Genesis Pharmaceuticals Reports Results for the Third Quarter of Fiscal Year 2008

LAIYANG, China, May 15 /Xinhua-PRNewswire-FirstCall/ -- Genesis Pharmaceuticals Enterprises, Inc. (BULLETIN BOARD: GTEC) ("Genesis" or the "Company"), a U.S. pharmaceutical company with its principal operations in the People's Republic of China, today announced its financial results for the quarter ended March 31, 2008, the Company's third quarter of its fiscal year ended June 30, 2008. A 10QSB Form was filed for the quarter with the U.S. Securities Exchange Commission that is available through the Company's website and from the SEC.

Third Quarter 2008 Highlights: -- Revenue totaled $28.1 million, up 48.5% year-over-year -- Gross profit totaled $21.8 million, up 60.7% year-over-year -- Gross margin was 77.4%, compared to 71.5% a year ago -- Net income rose to $4.5 million, up 138.46% from the quarter ended March 31, 2007, $0.01 per basic and diluted share -- Engaged Moore Stephens Wurth Frazer & Torbet, LLP as independent auditor

"We are pleased to report financial results that confirm the growing popularity of our products. Our best selling products continue to be Clarithromycin sustained-release tablets and Itopride Hydrochloride granules. Sales for Baobaole chewable tablets, our first Chinese herbal over the counter drug product, have grown rapidly since we introduced it at the end of 2007," said Mr. Cao Wubo, Chairman and CEO of Genesis Pharmaceuticals Enterprises, Inc. "We have several new drugs that are still in various stages of approval from China's State Food and Drug Administration, and we believe that we will be able to introduce four new drugs in the near future."

Third Quarter of Fiscal Year 2008 Results

Total revenue in the third quarter ended March 31, 2008 was $28.1 million, up 48.5% from $18.9 million in the prior year's period. This increase in revenue was mostly due to increased sales of the Company's two most popular products, Clarithromycin sustained-release tablets and Itopride Hydrochloride Granules as well as sales of Baobaole chewable tablets, which grew rapidly from the time the product was first launched in the second quarter of fiscal year 2008.

Gross profit in the third quarter ended March 31, 2008 totaled $21.8 million, an increase of 60.7% from $13.5 million in the prior year's period. Gross margin was 77.4%, compared to 71.5% in the prior year's period. The increase of gross profit was due to increased sales of higher profit margin products, better control over raw material purchases and more efficient manufacturing.

Research and development expenses in the third quarter ended March 31, 2008 totaled $1.0 million, up slightly from the prior year's period. These research and development expenses were related primarily to payments to the two research institutes with which the Company has collaborative agreements.

Selling, general and administrative expenses in the third quarter ended March 31, 2008 totaled $12.1 million, up 25.6% from $9.7 million in the prior year's period. The majority of this increase was because of an increase in commissions to sales representatives. Starting January, 2008, the Company increased its sales commissions to provide better incentives to its sales representatives. Administrative expenses related to being a public company also increased in fiscal year 2008.

Operating income in the third quarter ended March 31, 2008 totaled $8.7 million, a 195.8% increase from $2.9 million in the prior year's period, representing operating margin of 30.8%.

Other expenses in the third quarter ended March 31, 2008 totaled $2.0 million, compared to $80,000 in the prior year's period. The significant increase in the Company's other expense was related primarily to a $1.2 million unrealized loss on trading securities, a $0.5 million amortization expense on discounted debt and a $0.2 million loss from discontinued operations.

Net income for the third quarter ended March 31, 2008 totaled $4.5 million, which is $0.01 per basic and fully diluted share, up 138.46% from net income of $1.9 million, which was $0.02 per basic and fully diluted share for the corresponding period in fiscal year 2007. This decrease in earnings per basic and fully diluted shares was due to additional shares and warrants being issued in connection with the reverse merger that took place in October 2007, subscriptions and exercised options.

Nine Month Operating Highlights

Total revenue in the first nine months of fiscal year 2008 was $71.3 million, up 27.6% from $55.8 million in the nine month period ended March 31, 2007. Gross profit was $53.5 million, up 33.4% from $40.1 million in the prior year's period. Gross margin was 75.1%, up from 71.8% in the prior year's period. Operating income totaled $22.1 million, a 97.4% increase from $11.2 million in the prior year's period. The Company's operating margin increased to 31.0%, up from 20.0% in the prior year's period. Net income in the nine month period ended March 31, 2008 totaled $12.9 million, or $0.05 per fully diluted share, up 73.7% from net income of $7.4 million, or $0.08 per fully diluted share, in the nine month period ended March 31, 2007. The decrease in earnings per basic and fully diluted shares was due primarily to an increase in shares outstanding in the nine months ended March 31, 2008.

