China Pediatric Pharmaceuticals third quarter net sales increase 72% to $7,182,906

Nov 29 2010

China Pediatric Pharmaceuticals, Inc. (OTC Bulletin Board: CPDU) ("China Pediatric Pharmaceuticals" or the "Company"), today announced its financial results for the third quarter ended September 30, 2010. The Company's quarterly report on Form 10-Q was filed with the U.S. Securities Exchange Commission on November 22, 2010.

"We are very pleased with our third quarter results. Our sales and profit increased significantly, and we expect to continue increasing sales by expanding our market reach and strengthening our brand recognition. Our product lines are becoming increasingly visible in pharmacies throughout many regions in China," stated Mr. Jun Xia, Chairman and Chief Executive Officer of China Pediatric Pharmaceuticals.

Third Quarter 2010 Highlights

Net sales increased by $3,002,538, or 72%, year-over-year, to $7,182,906. Within these, net sales from Cooer Series reached approximately $5.8 million.

Gross profit increased by $1,639,370, or 63%, year-over-year, to $4,229,885.

Net income increased by $109,553, or 11%, year-over-year, to $1,107,146.

Non-GAAP net income increased by $849,553 or a 85% year-over-year increase to $1,847,146 after adjusting for the non-cash share-based derivative expense of approximately $740,000.

Earnings per share in the 3 months ended September 30, 2010 decreased by $0.01, or 8% year-over-year, to $0.11.

Non-GAAP earnings per share increased by $0.06, or 5% year-over-year, to $0.18.

Financial Review for Third Quarter Ended September 30, 2010

During the three and nine months ended September 30, 2010, total net sales increased by approximately $3 million or 72% and $9.1 million or 80%, respectively, compared to the comparable periods in 2009.

A significant portion of the increase in sales is derived from an increase in sales for the "Cooer" Series by $2.6 million or 80% and $8.7 million or 104% in the three and nine months ended September 30, 2010, respectively. This was mainly due to the increase in sales volume as demand from customers increased as well as a result of the intensive promotion in 2010.

Gross profit increased about $1.6 million or 63% and $5 million or 72% in the three and nine months ended September 30, 2010, respectively, compared to the same periods of 2009. The increase in gross profit was due primarily to the increase in net sales of "Cooer" Series that was achieved through an expansion of the customer base, as mentioned above. The overall gross profit margin decreased 3%and 2% in the three and nine months ended September 30, 2010, respectively, compared to the comparable periods in 2009.

For the three months ended September 30, 2010, the slight decrease in overall gross profit margin was primarily due to the increase in cost of sales offset against a slight increase in the sales price of finished goods. Cost of sales increased mainly due to the increase in average unit cost of finished goods, as direct labor costs increased following the increase in statutory minimum wages in the PRC. The slight increase in sales prices of finished goods were due to inflation and increase in cost of sales.

As a result of GMP inspection, production was temporarily suspended in the first quarter of 2010 and as a result we experienced a surplus in raw materials on hand for production. To adjust for this, the Company sold all the surplus raw materials with carrying value amounting to US$645,682 (i.e. at cost US$1,136,898 net of impairment brought forward US$491,216) included in "Others" back to its suppliers at US$982,894 (i.e. at a discount around 86% of the original costs US$1,136,898). Consequently, the overall gross profit ratio slightly decreased for the first nine months of 2010 compared with the same period in 2009.

As a result of the above, in the three months ended September 30, 2010, net income in the three months ended September 30, 2010, increased by $109,553, or11%, year-over-year to $1,107,146, and earnings per share decreased by $0.01, or 8%, to $0.11, year-over-year.

Non-GAAP net income for the third quarter of FY2010 was $1,847,146, an approximately 85% increase from non-GAAP net income of $997,593 for the same quarter in FY2009. Non-GAAP net income for the third quarter of FY2010 was derived after adjusting for the aforementioned non-cash share-based Derivative expense of approximately $740,000, as a result of stock options granted to the shell shareholders together with the RTO. Non-GAAP earnings for the quarter ended September 30, 2010, were $0.18 per diluted share, compared to $0.12 per diluted share, for the quarter ended September 30, 2009. Please see the table below for a reconciliation of GAAP financial information to non-GAAP financial information.

In the nine months ended September 30, 2010, the net income increased by $1,210,899 or 47% to $3,794,291, year-over-year, and earnings per share increased by $0.09 or 29% to $0.40, year-over-year.

Non-GAAP net income for the nine months ended September 30, 2010, was $5,055,541, increased by $2,472,149 or an approximately 96% increase from non-GAAP net income of $2,583,392 for the same period in 2009. Non-GAAP net income for the third quarter of FY2010 was derived after adjusting for the aforementioned non-cash share-based derivative expense of $1,261,250, as a result of stock options granted to the shell shareholders together with the RTO. Non-GAAP earnings for the nine months ended September 30, 2010, were $0.54 per diluted share, compared to $0.31 per diluted share, for the quarter ended September 30, 2009. Please see the table below for a reconciliation of GAAP financial information to non-GAAP financial information.