updated 5/16/2011 7:45:53 AM ET 2011-05-16T11:45:53

NEW YORK and YANTAI, China, May 16, 2011 (GLOBE NEWSWIRE) -- Bohai Pharmaceuticals Group, Inc. (OTCBB:BOPH) (OTCQB:BOPH), a China-based pharmaceutical company engaged in the production, manufacturing and distribution of modernized traditional Chinese medicine (TCM) in China, today reported financial results for its fiscal third quarter and nine months ended March 31, 2011.

Third Quarter Fiscal 2011 Financial Highlights:

  • Revenue increased 44.6% to $22.2 million from $15.3 million for the third quarter of fiscal 2010
  • Gross profit increased 35.7% to $16.9 million versus $12.5 million for the third quarter of fiscal 2010
  • Income from operations increased 24.8% to $4.1 million compared to $3.3 million for the third quarter of fiscal 2010
  • Net income was $2.7 million, or $0.14 per diluted share, versus $3.1 million, or $0.16 per diluted share for the third quarter of fiscal 2010
  • Non-GAAP net income increased 26.2% to $2.6 million, or $0.14 per diluted share, versus $2.1 million, or $0.11 per diluted share, in the fiscal third quarter of 2010, excluding $997,626 of net gains for non-cash related activities

Mr. Hongwei Qu, Chairman, President and CEO of Bohai Pharmaceuticals, stated, "The continued growth and acceptance of our traditional Chinese medicines in China is very gratifying and we are pleased to report another quarter of strong revenue growth. We continued the execution of our operational plan by investing heavily in sales and marketing this quarter, and we believe our 44.6% increase in revenue demonstrates that this effort is paying off. In addition, we added 200 level 2 hospitals and 10 new drug store chains to our national network of retail locations selling our lead product--Lung Nourishing Syrup. We now sell this product in approximately 1,600 level 2 hospitals and 36 drug store chains in China. We believe that our strong distribution network, combined with an internal sales force of more 300 direct sales representatives, provides an important competitive advantage and bodes extremely well for the future. Moreover, we have significant capacity within our existing manufacturing facilities, which should enable us to gain significant operating leverage as we continue to grow."

"The main contributors to our growth this quarter were our three key products, Lung Nourishing Syrup, Tongbi Capsules and Tongbi Tablets whose combined revenue grew 37.6% over the third quarter of 2010," continued Mr. Qu.  "These products represented 68% of our revenue in the third quarter. Lung Nourishing Syrup is taken to relieve coughs, shortness of breath and bronchitis. Tongbi Capsules and Tongbi Tablets are prescription drugs that promote blood circulation and relieve swelling, including alleviating the symptoms of rheumatoid arthritis.  Beyond our leading products, in April of 2010 we introduced five new products whose sales have ramped up considerably from $720,000 in the first quarter of fiscal 2011 to $1.4 million by the end of our fiscal third quarter, an increase of 94.4%. Our gross margins declined slightly as we introduced these new products and invested in sales and marketing efforts; however, we expect these new products will rapidly gain market share and become meaningful contributors to our overall profitability." 

Mr. Qu continued, "In addition to new product introductions, our growth strategy includes targeted and strategic acquisitions in the highly fragmented TCM market in China. There are effective traditional Chinese medicines in existence that remain in obscurity due to lack of funding and distribution capabilities. One of our goals will be to seek acquisitions that will allow us access and bring these products to the Chinese people to improve their quality of life."

In concluding, Mr. Qu stated, "With the Chinese government's plan to provide 90% of China's population with health coverage by the end of 2011, including an expansion of traditional Chinese medicines that are eligible for reimbursement, we believe we are in an ideal position to benefit from market conditions for our industry in China. Currently, eight of our TCM products are reimbursable under the government's plan and we have patented or "protected" status on our three lead products. By building a bridge between ancient formulations and modern methodologies for production and distribution, we will continue to seek the creation of value for our shareholders and good health for the people of China."

Summary Financial Results

Revenue for the three months ended March 31, 2011 increased 44.6% to $22,153,412 as compared to $15,323,878 for the three months ended March 31, 2010. This increase was primarily due to a 37.6% increase in the Company's three lead products (Lung Nourishing Syrup, Tongbi Capsules and Tongbi Tablets), which accounted for over 68% of total revenues. 

Gross profit for the three months ended March 31, 2011 was $16,939,864, compared to $12,482,493 for the same period last year. Gross profit margin as a percentage of revenue declined to 76.5% from 81.5% for the same period last year. The decrease in gross profit margin was principally due to lower gross profit margins from five newly introduced products due to higher manufacturing costs and lower unit sales prices. Excluding gross profit from the five new products, total gross profit margin would have been 81.2%, in line with the three months ended March 31, 2010.

