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China Shenghuo Pharmaceutical Reports Financial Results for the Fourth Quarter and Full Year 2009

Thursday, April 15, 2010 Corporate News
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KUNMING, China, April 14 China ShenghuoPharmaceutical Holdings, Inc. (NYSE: KUN) ("China Shenghuo" or the "Company"),today reported financial results for the fourth quarter and record revenue forthe year ended December 31, 2009.
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Mr. Gui Hua Lan, Chief Executive Officer of China Shenghuo, commented,"Sales for the year ended December 31, 2009 were approximately $36.0 million,an increase by 25.5% from $28.7 million for the year ended December 31, 2008.The increase in sales was primarily due to the Company's implementation of anew sales policy that has stimulated the enthusiasm of sales representatives,resulting in the increased sales of products. Our primary products, XuesaitongSoft Capsules and the innovative 12 Ways cosmetic products continued toproduce meaningful growth in a difficult market environment."
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Fourth Quarter 2009 Results

For the quarter ended December 31, 2009, total sales were $10.5 million,up 43.8% from $7.3 million in the same quarter last year. This sales growthwas mainly due to the Company's implementation of a new sales policy that hasstimulated the enthusiasm of sales representatives and resulted in theincreased sales of products.

Gross profit for the quarter was $8.3 million, an increase of 23.9% from$6.7 million for the same period of 2008. Gross margin was 78.7% for thequarter, decreased from 91.4% for the same period in 2008 due to theincreasing price of raw materials.

Selling expenses increased 44.9% year-over-year to $6.7 million from $4.6million for the fourth quarter of 2008 mainly due to more marketing and salesefforts.

General and administrative expenses decreased 56.2% to $1.7 million from$3.9 million in the fourth quarter of 2009. The decrease was primarilyattributable to reduction of bad debt loss and strengthened budget controlover expense disbursements.

Income tax benefit was $0.6 million, compared to income tax expense of$0.4 million for the fourth quarter of 2008. The income tax benefits weremainly generated from accumulated losses carried forward, which the Companybelieved would be able to be realized by implementing a tax planning strategy.

Net income attributable to stockholders for the fourth quarter 2009 was$0.2 million, compared with a net loss of $2.4 million for the fourth quarter2008. Basic and diluted earnings per share were $0.01 for the fourth quarter2009, compared to a basic and diluted loss per share of $0.12 for the fourthquarter 2008.

Full Year 2009 Results

For the year ended December 31, 2009, sales increased 25.5% to $36.0million, from $28.7 million for the year ended December 31, 2008. The increasein sales was primarily due to the Company's implementation of a new salespolicy that has stimulated the enthusiasm of sales representatives andresulted in the increased sales of products.

Gross profit increased 24.3% to $26.1 million for the year ended December31, 2009 from $21 million for fiscal year 2008. Gross profit margin was 72.5%compared with 73.2% for the previous year. The decrease in gross profit marginwas primarily due to the increasing price of raw material.

Selling expenses increased 98.0% year-over-year from $13.3 million to$26.3 million mainly due to more marketing and sales efforts.

General and administrative expenses decreased 36.3% from $10.9 million to$6.9 million, mainly due to reduction of bad debt loss and strengthened budgetcontrol over expense disbursements.

Research and development expense decreased 58.7% from $0.3 million to $0.1million mainly due to more focus on a few innovative pharmaceuticals insteadof on a number of generic drugs.

Total operating expenses for 2009 were $33.3 million compared with $24.5million for 2008.

Income taxes benefits were $1.1 million for the year ended December 31,2009, compared to income taxes expense of $ 0.4 million for the year endedDecember 31, 2008. The income tax benefits were mainly generated fromtemporary deductible difference in accrued expenses and from accumulatedlosses carried forward, which the Company believed would be able to berealized by implementing a tax planning strategy.

Net loss attributable to stockholders was $6.6 million, or $0.33 loss perfully basic and diluted share, for the year ended December 31, 2009, comparedwith a net loss of $4.6 million, or $0.24 loss per fully basic and dilutedshare, for the year ended December 31, 2008.

