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China SHESAYS Announces Third Quarter 2010 Results

November 16, 2010

CHENGDU, China, Nov. 16, 2010 /PRNewswire-Asia-FirstCall/ — China SHESAYS Medical Cosmetology Inc. (OTC Bulletin Board: CSAY) (“China SHESAYS” or the “Company”), which operates a network of specialized medical cosmetology hospitals, clinics and skincare centers in Sichuan province, China, today announced its unaudited financial results for the third quarter ended September 30, 2010.

Third Quarter 2010 Highlights

  • Revenue increased 34.5% year-over-year to $3.2 million
  • Gross profit increased 25.3% year-over-year to $2.2 million
  • Net income was $0.4 million, or $0.02 per diluted share
  • Completed a share-exchange transaction to list on the OTC Bulletin Board
  • Opened two new outpatient clinics in Leshan and Yibin cities in Sichuan province in August 2010

“We continued to experience strong demand for our medical cosmetology services thanks to our strong brand equity, high standard of quality, experience medical team and safety in our medical procedures, which resulted in continued growth in our revenues during the third quarter,” commented by Mr. Yixiang Zhang, Chairman and Chief Executive Officer. “During the quarter, we achieved several milestones that strategically positioned us for strong future growth. First, we became the first Chinese company in the medical cosmetology industry to list on a US stock exchange. Second, we opened new clinics in additional Tier II cities in Sichuan province, which represents a first step to roll out our unique chain of clinics and hospitals, thereby expanding our presence in these underdeveloped markets.”

Third Quarter 2010 Results

For the quarter ended September 30, 2010, customer service revenue increased 34.5% to $3.2 million from $2.4 million in the comparable period of 2009 due to a continued growth in customer base and demand for the Company’s cosmetology services. On a sequential basis, revenue increased 15.6% to from $2.7 million for the three months ended June 30, 2010 as the summer is traditionally a strong season for cosmetic procedures.

The Company’s gross profit increased 25.3% to $2.2 million in the third quarter of 2010 compared to $1.8 million in the same period of 2009. Gross margin declined to 68.8% from 73.8% in the third quarter of 2009. Although there was a slight decline in gross margin, the company still shows relatively high earnings ability compared to the industry.

For the third quarter of 2010, operating expenses increased 73.1% to $1.6 million, or 49.3% of revenue, from $0.9 million, or 38.3% of revenue, in the third quarter of 2009. The increase was primarily due to the Company’s enhanced marketing efforts and higher professional fees associated with being a public company. Noticeably, advertising costs for the third quarter of 2010 increased 363.3% to $0.5 million, or 16.3% of revenue, from $0.1 million, or 4.7% of revenue, for the same period of 2009. The increase was mainly due to the management’s efforts to strengthen the marketing activities in order to increase sales. Selling, general and administrative expenses increased 12.3% to $0.9 million, or 26.8% of revenue, from $0.8 million, or 32.1% of revenue, for the same period of 2009. On a sequential basis, total operating expenses declined to 49.3% of sales from 53.7% in the second quarter of 2010.

As a result, operating income decreased 26.2% to $0.6 million compared to $0.8 million in the third quarter of 2009.

Net income decreased 46.7% to $0.4 million, or $0.02 per diluted share, for the three months ended September 30, 2010 compared to $0.8 million, or $0.06 per diluted share, for the same period of 2009. Weighted average diluted shares outstanding increased to 16.4 million shares from 13.5 million shares in the third quarter of 2009.

The effective tax rate for the Company for the three months ended September 30, 2010 and 2009 was 31.5% and 7.3%, respectively. The increase was primarily due to the expiration of the 10% income tax rate in 2009. From 2010 onwards, China SHESAYS has an income tax rate of 25%.

Nine Months Results

Revenue for the nine months ended September 30, 2010, increased 35.5% to $9.2 million compared to $6.8 million in the same period of 2009. Gross profit increased 36.2% to $6.7 million from $4.9 million a year ago. Gross margin improved 30 basis points to 72.4% for the nine months ended September 30, 2010, compared to 72.1% for the same period of 2009. Operating income grew 11.2% to $2.7 million from $2.4 million in the first nine months of 2009. Net income decreased 16.8% to $1.9 million, or $0.12 per diluted share compared to net income of $2.2 million, or $0.17 per diluted share, for the first nine months of 2009. Weighted average diluted shares outstanding increased to 15.4 million shares from 13.5 million shares in the first nine months of 2009.

Financial Condition

As of September 30, 2010, cash and cash equivalents totaled $1.1 million compared to $1.4 million as of December 31, 2009. Total assets were at $8.0 million versus total liabilities of $3.3 million on September 30, 2010. Stockholders’ equity was $4.6 million compared to $2.6 million as of December 31, 2009. Net cash generated from operating activities was $2.1 million for the nine months ended September 30, 2010, compared to $2.4 million generated from operating activities for the nine months ended September 30, 2009.

