First China (PINK:FCPG)

KUNMING, CHINA--(Marketwire - Aug 21, 2012) - First China Pharmaceutical Group, Inc. (OTCBB: 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 June 30, 2012.

Q2 Fiscal 2012 Highlights

First China is pleased to announce that it has achieved a new record high for second quarter sales. First China advises that its focus and investments towards expanding sales in Yunnan province has led to an increase of 21% in sales compared to the same period as last year.

• Sales for the second quarter of 2012 were $14.0 million compared to $11.6 million in 2011
• Gross profit was up $124,394 from the same period in 2011 and
• income from operations was up 43% to $1.2 million, largely due to increased sales and a reduction in administrative expenses, some of which payment was deferred until Q3

The Company posted income before tax of $2,580,854. The improved profitability is due to increased sales. In the current quarter the Company almost doubled the number of sales orders it processed compared to the same period as last year. The primary reasons attributed to the increase in sales orders were the expanded inventory selection and greater utilization of the Company's online internet fulfillment platform. The Company's expanded inventory selection includes sales of natural Chinese herbs to drug manufacturers, an initiative taken in the latter part of 2011. Greater utilization of our on internet fulfillment platform led to more frequent orders placed by customers. Both of these factors contributed to the overall sales growth for the current period.

The Company also changed the manner in which it accounts for the value-added tax (VAT) it pays. In the past the Company accrued VAT on all sales, including sales to VAT exempt Companies (Small Scale Taxpayer).This practice resulted in the Company accruing far more VAT than was actually due to the tax bureau. After several years of this accounting treatment a large VAT reserve was created. Initially, the Company decided to bring some of this reserve into income after approximately two years. Now, the Company only accrues for VAT due to taxpayers that are required to pay VAT and any reserve beyond what is due to the tax bureau is brought into income after the tax bureau has provided documentation indicating the Company is current with the VAT that it is required to pay. To portray accurate timing, the Company will be taking into income amounts over reserved from each quarter of the preceding fiscal year. For example, for Q2 2012, $941,692 in overstated VAT reserve from Q2 2011 has been taken into income.

The improvement in income is also attributed to Derivative Income of $538,467. The Derivative Income for the second quarter is a non cash increase to the income statement that is 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. This 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 the rest of 2012. However, the recent distribution of toxic gel caps in China by a handful of drug manufacturers in April significantly reduced the sale of pharmaceuticals in China in April through August.

GeoTeam® Note: 2012 vs. 2010 First Quarter Adjusted EPS was break even.

The increase in sales is primarily a result of the April 2011 financing, which enabled the Company to broaden its product line and increase inventory purchases. The Internet Drug Transaction Service License (IDTSL) enabled the Company to reduce order processing costs and offer certain pharmaceuticals at prices lower than competitors and that has led to increased sales.

We anticipate that through 2012 and beyond, the cost to purchase inventory will continue to increase due to inflation. This may have a negative effect on our net income if it cannot be offset by volume purchases due to market conditions and competitive conditions, we may not be able to increase the price for our products in proportion to the increase in costs of goods sold.

Fiscal 2011 Highlights

• Net revenues - were $54.8 million, an increase of 100.0% over 2010. This dramatic increase in sales was achieved by the Company being able to carry more products in inventory, broaden its product line and obtain exclusivity on certain products.
• Cost of sales - was up 133% over 2010. The primary reason for this increase was higher prices charged by drug manufacturers for certain products and increase logistics and distributions cost associated with sales beyond Kunming and Yunnan province.
• Gross profit - was $4.2 million, a decrease of $1.6 million over 2010. The reduced margin was experienced industry wide as part of the government's move to increase per capital health care spending.
• Income from operations - was $1.3 million, a decrease of 76%, as compared the same period in 2010. This reduction in income is due primarily to declining gross margins due to the government policy of reducing drug prices and the cost of maintain and managing a public company.

Business Outlook
We continue to believe that the Chinese pharmaceutical distribution industry will evolve similar to that in the United States, eventually dominated by a handful of large companies with significant sales and low profit margins. During 2011 we experienced several developments that have led to reduced margins and the reduction of smaller distributors in the market. While these developments threaten the majority of the participants in our industry we see them as providing an excellent opportunity for FCPG to expand sales and secure a far greater share of the pharmaceutical distribution market.

