WEB NEWS Comments & Business Outlook
CHINA PEDIATRIC PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED)
Three months ended March 31,
2014
2013
Sales
$
1,790,681
$
1,003,714
Sales rebates
(209,510
)
(121,231
)
Sales, net of rebates
1,581,171
882,483
Cost of sales
980,506
503,446
Gross profit
600,665
379,037
Advertising expense
183,893
796,001
Selling, general and administrative expense
386,823
481,999
Provision for doubtful accounts
1,259,178
3,240,731
(Recovery of) Impairment loss on prepaid expenses
(66,746
)
604,272
Impairment of intangible assets
482,207
—
(Loss) from operations
(1,644,690
)
(4,743,966
)
Interest income
117,691
—
Total Other Income
117,691
—
Net (Loss)
(1,526,999
)
(4,743,966
)
Other Comprehensive (loss) income - Foreign currency translation adjustment
(81,625
)
58,373
Comprehensive (loss)
$
(1,608,624
)
$
(4,685,593
)
Net (loss) per common share
- basic and diluted
$
(0.03
)
$
(0.11
)
Weighted average common shares outstanding - basic and diluted
44,556,104
44,556,104
Management Discussion and Analysis
Net sales
During the three months ended March 31, 2014, our gross sales have increased by 78% to $1,790,681 from $1,003,714 for the three months ended March 31, 2013. The increase was due the implementation of a new sales model. For the three months ended March 31, 2014, sales rebate was $209,510 or 12% of gross sales, compared to $121,231 or 12% for the same periods in 2013. Our net sales for the three months ended March 31, 2014 and 2013 were $1,581,171 and $882,483.
As we make improvements to our sales model, our sales has improved during the three months ended March 31, 2014, despite the previous disappointing result since we began implementing a new sales model in the 4th quarter of 2011. Management is optimistic that our sales will continue to improve.
Comments & Business Outlook
CHINA PEDIATRIC PHARMACEUTICALS, INC.
Consolidated Statements of Operations and Comprehensive (Loss) Income
Year ended December 31,
2013
2012
Sales
$
4,224,407
$
16,391,702
Sales rebates
(498,106)
(2,223,441)
Sales, net of rebates
3,726,301
14,168,261
Cost of sales
2,434,935
8,895,024
Gross profit
1,291,366
5,273,237
Advertising expense
1,927,175
4,935,357
Selling, general and administrative expense
1,492,249
3,730,024
(Recover of) Provision for doubtful accounts
(1,532,627)
5,760,014
Impairment loss on prepaid expenses
240,410
-
(Loss) from operations
(835,841)
(9,152,158)
Interest income (expense)
21,905
(160)
Other income (expense)
57,807
-
Total Other Income (Expense)
79,712
(160)
Net (Loss)
(756,129)
(9,152,318)
Other Comprehensive income - Foreign currency translation adjustment
363,205
158,507
Comprehensive (loss)
$
(392,924)
$
(8,993,811)
Net (loss) per common share
- basic and diluted
$
(0.01)
$
(0.21)
Weighted average common shares outstanding - basic and diluted
44,556,104
44,556,104
Management Discussion and Analysis
Results of Operations for the Years Ended December 31, 2013 and 2012
During the year ended December 31, 2013, our gross sales have decreased by 74% to $4,224,407 from $16,391,702 for the year ended December 31, 2012. The decrease was in parts due to increased competition and our failure to implement a new sales model adopted in the 4th quarter of 2011. In addition, in order to have a better control over credit period allowed to customers, in the year 2013 we ceased trading with the customers with long outstanding debts or non-repayment history. For the year ended December 31, 2013, sales rebate was $498,106 or 12% of gross sales, compared to $2,223,441 or 14% for the same periods in 2012. Our net sales for the year ended December 31, 2013 and 2012 were $3,726,301 and $14,168,261.
It is now apparent that our planned sales model adopted in the 4th quarter of 2011has not been successful because of our lack of expertise in certain areas of sales and marketing management. As a result, our products have lost substantially all its market share. Our restructuring of sales team and distribution network is still in progress. It is anticipated that the situation will be improving in the year 2014.
Comments & Business Outlook
CHINA PEDIATRIC PHARMACEUTICALS, INC.