Financial Condition

As of March 31, 2008, the Company had $21.6 million in cash and $3.5 million in restricted cash. Working capital was $30.8 million, up from $16.0 million as of June 30, 2007. Current liabilities were $25.8 million, and long- term debt consisted of $0.7 million in convertible debt, net of a $4.3 million discount. Research and Development Obligations were $11.9 million to be paid over the next five years. Shareholder's equity was $54.1 million. The Company generated $17.7 million in cash flow from operating activities in the first nine months of fiscal 2008. Capital expenditures totaled $8.6 million, due primarily to the purchase of the land use rights for future manufacture facility expansion.

Business Outlook

Genesis Pharmaceuticals Enterprises, Inc. has five drugs currently approved by the Chinese State Food and Drug Administration, three of which are listed on the national insurance catalog for reimbursement. In addition, sales of the newly launched, Traditional Chinese Medicine over the counter drug, Baobaole chewable tablets, are expected to increase. The Company has several new drugs waiting for government manufacturing and sales approvals.

"We are pleased to report another strong quarter of operations," stated Mr. Cao. "We look forward to receiving approvals for several new drugs that we have submitted to the government for manufacturing and distribution approval. We are increasing the efficiency of our manufacturing processes, and believe that our extensive sales network will allow us to further increase sales of our products throughout China. We look forward to continuing to generate positive financial results."

Conference Call

Genesis Pharmaceuticals Enterprises, Inc. management will host a conference call at 10:00 a.m. Eastern on Friday, May 16, 2008 to discuss financial results for the quarter ended March 31, 2008. The conference call will include Mr. Cao Wubo, Chairman and Chief Executive Officer; Mr. Haibo Xu, COO; and Ms. Elsa Sung, CFO. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: [phone]. International callers should call [phone]. The Conference Passcode is 514 344 81. If you are unable to participate in the call at that time, replay of the conference call will be available from 12:00 p.m. Eastern on May 16 through Friday, May 30. To access the replay, please call [phone]. International callers should call [phone]. The Conference Passcode is 91325898.

About Genesis Pharmaceuticals Enterprises, Inc.

Genesis Pharmaceuticals Enterprises, Inc. is a U.S. public company engaged in the research, development, production, marketing and sales of pharmaceutical products in the People's Republic of China. Its operations are located in Northeast China in an Economic Development Zone in Laiyang City, Shandong province. Genesis is a major pharmaceutical company in China producing tablets, capsules, and granules for both western and Chinese herbal- based medical drugs. For more information about the Company, refer to http://www.genesis-china.net/ .

Safe Harbor Statement

Certain statements in this press release that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially from those included within the forward-looking statements. Forward-looking statements involve risks and uncertainties, including those relating to the Company's ability to introduce, manufacture and distribute new drugs. Actual results may differ materially from predicted results, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, the Company's ability to obtain raw materials needed in manufacturing, the continuing employment of key employees, the failure risks inherent in testing any new drug, the possibility that regulatory approvals may be delayed or become unavailable, patent or licensing concerns that may include litigation, direct competition from other manufacturers and product obsolescence. More information about the potential factors that could affect the Company's business and financial results is included in the Company's filings, available via the United States Securities and Exchange Commission.

