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Revenue for the first quarter of 2008 increased 78.1% to approximately$10.97 million compared to approximately $6.16 million for the first quarterof 2007. The significant increase in revenues was due to three reasons. Firstis the rise in selling price and sales of Erye's raw material drugs. Second,the reform of medical insurance system in rural areas of China promotes thesales of Erye's drugs. Third, the selling price of the freeze-dried drugs hasincreased.
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Cost of goods sold for the first quarter was approximately $7.7 million,yielding a gross profit of $3.3 million and gross margins of 29.7%, comparedto $1.47 million in gross profit and a gross margin of 23.9% during the firstquarter of 2007. Thus, gross profits grew by 124.5% on a year-over-year basis.The increase in gross margin is attributed primarily to the increase of thegross profit of the freeze-dried drugs and raw material drugs.
Operating expenses for the three months ended March 31, 2008 were $1.1million, up 15.4% compared to the same period in 2007. Selling, general andadministration expenses for the period increased to approximately $1.07million from $0.9 million in the first quarter of 2007, which includedincreased investment in overall marketing including increased costs inadvertisement expenses. Research and development expenses were $17,947 in thethree months ended March 31, 2008, versus $43,163. This decrease wasprimarily attributed to the slowing down of drug approval of the China SFDAand new regulatory policies.
Operating income for the first quarter of 2008 totaled approximately $2.2million, a 315% increase from the $523,795 reported for the first quarter of2007. Operating margins were 19.8% and 8.5% for the first quarter of 2008 and2007, respectively. The increase in the operating margin was due to theCompany's Erye Subsidiary strong performance in sales and increased grossmargin.
For the first quarter of 2008, net income was $492,076, an improvement of$669,869, compared to a loss of $177,793 for the first quarter of 2007. Fullydiluted earnings per share were $0.013 compared to loss of $0.005 for thefirst quarter of 2007 respectively, based up on 36.5 million fully dilutedshares outstanding. The Company had increased interest expense of $356,584during the quarter versus $347,485 a year ago. The Company also increased itsprovision for income taxes from $1,108 to $299,409 during the current quarter,yielding an effective tax rate of 16.5%.
"We are extremely pleased to report a healthy quarterly profit and strongcashflow on record revenues. The success of our overall marketing strategy andfocusing on high margin products enabled us to achieve a record revenuequarter. We have made huge strides in overcoming the Enshi problems andgetting back to focusing on building a successful business. Going forward weintend to build upon the momentum established during the first quarter of 2008to have a very strong performance for the rest of the year.'' commented MadameZhang Jian, Chairwoman and CFO of China Biopharmaceuticals.
Balance Sheet and Cash Flow
The Company had $2.5 million in cash and cash equivalents on March 31,2008, versus $1.77 million at December 31, 2007. The Company had total assetsof $35.4 million, an increase of $4.16 million form yearend, versus totalliabilities of $30.6 million, representing an increase of only $1.9 millionfrom yearend. Shareholders equity improved $1.2 million in the first quarterof 2008. For the first quarter of 2008, the Company generated $2.3 million incash from operations versus a loss