As the Chinese government increases pharmaceutical spending per capita, its objective will be to provide as much as it can for the money spent. With gross profit margins in the range of 6% to 8% the company will continue to focus on increasing sales volume and acquire customers abandoned by smaller distributors that cannot compete. FCPG is also in the application process to obtain an import license so that it will be able to import and distribute higher margin drugs that are available in the West but not yet available in China.

The Company's primary strategy is to expand sales at a rapid rate throughout Yunnan province and the other 18 provinces and regions it currently conducts business. FCPG has a tremendous strategic advantage over our competitors with the License of Internet Pharmacy Information Service" (LIPIS) and the Internet Drug Transaction Service License (IDTSL). These licenses enable the Company to become a low cost company in the industry. Management believes the Company has proven it ability to generate significant increases in sales by the strategic deployment of capital. Access to additional capital to continue the rapid growth of the Company is a priority for 2012 and essential if the Company is to achieve its sales goals.

The IDTSL and LIPIS internet commerce licenses have enabled First China to change its focus on expansion primarily through organic growth rather than through acquisition. The Chinese government is considering several new regulations that would make it difficult for small and medium sized pharmaceutical distributors to survive (e.g. minimum warehouse size and security controls). It appears that the government is introducing policies that will lead to the industry being serviced by large distributors like XYT rather than small ones. We believe that the government's intention is to eliminate small distributors, so that it can more easily monitor and regulate the distribution of drugs within China. Expansion through acquisition will only occur if there is a significant economic opportunity or a need to establish a distribution center to bolster the Company's logistics

In addition to the focus on obtaining capital and expanding sales the Company also understands that it need to develop critical infrastructure to better support its operation as a public company. A project initiated in 2011 to refine our US GAAP accounting function so that it can produce financial statements on a timelier basis and reduce the high cost of utilizing outside accounting firms will continue as a priority in 2012. In addition, the Company is not satisfied with the level of contact it has with its shareholders and prospective investors and evaluating several cost effective means to increase the flow of information to these groups.

"First China continues to build itself into an organization that will realize significant growth over the next 5 years. Access to additional capital will fuel rapid growth so that the company will be able to reward its shareholders for their allegiance and commitment," stated Mr. Wang, CEO of First China.

First China Pharma Projects Sales Results Double Over Previous Year Earnings

KUNMING, CHINA--(Marketwire -01/26/12)- First China Pharmaceutical Group, Inc. (OTC.BB: FCPG.OB) (“First China” or the “Company”), a rapidly growing and technologically advanced healthcare products distributor based in Yunnan, China, is pleased to announce currently projected unaudited sales figures for the year ending December 31, 2011 in excess of $US55 million.

The Company’s net sales include full 12-month results from the Company’s wholly-owned operating subsidiary, Kun Ming Xin Yuan Tang Pharmacies Co. Ltd. (XYT), for the year ended December 31, 2011. The Company is still in the process of consolidating its financial statements in US GAAP and currently cannot offer any information beyond net sales. In order to provide investors a better understanding of the company’s financial performance, over the next 60 days, management will post unaudited financial statements for each quarter, commencing January 1, 2010.

Company Chairman and CEO Mr. Zhen Jiang Wang notes, “We are very pleased to have doubled our sales from last year by exceeding our stated target of $50 million. We continue to expand largely due to our superior distribution and logistics strategy powered by our government licensing which, in turn, drives our internet business model permitting us to consistently outperform our competitors. In 2012, the Company will focus on continuing to rapidly expand sales and look for higher margin products to import, distribute and even manufacture.”

Item 4.01. Changes in Registrant’s Certifying Accountant.

(a) Dismissal of Independent Certifying Accountant

Effective January 16, 2012, Parker Randall CF (H.K.) CPA Limited (“Parker”) was dismissed as the independent registered public accounting firm of First China Pharmaceutical Group, Inc. (the “Company”). The dismissal of Parker as the independent registered public accounting firm was approved by the Audit Committee of the Board of Directors of the Company.

The reports of Parker regarding the Company’s financial statements for the fiscal years ended March 31, 2011 and 2010 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit report of Parker on the Company’s financial statements for fiscal years ended March 31, 2011 and 2010 contained an explanatory paragraph which noted the restatement of the consolidated financial statements for the year ended March 31, 2011.

