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The Company also announced it will file a Notification of Late Filingunder Rule 12b-25 of the Securities Exchange Act of 1934 with the SEC for anextension of its Quarterly Report on Form 10-Q for the quarter ended March 31,2010. The Company will also file an amendment to its 2009 Annual Report onForm 10-K to reflect the application of accounting standards related to thevaluation of 750,000 warrants issued in 2008 (the "Warrants").
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China Sky One Medical intends to file the 10-Q for the quarter ended March31, 2010 by Monday, May 17th, within the five day extension period, and theamended 10-K at about the same time. As a result of the delayed filing, theCompany will reschedule its first quarter 2010 earnings conference call fromTuesday, May 11th to Tuesday, May 18th. Details of the rescheduled conferencecall will be provided shortly.
"Based on consultation with our independent auditor, discussion with ourAudit Committee and feedback from the SEC, the Company believes thatapplication of the new accounting standard in question is required," said Mr.Yan-Qing Liu, Chairman and CEO of China Sky One Medical. "I want to emphasizethat the pending 2009 restatement is solely related to the non-cash,non-operating charge related to change in the valuation of the Warrants andwill have no impact on our previously reported income from operations or cashflow."
Preliminary First Quarter 2010 Results
Based on unaudited preliminary information, the Company expects firstquarter results to be as follows:
Change in Accounting Standard
On January 1, 2009, Accounting Standards Codification (ASC) 815-40,"Derivatives and Hedging - Contracts in Entity's Own Equity," formerlyEmerging Issues Task Force Issue No. 07-05, "Determining Whether an Instrument(or Embedded Feature) Is Indexed to an Entity's Own Stock," became effective.ASC 815-40 provided new guidance for determining whether equity linkedfinancial instruments are indexed to a Company's own stock and, as a result,whether those contracts should be marked-to-market each period. The Companyrecently completed an assessment and believes its Warrants issued under theJanuary 31, 2008 private placement memorandum are within the scope of ASC815-40 due to a Warrant provision (containing a reset feature) requiring aweighted average adjustment to the exercise price if the Company issuescertain types of securities at a price below the Warrant exercise price. As aresult, the Company is reclassifying its Warrants as a derivative liability,instead of as equity instruments, and is recognizing the quarterly change inthe fair value in the consolidated statement of operations and comprehensiveincome. The Company has retained an independent third party to calculate thefair value of the Warrants at the date of adoption of ASC 815-40 in January2009 and for each quarter since then through March 31, 2010.
Marking-to-market the quarterly change in the fair market value of theWarrants will result in a non-cash, non-operating expense or gain to theCompany's GAAP net income results going forward. The change in the fair valueof the Warrants, a below the operating line item, is the sole issue delayingthe filing of the Company's Form 10-Q for the three months ended March 31,2010 and the amendment of the Form 10-K for the 12 months ended December 31,2009. Based on the Company's assessment of materiality, the Company believesthat its previously filed Quarterly Reports on Form 10-Q for the fiscalquarters ended March 31, 2009, June 30, 2009 and September 30, 2009 will notrequire restatement.
The Company's reported 2009 income from operations of $46.3 million andcash flow from operations of $33.4 million will not be affected by therestatement. The Company expects to restate 2009 GAAP net income to include anon-cash charge of estimated $4.5 to $5.5 million to reflect a change in thefair value of the Warrants, partly offset by approximately $1.3 million ofpreviously recorded liability in connection with a registration rightsobligation related to the Warrants.
"We are working expeditiously with our auditor and counsel to complete theanalysis and file the 10-Q and amended 10-K as soon as practical. Weappreciate your continued support of the Company and apologize for theinconvenience of delaying our first quarter 2010 results. We look forward tosharing our operational updates and R&D pipeline progress on the earningscall," concluded Mr. Liu.
About China Sky One Medical, Inc.
China Sky One Medical, Inc., a Nevada corporation, is a holding company.The Company engages in the manufacturing, marketing and distribution ofpharmaceutical, medicinal and diagnostic products. Through its wholly-ownedsubsidiaries, Harbin Tian Di Ren Medical Science and Technology Company("TDR"), Harbin First Bio-Engineering Company Limited ("First"), HeilongjiangTianlong Pharmaceutical, Inc. ("Tianlong") and Peng Lai Jin ChuangPharmaceutical Company ("Jin Chuang") the Company manufactures and distributesover-the-counter pharmaceutical products, which make up its major revenuesource. For more information, visit http://www.cski.com.cn .
Safe Harbor Statement
Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities LitigationReform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should,""project," "plan," "seek," "intend," or "anticipate" or the negative thereofor comparable terminology. Such statements typically involve risks anduncertainties and may include the production timeline and its effect on theCompany's operational results. Actual results could differ materially from theexpectations reflected in such forward-looking statements as a result of avariety of factors, including the risks associated with the timely completionof the financial reporting and restatement, the accuracy of the unauditedpreliminary first quarter results and 2009 restatement, the appropriateapplication of new SEC accounting rules and other risk factors detailed inreports filed with the Securities and Exchange Commission from time to time.-- Revenue growth of approximately 17% to approximately $28.9 million, -- Income from operations rose 11% to approximately $10.1 million, and -- Comprehensive income of between $12.1 million and $13.1 million, including a preliminary, estimated non-cash gain of $4.5 million to $5.5 million on change in the fair value of the Warrants, as compared to $7.4 million for the three month period ended March 31, 2009.
SOURCE China Sky One Medical, Inc.