AND COMPREHENSIVE LOSS
(Unaudited)
Three months ended March 31,
2013
2012
Sales
$
1,003,714
$
5,862,569
Sales rebates
(121,231
)
(1,028,881
)
Sales, net of rebates
882,483
4,833,688
Cost of sales
503,446
3,131,612
Gross profit
379,037
1,702,076
Advertising expense
796,001
1,624,715
Selling, general and administrative expense
481,999
869,985
Impairment loss on accounts receivables
3,240,731
993,744
Write-down of prepaid expense (note 6)
604,272
—
(Loss) from operations
(4,743,966
)
(1,786,368
)
Interest income
—
44
Other (expense)
—
(102
)
Total Other (Expense)
—
(58
)
(Loss) before income taxes
(4,743,966
)
(1,786,426
)
Provision for income taxes
—
—
Net (loss)
$
(4,743,966
)
(1,786,426
)
Foreign currency translation adjustment
58,373
133,053
Comprehensive (loss)
$
(4,685,593
)
$
(1,653,373
)
Net (loss) per common share
(Loss) per share - basic and diluted
$
(0.11
)
$
(0.04
)
Weighted average common shares outstanding - basic and diluted
44,556,104
44,556,104
Investor Alert
During the year ended December 31, 2012, our gross sales have decreased by 49% to $16,391,702 from $32,153,831 for the year ended December 31, 2011. The decrease was in parts due to increased competition and a general decrease in consumer demand in China during the year ended December 31, 2012. For year ended December 31, 2012, our sales, net of sales rebates were $14,168,261 as compared to $27,415,086 for the year ended December 31, 2011. We began implementing a new sales model in the 3rd quarter of 2011. We were also engaged in aggressive advertising campaigns in the year ended December 31, 2011. Our sales has decline over the last four quarters.
It is now apparent that our planned sales model has not been successful because i) lack of expertise in certain areas of sales and marketing management; and ii) scarce economic resources have not been properly utilized in time as substantial advertising expenses had been incurred but competent sales team staff was not there. We are now re-examining the sales model and implementing corrective measures to improve sales.
Comments & Business Outlook
2012
2011
Sales, net of rebates of $1,028,881 (2011: $889,393)
$ 4,833,688 $ 6,757,785
Cost of sales
3,131,612 3,345,991
Gross profit
1,702,076 3,411,794
Advertising expense (note 2)
1,624,715 1,276,672
Selling, general and administrative expense
1,863,729 3,684,245
(Loss) from operations
(1,786,368 ) (1,549,123 )
Interest income (expense)
44 (11,827 )
Other income (expense)
(102 ) (328 )
Derivative income (expense)
- 4,423,750
Total Other Income (Expense)
(58 ) 4,411,595
(Loss) Income before income taxes
(1,786,426 ) 2,862,472
Provision for income taxes (note 9)
- (191,119 )
Net (loss) income
$ (1,786,426 ) 2,671,353
Foreign currency translation adjustment
133,053 193,408
Comprehensive (loss) income
$ (1,653,373 ) $ 2,864,761
Net (loss) income per common share
Earnings (loss) per share - basic
$ (0.04 ) $ 0.06
Earnings (loss) per share - diluted
(0.04 ) (0.04 )
Weighted average common shares outstanding - basic and diluted
44,556,104 44,374,701
During the quarter ended March 31, 2012, our gross sales have decreased by 23% to $5,862,569 from $7,647,178 for the quarter ended March 31, 2011. The decrease was due to changes in our new sales model , which has not been fully implemented. Net sales also decreased as a result of higher rebates paid to our distributors. For the quarter ended March 31, 2012, our sales, net of sales rebates were $4,833,688 ( 3/31/2011: $6,757,785).
Investor Alert
We changed our accounting estimates
regarding provision for doubtful accounts during the fourth quarter in 2011. Bad debt expense increased as accounts receivable turnover increased to 200 days during the quarter ended March 31, 2012, as compared to 90 days during the quarter ended March 31, 2011. Provision for doubtful accounts is now estimated as follows: i) 50% on accounts that are outstanding between 91 and 180 days, ii) 75% on accounts that are outstanding between 181 to 365 days, and iii) 100% on accounts that are outstanding for over 365 days.
