China Pharma Holdings' revenue decreases 14% to $7.1 million in first quarter 2014

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 its financial results for the three months ended March 31, 2014.

Full Year Highlights

• Revenue was $7.1 million in the first quarter of 2014, which represented a decrease of 14% from $8.2 million in the first quarter of 2013. The rate of decrease in revenue in the first quarter of 2014 slowed compared to prior quarters.
• Loss from operations was $2.3 million in the first quarter of 2014 compared to $3.0 million in the first quarter of 2013.
• Net loss was $2.4 million in the first quarter of 2014 compared to $2.8 million in the first quarter of 2013.  Loss per common share was $0.05 per basic and diluted share in the first quarter of 2014 compared with $0.06 per basic and diluted share in the first quarter of 2013.
• Gross profit margin was 37% in first quarter of 2014, compared to gross loss margin of 19% in first quarter of 2013. The increase in gross margin was mainly due to the lack of inventory obsolescence in the first quarter 2014, as well as a decrease in purchasing prices of certain raw materials and an increase in selling prices of certain products due to market fluctuation.

"We have maintained a conservative stance in our general sales and credit policies in the first quarter 2014 in order to ensure the capital requirements for new GMP upgrading requirements, and to control and improve the condition of our accounts receivable," said Ms. Zhilin Li, China Pharma's Chairman and CEO.  Ms. Li continued, "Construction of the main building for our new GMP facility has been basically completed, and two new sterilization production lines have been installed, and are undergoing testing and commissioning. We intend to submit the application for a new GMP certificate in June 2014. We believe that the GMP upgrading will be successful and expect the new GMP certificate to be issued in approximately three to six months from our submission of the application. As of January 1, 2014, we suspended production on our two existing lines due to the failure to meet the GMP upgrading deadline. We intend to upgrade these lines after production commences on the lines in our new facility."

First Quarter 2014 Results

Revenue decreased by 14% to $7.1 million for the three months ended March 31, 2014, as compared to $8.2 million for the three months ended March 31, 2013. The decrease in revenue slowed down compared to the prior quarters.

Our cost of revenue was $4.4 million, or 63% of total revenue in the first quarter of 2014, which represented a decrease of $1.7 million from $6.1 million, or 74% of total revenue, in the first quarter of 2013.  The decrease in cost of revenue in the first quarter of 2014 was mainly due to a decrease in purchasing prices of certain raw materials due to market fluctuation.

Gross profit was $2.7 million in the first quarter of 2014, an increase of $4.2 million, from gross loss of $1.6 million in the same period of 2013. Our gross profit margin in the first quarter of 2014 was 37% compared to gross loss margin of 19% in the same period 2013. The increase in gross margin was mainly due to the lack of inventory obsolescence in the first quarter 2014, as well as decrease in purchasing prices of certain raw materials and increase in selling prices of certain products.

Selling, general and administrative expenses were $1.2 million, or 18% of sales in the first quarter of 2014, compared to $1.4 million, or 17% of sales, in the same period in 2013. The Company's research and development expense was $0.4 million, compared to $0.2 million in the same period last year. The increase in R&D expense was mainly due to the Company's continued efforts to take a dominant position in research activities relating to formulation screening, new technology exploration and technical criteria improvement since 2013. We expect this new model will improve our exploration channels for pipeline products.

Our bad debt expenses were $3.3 million in the first quarter in 2014, while our bad debt benefit was $0.1 million in the same period in 2013. The increase in bad debt expenses was mainly due to the increase in the accounts receivable with older age.

Our operating loss was $2.3 million in the first quarter of 2014, compared to an operating loss of $3.0 million in the same period in 2013. The decrease in operating loss was primarily due to the inventory obsolescence recognized for the three months ended March 31, 2013, and the bad debt expense recognized for the three months ended March 31, 2014. This was partially offset by increases in gross profit due to overall higher margins during the three months ended March 31, 2014.

For the three months ended March 31, 2014 and 2013, our income tax rate was 15%. Income tax benefit was $0.2 million for the three months ended March 31, 2014, and income tax expense was $0.3 million for the three months ended March 31, 2013. The income taxes recognized for the three months ended March 31, 2014 and 2013 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 was $2.4 million or $0.05 per basic and diluted share in the first quarter of 2014, compared to net loss of $2.8 million, or $0.06 per basic and diluted share in the same period in 2013. The decrease of the net loss was primarily due to the inventory obsolescence recognized in the first quarter of 2013, and the bad debt expense recognized  in the first quarter of 2014. This was partially offset by increases in gross profit due to overall higher margins during the first quarter of 2014.

Financial Condition

As of March 31, 2014, the Company had cash and cash equivalents of $5.3 million compared to $6.0 million as of December 31, 2013. Working capital decreased to $66.1 million as of March 31, 2014 from $72.0 million as of December 31, 2013 and the current ratio was 6.6 times as of March 31, 2014 compared to 7.0 times as of December 31, 2013.

Our accounts receivable balance decreased to $42.3 million at March 31, 2014 from $45.1 million at December 31, 2013. Our receivables decreased due to our enhanced collection efforts as well as the increased allowance for doubtful accounts at March 31, 2014 compared to December 31, 2013.

For the three months ended March 31, 2014, cash flow from operating activities was $2.5 million, as compared to $1.1 million in the same period in 2013.

Conference Call

The Company will hold a conference call at 8:30 am ET on May 15, 2014 to discuss first quarter 2014 results.