China Medicine Reports Second Quarter 2010 Financial Results
GUANGZHOU, China, Aug. 12 /PRNewswire-Asia-FirstCall/ -- China Medicine Corporation (OTC Bulletin Board: CHME) ("China Medicine" or "the Company"), a leading manufacturer, developer and distributor of Western pharmaceuticals, traditional Chinese medicines ("TCM"), and other health products, today announced financial results for the second quarter ended June 30, 2010.
Second Quarter 2010 Financial Performance -- Revenue increased 14.2% to $17.2 million from $15.1 million in the prior year period. -- Gross margin was 35.5%, compared to 23.4% in the prior year period. -- Operating income increased 113.0% to $3.8 million from $1.8 million in the prior year period. -- Net income available to common shareholders increased to $4.1 million, or $0.10 per diluted share, from $41,996, or $0.00 per diluted share, in the prior year period.
Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation, stated, "We are very happy with our performance this quarter, which marked a successful period of transition for us as we move from a pure pharmaceutical distributor to a vertically-integrated pharmaceutical enterprise. We are especially pleased with the improvement in gross margin, which was mainly driven by a product mix shift within our distribution business and the revenue contribution from our LifeTech proprietary products. Additionally, our addressable market in China continues to grow, and our efforts to capitalize on this growth are progressing very well. We believe that we are well-positioned to be a leading consolidator in this fragmented industry and we'll strive to work responsibly and aggressively on behalf of our shareholders."
In the second quarter of 2010, revenue increased 14.2% year over year to $17.2 million from $15.1 million, reflecting a combination of continued strong demand for our existing products and contributions from the newly-acquired Guangzhou LifeTech Pharmaceutical Co., Ltd. ("LifeTech"). Revenue from distribution increased 4.1% to $15.2 million from $14.6 million in the prior year period, driven by increased sales of high-margin products mainly for the treatment of cardiovascular and cerebral-vascular diseases. Revenue from proprietary products increased to $2.0 million from $0.5 million in the prior year period, reflecting the inclusion of revenues from LifeTech's products, which were acquired at the end of 2009.
Gross profit increased 73.1% to $6.1 million from $3.5 million in the prior year period. Gross margin increased to 35.5% from 23.4% in the prior year period, primarily due to a revenue mix shift toward higher-margin products. The shift was aided by the product mix shift within our distribution business and increased revenue contribution from LifeTech products.
Operating income in the second quarter of 2010 increased 113.0% to $3.8 million from $1.8 million in the prior year period. Selling, general and administrative expenses increased to $2.0 million from $1.3 million in the same period last year, primarily due to additional overhead costs related to the LifeTech acquisition. Research and development expenses were $0.3 million, compared to $0.4 million in the prior year period.
Net income available to common shareholders in the second quarter of 2010 increased to $4.1 million, or $0.10 per diluted share, from $41,996, or $0.00 per diluted share, in the second quarter of 2009. The earnings per share calculation is based on 40.0 million diluted shares outstanding, compared to 15.4 million diluted shares outstanding in the prior year period. Non-GAAP net income, which excludes a one-time non-cash charge related to the warrants and the change in fair value of warrant liabilities, was $2.7 million, or $0.07 per diluted share, compared to $1.3 million, or $0.08 per diluted share, in the prior year period.
Financial Performance for the Six Months Ended June 30, 2010
For the six months ended June 30, 2010, revenue increased 10.4% to $27.8 million from $25.2 million in the first six months of 2009. During the same time period, gross profit increased 48.3% to $9.4 million from $6.3 million. Income from operations increased 42.0% to $5.0 million from $3.5 million in the first six months of 2009. Net loss available to common shareholders was ($242,870), or ($0.01) per share, compared to net income available to common shareholders of $592,078, or $0.04 per share, in the first six months of 2009. This net loss included a one-time $6.1 million non-cash charge in connection with a deemed preferred stock dividend related to the Company's private placement financing in January 2010. The deemed preferred stock dividend reflects the beneficial conversion feature of the convertible preferred stock issued to OEP CHME Holdings, LLC ("OEP") in the January 2010 private placement in accordance with SAB No.98.
As of June 30, 2010, the Company had cash and cash equivalents of $62.9 million, of which $53.9 million was restricted cash. This compares to $72.9 million as of March 31, 2010 and $2.4 million as of June 30, 2009. Restricted cash represents amounts set aside by the Company in accordance with its debt agreements with a financial institution and the Stock Subscription Agreement that was completed on January 29, 2010. Working capital was $87.6 million as of June 30, 2010. The increase was mainly due to the cash and cash equivalents obtained from OEP upon the completion of the private placement.
Full Year 2010 Financial Guidance
China Medicine reiterates its expectation that full year 2010 revenue will be in the range of $72 to $76 million, 11% to 17% higher than 2009, and gross margin will be in the range of 33% to 38%, as compared to 29.3% in 2009. The Company revised its expectation of full year operating expenses to represent approximately 12-15% of revenue. This guidance reflects China Medicine's current and preliminary views, which are subject to change.