Comments & Business Outlook
CHINA PEDIATRIC PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2011
2010
2011
2010
Sales
$ 6,505,088 $ 6,342,505 $ 19,901,666 $ 18,216,625
Cost of sales
3,705,012 2,953,021 10,455,484 8,462,252
Gross profit
2,800,076 3,389,484 9,446,182 9,754,373
Advertising expense
2,525,678 442,457 5,984,090 1,320,324
Selling, general and administrative expense
5,031,332 782,525 9,730,963 2,606,106
Income (Loss) from operations
(4,756,934 ) 2,164,502 (6,268,871 ) 5,827,943
Interest income
6,177 92 14,120 92
Other income
- - - 825
Derivative income (expense) (note 12)
241,250 (740,000 ) 5,762,500 (1,261,250 )
Interest (expense)
- (11,945 ) (24,266 ) (11,945 )
Other (expense)
(150 ) (115 ) (14,472 ) (12,407 )
Total Other Income (Expense)
247,277 (751,968 ) 5,737,882 (1,284,685 )
Income (Loss) before income taxes
(4,509,657 ) 1,412,534 (530,989 ) 4,543,258
Provision for income taxes
- (305,388 ) (200,825 ) (748,967 )
Net income (loss) (note 10)
$ (4,509,657 ) 1,107,146 $ (731,814 ) 3,794,291
Foreign currency transaction adjustment
322,054 248,839 1,625,040 617,058
Comprehensive income (loss)
$ (4,187,603 ) $ 1,355,985 $ 893,226 $ 4,411,349
Net income (loss) per common share
Earnings per share - basic and diluted
$ (0.35 ) $ 0.11 $ (0.06 ) $ 0.40
Weighted average common shares outstanding
12,730,171 10,205,171 12,713,259 9,423,486
$589,808 and $308,191 or 17% and 3% compared to the same periods of 2010. As selling price of our products remained the same, the decrease in gross profits was due to the increase in rebates paid to distributors from 10% to 15% , pervasive increase in costs of raw increase in wages of workers due to an increase in the statutory minimum wage.
Comments & Business Outlook
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)
DECEMBER 31
2010
2009
(Restated)
Sales
$
24,472,052
$
14,772,235
Cost of sales
11,503,378
6,999,152
Gross profit
12,968,674
7,773,083
Selling, general and administrative expenses
6,192,223
3,907,693
Income from operations
6,776,451
3,865,390
Other Income (Expense)
Interest income
1,045
61
Other income
57,423
2,610
Derivative income (expense)
187,500
(5,950,000)
Interest expense
(23,751
)
(22,073)
Other expense
(2,674
)
(71,967)
Total Other Income (Expense)
219,543
(6,041,369)
Income (loss) before income taxes
6,995,994
(2,175,979)
Provision for income taxes
1,024,375
616,693
Net income (loss)
$
5,971,619
$
(2,792,672)
Net income (loss) for common share
Earnings per share – Basic
$
0.60
$
(0.34)
Earnings per share - Diluted
$
0.52
$
(0.34)
Weighted average common shares outstanding
Basic
9,980,952
8,247,669
Diluted
11,230,952
8,247,669
GeoT eam Note : 2010 vs 2009 Adjusted EPS:
Full year: $0.77 vs. $0.42
Fourth Quarter: $0.23 vs. $0.10
Total net sales for the years ended December 31, 2010 increased by $9,699,817 or approximately 66% compared to the same period of 2009. This was mainly due to increases in sales of "Cooer" Series by 86% in 2010, as a result of the intensive promotion in 2009 and 2010.
Liquidity Requirements
As of December 31, 2010, we had cash and cash equivalents of approximately $11 million. We believe our existing cash and cash equivalents will be sufficient to maintain our operations at present level for at least the next twelve months. We plan to
review acquisition opportunities as a strategy for further growth.
Notable Share Transactions
On October 15, 2010, the board of directors of China Pediatric Pharmaceuticals, Inc., approved the issuance of an aggregate of 1,470,000 shares of common stock to be issued to 4 individuals, Hongtao Wang, Guiping Zhang, Weibing Lu, and Jun Pu, as consideration for certain consulting services to be provided to the Company’s indirect wholly-owned subsidiary, Coova Children Pharmaceuticals Technology (Xi’an) Co. Ltd. Such consulting services shall include, but not be limited to, matters related to mergers and acquisitions, management buy-outs, restructuring, asset management, investment, and financing.
GeoTeam ® Note : This will increase CPDU's current share count of 11.95 million by about 12 % .
Liquidity Requirements
We believe our existing cash and cash equivalents will be sufficient to maintain our operations at
present level for at least the next twelve months.
