Global Pharm Holdings Group Announces Fiscal Year 2010 Financial Results

Fiscal Year 2010 Highlights

• Revenues increased 61.7% year-over-year to $140.3 million
• Gross profit increased 64.5% year-over-year to $26.4 million with gross margin of 18.8%
• Operating income increased 12.3% year-over-year to $15.9 million
• Net income was $11.2 million, or $0.51 per diluted share, as compared to $10.9 million, or $0.57 per diluted share, in the same period last year
• Adjusted net income, which excluded non-cash expenses related to share-based compensation for employees and merger costs, was $17.9 million, or $0.82 per diluted share

"We are pleased to announce record financial results for 2010, which continues to validate our strategy of building a solid distribution capacity and growing to become a major rapid-growing and profitable pharmaceutical company," stated Mr. Yunlu Yin, Chief Executive Officer of Global Pharm.

Fiscal Year 2010 Results

Total Revenues for the twelve months ended December 31, 2010 increased by 61.7% to $140.3 million from $86.8 million in twelve months ended December 31, 2009.

The strong year-over-year revenue growth was mainly attributable to increased sales in the Company's pharmaceutical products distribution business segment, which grew 65.0% year-over-year, and the herbal cultivation and sales business segment, which grew 105.2% year-over year.

Below is a breakdown of sales per business segment for fiscal year 2010 and 2009:

The sales growth of pharmaceutical products distribution, generated by the Company's subsidiaries Yaoyuan, was mainly due to the Company securing exclusive distribution rights from two pharmaceutical manufactures in Shandong province in early 2010, which granted Global Pharm the rights to sell a total of over 680 kinds of products exclusively in Shandong province.

The growth of the Company's TCM processing and distribution business, generated by its subsidiary Xuelingxian, was primarily due to the expansion of the product portfolio and the price volatility of TCM products, as well as the increased demand from hospitals, pharmacy shops and neighborhood clinics.

The growth in the herbal cultivation and sales segment, generated by the Company's subsidiaries Xuelingxian, was primarily due to the additional land leased for plantation, the growth in sales of herbs harvested in 2010, as well as the increase in prices of certain herbs in 2010.

The year-over-year decrease in sales of flower tea bags for 2010 was mainly due to increased competition in the market.  

Gross Profit for the twelve months ended December 31, 2010 was $26.4 million, an increase of 64.5% from $16.1 million in the same period a year ago. Gross margin was 18.8% compared with 18.5% for the same period a year ago.

Operating expenses increased 88.7% to $1.5 million due to increased advertising and freight costs consistent with higher sale volume.

General and administrative expenses were $9.0 million for the twelve months ended December 31, 2010 compared with $1.1 million for the same period in 2009, which was primarily due to $6.0 million in non-cash expenses related to share-based compensation to Global Pharm's employees as well as merger costs of $0.8 million related to the Company's reverse takeover transaction in 2010. The employee-based stock expenses have been fully amortized in 2010 and will not affect Global Pharm's net income in the future. Excluding these non-cash expenses and taking into account the added expenses related to becoming a public company, which resulted in increased professional service fees, such as legal and accounting services, the increase in general and administrative expenses remains consistent with the increase in net revenue.

Operating income was $15.9 million compared with $14.2 million for the twelve months ended December 31, 2009.

Net income for the twelve months ended December 31, 2010 was $11.2 million, or $0.51 per diluted weighted average share, compared with net income of $10.9 million, or $0.57 per diluted share, for the same period a year ago. Excluding the impact of non-cash expenses related to share-based compensation for employees and the Company's reverse takeover, adjusted net income for the twelve months ended December 31, 2010 was $17.9 million, or $0.82 per weighted average diluted share.