Recent Events

  • On November 12, 2010, China SHESAYS announced that it has completed an offering of 600,000 shares of the Company’s common stock at a price of $2.00 per share to a group of investors in a private placement transaction. The offering resulted in gross proceeds of $1.2 million to the Company. The Company expects to use the net proceeds from the transaction for expansion of network and working capital requirements.
  • On November 3, 2010, the Company announced that it recently opened another new outpatient clinic in Zigong city in Sichuan province.

Business Outlook

“We are excited about the future of medial cosmetology in China and the vast opportunities present in many Tier II and Tier III Chinese cities with rapid economic growth. Our recent debut in Zigong city, Sichuan province is another reflection of our long-time strategy to expand our network in regional markets in Southwest China,” commented Mr. Zhang. “As we continue to scale up revenues, we remain confident that our gross margin will remain at attractive levels as we leverage our unique chain operations involving hospitals, clinics and skincare centers to improve economies of scale and operating efficiency and maintain our competitive advantage.”

About China SHESAYS Medical Cosmetology Inc.

China SHESAYS, founded in 2005, operates a chain of specialized medical cosmetology hospitals, clinics and skincare centers in Sichuan province. The Company has a full range of services including cosmetic surgery, cosmetic dermatology, cosmetic dentistry and cosmetic Traditional Chinese Medicine (“TCM”). Headquartered in Chengdu, China, China SHESAYS has become one of the fastest growing cosmetology businesses in China and it is one of the most renowned cosmetology hospital chains in Sichuan province. Currently, the Company serves more than 20,000 patients each year. For more information about the Company, contact CCG Investor Relations or visit the Company’s website at www.xichan.cn.

Safe Harbor Statements

This press release contains forward-looking statements made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward looking statements are based upon the current plans, estimates and projections the Company’s management and are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from the forward looking statements. Such statements include, but are not limited to, those concerning the Companys market and industry segment growth and penetration and demand; the acceptance of the Companys cosmetic services and products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance, including earning ability; uncertainties related to conducting business in China, as well as all assumptions, expectations, hopes, beliefs, predictions, and intentions about future events. Therefore, you should not place undue reliance on these forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, general economic conditions; geopolitical events and regulatory changes, availability of capital, the Company’s ability to maintain its competitive position as well as other relevant risks, including but not limited to risks outlined in the Company’s periodic filings with the U.S. Securities and Exchange Commission. Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. China SHESAYS does not assume any obligation to update the forward-looking information contained in this press release.

Financial Tables Follow

    CHINA SHESAYS MEDICAL COSMETOLOGY INC. AND SUBSIDIARIES

                    CONDENSED BALANCE SHEETS
                    ------------------------

                             ASSETS
                             ------
                                          September          December
                                                30,                 31,
                                                2010              2009
                                                ----              ----
                                        Consolidated         Combined
                                        (Unaudited)

    CURRENT ASSETS
      Cash and cash equivalents          $1,054,501        $1,371,732
      Inventories, net                       485,692           335,932
      Due from stockholders                   52,821                 -
      Other current assets and
       prepaid expenses                   1,673,139           526,507
                                          ---------           -------
        Total Current Assets              3,266,153         2,234,171

    OTHER ASSETS                            242,681                 -

    PROPERTY AND EQUIPMENT, NET           4,497,538         1,629,661
                                          ---------         ---------

    TOTAL ASSETS                         $8,006,372        $3,863,832

                 LIABILITIES AND STOCKHOLDERS' EQUITY
                 ------------------------------------

    CURRENT LIABILITIES
      Accounts payable                     $603,711          $508,643
      Notes payable                         895,776            42,659
      Deferred revenue                       30,283            24,254
      Other payables and accrued
       liabilities                        1,007,917           655,913
      Income tax payable                    705,089            54,428
      Sales tax payable and other
       taxes payable                         55,619             7,260
      Due to a related company                    -            20,555
                                                ---            ------
        Total Current Liabilities         3,298,395         1,313,712
                                          ---------         ---------

    COMMITMENTS AND CONTINGENCIES                 -                 -
                                                ---               ---

