at End of Period

$ 4,425,744

$ 2,524,523

Supplemental Cash Flow Information:

Cash paid for interest

$ 621,841

$ 167,819

Cash paid for income taxes

1,716,064

Supplemental Noncash Investing and Financing Activities:

Accounts payable for purchases of property and equipment

$ 35,275

$ 153,621

Accounts receivable collected with banker’s acceptances

994,624

5,756,309

Inventory purchased with banker’s acceptances

1,235,956

2,099,243

Advances for purchases of equipment paid with banker’s acceptances

2,063,840