Earnings Transcript for CPHI - Q4 Fiscal Year 2019

Operator: Ladies and gentlemen, thank you for standing by and welcome to the China Pharma Holdings Incorporated FY 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded. I would now like to hand the conference over to first speaker today, Ms. Diana Huang. Thank you. Please go ahead.

Diana Huang: Thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you joining us from China. Welcome to China Pharma Holdings’ fiscal year 2019 earnings conference call. I am Diana Huang, the Company’s Investor Relations Manager. Speaking on the call today are, China Pharma’s President and CEO and Interim CFO, Ms. Zhilin Li; and Corporate Vice President, Mr. Sam Hsing. In addition, I will provide translation during the Q&A session of the call. The Company’s earnings press release issued earlier this morning is available on our website at www.chinapharmaholdings.com. I would like to remind all listeners that, on this call, management’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties. And management may make additional forward-looking statements in referring to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to such risks as

Zhilin Li: [Foreign Language]

Sam Hsing: Thank you, Diana, and good morning, everyone. I would like to thank each of you for joining us today and for your continued support of China Pharma. “In 2019, we were continuously influenced by the policies and the market environment of the pharmaceutical industry in China. In particular, the various cost control related policies in connection with the healthcare insurance, Group Purchasing Organization activities, consistency evaluation, and the control of the percentage of the drug expenditure among the total hospital expenditure. After evaluating the detailed rules of those major policies and considering the potential return of investments and our recent cash flow position, we have made the decision to impair all advances for our remaining four pipeline products in 2019. However, we may resume the development of those formulas in the future if sufficient funding and other favorable conditions arise. Nevertheless, we continue to explore in the field of comprehensive healthcare. Comprehensive healthcare focuses on people's daily life, aging and disease and pays attention to all kinds of risk factors and misunderstandings affecting health. We launched a wash‐free sanitizer in early 2020 to address the market needs caused by COVID‐19 in China. We aim to leverage our expertise in the PRC for the development, manufacture and the commercialization of the pharmaceutical and comprehensive healthcare products for the benefit of human health. I will read the rest of Ms. Li’s prepared remarks in English. Now I would like to review our fiscal year 2019 financial results and balance sheet information. Revenue decreased by 11.4% to $11 million for the year ended December 31, 2019, as compared to $12.3 million for the year ended December 31, 2018. This decrease in sales revenue was mainly due to the increased standards of the drug tender procurement of GPO drugs have to pass the consistency evaluation in order to participate in the GPO and the decreased drug ratio the ratio of the drug expenditure to patients’ total hospital expenditures from 60% to a few years ago to approximately 30% in 2019, which were promoted by the healthcare insurance cost control policies. Gross profit for the year ended December 31, 2019 was $1.5 million, compared to $2 million in 2018. Our gross profit margin in 2019 was 13.6%, compared to 16% in 2018. This decline in our gross profit margin was mainly due to the decrease in our sales, but our fixed costs remained the same. Our selling expenses for the year ended December 31, 2019 were $2.4 million, a decrease of $0.9 million, compared to $3.2 million for the year ended December 31, 2018. Selling expenses accounted for 21.5% of the total revenue in 2019, compared to 26.1% in 2018. Our general and administrative expenses for the year ended December 31, 2019 were $2.3 million, as compared to $1.9 million in 2018. General and administrative expenses accounted for 21% and 15.8% of our total revenues in 2019 and 2018, respectively. Our bad debt expenses for the year ended December 31, 2019 was $0.003 million, which represented a decrease of $0.601 million, compared to $0.604 million in 2018. The decrease in our bad debt expenses was mainly due to the company’s adjustment of its credit policies to customers and the request of the more advanced payment from customers prior to the shipping of the products for the year ended December 31, 2019, compared to December 31, 2018. We recognized $17.02 million impairment loss for the year ended December 31, 2019, compared to $6.48 million in 2018, among which, there was an impairment loss for the advances made to laboratories for the years ended December 31, 2019 and 2018 in the amount of $17,015,117 and $6,134,271, respectively. As a pharmaceutical company, we have been focusing on the development and the maintenance of our intangible assets, mainly in the form of medical formulas. The consistency evaluation is expected to have a significant impact on all generic products not only in our pipeline, but also throughout the existing Chinese markets. After evaluating the detailed rules under this policy and considering the return of the investments and our recent cash flow position, our management made certain assessments regarding the impairments of our intangible assets, and identified four and two formulas that were unlikely to generate positive cash flow in the foreseeable future and therefore recognized impairment loss on them accordingly as of December 31, 2019 and December 31, 2018, respectively. The management is determined to impair all advances at December 31, 2019, but may resume the development of these formulas in the future if sufficient funding and other favorable conditions arise. Net loss for year ended December 31, 2019 was $20.7 million or $0.48 each basic and diluted share, compared to net loss of $10.8 million or net loss of $0.25 each basic and diluted share for the year ended December 31, 2018. The increase in net loss was mainly a result of the decrease in impairment. Turning to the balance sheet, as of December 31, 2019 the company had cash and cash equivalents of $1.1 million, compared to $1.2 million as of December 31, 2018. Consider using the working capital deficit increased to $4.5 million as of December 31, 2019 from $1.3 million as of December 31, 2018. As of December 31, 2019, our net accounts receivable was $0.6 million, compared to $0.9 million as of December 31, 2018. For the year ended December 31, 2019, cash flow from operating activities was $0.6 million, as compared to $1.9 million in 2018. Overall, we will continue focusing on our business developments and promote our sales and believe that this will support the fair valuation of our shareholders' interest in the future. With that, we will now open the call up to questions. Operator?

Operator:

Sam Hsing: On behalf of the entire China Pharma team, we would like to thank you for your interest in the company and the participation on this call. For any of you traveling through China, we always welcome and encourage any visitors from our shareholders, potential investors, and analysts. This concludes China Pharma's fiscal year 2019 earnings call.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.