Biostar third quarter net income increases 9.8% to $3.4 million

Biostar Pharmaceuticals, Inc. (Nasdaq: BSPM) ("Biostar" or "the Company"), Xianyang-based manufacturer of a leading over-the-counter Hepatitis B medicine, Xin Aoxing Oleanolic Acid Capsules ("Xin Aoxing Capsules"), and a variety of pharmaceutical products, today announced financial results for the third quarter ended September 30, 2010.

• Q3 2010 revenue increased 29.7% to $20.2 million
• Q3 2010 Non-GAAP adjusted net income increased 11.9% to $3.5 million with Non-GAAP adjusted EPS of $0.13
• Cash and cash equivalents totaled $16.6 million at September 30
• $8.7 million cash flows from operations year-to-date
• Company's rural distribution network surpasses 8,500 locations; on track to reach 10,000 by December 31, 2010

SUMMARY FINANCIALS

Third Quarter 2010 Financial Results

Revenue for the third quarter of 2010 increased 29.7% to approximately $20.2 million compared to $15.6 million for the third quarter of 2009.  Sales of Xin Aoxing Capsules, Biostar's flagship product, increased by 7.9% to $12.9 million with a gross margin of 84.3%, compared to the third quarter of 2009. Sales of Xin Aoxing slowed during the third quarter due to the policy of strict cash collection. The order rate for Xin Aoxing started to rebound at the end of the third quarter and continued to accelerate through October. Xin Aoxing represented 64.0% of total third quarter 2010 revenues. Sales of Gan Wang Compound Paracetamol Capsules ("Gan Wang"), used to fight colds, were strong for a second consecutive quarter, growing by 53.4% to $1.5 million. Yizi Capsule, a health supplement for infertility launched during the second quarter, generated $1.3 million of sales, representing approximately 6.4% of total sales for the third quarter. Sales of other products launched during the second quarter of 2010, including Tangning Capsule, Shengjing Capsule and Aoxing ointment, totaled $0.7 million in the third quarter.  The Company continued its expansion into rural communities in China with products now being sold over 8,500 locations. $4.2 million in revenues were generated through this sales channel during the third quarter, up 313% from the year ago period.

"We were pleased with the balanced growth across several products in our portfolio which resulted in a near 30 percent revenue growth and strong cash flow," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "The third quarter results are a testament to increased customer acceptance of many of our new products, our growing brand recognition and our ability to leverage the proper distribution channels. As we strive to optimize our sales and marketing strategies and enter additional rural markets, we anticipate further growth for our products."

Cost of goods sold for the three months ended September 30, 2010 was approximately $5.5 million or 27.1% of revenue, as compared to $3.6 million or 23% of revenue for the three months ended September 30, 2009. Gross profit for the third quarter of 2010 increased 22.9% to $14.7 million from $12.0 million in the year ago period. Gross margin declined approximately 4% due to significantly faster growth from new products, which carry lower gross margins compared to our flagship product, Xin Aoxing Capsules.  

Operating expenses for the three months ended September 30, 2010 were approximately $9.9 million, an increase of 26.9% compared to the same period in 2009. Selling and distribution cost increased 28.0% to $8.7 million in the third quarter of 2010, which was primarily due to $4 million in incremental advertising efforts to promote brand awareness and drive sales.

Operating income for the third quarter of 2010 totaled approximately $4.8 million, a 17.1% increase from $4.1 million reported for the third quarter of 2009. Operating margins were 23.9% and 26.4% for the third quarter of 2010 and 2009, respectively. Excluding non-cash equity compensation charge of $0.1 million, adjusted operating income for the third quarter of 2010 was $4.9 million with operation margins of 24.5%.

Net income was approximately $3.4 million for the third quarter of 2010, a 9.8% increase from the third quarter of 2009. Diluted earnings per share were $0.13 for the third quarter of 2010 and 2009, based upon 27.4 million and 23.7 million diluted common stocks outstanding, respectively. Adjusted Non-GAAP net income for the third quarter was $3.5 million, or $0.13 per diluted common share.

For the nine months ended September 30, 2010, revenue increased approximately 43.3% to $51.9 million compared to the same period in 2009. Gross profit was approximately $38.6 million for the first nine months of 2010, representing an increase of 45.8% from the first nine months of 2009. Gross margins improved 2.6% over the same period last year to 75.7%.

Income from operations was $15.5 million for the first nine months of 2010, representing an increase of 30.3% over the first nine months of 2009. Operating margins were 29.8% for the first nine months of 2010 while adjusted operating income, excluding non-cash stock compensation expense, was $16.0 million.

Net income was $11.3 million for the nine months ended September 30, 2010, an increase of approximately 31.4% from the same period in 2009. Fully diluted earnings per share were $0.41 and $0.37 for the first nine months of 2010 and 2009 based up on 27.4 million and 23.7 million shares, respectively. Adjusted Non-GAAP net income for the first nine months of 2010 was $11.8 million, or $0.43 per diluted common share.

Balance Sheet and Cash Flow

Cash and cash equivalents totaled $16.6 million on September 30, 2010, compared to $8.6 million on December 31, 2009. Accounts receivable balance was approximately $22.0 million on September 30, 2010, versus approximately $19.8 million on December 31, 2009. Days sales outstanding (DSO) for the first nine months of 2010 were at 116 days, compared to 134 days for the same period in 2009 due to the strict collection policy implemented recently. The Company had a current ratio of 7.6 to 1 and stockholders' equity of $53.7 million, with total assets of $59.2 million versus total liabilities of $5.5 million on September 30, 2010.

For the first nine months of 2010, the Company generated $8.7 million in cash from operations and spent $0.6 million on capital expenditures.

Business Developments

As of September 30, 2010, Biostar has expanded its rural supply network to approximately 8,500 sales outlets, 21.4% higher than the 7,000 locations at the end of the second quarter of 2010. This sales channel has contributed $9.2 million in revenues for the first nine months of 2010, a 45% increase from the same year ago period.

The Company is expecting to receive final SFDA approval to produce Zushima Analgesic spray, a pain reliever product intended for use by military personnel. Management believes the product can generate $3 million in revenue in 2011 and continue to grow over the next few years.

Financial Guidance

The Company is reiterating its 2010 sales and net income guidance of $80 million and $18 million, respectively.