Biostar Pharmaceuticals, Inc. (BSPM)
Q3 2012 Earnings Conference Call
November 19, 2012 09:30 AM ET
Ronghua Wang - Chairman and CEO
Zack Zibing Pan - CFO
Shuang Gong - Secretary of Board
Charles Ognar - Ognar Trading Co.
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Before we continue, I’d like to remind our listeners that this conference may include items of a forward-looking nature with respect to certain securities regulation. We refer you to the forward-looking statement disclaimers made in the 10-K and 10-Q filings with the Securities and Exchange Commission as well as those forward-looking statements made in the Company’s press releases.
I’d now like to turn the conference over to Mr. Zack Pan, CFO of Biostar. Please go ahead sir.
Zack Zibing Pan
Thank you, [Ing] [ph] and welcome everyone to Biostar’s 2012 third quarter operating results conference call. The details of the result are available in the news release and with the Form 10-Q we filed earlier this morning. If you have not received the copy of our press release, please contact Lena Cati, of Equity Group at 212-836-9611, and she will email you a copy.
Now I will hand the conference call over to Mr. Wang, who will discuss recent developments and then I will review the financial results.
Thanks, Zack and thank you everyone for attending today’s conference call. As we announced this morning, our overall results for the third quarter and the nine months ended September 30, 2012 continue to be affected by the temporary industry-wide PRC government imposed suspension of gel capsule sales earlier this year.
On July 30, 2012, we received the “green-light” approval from Xianyang SFDA authorities to restart sales from gel capsule products [since then due to a plan] [ph] that we developed, [that have the] [ph] implementing we’ve [planned to record into] [ph] our business has started to recover. Zack will provide you more details about our plan shortly.
As a result of our effort, our net sales for the current quarter increased by approximately $1.8 million or 22% as compared to the 2012 second quarter. And we expect our sales to continue to gradually recover in the coming months based on net sales recorded for the month of October and first half of November. And we expect 2012 fourth quarter sales to be significantly higher than 2012 third quarter.
I will now turn the call over to Zack, who will discuss our third quarter and nine months results. He will also discuss the steps we’ve taken to [rebound on this] [ph] temporary setback. Then I will be available to answer your questions. Zack, please go ahead.
Zack Zibing Pan
Thank you, Wang and thank you (indiscernible). [At last] [ph] due to gel capsule related issues for both reporting period 2012 third quarter and nine months, our net sales decreased and we report losses. Net sales for the 2012 third quarter and the nine months period of our flagship gel capsule product, Xin Aoxing substantially decreased as did net sales for all other gel capsule products. However, that was partially offset by (A) Net sales of approximately $1.3 million in 2012 third quarter resulting from shipments to Xijing Military Hospital. (B) Net sales from our Weinan facility, which accounted for approximately $2.0 million or 19.7% and approximately $5.3 million or 15.5% of sales for the 2012 third quarter and nine-month period, respectively.
Gross margin for the 2012 third quarter and nine-month periods declined mainly due to substantially lower net sales for Xin Aoxing, which historically has been our highest margin product and also as a result of lower selling prices due to fierce competition and by the PRC government’s essential drug list price control policy.
As a percentage of net sales, selling expenses for both reporting periods increased mainly due to lower sales. Our profitability for the quarter and the nine months was affected by $1.6 million one-time, non-appealable administrative penalty, which we paid the local government related to the gel capsule incident, a fee which we paid in the third quarter.
Also earlier this year, we recorded a $7.9 million write-down to our accounts receivable for credit given to customers for issues related to gel capsule drug. $0.7 million expenses related to the issuance of incentives that recorded in the third quarter; $0.9 million allowance for doubtful account, also recorded in the third quarter. Also our R&D expenses for the 2012 third quarter and nine months were $0.8 million and $2.4 million respectively.
In 2012, we reclassified long-term deposits into current assets and amortized R&D quarterly; we did not incur quarterly R&D expenses in 2011, as R&D expenses was recorded as a long-term deposit at December 31, 2011. As a result we recorded net losses of approximately $5.9 million and a $13.3 million in the third quarter and nine months period respectively.
Our balance sheet remains strong. Total current assets at September 30, 2012 were $48.6 million versus total current liabilities of $4.2 million for a 12:1 current ratio. We continue to fund our business from our free cash flow. As of September 30, 2012, we had cash of approximately $12.1 million compared with approximately $17 million at 2011 year-end.