Updates - China Pharma Holdings, Inc. Reports Fiscal Year 2019 Financial Results

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Apr 14, 2020, 16:30 ET

HAIKOU CITY, China, April 14, 2020 /PRNewswire/ -- China Pharma Holdings, Inc. (NYSE American: CPHI) ("China Pharma," the "Company" or "We"), an NYSE American-listed corporation with a fully-integrated specialty pharmaceuticals subsidiary based in China, today announced that it is re-issuing its previous release that was made on March 31, 2020 to incorporate certain disclosures that are required under the NYSE American Company Guide Sections 401(h) and 610(b). Included below are these additional disclosures along with the previously disclosed financial results for the fiscal year ended December 31, 2019.

Full Year Highlights

Revenue decreased 11.4% to $11.0 million in fiscal year 2019 from $12.3 million in fiscal year 2018;
Gross margin was 13.6% in fiscal year 2019, compared to 16.0% in fiscal year 2018.
Impairment loss was $17.0 million in fiscal year 2019 compared to $6.5 million in fiscal year 2018, which represented an increase of $10.5 million;
Loss from operations was $20.4 million in fiscal year 2019 compared to $10.4 million in fiscal year 2018, which represented an increase of $10.0 million;
Net loss was $20.7 million in fiscal year 2019 compared to $10.8 million in fiscal year 2018. Loss per common share was $0.48 per basic and diluted share in fiscal year 2019 compared with $0.25 per basic and diluted share in fiscal year 2018.

Ms. Zhilin Li, China Pharma's Chairman and CEO, commented, "In 2019, we were continuously influenced by the policies and market environment of the pharmaceutical industry in China. In particular, the various cost control related policies in connection with the healthcare insurance, Group Purchasing Organization ("GPO", a new drug purchasing practice in which the anticipated purchase volume will be announced in the tender announcement, and the suppliers will need to consider their manufacturing capacity in addition to the price) activities, consistency evaluation, and control of the percentage of drug expenditure among the total hospital expenditure. After evaluating the detailed rules of those major policies and considering the potential return of investment and our recent cash flow position, we have made the decision to impair all advances for our remaining four pipeline products in 2019. However, we may resume the development of these formulas in the future if sufficient funding and other favorable conditions arise." Ms. Li continued, "Nevertheless, we continue to explore in the field of comprehensive healthcare. Comprehensive healthcare focuses on people's daily life, aging and disease and pays attention to all kinds of risk factors and misunderstandings affecting health. We launched a wash-free sanitizer in early 2020 to address the market needs caused by COVID-19 in China. We aim to leverage our expertise in the PRC for the development, manufacture and commercialization of pharmaceutical and comprehensive healthcare products for the benefit of human health."

Full Year Results

Revenue decreased by 11.4% to $11.0 million for the year ended December 31, 2019, as compared to $12.3 million for the year ended December 31, 2018. This decrease in sales revenue was mainly due to the increased standards of drug tender procurement of GPO (drugs have to pass the consistency evaluation in order to participate in the GPO), and the decreased "drug ratio"(the ratio of drug expenditure to patients' total hospital expenditure) from 60% a few years ago to approximately 30% in 2019, which were promoted by the healthcare insurance cost control policy.

Gross profit for the year ended December 31, 2019 was $1.5 million, compared to $2.0 million in 2018. Our gross profit margin in 2019 was 13.6% compared to 16.0% in 2018. This decline in our gross profit margin was mainly due to a decrease in our sales but our fixed costs remained the same.

Our selling expenses for the year ended December 31, 2019 were $2.4 million, a decrease of $0.9 million compared to $3.2 million for the year ended December 31, 2018. Selling expenses accounted for 21.5% of the total revenue in 2019 compared to 26.1% in 2018.

Our general and administrative expenses for the year ended December 31, 2019 were $2.3 million, as compared to $1.9 million in 2018. General and administrative expenses accounted for 21.0% and 15.8% of our total revenues in 2019 and 2018, respectively.

Our bad debt expenses for the year ended December 31, 2019 was $0.003 million, which represented a decrease of $0.601 million compared to $0.604 million in 2018. The decrease in our bad debt expenses was mainly due to the Company's adjustment of its credit policies to customers and the request of more advanced payment from customers prior to the shipping of products for the year ended December 31, 2019 compared to December 31, 2018.

