KUNMING, China, Nov. 16 /PRNewswire-Asia-FirstCall/ -- China Shenghuo Pharmaceutical Holdings, Inc. (NYSE Amex Equities: KUN) ("China Shenghuo" or the "Company"), which is engaged in the research, development, manufacture, and marketing of pharmaceutical, nutritional supplement and cosmetic products in the People's Republic of China ("PRC"), today reported unaudited financial results for the third quarter ended September 30, 2009.
Third Quarter 2009 Financial Highlights -- Total revenues increased by 45% year-over-year to $10.56 million; -- Gross margin decreased to 72.08% from 72.89% in the same period of 2008; -- Net cash provided by operations was $0.88 million compared with negative cash flow of $ 0.23 million for the nine months ended September 30, 2009 and 2008, respectively.
Mr. Gui Hua Lan, Chief Executive Officer of China Shenghuo, commented, "Sales for the three months ended September 30, 2009 was approximately $10.56 million, an increase by 45.00 % from $7.28 million for the three months ended September 30, 2008. The increase in sales was primarily due to the Company's implementation of a new sales policy that has stimulated the enthusiasm of sales representatives, resulted in the increased sales of products. Our primary products, Xuesaitong Soft Capsules and the innovative 12 Ways cosmetic products continued to produce meaningful growth in a difficult market environment."
Third Quarter 2009 Financial Results
Revenues for the third quarter of 2009 increased by 45% to $10.56 million compared to $7.28 million for the same period in 2008. The increase in revenues was primarily due to the Company's implementation of a new sales policy that has stimulated the enthusiasm of sales representatives and resulted in increased sales of products.
Gross margin for the third quarter of 2009 increased by 43.41% to $7.61 million from $5.30 million for the same period in 2008. Gross margin for the three months ended September 30, 2009 was 72.09%, compared with 72.89% for the same period in 2008. The decrease in gross margin percentage was primarily due to the increasing price of raw material.
Selling expense for the third quarter of 2009 was $6.99 million compared with $2.99 million for the same period of 2008. The primary reason for the increase in selling expenses was the change in our marketing policy. Our main product has been sold to patients through hospitals, which customer relationships were cultivated by sales representatives. However, we believe it is in our long-term best interest to grow our operations through the over-the-counter ("OTC") market, which we anticipate will produce higher profit margins. Accordingly, we began developing the OTC market in 2009 and as of September 30, 2009, revenue from the OTC market comprises approximately 10% of the total sales revenue for Medicine. As of September 30, 2009, we estimate that our expenditures for developing the Company's presence in the OTC market through such in 2009 are approximately RMB 10 million and that we will have to dedicate significant funds in the future to continue to develop in the OTC market. Although we are focusing our operations on the OTC market, we have adopted a policy to absorb a significantly higher percentage of costs incurred by our sales representatives than in the past in order to foster their cooperation in developing the OTC market. The costs being borne by us with respect to developing the OTC market are being accrued in selling expenses.
The Company reimburses the sales representatives their selling and marketing expenses when they submit the appropriate documentation to be reimbursed and their sales are collected. The accrued selling expenses are due within one to six months. The Company reimburses the sales representatives their accrued selling expenses when related accounts receivable are collected.
General and administrative expenses decreased by 41.53% to $1.06 million in the third quarter of 2009 compared with $1.82 million for the same period in 2008, primarily due to (i) reduction of the professional service fee relating to maintain our status as a public company with its securities traded on a U.S. national exchange; and (ii) our strengthened budget control over expense disbursements to reduce unnecessary expense.
Loss from operations for the third quarter of 2009 was $0.45 million compared with operating income of $0.43 million for the same period of 2008.
Net (Loss) Income attributable to shareholders for the third quarter of 2009 was $0.03 million, or $ (0.00) per basic and diluted share. This compares to a net income of $0.15 million, or $ 0.01 per basic and diluted share for the same period of 2008.
Balance Sheet
As of September 30, 2009, the Company's total cash and cash equivalents amounted to $2.72 million as compared with $1.6 million as of December 31, 2008. Total shareholders' equity amounted to $0.56 million as of September 30, 2009.
Drugs Pipeline
China Shenghuo has a number of drugs currently in phase II clinical trials with the State Food and Drug Administration (SFDA) for prescription use. The Company's drug portfolio development strategy mainly focuses on three major markets -- cardio- and cerebro-vascular diseases, peptic ulcer diseases and general health products. Below is the list of drugs and their anticipated SFDA approval timetable:
Anticipated Drugs Name Intended Use Approval Year Levofloxacin Hydrochloride Antibiotic applications 2010 Soft Capsule Dencichine Hemostat Anti-hemorrhagic applications 2012 Wei Dingkang Soft Capsule Peptic ulcer 2011 Business Update
Mr. Lan concluded, "Strong product-development capabilities, existing product pipelines and those products entering into clinical-research stages are helping to generate meaningful year-over-year top-line growth as we continue our efforts on expanding market share in the vast cardio- and cerebro-vascular market. On the other hand, we believe it is in our best-long term interest to grow our operations through the over-the-counter ("OTC") market, which will produce higher profit margins. We therefore began developing the OTC market in 2009 and we can expect a further expansion of OTC market in the fourth quarter of this year since we have achieved remarkable results so far. In addition, our 12 Ways cosmetics products give us greater revenue diversification that we did not have before. We are building a solid foundation which will help us to increase profitability and increase shareholder value going forward."