GENESIS PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED) Three months ended Nine months ended March 31 March 31 2008 2007 2008 2007 REVENUES: Sales $26,231,191 $18,472,649 $66,648,051 $52,876,082 Sales - related party 1,869,092 455,580 4,611,849 2,963,871 TOTAL REVENUE 28,100,283 18,928,229 71,259,900 55,839,953 COST OF SALES 6,337,822 5,388,811 17,744,379 15,724,047 GROSS PROFIT 21,762,461 13,539,418 53,515,521 40,115,906 RESEARCH AND DEVELOPMENT EXPENSE 967,930 953,560 2,170,240 10,441,060 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 12,136,164 9,658,803 29,269,330 18,491,304 INCOME FROM OPERATIONS 8,658,367 2,927,055 22,075,951 11,183,542 OTHER (INCOME) EXPENSE, NET Other expenese, net 1,217,477 -- 1,136,534 -- Non-operating (income) expense (529) 11,224 (232) 5,642 Interest expense, net 526,509 69,233 925,993 204,671 Loss from discontinued business 228,812 -- 341,743 -- OTHER EXPENSE, NET 1,972,269 80,457 2,404,038 210,313 INCOME BEFORE PROVISION FOR INCOME TAXES 6,686,098 2,846,598 19,671,913 10,973,229 PROVISION FOR INCOME TAXES 2,211,265 970,025 6,808,625 3,567,857 NET INCOME 4,474,833 1,876,573 12,863,288 7,405,372 OTHER COMPREHENSIVE INCOME: Unrealized (loss) gain on marketable securities (270,351) -- 1,347,852 Foreign currency translation adjustment 1,960,948 368,537 3,428,779 673,047 COMPREHENSIVE INCOME $6,165,430 $2,245,110 $17,639,919 $8,078,419 WEIGITED AVERAGE NUMBER OF SHARES: Basic 389,605,134 84,545,655 260,297,377 84,131,121 Diluted 393,292,698 90,950,796 263,271,624 89,658,922 EARNINGS PER SHARE: Basic $0.01 $0.02 $0.05 $0.09 Diluted $0.01 $0.02 $0.05 $0.08 GENESIS PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2008 A S S E T S (Unaudited) CURRENT ASSETS: Cash $21,574,044 Restricted cash 3,488,604 Marketable equity securities 2,112,500 Accounts receivable, net of allowance for doubtful accounts of $62,625 20,589,289 Accounts receivable - related parties 2,019,278 Inventories 5,542,846 Other receivables 284,908 Other receivables - related parties 85,680 Advances to suppliers 894,741 Other assets 2,271 Total current assets 56,594,161 PLANT AND EQUIPMENT, net 11,081,056 OTHER ASSETS: Restricted marketable securities 2,826,413 Debt issuance cost, net 306,825 Intangible assets, net 9,777,832 Total other assets 12,911,070 Total assets $80,586,287 L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y CURRENT LIABILITIES: Accounts payable $3,448,086 Short term bank loans 2,713,200 Notes payable 3,488,604 Other payables 3,736,397 Other payables - related parties 28,560 Accrued liabilities 545,885 Liabilities assumed from reorganization 1,352,997 Taxes payable 10,521,050 Total current liabilities 25,834,779 CONVERTIBLE DEBT, net of discount $4,328,704 as of March 31, 2008 671,296 COMMITMENTS AND CONTINGENCIES -- SHAREHOLDERS' EQUITY: Common Stock ($0.001 par value, 600,000,000 shares authorized, 390,478,760 shares issued and outstanding) 390,480 Paid-in-capital 22,803,151 Capital contribution receivable (7,711,000) Retained earnings 28,934,053 Statutory reserves 3,740,456 Accumulated other comprehensive income 5,923,072 Total shareholders' equity 54,080,212 Total liabilities and shareholders' equity $80,586,287 GENESIS PHARMACEUTICALS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED) 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $12,863,288 $7,405,372 Loss from discontinued operations 341,743 -- Income from continued operations 13,205,031 7,405,372 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation 375,456 253,063 Amortization of intangible assets 113,578 75,772 Amortization of debt issuance costs 47,583 -- Amortization of debt discount 671,296 -- Allowance for bad debts (112,459) Loss on sale of marketable securities 19,819 -- Unrealized loss on marketable securities 1,150,516 -- Deferred compensation expense 28,750 -- Change in operating assets and liabilities Accounts receivable (7,246,740) (3,308,650) Accounts receivable - related parties (1,403,383) (245,420) Notes receivables 59,790 (29,473) Inventories 27,542 1,065,113 Other receivables (254,886) (937) Other receivables - related parties (81,384) Advances to suppliers (488,064) (10,316) Other assets 96,538 1,282,175 Accounts payable 1,159,105 (2,324,940) Accrued liabilities 301,290 58,191 Other payables 2,146,659 (1,355,440) Other payables - related parties (962,509) (592,232) Liabilities from discontinued operations (1,162,133) -- Taxes payable 10,006,057 2,011,128 Net cash provided by operating activities 17,697,452 4,283,404 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of marketable securities 605,882 -- Payment for land use right (8,246,830) -- Purchase of equipment (401,302) (58,469) Cash receipt from reverse acquisition 534,950 -- Net cash used in investing activities (7,507,300) (58,469) CASH FLOWS FINANCING ACTIVITIES: Proceeds from sale of common stock 337,500 -- Proceeds from sale of treasury stock 1,977 -- Payments for dividend (10,520,000) -- Payments for debt issuance cost (354,408) -- Proceeds from convertible debt 5,000,000 -- Proceed from officers 27,128 -- Payments for bank loans (5,425,600) (1,273,300) Proceeds from bank loans 3,255,360 -- Notes payable 5,361,849 725,702 Restricted cash (5,361,849) (725,702) Net cash used in financing activities (7,678,043) (1,273,300) EFFECTS OF EXCHANGE RATE CHANGE IN CASH 1,324,727 166,101 INCREASE IN CASH 3,836,836 3,117,736 CASH, beginning of the period 17,737,208 3,371,598 CASH, end of the period $21,574,044 $6,489,334 For more information, please contact: Genesis Pharmaceuticals Enterprises, Inc. Ms. Elsa Sung CFO Tel: [phone] Email: [e-mail]: http://www.genesis-china.net/ CCG Elite Investor Relations, Inc. Mr. Crocker Coulson, President Tel: [phone] Email: [e-mail]: http://www.ccgelite.com/