    STOCKHOLDERS' EQUITY
      China SHESAYS Stockholder's
       equity
      Preferred stock, $0.001 par
       value, 5,000,000 shares
       authorized, none issued or
       outstanding as of September
       30, 2010 and December 31,
       2009                                       -             -
      Common stock, $0.001 par
       value, 65,849,200 shares
       authorized, 18,000,012
       shares issued as of
       September 30, 2010 and
       13,500,012 shares issued as
       of December 31, 2009                  18,000        13,500
      Additional paid in capital          1,057,082         1,011,153
      Retained earnings
        Unappropriated                    3,244,998         1,373,765
        Appropriated                        151,284           151,284
      Accumulated other
       comprehensive income                  90,411               418
                                             ------               ---
        Total China SHESAYS
         Stockholders' Equity             4,561,775         2,550,120
                                          ---------         ---------

      Noncontrolling interests              146,202                 -
                                            -------               ---
        Total Equity                      4,707,977         2,550,120
                                          ---------         ---------

    TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY                $8,006,372        $3,863,832

    CHINA SHESAYS MEDICAL COSMETOLOGY INC. AND SUBSIDIARIES

             CONDENSED STATEMENTS OF OPERATIONS AND
                COMPREHENSIVE INCOME (UNAUDITED)
                --------------------------------
                                               Three months
                                                   ended
                                              September, 30
                                               2010              2009
                                               ----              ----
                                       Consolidated         Combined

    CUSTOMER SERVICE REVENUE             $3,197,490        $2,377,600

    COST OF REVENUE
      Cost of service revenue              (896,097)         (572,099)
      Depreciation                         (101,957)          (50,481)
                                           --------           -------
        Total Cost of Revenue              (998,054)         (622,580)
                                           --------          --------

    GROSS PROFIT                          2,199,436         1,755,020
                                          ---------         ---------

    OPERATING EXPENSES
      Selling, general and
       administrative expenses              857,809           763,531
      Advertising costs                     520,612           112,378
      Professional and
       consultant fees                      152,945             2,103
      Depreciation                           44,494            32,114
                                             ------            ------
        Total Operating Expenses          1,575,860           910,126
                                          ---------           -------

    INCOME FROM OPERATIONS                  623,576           844,894

    OTHER INCOME (EXPENSES)
      Other income                               24                85
      Interest income                         1,809                 -
      Interest expenses                     (13,844)                -
      Imputed interest                            -              (256)
      Other expenses                        (20,654)          (20,052)
                                            -------           -------
        Total Other Expenses, net           (32,665)          (20,223)
                                            -------           -------

    INCOME FROM OPERATIONS
     BEFORE TAXES                           590,911           824,671
      Add (less):
      Income tax expenses                  (186,492)          (60,017)
      Net loss attributable to
       noncontrolling interests               3,040                 -
                                              -----               ---
    NET INCOME ATTRIBUTABLE TO
     CHINA SHESAYS COMMON
     STOCKHOLDERS                           407,459           764,654

    OTHER COMPREHENSIVE INCOME
     (LOSS)
      Total foreign currency
       translation gain                      74,071             1,968
      Less: foreign currency
       gain attributable to
       noncontrolling interests                 (54)                -
                                                ---               ---
      Foreign currency
       translation gains
       attributable to China
       SHESAYS common
       stockholders                        74,017         1,968
    COMPREHENSIVE INCOME
     ATTRIBUTABLE TO CHINA
     SHESAYS COMMON
     STOCKHOLDERS                          $481,476          $766,622
                                           ========          ========

    Net income per share-
     basic and diluted                        $0.02             $0.06
                                              =====             =====

    Weighted average number of
     shares outstanding during
     the period
      - basic and diluted                16,377,056        13,500,012


                                                 Nine months
                                                    ended
                                               September, 30
                                               2010                2009
                                               ----                ----
                                       Consolidated           Combined

    CUSTOMER SERVICE REVENUE             $9,210,165          $6,794,850

    COST OF REVENUE
      Cost of service revenue            (2,289,436)         (1,748,158)
      Depreciation                         (248,224)           (146,229)
                                           --------            --------
        Total Cost of Revenue            (2,537,660)         (1,894,387)
                                         ----------          ----------

    GROSS PROFIT                          6,672,505           4,900,463
                                          ---------           ---------

    OPERATING EXPENSES
      Selling, general and
       administrative expenses            2,119,718           1,832,372
      Advertising costs                   1,205,331             508,222
      Professional and consultant
       fees                                 531,851              47,374
      Depreciation                          122,567              90,387
                                            -------              ------
        Total Operating Expenses          3,979,467           2,478,355
                                          ---------           ---------

    INCOME FROM OPERATIONS                2,693,038           2,422,108

    OTHER INCOME (EXPENSES)
      Other income                              641              49,546
      Interest income                         4,399                 907
      Interest expenses                     (35,450)                  -
      Imputed interest                         (247)               (770)
      Other expenses                        (95,623)            (50,366)
                                            -------             -------
        Total Other Expenses, net          (126,280)               (683)
                                           --------                ----