About China Shenghuo
Founded in 1995, China Shenghuo is a specialty pharmaceutical company that focuses on the research, development, manufacture and marketing of Sanchi-based medicinal and pharmaceutical, nutritional supplement and cosmetic products. Through its subsidiary, Kunming Shenghuo Pharmaceutical (Group) Co., Ltd., it owns thirty SFDA (State Food and Drug Administration) approved medicines, including the flagship product Xuesaitong Soft Capsules, which has already been listed in the Insurance Catalogue. At present, China Shenghuo incorporates a sales network of agencies and representatives throughout China, which markets Sanchi-based traditional Chinese medicine to hospitals and drug stores as prescription and OTC drugs primarily for the treatment of cardiovascular, cerebrovascular and peptic ulcer disease. The Company also exports medicinal products to Asian countries such as Indonesia, Singapore, Japan, Malaysia, and Thailand and to European countries such as the United Kingdom, Tajikstan, Russia and Kyrgyzstan. For more information, please visit http://www.shenghuo.com.cn/ .
Safe Harbor Statement
This press release may contain certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to, risks of litigation and governmental or other regulatory proceedings arising out of or related to any of the matters described in recent press releases, including arising out of the restatement of the Company's financial statements; the Company's ability to refinance or repay loans received; the Company's uncertain business condition; the Company's continuing ability to satisfy any requirements which may be prescribed by the Exchange for continued listing on the Exchange; risks arising from potential weaknesses or deficiencies in the Company's internal controls over financial reporting; the Company's reliance on one supplier for Sanchi; the possible effect of adverse publicity on the Company's business, including possible contract cancellation; the Company's ability to develop and market new products; the Company's ability to establish and maintain a strong brand; the Company's continued ability to obtain and maintain all certificates, permits and licenses required to open and operate retail specialty counters to offer its cosmetic products and conduct business in China; protection of the Company's intellectual property rights; market acceptance of the Company's products; changes in the laws of the People's Republic of China that affect the Company's operations; cost to the Company of complying with current and future governmental regulations; the impact of any changes in governmental regulations on the Company's operations; general economic conditions; and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
For further information, please contact: China Shenghuo Pharmaceutical Holdings, Inc. Miss Shujuan Wang Director of Securities Affairs Department Email: wangshujuan@chinashenghuo.net CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS September 30, December 31, 2009 2008 Assets: Unaudited Audited Current Assets: Cash and cash equivalents $ 2,723,716 $ 1,612,054 Accounts and notes receivable, less allowance for doubtful accounts of $1,650,774 and $4,834,745, for 2009 and 2008, respectively 13,721,541 9,108,703 Other receivables, less allowance for doubtful accounts of $2,495,914 and $2,955,516, respectively 7,212,920 8,637,653 Advances to suppliers 271,132 446,168 Inventories, net of allowance for obsolescence of $148,335 and $147,978, respectively 3,485,225 4,287,462 Receivables from related parties 164,044 -- Other current assets 10,543 41,177 Total Current Assets 27,589,121 24,133,217 Property, plant and equipment, net of accumulated depreciation of $5,761,407 and $5,341,933, respectively 7,345,163 7,581,664 Intangible assets, net of accumulated amortization of $186,951 and $71,456, respectively 1,134,697 665,959 Deferred tax assets 401,300 -- Long-term other receivables, less allowance for doubtful accounts of nil and $664,532, respectively -- 663,433 $ 36,470,281 $ 33,044,273 CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (CONTINUTED) September 30, December 31, 2009 2008 LIABILITIES AND STOCKHOLDERS' Unaudited Audited EQUITY: Current Liabilities: Accounts payable $ 3,228,171 $ 1,293,460 Other payables and accrued expenses 8,143,224 2,721,082 Deposits 6,379,811 5,550,502 Payables to related parties -- 148,575 Short-term notes payable 5,337,043 9,850,211 Advances from customers 1,304,861 222,609 Taxes and related payables 1,440,571 1,236,574 Current portion of long-term notes payable 