SOURCE: First China Pharmaceutical Group, Inc.

First China Pharmaceutical Group, Inc.

November 19, 2012 16:30 ET

First China Pharma Announces Unaudited Financials and Issues Guidance for Q3 2012

Revenues Increase 22% From 2011, Growth Remains Positive for 2012

KUNMING, CHINA--(Marketwire - Nov 19, 2012) - First China Pharmaceutical Group, Inc. (OTCQB: FCPG) ("First China" or the "Company"), a rapidly growing and technologically advanced pharmaceutical distribution company based in Yunnan, China, today announced its unaudited financial results for the three-month period ended Sep. 30, 2012.

Q3 Fiscal 2012 Highlights

First China is particularly pleased to announce that it has achieved an all new record high for sales achieved in the Company's fiscal third quarter. 

Sales for the third quarter 2012 were $17.4 million compared to $14.2 million in 2011, representing an increase of over 22%. The increase is attributed to our cooperation accord with Anhui Hua Yuan Pharmaceutical Inc., through which we have the ability to purchase products that in many instances is at lower than wholesale prices. As a result, we can offer competitive pricing on a number of products in order to attract high volume resellers.

Gross profit for Q3, 2012 increased to $1.8 million, as compared to a gross profit of $1.0 in 2011, an increase of 73%. This increase is primarily due to escalated sales while maintaining gross margins. Gross margin for 2012 was 10% compared to 7% in 2011 and net income was up 25% to $1.0 million, largely due to expanded sales volume of high margin specialty herbal medicines.

Overall, improved profitability is fundamentally due to increased sales. The Company's cooperation accord with Anhui Hua Yuan Pharmaceutical Inc. allowed for an expansion of inventory selection which led to a significant boost in resale opportunities. In addition, the Company's expanded inventory introduced a number of specialized natural Chinese herbs for sale to drug manufacturers, which underscores the ongoing success of an internal policy initiative that was implemented in 2011. Increased utilization of the Company's internet fulfillment platform led to higher order frequency by both institutional and professional retail customers. All of the above factors contributed to the combined sales growth for the current period.

Income from Operations increased by 60% compared to the same period in 2011, largely due to the Company's improved management of administrative costs as sales increased. Income before tax for the 3 month period ending September 30, 2012 increased by 24% to $1.3 million, however, the Company cautions that this improvement in income is partially attributed to Derivative Income of $431,336.

Year-to-date income before tax is reported as down 35%, which is principally due to "Derivative Losses" as reported by the Company earlier in fiscal 2012. Derivative Income or Losses are non-cash increases or decreases to the income statement that are a result of the Black Scholes derivative valuation of the warrants issued by the Company in relation to the financing in April 2011. The valuation of these warrants is required by US GAAP and can produce either a non-cash gain or loss; depending upon the fair market value of the common stock. As such, this adjustment to the income statement is a non-cash transaction and does not adversely or positively affect the Company's working capital.

Business Outlook

The Company continues to have a positive outlook for October and November of 2012. However, the proposed relocation of the head office and warehouse to a new larger facility in December could adversely impact our sales figures for December and the fourth quarter. To ensure a smooth transition, the Company has determined the necessity shut down operations for a few days in order to maximize logistical control and to effect timely allocation of resources. In addition to our relocation, the coming Chinese Spring Festival in early February 2013 will bring an anticipated softening of sales figures during this period. However, the Company believes our ongoing cooperation with Anhui Hua Yuan Pharmaceutical Inc. will continue to grow and yield significant results for the remainder of the year and is anticipated to lead towards improved profit margins overall. 

Policies introduced by the Chinese government to increase pharmaceutical spending on a per-capita basis have introduced economic pressures on the margins of many pharmaceutical distributors. Small distributors are finding it difficult to remain in business, and drug manufacturers are unwilling to extend credit to distributors. The efficiency of First China's internet fulfillment platform continues to perform as a significant strategic advantage over the majority of the Company's competitors. Our redesigned website offers improved online order fulfillment processes and will be operational in early January 2013. The ordering platform will enable increased handling of orders and transactions, a key element to the Company's success.

"Our business model is strong and takes advantage of the government's policy to lower the cost of drugs. With additional capital our expanded product line and inventory holdings can fuel tremendous growth. We continue to work diligently to satisfy our customer and shareholders," stated Mr. Wang, CEO of First China.

This press release does not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of such jurisdiction. Further details of the Company's business, finances, appointments and agreements can be found as part of the Company's continuous public disclosure as a reporting issuer under the Securities Exchange Act of 1934 filed with the Securities and Exchange Commission's ("SEC") EDGAR database.

About First China Pharmaceutical Group, Inc. (OTCQB: FCPG)

First China Pharmaceutical Group, Inc. aims to develop a high growth pharmaceutical distribution company generating significant revenue from the sale of healthcare products in China. As part of its business strategy, the Company has acquired the assets of Kun Ming Xin Yuan Tang Pharmacies Co. Ltd. (XYT), which includes a strategic advantage over its competitors as it is one of a handful of pharmaceutical distribution companies in Yunnan Province that has obtained government approval to market and fill orders using the internet. First China Pharmaceutical Group plans to continue the rapid growth of the company from its current position as a provider of approximately 7,100 drugs to more than 4,700 pharmacies, hospitals and clinics in China's Yunnan Province. For more information visit:

Notice Regarding Forward-Looking Statements

This news release contains "forward-looking statements" as that term is defined in Section 27A of the United States Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Statements in this press release which are not purely historical are forward-looking statements and include any statements regarding beliefs, plans, expectations or intentions regarding the future. Such forward-looking statements include, among other things, treatment of VAT reserve, accrual of VAT, opportunities to expand sales and market share, Chinese government increasing pharmaceutical spending, sales strategy, need for capital, business outlook for 2012, Company growth and acquisition plans, and use of internet licenses. Actual results could differ from those projected in any forward-looking statements due to numerous factors. These forward-looking statements are made as of the date of this news release, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Although we believe that any beliefs, plans, expectations and intentions contained in this press release are reasonable, there can be no assurance that any such beliefs, plans, expectations or intentions will prove to be accurate. Investors should consult all of the information set forth herein and should also refer to the risk factors disclosure outlined in our annual report on Form 10-K for the most recent fiscal year, our quarterly reports on Form 10-Q and other periodic reports filed from time-to-time with the Securities and Exchange Commission.

First China Pharmaceutical Group, Inc.
Zhen Jiang Wang
Chairman and CEO

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