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"This was a very key year for Renhuang Pharmaceuticals. We performed wellon promotions and advertisements and enhanced our production processes. Wealso focused on our best selling product, Acanthopanax, and continued to workwith scientific institutions to enhance our research and developmentcapabilities," said Mr. Shaoming Li, Chairman and CEO of Renhuang. "We willcontinue to maintain this strategy in the year ahead and plan to explore newmarkets and increase sales."
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Fourth Quarter 2007 Results
Renhuang's total revenues in the fourth quarter were $7.1 million, aslight increase of 5% over the fourth quarter of 2006. This was attributed tosales of its Acanthopanax products, which accounted for about 51% of the totalrevenues
Gross profit in the fourth quarter of 2007 was $3.6 million, an increaseof 19% over the fourth quarter of 2006. Gross margin for the quarter increasedto 51% from 45% in the fourth quarter of 2006. This decrease in the cost ofproduction is mainly due to improvements in manufacturing procedures thateliminated unnecessary processes.
Operating expenses in the fourth quarter of 2007 were $2.5 million, up 74%from $1.4 million in the fourth quarter of 2006. This increase was due tohigher selling, general and administrative expenses ("SG&A") attributed to thepromotion of the Company's top selling Acanthopanax products. Research anddevelopment ("R&D") expenses also increased, as the Company initiateddevelopment of new products.
Operating expenses represented 35% of total revenues in the fourth quarterof 2007, up from 21% in the fourth quarter of 2006.
Operating income was $1.1 million in the fourth quarter of 2007, down 30%from $1.6 million in first quarter of 2007. Operating margin was 15.5%, ascompared to 23.5% during the same period a year ago.
Net income for the fourth quarter of 2007 was $1.1 million, or $0.03 perdiluted share, down from $1.6 million, or $0.05 per diluted share in thefourth quarter of 2006.
"During the fourth quarter, we experienced a slight decrease in our netincome due to the increase in SG&A and R&D expenses. However, we remainoptimistic in our ability to deliver outstanding results for our investors, aswe expect to commercialize new products soon, and for our investments in ourtop selling product, Acanthopanax, to yield increased market share," concludedMr. Li.
Full Year 2007 Results
For the full year 2007, total revenues were $28.0 million. Gross profitfor the full year 2007 was $14.3 million. Gross profit margin was 51% in 2007.Operating income was $9.6 million in 2007. Operating margin was 34% in 2007.Net income for 2007 was $9.6 million or $0.27 per diluted share.
Financial Condition
As of October 31, 2007, Renhuang had approximately $10.2 million in cashand equivalents. Working capital was about $18.8 million, compared to $7.8million as of October 31, 2006. Stockholders' equity as of October 31, 2007was $21.4 million, an increase of 101% over the $10.6 million recorded as ofOctober 31, 2006. For the fiscal year ended October 31, 2007, cash provided byoperating activities was $8.9 million.
Comparability of Results
On September 7, 2006, the Company completed a share exchange transactionthrough which it acquired Harbin Renhuang Pharmaceutical Company Limited ("OldRenhuang") and its wholly owned subsidiary, Harbin Renhuang Pharmaceutical Co.,Ltd. ("Renhuang China"). The Company was deemed to be the acquirer foraccounting purposes. Therefore, the financial statements in this press releaseare those of Renhuang China for all peri