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China Shenghuo Reports Unaudited Financial Results for the Second Quarter of 2009

Posted on: Friday, 14 August 2009, 22:59 CDT

KUNMING, China, Aug. 14 /PRNewswire-Asia-FirstCall/ -- China Shenghuo Pharmaceutical Holdings, Inc. (NYSE Amex Equities: KUN) ("China Shenghuo" or the "Company"), which is engaged in the research, development, manufacture, and marketing of pharmaceutical, nutritional supplement and cosmetic products in the People's Republic of China ("PRC"), today reported unaudited financial results for the second quarter ended June 30, 2009.

Second Quarter 2009 Financial Highlights -- Total revenues decreased 5.37% year-over-year to $8.13 million -- Gross margin rose to 70.55% from 65.22% in the same period of 2008 -- Net cash provided by operations was $981,447 compared with negative cash flow of $ 556,090 for the six months ended June 30, 2009 and 2008, respectively.

Mr. Gui Hua Lan, Chief Executive Officer of China Shenghuo, commented, "Despite the revenues for the second quarter of 2009 decreasing 5.37% compared to the revenues for the same period in 2008, revenues increased 20.08% when compared to the revenues for the first quarter of 2009. Our flagship Xuesaitong Soft Capsule and the innovative 12 Ways cosmetics products continued to produce meaningful growth in a difficult market environment."

Second Quarter 2009 Financial Results

Revenues for the second quarter of 2009 decreased 5.37% to $8.13 million compared to $8.59 million for the same period in 2008. The decrease in revenues was primarily due to the decrease of $0.4 million in the sales of other brands' non-prescription pharmaceuticals, and approximately $0.03 million decrease in the sales of cosmetic products and export of our products, respectively.

Gross profit for the second quarter of 2009 increased 2.36% to $5.74 million over $5.6 million for the same period in 2008. Gross margin for the three months ended June 30, 2009 was 70.55%, compared with 65.22% for the same period in 2008. The increase in gross margin percentage was primarily due to the above-mentioned reduction of the sales of non-prescription pharmaceuticals of other brands.

Selling expenses for the second quarter of 2009 were $6.22 million compared with $4.04 million for the same period of 2008. The primary reason for the increase in selling expenses was the change in our marketing policy. Our main product has been sold to patients through hospitals, which customer relationships were cultivated by sales representatives. However, we believe it is in our long term interest to grow our operations through the over-the-counter ("OTC") market, which we anticipate will produce higher profit margins, and have decided to begin developing the OTC market in 2009. Although we are focusing our operations on the OTC market, we have adopted a policy to absorb a significantly higher percentage of costs incurred by our sales representatives than in the past in order to foster their cooperation in developing the OTC market. The costs to be borne by us are being accrued in selling expenses.

Previously, the Company advanced selling expenses to the sales representatives to develop the market. Starting in 2009, due to the new policy, the Company accrues a fixed amount of selling expenses to the sales representatives for each sale. The Company reimburses the sales representatives their selling and marketing expenses when they submit the appropriate documentation to be reimbursed and their sales are collected. The accrued sales expenses are due within six months.

General and administrative expenses increased 15.00% to $3.12 million in the second quarter of 2009 compared with $2.71 million for the same period in 2008, primarily due to the increase of expense related to our status as a public company with its securities traded on a U.S. national exchange.

Loss from operations for the second quarter of 2009 was $3.61 million compared with operating loss of $1.22 million for the same period of 2008.

Net loss for the second quarter of 2009 was $3.78 million, or $ (0.19) per basic and diluted share. This compares to a net loss of $1.54 million, or $(0.08) per basic and diluted share for the same period of 2008.

Balance Sheet

As of June 30, 2009, the Company's total cash and cash equivalents amounted to $0.7 million as compared with $1.6 million as of December 31, 2008. Total shareholders' equity amounted to $0.7 million as of June 30, 2009.