During the years ended March 31, 2011 and 2010, and during the period from March 31, 2011 to January 16, 2012, the date of dismissal, (i) there were no disagreements with Parker on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Parker would have caused it to make reference to such disagreement in its reports; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company has provided Parker with a copy of the foregoing disclosures and requested that Parker furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the above statements, and if not, stating the respects in which it does not agree. The Company will file such letter with the Securities and Exchange Commission as an exhibit to an amendment to this Current Report on Form 8-K/A within two days of receiving it but no later than ten days after the filing of this Report.

(b) Engagement of Independent Certifying Accountant

Effective January 16, 2012, the Audit Committee of the Board of Directors of the Company engaged EFP Rotenberg LLP (“EFP”) as its independent registered public accounting firm to audit the Company’s financial statements for the Company’s current fiscal year.

Two major factors contributed to our increase in sales. First, we have entered into an Exclusive Agency Agreement with Yunnan Chuxiong Tianli Pharmaceutical Co., Ltd. of China as of July 1, 2011. This agreement has given us an exclusive right to sell the following Chinese medicine - Honghuaxiaoyao Capsules, Zidanhuoxue Tablets, and Huangtengsu Tablets, in the Yunnan province of China. The total sales of these three products is USD$2,015,174 for the three months ended to September 30, 2011, compared to USD$0 for the three month ended to September 30, 2010. Second, the significant increase in sales was also attributable to our launch of certain new products. The sales of the four new products listing in Chart 2, below, amounted to USD$4,350,530.

This increase in cost of goods sold is primarily attributable to the increase in sales and increase in material product prices in the PRC for the three months ended September 30, 2011. Specifically, in 2011, inflationary problems have generally increased the cost of Chinese products. Also, Chinese medicine, one of our most popular products, has been suffering from high production costs due to a natural disaster that has caused a shortage of Chinese herbs. Thus, insufficient production of Chinese medicine drove demand higher than available supplies of Chinese medicine. Although we anticipate that the cost of sales will increase due to inflationary price increases, we do not believe that such increases will be material for the remainder of fiscal year 2011.

We anticipate that beyond 2011, our price for materials and other production costs will continue to increase due to inflation. If our costs of sales increase, this may have a negative effect on our net income because due to market conditions and competitive conditions, we may not be able to increase the price for our products in proportion to the increase in costs of goods sold.

KUNMING, CHINA--(Marketwire - Oct 13, 2011) - First China Pharmaceutical Group, Inc. (OTCBB: FCPG) ("First China" or the "Company"), a rapidly growing and technologically advanced healthcare products distributor based in Yunnan, China, is extremely pleased to announce that it has recently been awarded a key national license which permits the Company to accept orders and transact payments over the internet.

First China believes the newly granted "Internet Drug Transaction Service License" (IDTSL) positions the Company as one of only a handful of pharmaceutical distributors with government approval for online payment capability in the country. The new license compliments the Company's existing Internet Drug Information Service License so that it can now market and advertise its products along with accepting orders and transacting payments over the internet.

Our continuing strategy is to build a nationwide pharmaceutical distribution network throughout China.  Over the next 12 months XYT plans to expand its customer base through the use of the following tactics:

• broadening of the current product line will attract more large customers that currently do not utilize XYT and benefit from  internet ordering and the lower prices that XYT offers;
• providing computers to customers will also attract new customers as XYT’s management is unaware of any other pharmaceutical distribution company providing this benefit;
• supplementing  XYT’s current sales force with the addition of at least two additional sales teams that will make calls directly to hospitals, medical clinics and pharmacies.  XYT anticipates that each sales team will be composed of a sales manager and 10 sales people.

On November 3, 2010, we entered into a letter of intent to acquire 100% of the interests of De Xin Pharmacy located in Kunming City, the capital of Yunnan Province.  De Xin Pharmacy was founded in 1993, primarily as a retail operation focused on both Chinese and Western medicine, and is centrally positioned in the Golden Resources Shopping Mall in Kunming City. 

In addition, on November 29, 2010, we entered into a letter of intent to acquire 100% of the interests of Shandong Run Kang Pharmaceutical Co. Inc. (“Run Kang”) of Jinan City, in the Shandong Province of China.  Run Kang was founded in 2006 and is principally focused on the distribution of Western medicinal products and drugs as well as traditional Chinese remedies to regional pharmacies, clinics and hospitals.
 