    INCOME FROM OPERATIONS
     BEFORE TAXES                         2,566,758           2,421,425
      Add (less):
      Income tax expenses                  (698,565)           (171,676)
      Net loss attributable to
       noncontrolling interests               3,040                   -
                                              -----                 ---
    NET INCOME ATTRIBUTABLE TO
     CHINA SHESAYS COMMON
     STOCKHOLDERS                         1,871,233           2,249,749

    OTHER COMPREHENSIVE INCOME
     (LOSS)
      Total foreign currency
       translation gain                      90,047               1,697
      Less: foreign currency gain
       attributable to
       noncontrolling interests                 (54)                  -
                                                ---                 ---
      Foreign currency
       translation gains
       attributable to China
       SHESAYS common
       stockholders                        89,993           1,697
    COMPREHENSIVE INCOME
     ATTRIBUTABLE TO CHINA
     SHESAYS COMMON
     STOCKHOLDERS                        $1,961,226          $2,251,446
                                         ==========          ==========

    Net income per share-basic
     and diluted                              $0.12               $0.17
                                              =====               =====

    Weighted average number of
     shares outstanding during
     the period
      - basic and diluted                15,428,576          13,500,012

    CHINA SHESAYS MEDICAL COSMETOLOGY INC. AND SUBSIDIARIES

         CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
         ----------------------------------------------
                                                   Nine months
                                                      ended
                                                    September
                                                          30,
                                                  2010               2009
                                                  ----               ----
                                          Consolidated          Combined

    CASH FLOWS FROM OPERATING
     ACTIVITIES
      Net income                            $1,871,233         $2,249,749
      Adjusted to reconcile net
       income to cash provided by
       operating activities:
        Depreciation -cost of
         revenue                               248,224            146,229
        Depreciation -operating
         expenses                              122,567             90,387
        Loss on disposal of property
         and equipment                           8,769                  -
        Imputed interest                           247                770
        Minority interest                       (3,040)                 -
      Changes in operating assets
       and liabilities
      (Increase) decrease in:
        Inventories                           (140,305)          (155,627)
        Other current assets and
         prepaid expenses                   (1,115,989)            (1,446)
      Increase (decrease) in:
        Accounts payable                        83,039             80,261
        Deferred revenue                         5,430              3,707
        Other payables and accrued
         liabilities                           332,512            177,308
        Income tax payable                     641,845             92,680
        Sales tax payable and other
         taxes payable                          48,127           (325,533)
                                                ------           --------
        Net cash provided by
         operating activities                2,102,659          2,358,485
                                             ---------          ---------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
      Purchase of property and
       equipment                            (3,164,408)          (435,346)
      Other assets                            (238,469)                 -
      Due from stockholders                    (52,821)           (57,080)
                                               -------            -------
        Net cash used in investing
         activities                         (3,455,698)          (492,426)
                                            ----------           --------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
      Bank loan borrowed                       880,230             73,125
      Bank loan repaid                         (42,789)                 -
      Due to related companies                 (20,618)           (83,975)
      Due to stockholders                            -           (726,261)
      Contribution by stockholders              50,182            731,294
      Contribution by minority
       stockholder                             149,296                  -
                                               -------                ---
        Net cash provided by (used
         in) financing activities            1,016,301             (5,817
                                             ---------             ------

    EFFECT OF EXCHANGE RATES ON
     CASH                                       19,507                816
                                                ------                ---

    NET (DECREASE) INCREASE IN
     CASH AND CASH EQUIVALENTS                (317,231)         1,861,058

    CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                     1,371,732             40,411
                                             ---------             ------

    CASH AND CASH EQUIVALENTS AT
     END OF PERIOD                          $1,054,501         $1,901,469
                                            ==========         ==========

    SUPPLEMENTAL DISCLOSURE OF
     CASH FLOW INFORMATION

      Cash paid for interest
       expenses                                $35,450     $            -
                                               =======                ===
      Cash paid for income tax                 $56,720            $78,996
                                               =======            =======


    Company Contact:
    Ms. Wenbin Zhu, Chief Financial Officer
    China SHESAYS Medical Cosmetology Inc.
    Tel: +86-135-1816-1269
    E-mail: zwb10305@126.com
    Web Site: www.xichan.cn

    Investor Relations Contact:
    CCG Investor Relations

    Crocker Coulson, President
    Tel: +1-646-213-1915
    E-mail: crocker.coulson@ccgir.com

    Linda Salo, Senior Financial Writer
    Tel: +1-646-922-0894
    E-mail: linda.salo@ccgir.com

    Web Site: http://www.ccgir.com

SOURCE China SHESAYS Medical Cosmetology Inc.


Source: newswire