Drugs Pipeline

China Shenghuo has a number of drugs currently in phase II clinical trials with the State Food and Drug Administration (SFDA) for prescription use. The Company's drug portfolio development strategy mainly focuses on three major markets -- cardio- and cerebro-vascular diseases, peptic ulcer diseases and general health products. Below is the list of drugs and their anticipated SFDA approval timetable:

Drugs Name Intended Use Anticipated Approval Year Levofloxacin Hydrochloride Soft Capsule Antibiotic applications 2009 Brufen Soft Capsule Fever and headache 2009 caused by influenza, colds and acute pharyngitis Dencichine Hemostat Anti-hemorrhagic applications 2011 Wei Dingkang Soft Capsule Peptic ulcer 2011

Business Update

Mr. Lan concluded, "Strong product-development capabilities, existing product pipelines and those products entering into clinical-research stages are helping to generate meaningful year-over-year top-line growth as we continue our efforts on expanding market share in the vast cardio- and cerebro-vascular market. On the other hand, we believe it is in our best-long term interest to grow our operations through the over-the-counter ("OTC") market, which will produce higher profit margins. We will therefore begin developing the OTC market in 2009 and we can expect a further expansion of OTC market in the second half of this year since we have achieved remarkable results so far. In addition, our 12 Ways cosmetics products give us greater revenue diversification that we did not have before. We are building a solid foundation which will help us to increase profitability and increase shareholder value going forward."

About China Shenghuo

Founded in 1995, China Shenghuo is a specialty pharmaceutical company that focuses on the research, development, manufacture and marketing of Sanchi-based medicinal and pharmaceutical, nutritional supplement and cosmetic products. Through its subsidiary, Kunming Shenghuo Pharmaceutical (Group) Co., Ltd., it owns thirty SFDA (State Food and Drug Administration) approved medicines, including the flagship product Xuesaitong Soft Capsules, which has already been listed in the Insurance Catalogue. At present, China Shenghuo incorporates a sales network of agencies and representatives throughout China, which markets Sanchi-based traditional Chinese medicine to hospitals and drug stores as prescription and OTC drugs primarily for the treatment of cardiovascular, cerebrovascular and peptic ulcer disease. The Company also exports medicinal products to Asian countries such as Indonesia, Singapore, Japan, Malaysia, and Thailand and to European countries such as the United Kingdom, Tajikstan, Russia and Kyrgyzstan. For more information, please visit http://www.shenghuo.com.cn .

Safe Harbor Statement

This press release may contain certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate, and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to, risks of litigation and governmental or other regulatory proceedings arising out of or related to any of the matters described in recent press releases, including arising out of the restatement of the Company's financial statements; the Company's ability to refinance or repay loans received; the Company's uncertain business condition; the Company's continuing ability to satisfy any requirements which may be prescribed by the Exchange for continued listing on the Exchange; risks arising from potential weaknesses or deficiencies in the Company's internal controls over financial reporting; the Company's reliance on one supplier for Sanchi; the possible effect of adverse publicity on the Company's business, including possible contract cancellation; the Company's ability to develop and market new products; the Company's ability to establish and maintain a strong brand; the Company's continued ability to obtain and maintain all certificates, permits and licenses required to open and operate retail specialty counters to offer its cosmetic products and conduct business in China; protection of the Company's intellectual property rights; market acceptance of the Company's products; changes in the laws of the People's Republic of China that affect the Company's operations; cost to the Company of complying with current and future governmental regulations; the impact of any changes in governmental regulations on the Company's operations; general economic conditions; and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

