Biostar Pharmaceuticals Inc. (NASDAQ: BSPM) recently reported a decrease in its net sales and an increase in its net loss in 1Q2016 compared to the similar period a year ago. But, the question investors should be asking is whether the company has enough financial resources to turnaround its fortunes.
When you listen to the management of Biostar Pharmaceuticals Inc. (NASDAQ: BSPM) speak, you get the impression that they see a brighter future for the company. Among other things, Biostar is hoping to capitalize on China’s increasing spending on drugs as the country’s middleclass expands.
But Biostar Pharmaceuticals Inc (NASDAQ: BSPM) doesn’t appear to be standing on a solid financial position. The company finished the last quarter with cash and equivalents of a meager $0.09 million and working capital was about $8.8 million. The management blamed problems with collection of receivables and reduced production capacity at the Aoxing plant in preparation for the GMP certification renewable for the weak cash flow in 1Q2016.
To try and clear the cash shortage overhang, Biostar Pharmaceuticals Inc. (NASDAQ: BSPM) recently announced that it was working with its lender to extend the repayment period of its outstanding loans. That should allow the company to have some breathing room with regards to liquidity. But the management expressed doubts about extending the loans, yet the consequences of failing to get the lenders nod to extend the loans could be dire. The management warned that BSPM might be forced significantly curtail or cease operations altogether.
Because of its cash shortage or the risk of it, Biostar may be forced to return to its lenders for an additional debt funding or raise capital through other means that might include equity issuance.
Future plans for Biostar Pharmaceuticals Inc. (NASDAQ: BSPM)
Once it fixes its liquidity issue, Biostar Pharmaceuticals Inc. (NASDAQ: BSPM) wants to broaden product portfolio, make acquisitions and increase investment in R&D as part of the efforts to fuel its future growth.
Biostar’s net sales fell 88.4% YoY to $0.8 million in 1Q2016, Net loss for the quarter rose to $0.6 million from $0.2 million a year ago.