China Pharma revenue decreases 20% to $5.7 million in Q1 2015

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.