China Shenghuo Pharmaceutical Holdings, Inc. Condensed Consolidated Balance Sheets (Unaudited) June 30, December 31, 2009 2008 ASSETS: Current Assets: Cash and cash equivalents $717,134 $1,612,054 Accounts and notes receivable, less allowance for doubtful accounts of $5,969,399and $4,834,745, respectively 10,144,096 9,108,703 Sales representative advances, less allowance for doubtful accounts of $3,289,200 and $2,955,516, respectively 6,877,678 8,637,653 Advances to suppliers 554,828 446,168 Inventory, net of reserve for obsolescence of $148,181 and $147,978, respectively 3,360,899 4,287,462 Other current assets 29,971 41,177 Total Current Assets 21,684,606 24,133,217 Property, plant and equipment, net of accumulated depreciation of $5,714,934 and $5,341,933, respectively 7,534,993 7,581,664 Intangible assets, net of accumulated amortization of $179,620 and $71,456, respectively 558,808 665,959 Long-term sales representative advances, less allowance for doubtful accounts of $667,725 and $664,532, respectively 1,515,858 663,433 TOTAL ASSETS $31,294,265 $33,044,273 LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable $1,702,841 $1,293,460 Accrued expenses 8,733,930 2,721,082 Deposits 5,259,457 5,550,502 Payable to related parties 39,666 148,575 Short-term notes payable 11,324,701 9,850,211 Advances from customers 813,879 222,609 Taxes and related payables 1,296,596 1,236,574 Current portion of long-term debt 1,460,963 3,245,685 Total Current Liabilities 30,632,033 24,268,698 Long-Term Debt -- 1,131,193 Total Liabilities 30,632,033 25,399,891 Stockholders' Equity: Common stock, $0.0001 par value, 100,000,000 shares authorized, 19,679,400 and 19,679,400 outstanding, respectively 1,968 1,968 Additional paid-in capital 6,193,927 6,193,927 Statutory reserves 147,023 147,023 Retained deficit (7,340,619) (603,572) Accumulated other comprehensive income, foreign currency translation 1,659,933 1,656,812 Noncontrolling Interest -- 248,224 Total Stockholders' Equity 662,232 7,644,382 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,294,265 $33,044,273 China Shenghuo Pharmaceutical Holdings, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008 Sale of Products $8,130,333 $8,591,297 $14,900,859 $14,077,765 Cost of Products Sold 2,394,530 2,988,119 4,696,055 5,087,581 Gross Profit 5,735,803 5,603,178 10,204,804 8,990,184 Operating Expenses: Selling expense 6,221,263 4,035,573 12,616,840 5,677,075 General and administrative expense 3,120,299 2,714,259 4,166,741 5,181,837 Research and development expense 6,640 70,213 13,921 189,189 Total Operating Expenses 9,348,202 6,820,045 16,797,502 11,048,101 Loss from Operations (3,612,399) (1,216,867) (6,592,698) (2,057,917) Other Income (Expense): Interest income 431 1,848 1,312 5,113 Income from research and development activities 119,611 75,588 145,179 338,625 Interest expense (268,324) (435,114) (520,014) (691,196) Non-operating expenses (15,137) (65,337) (19,191) (138,482) Net Other (Expense) (163,419) (423,015) (392,714) (485,940) Loss Before Income Taxes (3,775,818) (1,639,882) (6,985,412) (2,543,857) Benefit from (provision for) income taxes -- 2,163 -- (13) Minority interest in loss of subsidiaries 43 100,250 248,365 153,741 Net Loss $(3,775,775) $(1,537,469) $(6,737,047) $(2,390,129) Foreign currency translation adjustment 2,939 217,091 3,121 690,175 Comprehensive Loss $(3,772,836) $(1,320,378) $(6,733,926) $(1,700,056) Loss Per Share Basic $(0.19) $(0.08) (0.34) (0.12) Diluted $(0.19) $(0.08) (0.34) (0.12) Weighted-Average Shares Outstanding Basic 19,679,400 19,679,400 19,679,400 19,679,400 Diluted 19,679,400 19,679,400 19,679,400 19,679,400 China Shenghuo Pharmaceutical Holdings, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2009 2008 Cash Flows from Operating Activities: Net loss $(6,737,047) $(2,390,129) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 473,840 429,102 Noncontrolling interest in loss of subsidiaries (248,365) (165,334) Change in current assets and liabilities: Allowance for doubtful accounts 1,460,256 1,962,910 Accounts and notes receivable (2,212,347) -- Sales representative advances 588,553 (134,786) Advances to suppliers (505,648) 30,685 Inventory 932,665 409,441 Other current assets 11,265 129,901 Accounts payable 805,273 642,217 Accrued expenses 6,001,346 (1,220,462) Deposits (298,736) -- Advances from customers 652,055 2,362 Taxes and related payables 58,337 (251,997) Net Cash Provided by (Used in) Operating Activities 981,447 (556,090) Cash Flows from Investing Activities: Capital expenditures (308,654) (137,079) Receivable from related parties -- 87,223 Net Cash Used in Investing Activities (308,654) (49,856) Cash Flows from Financing Activities: Payable to related parties (108,835) (93,864) Proceeds from short and long-term loans 3,653,246 5,655,605 Payments on short and long-term loans (5,114,544) (7,140,201) Net Cash Used in Financing Activities (1,570,133) (1,578,460) Effect of exchange rate changes on cash 2,420 128,340 Net Decrease in Cash and Cash Equivalents (894,920) (2,056,066) Cash and Cash Equivalents at Beginning of Period 1,612,054 2,800,641 Cash and Cash Equivalents at End of Period $717,134 $744,575 Supplemental Information Cash paid for interest $582,854 $691,196 Cash paid for income taxes -- -- For further information, please contact: China Shenghuo Pharmaceutical Holdings, Inc. Miss Shujuan Wang Director of Securities Affairs Department Email: wangshujuan@chinashenghuo.net

SOURCE China Shenghuo Pharmaceutical Holdings, Inc.

Source: PR Newswire

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