Operating income for the three months ended March 31, 2011 increased 24.8% to $4,093,901 compared to $3,279,620 for the three months ended March 31, 2010. Selling, general and administrative expenses increased 39.6% due to increased marketing and promotion expenses related to the company's lead products.

Net income for the three months ended March 31, 2011 was $2,685,346, or $0.14 per diluted share, compared to $3,142,558, or $0.16 per diluted share, for the three months ended March 31, 2010. The decrease in net income for the three months ended March 31, 2011 over the same period last year was principally due to a $997,626 decrease in net gains for non-cash related activities including: a gain from a change in the fair value of warrants of $263,118 in the fiscal third quarter of 2011, versus a gain of $1,083,351 for the same period last year; an expense from accretion of beneficial conversion features on convertible notes converted of $96,393 in the fiscal third quarter of 2011; and an expense from option and stock-based compensation of $81,000 in the fiscal third quarter of 2011. Non-GAAP net income excluding the aforementioned non-cash gains for the three months ended March 31, 2011 increased 26.2% to $2,599,621, or $0.14 per diluted share, compared to non-GAAP net income of $2,059,207, or $0.11 per diluted share, for the three months ended March 31, 2010. 

About Bohai Pharmaceuticals Group

Bohai Pharmaceuticals Group, Inc. (OTCBB:BOPH) (OTCQB:BOPH) is engaged in the production, manufacturing and distribution of modernized herbal pharmaceuticals based on Traditional Chinese Medicine in China.  Bohai's medicines address common health problems such as rheumatoid arthritis, viral infections, gynecological diseases, cardio vascular issues and respiratory diseases.  Bohai's products are sold either by prescription through hospitals or over-the-counter through local pharmacies and retail drug store chains. Bohai has approximately 600 employees, including approximately 300 sales representatives, operating from 20 offices throughout China.  Bohai's three lead products, Tongbi Capsules, Tongbi Tablets and Lung Nourishing Cream, are eligible for reimbursement under China's National Medical Insurance Program.

For more information, please visit the Company's website at  www.bohaipharmaceutical.com .

Earnings Conference Call Details

Bohai will host a conference call today at 11 a.m. Eastern Time to discuss its financial results for the third quarter of fiscal 2011 ended March 31, 2011. The teleconference can be accessed by calling (877) 407-8031 for U.S. callers or (201) 689-8031 for international callers. A Webcast will also be archived on the Company's website for 90 days and a telephone replay of the call will be available approximately one hour following the call, through midnight Sunday, May 22, 2011, and can be accessed by calling: (877) 660-6853 (U.S. Callers) or (201) 678-7415 (international callers) and entering account # 286 and conference ID: 372713.

Additional Information Relating to Bohai's Trading Data

Due to certain recent disruptions in the marketplace relating to quotations on the OTC Bulletin Board operated by FINRA (OTCBB), incomplete trading data may exist for certain companies like Bohai. Real-time trading data for Bohai on the OTCQB market is available through the below link. Readers are advised that OTCQB market is operated by the owner of otcmarkets.com, and Bohai Pharmaceuticals Group, Inc. makes no representation or warranty regarding the OTCQB market.

For real-time trading data for Bohai on the OTCQB market, including Level 2 quotes, please visit: www.otcmarkets.com/stock/boph/quote .

Note on Non-GAAP Financial Measures

This press release contains references to "Non-GAAP" financial measures. A Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with U.S. generally accepted accounting principals (GAAP).  The Non-GAAP measures included in this release, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.  A reconciliation of non-GAAP to GAAP net income is set forth in the table below.

   Three Months Ended  Nine Months Ended 
   March 31,  March 31, 
     
  2011 2010 2011 2010
Net income available to common shareholders -GAAP  $2,685,346 $3,142,558 $12,238,716 $7,752,593
Add back (subtract):             
Change in fair value of warrants  (263,118)  (1,083,351) (3,181,603) (1,083,351)
Accretion of beneficial conversion features on convertible notes converted 96,393  --  1,029,487  -- 
Change in option and equity based compensation 81,000  --  184,344  -- 
Adjusted net income available to common shareholders -non-GAAP  $2,599,621 $2,059,207 $10,270,944 $6,669,242

