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"We are pleased to report another quarter of excellent results. Ourproducts, especially our biological diagnostic kits achieved rapid salesgrowth, and sales of diversified products from our acquisitions in 2008 alsomade a strong contribution to our second quarter results. In the quarter, welaunched a series of marketing campaigns in four of China's provinces topromote our skin-care products under the 'Yu Fu' brand and received verypositive feedback," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky OneMedical, Inc.
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"Over the past three months, consultants from PWC have been workingclosely with China Sky One Medical to examine and improve our internalcontrols in the fields of accounting, sales, purchasing and inventorymanagement. We feel confident in the quality of our financial reporting," Mr.Liu added.
Second Quarter 2009 Results
Total revenues increased 35.5% year-over-year to $32.2 million for thethree months ended June 30, 2009. The increase was primarily attributable tothe strong performance by the Company's own sales team and its sales agents aswell as contributions from several complimentary business acquisitions in 2008.
Sales of patch products rose moderately to $9.9 million in the secondquarter of 2009, accounting for 30.9% of revenue, compared to 37% a year ago.Sales of ointments rose 18.1% year-over-year to $7.7 million, accounting for23.8% of revenue, versus 28% of revenue a year ago. Sales of spray productsrose 69.3% year-over-year to $4.8 million, accounting for 14.9% of revenue,versus 20.0% a year ago. The increase in spray products was mainly from theincreased sales of mouth sprays due to the outbreak of the H1N1 virus. Salesof bio-engineering products, i.e. three diagnostic testing kits, rose 71.9%year-over-year to $3.7 million, accounting for 11.5% of revenue during thequarter. Sales of the Company's other 48 products reached $6.1 million forthe second quarter of 2009, compared to $3.5 million for the same period lastyear. The higher sales in this category were mainly due to an increase indiversified products from the acquisitions of Heilongjiang TianlongPharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company in 2008.Contract sales of non-manufactured products were discontinued since thebeginning of 2009.
Gross profit in the second quarter of 2009 was $24.4 million, an increaseof 34% over the same period a year ago. Gross margin was 75.9% in the secondquarter, a slight decrease compared to gross margin of 76.7% for the secondquarter of 2008.
Operating expenses in the second quarter of 2009 were $12.3 million, up52% from $8.1 million in the second quarter of 2008. The increase was mainlythe result of higher research and development expenses, which was associatedwith the ongoing clinical trials for proposed products and studies under thepatents, licenses and other technologies acquired in 2008, and higher selling,general and administrative expenses, which were primarily attributable toincreased selling and marketing costs.
Operating income was $12.1 million for the second quarter of 2009,representing a 19.8% increase from $10.1 million in the second quarter of 2008.Operating margin was 37.6%, compared to 42.5% in the second quarter of 2008.
Provision for income taxes was $2.6 million in the second quarter of 2009,compared to $1.8 million in the same period last year.
Net income for the second quarter of 2009 was $9.5 million, or $0.57 perdiluted share, compared to net income of $8.1 million, or $0.50 per dilutedshare, in the second quarter of 2008. Diluted earnings per share werecalculated using a weighted average share count of 16.6 million in the secondquarter of 2009, compared to 16.1 million a year ago.
Six Month Operating Highlights
Total revenues for the first half of 2009 increased 57.6% year over yearto $57.0 million as a result of expanded distribution channels and successfulacquisitions. Gross margin was about 75.8% compared to 76.8% for the firsthalf of 2008. Net income for the first six months of 2009 reached $16.7million, or $1.01 per diluted share, compared to net income of $12.0 million,or $0.78 per diluted share, in the same period of 2008.
Financial Condition
As of June 30, 2009, China Sky One Medical had $48.2 million in cash andcash equivalents, approximately $66.0 million in working capital, and no debt.Stockholders' equity at June 30, 2009, was $111.8 million, a 17.8% increaseover the $94.9 million recorded at December 31, 2008.
The Company generated $17.8 million in net cash flow from operatingactivities in the first half of 2009. As of June 30, 2009, the Company hadspent approximately $9.9 million in constructing a new corporate headquartersin Harbin Song Bei New Development District. The project is expected to becompleted by the end of 2009, at which time the Company plans to move itsadministration offices, R&D center, and cord blood stem cell and tissue bankto the new facility. The Company believes that combining its operations intoone centralized location will result in greater efficiency and will make iteasier for management to conduct business activities. The estimated cost ofthis project is approximately $13 million. The Company plans to fund theproject using internally generated funds.
Recent Events
The Company's subsidiary, Peng Lai Jin Chuang Pharmaceutical Company,recently obtained a renewal of its Good Manufacturing Practices Certificatefor Pharmaceutical Products ("GMP Certificate") from the State Food and DrugAdministration (SFDA) in China. The new certificate will be valid until June2014.