The Company will hold a conference call on Friday, August 13th, at 8:00 a.m. U.S. Eastern Time following the announcement. Listeners may access the call by dialing the following numbers:
United States toll free: 1-866-293-8969
Listeners may access the replay through August 27, 2010 by dialing the following numbers:
United States toll free: 1-888-203-1112 International: 1-719-457-0820 Password: 4400886
Use of Non-GAAP Financial Measures
GAAP results for three and six months periods ended June 30, 2010 and June 30, 2009 include non-cash gains and expenses related to change in the fair value of the Company's warrant liabilities and a deemed preferred stock dividend related to outstanding convertible preferred stock issued to OEP. The non-GAAP measure provides a consistent basis for investors to understand our financial performance in comparison to historical periods without variation of non-recurring items and non-operating related gains and charges. In addition, it allows investors to evaluate our performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, the Company compensates for these limitations by providing the relevant disclosure of the items excluded.
Because these expenses are non-cash, and not related to the Company's operating results, the Company believes that the non-GAAP information is useful to supplement the Company's condensed consolidated financial statements. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About China Medicine Corporation
China Medicine Corporation, a vertically integrated enterprise with a research and development centre, manufacturing facility and well established sales network, engages in the production and distribution of prescription and over the counter ("OTC") drugs, traditional Chinese medicine ("TCM") products, herbs and dietary-supplements, medical devices, and medical formulations in China. The Company is developing a number of proprietary products for a variety of indications, including oncology, high blood pressure and toxin removal from food and animal feeds. For more information, please visit the Company's website at http://www.cmc621.com .
This press release contains forward-looking statements concerning the Company's business and products. The Company's actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, obtaining regulatory approval for new products, government support for rural health care, competition from existing and new competitors, changes in technology, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. China Medicine Corporation undertakes no duty to revise or update any forward-looking statement to reflect events or circumstances after the date of this release.
CHINA MEDICINE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED) For Three Months Ended For Six Months Ended June 30, June 30, 2010 2009 2010 2009 REVENUES Distribution products $15,153,848 $14,553,440 $24,708,356 $24,199,863 Proprietary products 2,036,239 501,653 2,904,308 953,620 Medical technology -- -- 149,712 -- Total revenues 17,190,087 15,055,093 27,762,376 25,153,483 COST OF REVENUES Distribution products 10,022,502 11,154,440 16,791,185 18,171,868 Proprietary products 1,060,143 371,426 1,616,361 672,760 Medical technology -- -- -- -- Total cost of revenues 11,082,645 11,525,866 18,407,546 18,844,628 GROSS PROFIT 6,107,442 3,529,227 9,354,830 6,308,855 OPERATING EXPENSES Research and development 344,517 432,764 708,924 763,506 Selling, general and administrative 1,974,259 1,318,152 3,610,912 1,999,474 Total operating expenses 2,318,776 1,750,916 4,319,836 2,762,980 INCOME FROM OPERATIONS 3,788,666 1,778,311 5,034,994 3,545,875 OTHER INCOME (EXPENSE): Other income (expense), net (46,257) (26,400) (166,960) (20,847) Change in fair value of warrant liabilities 1,371,780 (1,213,218) 2,481,474 (1,971,907) INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 5,114,189 538,693 7,349,508 1,553,121 PROVISION FOR INCOME TAXES 1,089,308 570,014 1,602,263 1,115,500 NET INCOME (CHINA MEDICINE CORPORATION AND NONCONTROLLING INTERESTS) 4,024,881 (31,321) 5,747,245 437,621 Add: Net loss attributable to noncontrolling interests 78,444 73,317 153,885 154,457 NET INCOME ATTRIBUTABLE TO CHINA MEDICINE CORPORATION 4,103,325 41,996 5,901,130 592,078 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment 289,762 (277) 295,105 (58,985) Foreign currency translation attributable to noncontrolling interests 15 68 (11) (1,065) COMPREHENSIVE INCOME $4,393,102 $41,787 $6,196,224 $532,028 Less: Deemed preferred stock dividend -- -- (6,144,000) -- NET INCOME (LOSS) AVAILABLE TO CHINA MEDICINE CORPORATION COMMON SHAREHOLDERS $4,103,325 $41,996 $(242,870) $592,078 EARNINGS (LOSS) PER SHARE Basic $0.19 $-- $(0.01) $0.04 Diluted $0.10 $-- $(0.01) $0.04 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 21,885,645 15,231,214 20,419,738 15,228,966 Diluted 39,992,703 15,355,660 20,419,738 15,248,178 CHINA MEDICINE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2010 2009 Unaudited CURRENT ASSETS Cash $9,004,104 $471,769 Restricted Cash 53,889,986 1,760,400 Accounts