Biostar Pharmaceuticals reports financial results for the third quarter of 2009

Biostar Pharmaceuticals, Inc. (OTC Bulletin Board: BSPM) ("Biostar" or "the Company"), a Xianyang-based developer, manufacturer and supplier of pharmaceutical products and medical nutrients addressing a variety of diseases and conditions, today announced financial results the third quarter ended September 30, 2009.

SUMMARY FINANCIALS Third Quarter 2009 Results Q3 2009 Q3 2008 CHANGE Net Sales $15.6 million $7.5 million +106.3% Gross Profit $12.0 million $3.8 million +216.3% Net Income $3.1 million $0.6 million +459.2% EPS (Fully Diluted) $0.13 $0.02 +550.0% Nine Month 2009 Results First 9M 2009 First 9M 2008 CHANGE Net Sales $36.2 million $23.8 million +52.5% Gross Profit $26.5 million $13.3 million +98.5% Net Income $8.8 million $4.1 million +112.9% EPS (Fully Diluted) $0.37 $0.18 +105.6%

Third Quarter 2009 Financial Results

Revenue for the third quarter of 2009 increased 106.3% to approximately $15.6 million compared to $7.5 million for the third quarter of 2008. The increase in revenue was primarily due to Biostar's flagship product, Xin Aoxing Oleanolic Acid Capsule ("Xin Aoxing") which accounted for 76.9% of the Company's revenues during the quarter. For the third quarter of 2009, the sales of Xin Aoxing increased 200.6% to $12.0 million with a gross margin of 84.1%, compared to $4.0 million in the third quarter of 2008. The increase was driven by Xin Aoxing penetrating a new province through local wholesalers in the third quarter of 2009 in addition to initiating sales in two provinces in the second quarter of 2009. Biostar's focus on growing its rural distribution network also contributed to revenue growth in the third quarter. Up to September 2009, Biostar more than doubled its rural network retail locations to 3,500 outlets from 1,300 reported in the second quarter of 2009. Another Biostar's state approved drug, Tianqin Dysmenorrhea Capsule, contributed $1.1 million in revenue in the third quarter, an increase of 17.3% compared to $0.9 million in the third quarter of 2008.

Cost of goods sold for the three months ended September 30, 2009 was approximately $3.6 million or 23.0% of revenues as compared to $3.8 million or 49.8% of revenues for the three months ended September 30, 2008, Gross profits for the quarter were $12.0 million with gross margins of 77.0%, compared to $3.8 million in gross profit and gross margins of 50.2% during the third quarter of 2008. The decrease in cost of goods sold was a result of lower raw material prices from the Sichuan province as production fully resumed after the 2008 earthquake. Gross profits surged by 216.3% for the three months ended September 30, 2009.

Operating expenses for the three months ended September 30, 2009 were approximately $7.9 million, an increase of 151.3% compared to the same period in 2008. The increase was primarily due to increase in promotional and advertising expenditures of $2.4 million in support of the Biostar's product and brand awareness marketing strategy. Biostar also expensed $0.5 million on research and development in the quarter as part of new product development strategy.

Operating income for the third quarter of 2009 totaled approximately $4.1 million, a 524.9% increase from the $0.7 million reported for the third quarter of 2008. Operating margins were 26.4% and 8.7% for the third quarter of 2009 and 2008, respectively.

Net income was approximately $3.1 million in the third quarter of 2009, a 459.1% increase compared to $0.6 million for the third quarter of 2008. The company maintains an effective tax rate of 24.0% at September 30, 2009. Diluted earnings per share were $0.13 for the third quarter of 2009 compared to $0.02 for the third quarter of 2008, based upon 23.7 million and 23.2 million shares.

"We are very pleased to report another quarter of strong revenue growth and improved profitability. The success of our marketing strategy, strong sales of our Hepatitis B product, the Xin Aoxing Capsule, and expansion of rural supply network enabled us to achieve record breaking sales and earnings for the quarter," commented Ronghua Wang, Chairman and Chief Executive Officer of Biostar. "The Chinese government's stimulus plan includes $126 billion in health care reform and support of the New Rural Cooperative Medical System, which is providing the means to improve health care services for all Chinese citizens. This provides a solid foundation for sustained growth of the Chinese pharmaceutical industry and will benefit our company. We are confident that our strong product portfolio, proven sales team, experienced and committed management team will enable us to continue to execute our growth plan and capitalize on these long-term, secular growth opportunities."

Nine Month Results

For the nine months ended September 30, 2009, revenues increased approximately 52.5% to $36.2 million compared to $23.8 million in the same period of 2008. Gross profits were $26.5 million for the first nine months of 2009, representing an increase of 98.5% from the first nine months of 2008. Gross margins increased 30% to 73.1% for the first nine months of 2009 compared to 56.2% for the same period in 2008.

Income from operations increased 147.9% year over year to $11.9 million for the first nine months of 2009. Operating margins were 32.8% and 20.2% for the first nine month of 2009 and 2008, respectively.

Net income was $8.8 million for the nine months ended September 30, 2009, an increase of 112.9% from the same period in 2008. Diluted earnings per share were $0.37 for the first nine months of 2009 compared to $0.18 for the first nine months of 2008, based up on 23.7 million and 23.2 million shares respectively.

Balance Sheet and Cash Flow

Cash and cash equivalents totaled $2.4 million on September 30, 2009 compared to $0.8 million on December 31, 2008. Accounts receivable balance was approximately $17.9 million on September 30, 2009 versus approximately $11.7 million on December 31, 2008. Days sales outstanding (DSO) were at 104 days. The Company had a current ratio of 5.9 to 1 and stockholders' equity of $32.5 million, with total assets of $37.1 million versus total liabilities of $4.5 million on September 30, 2009.

For the first nine months of 2009, the Company generated $2.9 million in cash from operations versus reported $0.5 million used in operations for the same period in 2008.

Business Developments

On November 6, 2009, Biostar announced the closing of a private placement financing of approximately $3.6 million with certain accredited investors. The "Make Good" target associated with this financing is measured by income from operations of $15.9 million for 2009, and $21.1 million for 2010. The Company will use the net proceeds for the completion of the Company's new raw materials processing facility.

On November 3, the Company announced it has expanded its rural supply network to 3,512 sales outlets in rural areas of 6 provinces. The Company will continue working toward its goal of covering 5,000 sales outlets by the end of 2009 and 10,000 sales outlets by 2011. The Company expects the rural supply network to contribute more than $10.0 million in annual revenues in 2010 with average annual revenue generated from each sales outlet of $2,000.00.

On October 7, Biostar announced the Chinese Military Drug Administration granted clearance to begin clinical trials on Biostar's new drug, Zushima Analgesic Aerosol Spray. The Company anticipates formal product approval by the Chinese Military Drug Administration in the second quarter of 2010. The product is expected to contribute at least $2.0 million to revenues in 2010.

On October 2, 2009 Biostar Pharmaceuticals reported it received a patent from China's State Intellectual Property Bureau for its Aoxing Ganbao, which is a complementary medicine for its flagship Xin Aoxing Capsule in treating Hepatitis B. Aoxing Ganbao is a TCM product applied topically and effective to nourish the liver and reduce inflammation without side effects. The patent will prevent its competitors from producing similar products for 20 years.

"We are making progress on all aspects of our business including the rural supply network, raw material processing facility, and new products. We will continue to expand Xin Aoxing Capsule product's market and we expect further penetration of the new markets we just entered. We will remain focused on these initiatives which will contribute to our long-term growth profitability. We are committed to creating value for our shareholders and will continue to implement and execute a growth plan which will enable us to accomplish this goal," concluded Mr. Wang.