3,802,504 3,245,685 Total Current Liabilities 29,636,185 24,268,698 Long-term notes payable 6,435,006 1,131,193 Total Liabilities 36,071,191 25,399,891 Equity: Common stock, par value $0.0001; 100,000,000 shares authorized; 19,679,400shares outstanding, both periods 1,968 1,968 Additional paid-in capital 6,193,927 6,193,927 Statutory reserves 147,023 147,023 Accumulated deficit (7,372,543) (603,572) Accumulated other comprehensive income 1,587,438 1,656,812 Total shareholder's equity 557,813 7,396,158 Noncontrolling interest (158,723) 248,224 Total equity 399,090 7,644,382 $ 36,470,281 $ 33,044,273 CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS) Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Unaudited Unaudited Unaudited Unaudited Sales $10,558,218 $7,281,384 $25,459,077 $21,359,149 Cost of Sales 2,947,511 1,973,865 7,643,566 7,061,446 Gross Margin 7,610,707 5,307,519 17,815,511 14,297,703 Operating Expenses: Selling expenses 6,988,017 2,989,486 19,604,857 8,666,561 General and administrative expenses 1,063,981 1,819,573 5,230,722 7,001,410 Research and development expenses 10,534 66,052 24,455 255,241 8,062,532 4,875,111 24,860,034 15,923,212 (Loss) / Income from Operations (451,825) 432,408 (7,044,523) (1,625,509) Other Income / (Expense): Interest income 1,349 588 2,661 5,701 Income from research and development activities 49,723 5,745 194,902 344,370 Interest expense (184,228) (272,002) (704,242) (963,198) Non-operating expenses (2,847) (330) (22,038) (138,812) (136,003) (265,999) (528,717) (751,939) (Loss) / Income Before Income Tax (Expense) Benefit and Non-controlling Interest (587,828) 166,409 (7,573,240) (2,377,448) Income tax benefit / (expense) 401,012 (4,471) 401,012 (4,484) Net (Loss) / Income (186,816) 161,938 (7,172,228) (2,381,932) Net loss / (income) attributable to noncontrolling interest 154,892 (7,652) 403,257 146,089 Net (Loss) / Income Attributable to Shareholders $(31,924) $154,286 $(6,768,971) $(2,235,843) Basic and Diluted Earnings / (Loss) per Share $(0.00) $0.01 $(0.34) $(0.11) Weighted-average Number of Shares Outstanding - Basic and Diluted 19,679,400 19,679,400 19,679,400 19,679,400 Comprehensive (Loss) / Income: Net (Loss) / Income (186,816) 161,938 (7,172,228) (2,381,932) Foreign currency translation adjustment (76,185) 54,116 (73,064) 744,189 Comprehensive (Loss) / Income (263,001) 216,054 (7,245,292) (1,637,743) Comprehensive (Loss) / Income attributable to noncontrolling interest 158,739 (10,385) 406,947 108,507 Comprehensive (Loss) Income Attributable to Shareholders (104,262) 205,669 (6,838,345) (1,529,236) CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 2009 2008 Unaudited Unaudited Cash Flows from Operating Activities: Net loss $ (6,768,971) $ (2,235,843) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 542,040 619,402 Deferred income taxes (401,012) -- Non-controlling interest in loss of subsidiaries (403,257) (146,089) Allowance for doubtful accounts 1,454,131 3,596,319 Change in current assets and liabilities: Accounts and notes receivable (5,749,846) (919,991) Other receivables 1,783,691 (1,465,805) Advances to suppliers 175,993 (60,460) Inventories 812,063 333,486 Other current assets 30,709 143,282 Accounts payable 1,930,185 655,989 Accrued expenses and deposits 6,191,182 (538,712) Advances from customers 1,080,935 119,991 Taxes and related payables 200,851 (334,217) Net Cash Provided by (Used in) Operating Activities 878,694 (232,648) Cash Flows from Investing Activities: Capital expenditures (738,350) (218,780) Receivables from related parties (163,926) (3,957) Net Cash Used in Investing Activities (902,276) (222,737) Cash Flows from Financing Activities: Payables to related parties (181,445) 87,385 Proceeds from short and long-term notes payable 21,227,417 5,715,216 Payments on short and long-term notes payable (19,915,434) (7,215,461) Net Cash Provided by (Used in) Financing Activities 1,130,538 (1,412,860) Effect of foreign currency exchange rate fluctuation on Cash and Cash Equivalents 4,706 148,328 Net Change in Cash and Cash Equivalents 1,111,662 (1,719,917) Cash and Cash Equivalents at Beginning of Period 1,612,054 2,800,641 Cash and Cash Equivalents at End of Period $ 2,723,716 $ 1,080,724 Supplemental Information Cash paid for interest $ 704,242 $ 963,198 Cash paid for income taxes $ -- $ --
China Shenghuo Pharmaceutical Holdings, Inc.
CONTACT: China Shenghuo Pharmaceutical Holdings, Inc., Miss Shujuan Wang,
Director of Securities Affairs Department, wangshujuan@chinashenghuo.net
Web site: http://www.shenghuo.com.cn/