On August 6, 2009, China Sky One Medical announced the appointment of Dr.William Wei Lee as an independent member of the Company's Board of Directors,effective August 4, 2009. He replaces Mr. Jiang Qi-Feng, who resigned fromthe Board effective August 4, 2009. Dr. Wei Lee also replaces Mr. Jiang as amember of the Audit Committee, Compensation Committee and Finance Committee ofthe Board of Directors, and as "audit committee financial expert," as definedby the SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002.
Business Outlook and Guidance
"We are confident about the prospects for our business in 2009 and willcontinue to focus on increasing market share by both strengthening and furtherrefining our effective sales and distribution network, building and enhancingour brand image, and making strategic acquisitions that could support ourgrowth. In the first half of 2009, our sales representatives increased fromapproximately 1,300 to 1,500. Our total pharmacy coverage number in 2009reached approximately 5,500 over 24 provinces in China versus 4,500 over 22provinces in China in 2008. Over the long term, we will continue to focus onthe development and manufacturing of biological diagnostic kits and our anti-cancer drugs, which we believe have very promising market opportunities," saidMr. Liu.
"Based on our progress so far this year, we are reaffirming our guidancefor the year," added Mr. Liu. "We expect 2009 full year revenue to increaseby 40%, or approximately $37.0 million, to $128-$130 million, driven by growthin all of our product sales categories. We expect 2009 gross margin to beapproximately 75% due to market competition and possible higher raw materialcosts. Operating expenses will increase due to a higher percentage of R&Dinvestment as well as additional costs to support our expanding distributionchannels as well as our sales growth. We expect that net income will increaseto $38-$39 million, resulting in net profit margin of approximately 30%."
Conference Call
The Company will conduct a conference call at 10:00 a.m. Eastern DaylightTime on Friday, August 14, 2009, to discuss its second quarter of fiscal year2009 financial results. Joining Mr. Liu will be Stanley Hao, Chief FinancialOfficer of China Sky One Medical Inc.
To participate in this live conference call, please dial the followingnumber five to ten minutes prior to the scheduled conference call time: 1 800688 0796. International callers should call 1 617 614 4070. The ConferencePasscode is 588 592 19. If you are unable to participate in the call at thattime, replay of the conference call will be available for 14 days starting onFriday, August 14, 2009 at 12:00 p.m. Eastern Daylight Time. To access thereplay, dial 888 286 8010. International callers should call 617 801 6888.The Conference Replay Passcode is 981 948 09.
About China Sky One Medical, Inc.
China Sky One Medical, Inc. is a holding company. The Company engages inthe manufacturing, marketing and distribution of pharmaceutical, medicinal anddiagnostic products. Through its wholly-owned subsidiaries, Harbin Tian DiRen Medical Science and Technology Company, Harbin First Bio-EngineeringCompany Limited, Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai JinChuang Pharmaceutical Company 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 constituteforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995. These statements can be identified by the useof forward-looking terminology such as "believe," "expect," "may," "will,""should," "project," "plan," "seek," "intend," or "anticipate" or the negativethereof or comparable terminology. Such statements typically involve risksand uncertainties and may include financial projections or informationregarding the progress of new product development and market conditions.Actual results could differ materially from the expectations reflected in suchforward-looking statements as a result of a variety of factors, including therisks associated with the effect of changing economic conditions in ThePeople's Republic of China, variations in cash flow, reliance on collaborativeretail partners and on new product development, variations in new productdevelopment, risks associated with rapid technological change, and thepotential of introduced or undetected flaws and defects in products, and otherrisk factors detailed in reports filed with the Securities and ExchangeCommission from time to time.Second Quarter 2009 Highlights -- Total revenues increased 35.5% year-over-year to $32.2 million -- Gross profit increased 34% year-over-year to $24.4 million -- Operating income increased 19.8% to $12.1 million -- Net income increased 16.6% year-over-year to $9.5 million, or $0.57 per diluted share -- Received SFDA approval to manufacture five new products, including Geranium ointment, Musk liniment, Diclofenac Sodium eye drops, Acyclovir gel, Shuanghuanglian suppositories -- Received SFDA approval to enter into clinical trials for Diclofenac Sodium suppositories -- Renewed production license for Sumei Slim Patch through April of 2013 -- Signed an agreement with Taiwan Golden Biotechnology Corporation to begin cooperating on the development of a new anti-cancer drug called Antroquinonol -- Engaged PricewaterhouseCoopers to assist the Company in continuing to comply with the financial reporting and control requirements of Sarbanes-Oxley Act Section 404 ("SOX 404") by December 31, 2009
SOURCE China Sky One Medical, Inc.