Financial Condition

As of December 31, 2010, the Company had $4.3 million in cash and $19.8 million in accounts receivable compared with $7.5 million and $11.7 million as of December 31, 2009. The Company's inventories increased to $16.1 million as of December 31, 2010 from $9.4 million as of December 31, 2009, mainly due to large quantity of unfulfilled sales orders placed by customers before year end and anticipated orders at the next year beginning, which is in line with the increased scale of sales during the year. Working capital was $17.4 million, compared with $10.0 million at the end of 2009. As of December 31, 2010, the Company had $2.0 million in short-term debt. Stockholders' equity totaled $17.6 million as of December 31, 2010, compared with $10.3 million at the end of 2009. For the year ended December 31, 2010, Global Pharm generated $8.9 million cash from operating activities, as compared to $10.2 million for 2009. The Company used $12.1 million in cash for financing activities for the twelve months ended December 31, 2010 compared with $7.8 million for the twelve months ended December 31, 2009, mainly due to dividends paid to the former stockholders of the Company's operating subsidiaries. The diluted weighted average number of shares outstanding was 21.8 million as of December 31, 2010.

Business Outlook

Mr. Yin concluded, "We believe that the National Health Program will further drive the reform and consolidation of China's pharmaceutical industry in the next several years. This consolidation will bring historical opportunities for Global Pharm to acquire more distribution units to underline perspective sustainable growth. In 2011, we will focus on a series of acquisition of several targeting pioneer city-level distributors to build a solid comprehensive sale network in Shandong Province. We believe the formation of this broad local distribution network will smooth a pipeline between the pharmaceutical manufacturers and distributors, as well as to effectively alleviate incumbent multiple layers in the distribution channel and lower the price mark-up for pharmaceuticals. Moreover, the growing distribution channels will help us to create a significant competitive edge in the market by getting more preferential price and products from numerous prestigious domestic pharmaceutical manufacturers.

Beyond this, with the support of Bozhou Municipal Government, we will continue to commit to the investment in Chinese herbal plantation business, to a great extent, and to reduce negative impact from ongoing higher price inflation of Chinese Herbs and achieve a stable supply of quality TCM materials. Next, we'll directly offer those quality TCM materials to our own distribution business units for the further distribution. Through the integration of upstream and downstream operations and the establishment of a broader regional sales network, we expect to create a significant synergy, to empower Global Pharm to gain more market share and to enhance the overall profitability of our business. We look forward to continuously strengthen our market leadership position in 2011 and beyond."

Use of Adjusted Financial Measures

GAAP results for the twelve months ended December 31, 2010 include non-cash items related to management share-based compensation expenses and expenses related to the reverse takeover in 2010.  To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. It is a departure of U.S. GAAP; however, the Company's management believes that these adjusted measures provide investors with a better understanding of how the results of the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials.

About Global Pharm Holdings

Global Pharm Holdings Group, Inc. operates as a pharmaceutical distribution business in the People's Republic of China. Through its three subsidiaries, Shandong Global Pharm Co., Ltd., Tonghua Tongdetang Pharmaceutical & Medicinal Material Co., Ltd., and Anhui Xuelingxian Pharmaceutical Co., Ltd., the Group focuses on pharmaceutical related products distribution. In order to alleviate the impact on price inflation and maintain the supply stability of Traditional Chinese Medicine (TCM) raw materials, the Group also engages in the cultivation and processing of TCM herbs. Currently, Global Pharm owns GSP-certified, modern logistics distribution centers totally occupying 237,600 square feet and manages over 13,000 inventory products; and its sales network covers Shandong, Jilin, and Liaoning provinces, as well as other developed provinces in China. The Group intends to establish an integrated value chain in the pharmaceutical industry through strategic acquisitions within pharmaceutical production, distribution, and retail sectors. Global Pharm will achieve a solid distribution capacity and grow to be a major rapid-growing and profitable pharmaceutical company. For further information, please visit the Company's corporate website at http://www.globalpharmholdings.com.

Forward-looking Statements

Certain statements set forth in this press release contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, our management as well as estimates and assumptions made by our management. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors as they relate to our industry, our operations and results of operations, plans for future facilities, capital-expenditure plans, and any businesses that we may acquire. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the U.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results.

-FINANCIAL TABLES FOLLOW-