We believe that our existing capital resources are sufficient to meet our current obligations and operating requirements, but will not be sufficient to meet our more aggressive growth and acquisition plans and that we will need to raise additional capital in the next 12 months. In order to meet our planned two to four strategic acquisitions, we estimate requiring US$6 million in capital.

Please take note that FCPG may be part of a pump and dump scheme...

We recieved this link from a GeoUser that overly hypes this company's prospects, calling it a takeover target at a price of $28.00.

Management mentioned key aspects of their financial statments that they felt investors should find helpful:

Company Chairman and CEO Mr. Zhen Jiang Wang notes, "We are very pleased that our consolidated second quarter results for 2010 surpassed our Q2 performance in 2009 as shown in the attached consolidated pro forma financial statement. We continue to expand largely due to our superior distribution and logistics strategy which permits us to outperform our competitors. We wanted to clearly show that due to US GAAP requirements the quarterly report (10Q) filed on November 19 only represents our consolidated financial performance for the period of September 15 to September 30, 2010 as the Share Exchange Agreement between XYT and First China was executed on September 15, 2010."

Company Snapshot:

Pharmaceutical distribution company

Industry Snapshot:

• The pharmaceutical distribution industry in China is currently highly fragmented. There were more than 9,000 Good Supply Practice (“GSP”) certified pharmaceutical distributors as of 2007 according to the South Medicine Economics Research Institute, an affiliate of the State Food and Drug Administration (“SFDA”). This fragmentation of the pharmaceutical industry has resulted in an inefficient supply chain for the distribution of most pharmaceutical products without the advanced logistics services featured in more developed markets.

• We expect that, over time, the PRC pharmaceutical distribution industry will experience consolidation in the manner experienced in North America and Europe, as distributors seek to achieve economies of scale and optimize their resources. The trend towards consolidation in the PRC pharmaceutical industry has also been intensified by increased regulatory requirements and policies imposed by the PRC government on market participants in order to implement uniform quality control criteria for the distribution of pharmaceuticals and ensure a stable supply of safe, effective medicines throughout the country. For example, in 2003 the SFDA adopted and strictly enforced GSP certification as the relevant standard for quality control in pharmaceutical distribution. A number of smaller distributors were forced to exit the market due to the associated higher compliance costs following the adoption of GSP certification and other regulatory standards. We believe that the more rigorous regulatory standards and policies imposed by the PRC government will accelerate the trend towards consolidation in the pharmaceutical industry, and favor the continued growth of pharmaceutical distributors with large-scale, nationwide pharmaceutical distribution operations and effective quality controls that are positioned to benefit from the changes in PRC regulatory requirements and policies. In addition, the imposition of price controls imposed by the PRC government, the centralization of tender and bidding processes among public hospitals and consolidation among drug manufacturers are additional factors that will also contribute to the trend towards consolidation in the industry.

Post Merger Share Calculation:

• 45,000,000: Pre reverse merger outstanding shares
• 15,000,000: Newly issued shares of Common Stock

GeoTeam® best effort calculation of total post reverse merger shares assuming full conversions:  60,000,000

Financial Snapshot:

• Sales of Chinese patent drugs, antibiotics, bio-chemicals, chemical preparations and biologicals for the six months ended June 30, 2010 totaled US$13,878,888, an increase of 15.8% from US$11,983,956. 
• Net income increased to US$1,678,000 for the six months ended June 30, 2010 from US$1,170,779 for the six months ended June 30, 2009, an increase of US$507,221, or 43.3%.
  
• Sales for the year ended December 31, 2009 were US$25,285,526, an increase of 47.4% from US$17,154,331.
• Net income for the year ended December 31, 2009 was US$2,743,496, an increase of US$1,231,173, or 81.4%

XYT believes that its cash on hand and working capital will be sufficient to meet its anticipated cash requirements through December 31, 2010. If XYT does not meet its revenue objectives over that period, the Company may need to sell additional equity securities, which could result in dilution to current stockholders, or seek additional loans.

With appropriate funding, XYT anticipates its business model will change to leverage the efficiencies of internet ordering and fulfillment. We intend to expand our product line from approximately 5,000 products to approximately 30,000 products by the end of 2010. The broader product line will include significantly more Western drugs as well as additional traditional Chinese drugs and herbs. We estimate that the broader product line will ensure that our customers will be able to order 80% to 90% of the products they carry directly from XYT.