We recognized $17.02 million impairment loss for the year ended December 31, 2019, compared to $6.48 million in 2018, among which, there was an impairment loss for the advances made to laboratories for the years ended December 31, 2019 and 2018 in the amount of $17,015,117 and $6,134,271, respectively. As a pharmaceutical company, we have been focusing on the development and maintenance of our intangible assets, mainly in the form of medical formulas. The consistency evaluation is expected to have a significant impact on all generic products not only in our pipeline, but also throughout the existing Chinese market. After evaluating the detailed rules under this policy and considering the return of investment and our recent cash flow position, our management made certain assessments regarding the impairment of our intangible assets, and identified four and two formulas that were unlikely to generate positive cash flow in the foreseeable future and therefore recognized impairment loss on them accordingly as of December 31, 2019 and December 31, 2018, respectively. The management determined to impair all advances at December 31, 2019, but may resume the development of these formulas in the future if sufficient funding and other favorable conditions arise.

Net loss for year ended December 31, 2019 was $20.7 million, or $0.48 each basic and diluted share, compared to net loss of $10.8 million, or net loss of $0.25 each basic and diluted share, for the year ended December 31, 2018. The increase in net loss was mainly a result of the decrease in impairment of long term assets.

Financial Condition

As of December 31, 2019 the Company had cash and cash equivalents of $1.1 million compared to $1.2 million as of December 31, 2018. Consider using "Working capital deficit increased to $4.5 million as of December 31, 2019 from $1.3 million as of December 31, 2018.

As of December 31, 2019, our net accounts receivable was $0.6 million, compared to $0.9 million as of December 31, 2018.

For the year ended December 31, 2019, cash flow from operating activities was $0.6 million, as compared to $1.9 million in 2018.

Receipt of Audit Opinion with Going Concern Explanatory Paragraph

The audit opinion provided by the Company's independent registered public accounting firm relating to the Company's audited consolidated financial statements (the "financial statements") for the year ended December 31, 2019 included a going concern explanatory paragraph. The financial statements were included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 30, 2020. The explanatory paragraph in the opinion of the Company's independent registered public accounting firm notes that as discussed in Note 1 to the financial statements, the Company incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 to the financial statements and the financial statements do not include any adjustments that might result from the outcome of this uncertainty.

About China Pharma Holdings, Inc.

China Pharma Holdings, Inc. is a specialty pharmaceutical company that develops, manufactures and markets a diversified portfolio of products, focusing on conditions with high incidence and high mortality rates in China, including cardiovascular, CNS, infectious, and digestive diseases. The Company's cost-effective 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.

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. Such risks and uncertainties may include, but are not limited to: 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.

- FINANCIAL TABLES FOLLOW –

CHINA PHARMA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS


	December 31,	December 31,
	2019	2018
ASSETS
Current Assets:
Cash and cash equivalents	$ 1,074,979	$ 1,186,587
Restricted cash	109,908	1,273,940
Banker's acceptances	45,756	20,579
Trade accounts receivable, less allowance for doubtful
accounts of $17,575,100 and $17,815,075, respectively	635,371	916,931
Other receivables, less allowance for doubtful
accounts of $22,729 and $34,884, respectively	46,643	170,098
Advances to suppliers	404	47
Inventory	3,588,824	5,054,975
Prepaid expenses	77,120	123,759
Total Current Assets	5,579,005	8,746,916

Advances for purchases of intangible assets	-	17,069,587
Property, plant and equipment, net	16,313,827	19,294,379
Operating lease right of use asset	136,779	-
Intangible assets, net	205,611	266,443
TOTAL ASSETS	$ 22,235,222	$ 45,377,325