Cautionary Note Regarding Forward-Looking Statements

This press release and the statements of representatives of our officers, directors, employees and representatives related thereto or in the conference call referred to herein contain or may contain forward-looking statements which are based upon the current beliefs and expectations of our management. Such statements contained in this release are based on management's exercise of business judgment as well as assumptions made by and information currently available to management. When used in this document, the words "guidance," "projects," "may," "could," "would," "should," "believes," "expects," "anticipates," "estimates," "intends," "plans," "ultimately" and words of similar import, are intended to identify any forward-looking statements. The information contained in the forward looking statements is inherently uncertain, and our actual results may differ materially due to a number of factors, many of which are beyond our ability to predict or control, including, among others: (i) changes in the level of consumer spending or preferences or demand for our products; (ii) pressures from competition; (iii) our ability to hire and retain key personnel and our relationship with our employees; (iv) the performance of our distributors and other key vendors; (v) effectively carrying out and managing our growth strategies; (vi) failure to maintain the value and image of our brand and protect our intellectual property rights; (vii) seasonality; (viii) costs of materials and labor; (ix) sales, manufacturing, supply or distribution difficulties or disruptions; (x) compliance with or changes in Chinese, U.S. or international laws and regulations; (xi) costs as a result of operating as a public company; (xii) material weaknesses in internal controls; (xiii) interest rate and foreign currency risks; (xiv) our ability to maintain our land use and drug manufacturing rights in China; (xv) general economic and industry conditions in China and internationally, and other risks as more fully detailed in our filings with the Securities and Exchange Commission ("SEC"). Our filings with the SEC are available at www.sec.gov. You are urged to consider these factors carefully in evaluating our forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements which are qualified in their entirety by this cautionary statement. The forward-looking statements speak only as of the date on which they are made, and the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances unless as required by applicable laws or regulations.

CONDENSED CONSOLIDATED BALANCE SHEETS
 
  As of   As of 
  March 31, June 30, 
  2011 2010
   (unaudited)   
ASSETS    
Current assets:    
Cash and cash equivalents $10,665,517 $17,149,082
Restricted cash 220,043 576,019
Accounts receivable 14,798,323 10,409,527
Other receivables and prepayments 2,006,268 1,449,590
Amount due from equity holder --  40,160
Inventories 1,997,545 748,422
     
Total current assets 29,687,697 30,372,801
     
Non-current assets    
Property, plant and equipment, net 7,925,075 7,895,042
Prepayment for land use right 14,839,957 7,343,654
Intangible assets 25,278,154 17,342,772
Deferred fees on convertible notes 719,819 1,562,617
     
Total non-current assets 48,763,005 34,144,085
     
TOTAL ASSETS $78,450,702 $64,516,886
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
     
Current liabilities:    
Accounts payable $1,466,525 $741,621
Other accrued liabilities 4,909,783 2,984,988
Amount due to equity holder 11,980 -- 
Income taxes payable 945,678 700,326
Short-term borrowings 905,618 4,398,849
     
Total current liabilities 8,239,584 8,825,784
     
Non-current liabilities    
Derivative liabilities - investor and agent warrants 2,300,325 5,481,928
Convertible notes, net of discount 438,743 124,820
     
Total non-current liabilities 2,739,068 5,606,748
     
TOTAL LIABILITIES 10,978,652 14,432,532
 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
 
  For The Three Months Ended For The Nine Months Ended
   March 31,   March 31, 
  2011 2010 2011 2010
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Net revenues $22,153,412 $15,323,878 $61,289,991 $46,072,455
         
Cost of revenues 5,213,548 2,841,385 13,341,860 8,205,715
         
Gross profit 16,939,864 12,482,493 47,948,132 37,866,740
         
Selling, general and administrative expenses 12,845,962 9,202,873 32,565,981 28,208,753
         
Income from operations 4,093,901 3,279,620 15,382,151 9,657,987
         
Other income (expenses)        
Other income 1,783 --  99,901 18,864
Interest income 11,176 --  40,673 -- 
Amortization of deferred financing fees -232,200 -253,577 -736,224 -253,577
Interest expenses -554,428 -381,700 -2,203,775 -538,008
Other expenses -546 --  -2,468 -22,092
Change in fair value of derivative liabilities 263,118 1,083,350 3,181,603 1,083,350
         
Total other income (expenses) -511,097 448,073 379,710 288,537
         
Income before provision for income taxes 3,582,804 3,727,693 15,761,860 9,946,524
         
Provision for income taxes -897,458 -585,135 -3,523,145 -2,193,931
         
Net income $2,685,346 $3,142,558 $12,238,716 $7,752,593
         
Comprehensive income:        
Net income 2,685,346 3,142,558 12,238,716 7,752,593
Other comprehensive income        
 Unrealized foreign currency translation gain  415,307 -157,384 2,144,849 -108,823
Comprehensive income $3,100,653 $2,985,174 $14,383,564 $7,643,770
         
Earnings per common share        
Basic $0.15 $0.2 $0.72 $0.48
Diluted $0.14 $0.16 $0.59 $0.37
         
Weighted average common shares outstanding        
Basic 17,544,163 16,078,472 16,988,489 16,193,659
Diluted 22,808,885 21,745,139 22,439,202 22,084,170
CONTACT: David Waldman, Klea Theoharis or Vivian Huo
         Crescendo Communications, LLC
         Boph@crescendo-ir.com
         Tel: (212) 671-1020

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