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Mr. Liu Yan-Qing, Chief Executive Officer and President of China Sky OneMedical, Inc. stated, "We are pleased with our strong performance in thesecond quarter of 2007. Our revenue increased 181% to $14.6 million, whichexceeded our revenue guidance forecast of $12.8 million to $14.2 million. Theincrease in revenue is attributable to continued expansion of our salesforceand channels of distribution, as well as the addition of a new line ofcontract sale service in 2006 to sell other manufactured brands through ourdistribution channel."
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Mr. Liu added, "In addition to our current portfolio of externally-appliedplant and herb-based medicinal products, we will implement great efforts todevelop biological products in the future. Some of our new biologicalproducts, such as Urinate Micro Albumin Examination Testing kit and AMI TestKits, began to contribute to our revenue growth in the second quarter of 2007.At the same time, we began to construct the workshop, R&D center and officesfor our new biotech engineering project. We are confident these initiativeswill position us well for long-term growth."
Second Quarter Ended June 30, 2007
Revenue for the second quarter increased 181% to $14.6 million from $5.2million in the second quarter of 2006, which is mainly due to continued salesgrowth of the Company's own product line and a contract service line ofmanufacturer's products sold through the Company's distribution channel.During the second quarter, the Company experienced a large increase in exportsales of Slim Patch, which contributed $4.3 million of revenue, upsignificantly from approximately $372,000 in the second quarter of 2006.Sales of other manufactured brands through the Company's distribution networkcontributed $3.6 million of revenue during the second quarter, up from $1.8million in the same period of 2006.
Gross profit increased 190% to $11.3 million from $3.9 million in thesecond quarter of 2006. Gross margin in the second quarter 2007 increased 140basis points to 77.4% compared to 76.0% in the prior year's period, which wasin line with management's expectation. Management believes that the Companycan improve its gross margin from second quarter 2007 results through theexpansion of the Company's production capacity and the growth in sales volumeof other branded products.
Operating income in the second quarter of 2007 was $5.2 million comparedto an operating loss of $1.2 million in the same period of 2006. Operatingmargin was 35.3%. Selling, general and administrative expenses increased 78%to $5.7 million from $3.2 million in the second quarter of 2006, which is theresult of increased headcount and the expansion of the Company's sales andmarketing activities.
Net income was $4.2 million, or $0.34 per diluted share, in the secondquarter of 2007 compared to net loss of $1.2 million in the second quarter of2006. Net margin was 28.8%. Net income slightly missed the Company'sprevious expectation of $5 million to $5.5 million, due to the expenditurerelated to a twelve month marketing campaign, which is non-recurring for theremaining two quarters of 2007.
Mr. Liu noted, "During the second quarter 2007, we spent approximately$2.0 million to implement a marketing campaign to promote our brand and full-line products for the next twelve months. While this resulted in a miss toour net income guidance for the second quarter, the marketing program we nowhave in place positions us well for increased consumer awareness and productdemand. We expect the efforts related to our marketing campaig