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable	$ 1,366,330	$ 1,060,934
Accrued expenses	189,880	310,804
Other payables	3,560,332	3,065,508
Advances from customers	505,398	525,647
Other payables - related parties	2,071,986	1,633,263
Operating lease liability, current portion	91,306	-
Current portion of construction loan facility	2,150,168	2,181,360
Bankers' acceptance notes payable	109,908	1,273,940
Total Current Liabilities	10,045,308	10,051,456
Non-current Liabilities:
Construction loan facility	2,150,168	4,362,720
Operating lease liability, net of current portion	48,701	-
Deferred tax liability	753,444	764,374
Total Liabilities	12,997,621	15,178,550
Commitments and Contingencies (Note 9)
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 (deficit) earnings	(25,972,402)	(5,270,358)
Accumulated other comprehensive income	11,576,219	11,835,349
Total Stockholders' Equity	9,237,601	30,198,775
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 22,235,222	$ 45,377,325

	-	-

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


	For the Years
	Ended December 31,
	2019	2018
Revenue	$ 10,923,936	$ 12,330,687
Cost of revenue	9,441,752	10,355,839

Gross profit	1,482,184	1,974,848

Operating expenses:
Selling expenses	2,352,610	3,216,512
General and administrative expenses	2,289,520	1,949,921
Research and development expenses	229,637	172,384
Bad debt expense	3,153	604,388
Impairment loss	17,015,117	6,479,057
Total operating expenses	21,890,037	12,422,262

Loss from operations	(20,407,853)	(10,447,414)

Other income (expense):
Interest income	27,527	38,516
Interest expense	(321,718)	(451,258)
Net other expense	(294,191)	(412,742)

Loss before income taxes	(20,702,044)	(10,860,156)
Income tax benefit	-	109,989
Net loss	(20,702,044)	(10,750,167)
Other comprehensive income - foreign currency
translation adjustment	(259,130)	(2,122,360)
Comprehensive income (loss)	$ (20,961,174)	$ (12,872,527)
Loss per share:
Basic and diluted	$ (0.48)	$ (0.25)
Weighted average shares outstanding	43,579,557	43,579,557

CHINA PHARMA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years
	Ended December 31,
	2019	2018
Cash Flows from Operating Activities:
Net loss	$ (20,702,044)	$ (10,750,167)
Depreciation and amortization	2,928,799	3,258,739
Inventory write off	253,465	954,311
Bad debt expense	3,153	604,388
Deferred income taxes	-	68,419
Impairment loss	17,015,117	6,479,057
Changes in assets and liabilities:
Trade accounts and other receivables	(478,918)	99,400
Advances to suppliers	(361)	(449,101)
Inventory	1,999,978	688,852
Trade accounts payable	324,180	(16,441)
Accrued taxes payable	12,971	(147,099)
Other payables and accrued expenses	378,200	437,901
Change in bankers' acceptance notes payable	(1,158,728)	625,128
Advances from customers	(12,875)	(25,127)
Prepaid expenses	45,375	53,860
Net Cash Provided by Operating Activities	608,312	1,882,120

Cash Flows from Investing Activities:
Purchases of property and equipment	(136,003)	(51,145)
Net Cash Used in Investing Activities	(136,003)	(51,145)

Cash Flows from Financing Activities:
Payments of construction term loan	(2,174,399)	(2,263,877)
Advances from related party	691,459	287,423
Repayments to related party	(245,830)	-
Net Cash Used in Financing Activities	(1,728,770)	(1,976,454)

Effect of Exchange Rate Changes on Cash	(19,179)	(134,004)
Net Decrease in Cash, Cash Equivalents and Restricted Cash	(1,275,640)	(279,483)
Cash and Cash Equivalents at Beginning of Period	2,460,527	2,740,010
Cash, Cash Equivalents and Restricted Cash at End of Period	$ 1,184,887	$ 2,460,527

Cash and Cash Equivalents	1,074,979	1,186,587
Restricted cash	109,908	1,273,940
Cash, Cash Equivalents and Restricted Cash at End of Period	1,184,887	2,460,527

Supplemental Cash Flow Information:
Cash paid for income taxes	$ -	$ -
Cash paid for interest	$ 299,164	$ 588,191

Supplemental Noncash Investing and Financing Activities:
Accounts receivable collected with banker's acceptances	869,625	579,896
Inventory purchased with banker's acceptances	843,867	597,686
Right-of-use assets obtained in exchange for operating lease obligations	229,644	-
	-