receivable, trade, net of allowance for doubtful accounts of $157,725 and $157,083 as of June 30, 2010 and December 31, 2009, respectively 24,877,145 22,314,660 Inventories 3,883,201 2,731,097 Advances to suppliers 6,383,691 2,518,396 Other current assets 1,199,197 465,407 Total current assets 99,237,324 30,261,729 PLANT AND EQUIPMENT, NET 11,550,038 12,000,687 OTHER ASSETS Long term prepayments 7,876,181 7,900,212 Intangible assets, net 16,479,014 16,681,854 Total other assets 24,355,195 24,582,066 Total assets $135,142,557 $66,844,482 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short term loans $4,873,052 $9,506,160 Accounts payable, trade 2,523,532 1,324,269 Other payables and accrued liabilities 672,035 939,887 Customer deposits 690,122 483,358 Taxes payable 2,808,197 2,119,745 Liquidated damages payable 44,003 44,003 Total current liabilities 11,610,941 14,417,422 Fair value of warrant liabilities 634,659 6,918,068 Total liabilities 12,245,600 21,335,490 Commitments and contingencies Redeemable convertible preferred stock, $0.0001 par value, 1,653,333 and Nil shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively 49,600,000 -- SHAREHOLDERS' EQUITY Common stock, $0.0001 par value; 90,000,000 shares authorized, 23,097,806 and 15,451,105 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively 2,309 1,544 Stock Subscription 2,088,000 -- Paid-in capital 39,181,305 13,380,444 Statutory reserves 4,389,665 4,293,116 Retained earnings 22,536,568 22,875,987 Accumulated other comprehensive income 4,733,199 4,438,094 Total shareholders' equity 72,931,046 44,989,185 NONCONTROLLING INTERESTS 365,911 519,807 Total equity 73,296,957 45,508,992 Total liabilities and shareholders' equity $135,142,557 $66,844,482 CHINA MEDICINE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six months ended June 30, 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net income attributable to China Medicine Corporation $5,901,130 $592,078 Net loss attributable to noncontrolling interests (153,885) (154,457) Net income 5,747,245 437,621 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 929,154 433,934 Bad debt expense 118,848 -- Loss on sale of assets -- 27,816 Stock-based compensation 92,904 48,050 Change in fair value of warrants liabilities (2,481,474) 1,971,907 Change in operating assets and liabilities: Accounts receivable, trade (2,460,984) 3,845,752 Inventories (1,136,217) (3,288,910) Advances to suppliers (3,957,879) (1,538,563) Other current assets (729,086) 39,706 Accounts payable, trade 1,188,906 139,758 Other payables and accrued liabilities (269,764) (25,157) Customer deposits 203,939 157,601 Taxes payable 676,969 (717,560) Net cash provided by (used in) operating activities (2,077,439) 1,531,955 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of plant and equipment (172,056) (381,321) Purchase of intangible assets -- (234,512) Proceeds from sale of equipment -- 21,986 Advances on long-term prepayments 56,109 (1,934,767) Net cash used in investing activities (115,947) (2,528,614) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of options and warrants 1,070,338 21,875 Repayments on short-term loans (8,416,339) -- Proceeds from short-term loans 3,763,699 -- Proceeds from issuance of common stock 12,000,000 -- Proceeds from issuance of redeemable preferred stock 57,600,000 -- Payments on private placement related expenses (3,219,552) -- Increase in restricted cash (52,122,386) -- Net cash provided by financing activities 10,675,760 21,875 EFFECT OF EXCHANGE RATE ON CASH 49,961 (2,830) CHANGE IN CASH 8,532,335 (977,614) CASH, beginning of period 471,769 2,791,814 CASH, end of period $9,004,104 $1,814,200 Supplemental disclosure of cash flows: Cash paid interest $177,927 $-- Cash paid income tax $742,846 $1,092,747 China Medicine Corporation Reconciliation of GAAP to Non-GAAP For the Three Months ended June 30, 2010 2009 Net Diluted Net Diluted Income EPS Income EPS Adjusted amount of net income available to common shareholders $2,731,545 $0.07 $1,255,214 $0.08 Adjustments: Change in fair value of warrant liabilities (1,371,780) (0.03) 1,213,218 0.08 Deemed preferred stock dividend -- -- -- -- Amount per consolidated statements of operations $4,103,325 $0.10 $41,996 $0.00 Weighted average diluted shares for the period ended 39,992,703 15,355,660 For the Six Months ended June 30, 2010 2009 Net Diluted Net Diluted Income EPS Income EPS Adjusted amount of net income available to common shareholders $3,419,656 $0.17 $2,563,985 $0.17 Adjustments: Change in fair value of warrant liabilities (2,481,474) (0.12) 1,971,907 0.13 Deemed preferred stock dividend 6,144,000 0.30 -- -- Amount per consolidated statements of operations $(242,870) $(0.01) $592,078 $0.04 Weighted average diluted shares for the period ended 20,419,738 15,248,178 For further information, please contact: ICR, Inc. In New York: Ms. Christine Duan Tel: +1-203-682-8200 In Beijing: Ms. Wen Lei Zheng Tel: +86-10-6599-7968 China Medicine Corporation In Guangzhou: Ms. Gavin Chen Tel: +86-20-8737-2102
SOURCE China Medicine Corporation