Comments & Business Outlook
2010 Third Quarter non-GAAP update :
Three Months Ended September 30
2010
2009
GAAP - Net income
$
1,107,146
$
997,593
Add back / (Subtract):
740,000
Non-cash Stock Based Compensation
740,000
-
Non-GAAP Net Income
$
1,847,146
$
997,593
GAAP Earnings (loss) per share (diluted)
$
0.11
$
0.12
Non-GAAP Earnings per share (diluted)
$
0.18
$
0.12
Comments & Business Outlook
Nine Months Ended
9/30/2010
9/30/2009
9/30/2010
9/30/2009
Sales, net
$ 7,182,905 $ 4,180,368 $ 20,400,566 $ 11,323,142
Cost of sales
2,953,021 1,589,853 8,462,252 4,376,540
Gross profit
4,229,884 2,590,515 11,938,314 6,946,602
Selling, general and administrative expense
2,065,382 1,427,671 6,110,371 3,930,235
Income from operations
2,164,502 1,162,844 5,827,943 3,016,367
Other Income (Expense)
Interest income
92 61 92 61
Other income
- 16 825 304
Derivative expense
(740,000 ) - (1,261,250 ) -
Interest expense
(11,945 ) (10,525 ) (11,945 ) (10,525 )
Other expense
(115 ) (69 ) (12,407 ) (100 )
Total Other Income (Expense)
(751,968 ) (10,517 ) (1,284,685 ) (10,260 )
Income before income taxes
1,412,534 1,152,327 4,543,258 3,006,107
Provision for income taxes
(305,388 ) (154,734 ) (748,967 ) (422,715 )
Net income
$ 1,107,146 $ 997,593 $ 3,794,291 $ 2,583,392
Net income for common share
Earnings per share - Basis
$ 0.11 $ 0.12 $ 0.40 $ 0.31
Earnings per share - Diluted
$ 0.11 $ 0.12 $ 0.40 $ 0.31
Weighted average common shares outstanding
Basis
10,205,171 8,228,571 9,423,486 8,228,571
Diluted
10,205,171 8,228,571 9,423,486 8,228,571
Net income
$ 1,107,146 $ 997,593 $ 3,794,291 $ 2,583,392
Foreign currency transaction adjustment
248,839 8,059 617,058 14,941
Comprehensive income
$ 1,355,985 $ 1,005,652 $ 4,411,349 $ 2,598,333
Investor Presentations
On September 15, 2010, China Pediatric Pharmaceuticals, Inc. made a
presentation to investors at the Rodman & Renshaw Annual Global Investment Conference.
Comments & Business Outlook
Second Quarter 2010 Highlights
Sales in the 3 months ended June 30, 2010, increased by approximately $2,961,644, or 83% year-over-year, to $6,508,769 . Gross profit in the 3 months ended June 30, 2010, increased $1,693,787, or 76% year-over-year, to $3,909,076 . Net income in the 3 months ended June 30, 2010, increased by $460,409, or 58% year-over-year, to $1,257,809 . Earnings per share in the 3 months ended June 30, 2010 increased by $0.03, or 30% year-over-year, to $0.13. Non-GAAP EPS was $0.15.
“We are very pleased with our second quarter results, and while our sales and profit increased significantly we are confident we will be able to continue to increase sales by continuing to expand our market share and increase our brand recognition. Our product lines are becoming increasingly visible in pharmacies throughout much of China,” stated Mr. Jun Xia, Chairman and Chief Executive Officer of China Pediatric Pharmaceuticals , Inc.
Research
We will begin tracking China Pediatric Pharmaceutical. While the 2009 year end non-GAAP EPS growth was not spectacular...
$0.36 vs. $0.31 on a 14.1% revenue increase to $14.7 million,
we are intrigued that in its 2010 first quarter , CPDU non-GAAP EPS increased 60% to $0.16 or already 44% of what it had reported for all of 2009. We also like that the company has a tight share structure, with only 8.8 million fully diluted shares.
The company did not issue guidance its first quarter press release , but did include some bullish commentary:
We are very pleased with our first quarter results and while our sales and profit increased significantly we are confident we will be able to continue to increase sales by expanding our market share and increasing our brand recognition. Our product lines are becoming increasingly visible in pharmacies throughout China ”
We need to be aware that dilution is a risk with this play:
The potential for nearly 30% dilution: "Concurrent with the Share Exchange Agreement, on September 30, 2009, we issued to certain consultants two year warrants to purchase an aggregate of 1,250,000 shares of our common stock at an exercise price of $3.00 per share with three year piggyback warrants to purchase an aggregate of 1,250,000 shares of our common stock at an exercise price of $5.00 per share."
"We believe our existing cash and cash equivalents will be sufficient to maintain our operations at present level for at least the next twelve months. But We plan to review acquisition opportunities as a strategy for further growth ."
The Company has no long-term debt, a current ratio of 4.8 to 1.0 and an adjusted trailing P/E is 11.31 .
Comments & Business Outlook
“We are very pleased with our
first quarter results and while our sales and profit increased significantly we are confident we will be able to continue to increase sales by expanding our market share and increasing our brand recognition. Our product lines are becoming increasingly visible in pharmacies throughout China,” stated Mr. Jun Xia, Chairman and Chief Executive Officer of China Pediatric Pharmaceuticals, Inc.