Balance sheet

As of December 31, 2009, the Company had $2.0 million in cash and cashequivalents, $6.9 million of working capital deficiency and a current ratio of0.79:1. The Company had $5.5 million short-term loans and $3.9 million -current portion of long-term borrowings. At year end, shareholders' equity was$0.8 million decreasing from $7.4 million at the end of 2008.

The Company generated $2.5 million in cash from operating activities forthe year ended December 31, 2009, compared to cash of $1.9 million in 2008.The strong cash flow from operating income was mainly due to increase ofdeposits prepaid by sales representatives and increase of advance fromcustomers. The Company used $3.1 million in investing activities and obtained$1 million provided by financing activities.

About China Shenghuo

Founded in 1995, China Shenghuo is a specialty pharmaceutical company thatfocuses on the research, development, manufacture and marketing ofSanchi-based medicinal and pharmaceutical, nutritional supplement and cosmeticproducts. Through its subsidiary, Kunming Shenghuo Pharmaceutical (Group) Co.,Ltd., it owns thirty SFDA (State Food and Drug Administration) approvedmedicines, including the flagship product Xuesaitong Soft Capsules, which hasalready been listed in the Insurance Catalogue. At present, China Shenghuoincorporates a sales network of agencies and representatives throughout China,which markets Sanchi-based traditional Chinese medicine to hospitals and drugstores as prescription and OTC drugs primarily for the treatment ofcardiovascular, cerebrovascular and peptic ulcer disease. The Company alsoexports medicinal products to Asian countries such as Indonesia, Singapore,Japan, Malaysia, and Thailand and to European countries such as the UnitedKingdom, Tajikistan, Russia and Kyrgyzstan. For more information, please visithttp://www.shenghuo.com.cn .

Safe Harbor Statement

This press release may contain certain "forward-looking statements," asdefined in the United States Private Securities Litigation Reform Act of 1995,that involve a number of risks and uncertainties. There can be no assurancethat such statements will prove to be accurate, and the actual results andfuture events could differ materially from management's current expectations.Such factors include, but are not limited to, risks of litigation andgovernmental or other regulatory proceedings arising out of or related to anyof the matters described in recent press releases, including arising out ofthe restatement of the Company's financial statements; the Company's abilityto refinance or repay loans received; the Company's uncertain businesscondition; the Company's continuing ability to satisfy any requirements whichmay be prescribed by the Exchange for continued listing on the Exchange; risksarising from potential weaknesses or deficiencies in the Company's internalcontrols over financial reporting; the Company's reliance on one supplier forSanchi; the possible effect of adverse publicity on the Company's business,including possible contract cancellation; the Company's ability to develop andmarket new products; the Company's ability to establish and maintain a strongbrand; the Company's continued ability to obtain and maintain all certificates,permits and licenses required to open and operate retail specialty counters tooffer its cosmetic products and conduct business in China; protection of theCompany's intellectual property rights; market acceptance of the Company'sproducts; changes in the laws of the People's Republic of China that affectthe Company's operations; cost to the Company of complying with current andfuture governmental regulations; the impact of any changes in governmentalregulations on the Company's operations; general economic conditions; andother factors detailed from time to time in the Company's filings with theUnited States Securities and Exchange Commission and other regulatoryauthorities. The Company undertakes no obligation to publicly update or reviseany forward-looking statements, whether as a result of new information, futureevents or otherwise.Fourth Quarter Highlights -- Total revenue increased to $10.5 million for the fourth quarter of 2009, representing 43.8% year-over-year growth. -- Gross profit for the fourth quarter of 2009 increased to $8.3 million, compared to $6.7 million for the same period in 2008. Full Year 2009 Highlights -- Total revenue was $36.0 million, an increase of 25.5% from $28.7 million for the year 2008. -- Gross margin was 72.5%, as compared to 73.2% in 2008. -- Cash provided by operating activities was $2.5 million, an increase of over $0.55 million from 1.95 million for the year ended December 31, 2008. -- Net loss attributable to stockholders was $6.6 million, as compared with a net loss of $4.6 million for the year ended December 31, 2008.

SOURCE China Shenghuo Pharmaceutical Holdings, Inc.
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