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China Sky One Medical, Inc. Announces Record Second Quarter 2009 Results

HARBIN, China, Aug. 14 /PRNewswire-Asia-FirstCall/ -- China Sky One Medical, Inc. ("China Sky One Medical" or "the Company") (Nasdaq: CSKI), a leading fully integrated pharmaceutical company in the People's Republic of China ("PRC"), today announced record financial results for the second quarter of 2009.

    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
    -- 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

"We are pleased to report another quarter of excellent results. Our products, especially our biological diagnostic kits achieved rapid sales growth, and sales of diversified products from our acquisitions in 2008 also made a strong contribution to our second quarter results. In the quarter, we launched a series of marketing campaigns in four of China's provinces to promote our skin-care products under the 'Yu Fu' brand and received very positive feedback," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc.

"Over the past three months, consultants from PWC have been working closely with China Sky One Medical to examine and improve our internal controls in the fields of accounting, sales, purchasing and inventory management. 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 the three months ended June 30, 2009. The increase was primarily attributable to the strong performance by the Company's own sales team and its sales agents as well as contributions from several complimentary business acquisitions in 2008.

Sales of patch products rose moderately to $9.9 million in the second quarter 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 for 23.8% of revenue, versus 28% of revenue a year ago. Sales of spray products rose 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 the increased sales of mouth sprays due to the outbreak of the H1N1 virus. Sales of 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 the quarter. Sales of the Company's other 48 products reached $6.1 million for the second quarter of 2009, compared to $3.5 million for the same period last year. The higher sales in this category were mainly due to an increase in diversified products from the acquisitions of Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company in 2008. Contract sales of non-manufactured products were discontinued since the beginning of 2009.

Gross profit in the second quarter of 2009 was $24.4 million, an increase of 34% over the same period a year ago. Gross margin was 75.9% in the second quarter, a slight decrease compared to gross margin of 76.7% for the second quarter of 2008.

Operating expenses in the second quarter of 2009 were $12.3 million, up 52% from $8.1 million in the second quarter of 2008. The increase was mainly the result of higher research and development expenses, which was associated with the ongoing clinical trials for proposed products and studies under the patents, licenses and other technologies acquired in 2008, and higher selling, general and administrative expenses, which were primarily attributable to increased 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 per diluted share, compared to net income of $8.1 million, or $0.50 per diluted share, in the second quarter of 2008. Diluted earnings per share were calculated using a weighted average share count of 16.6 million in the second quarter 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 year to $57.0 million as a result of expanded distribution channels and successful acquisitions. Gross margin was about 75.8% compared to 76.8% for the first half of 2008. Net income for the first six months of 2009 reached $16.7 million, 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 and cash equivalents, approximately $66.0 million in working capital, and no debt. Stockholders' equity at June 30, 2009, was $111.8 million, a 17.8% increase over the $94.9 million recorded at December 31, 2008.

The Company generated $17.8 million in net cash flow from operating activities in the first half of 2009. As of June 30, 2009, the Company had spent approximately $9.9 million in constructing a new corporate headquarters in Harbin Song Bei New Development District. The project is expected to be completed by the end of 2009, at which time the Company plans to move its administration offices, R&D center, and cord blood stem cell and tissue bank to the new facility. The Company believes that combining its operations into one centralized location will result in greater efficiency and will make it easier for management to conduct business activities. The estimated cost of this project is approximately $13 million. The Company plans to fund the project 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 Certificate for Pharmaceutical Products ("GMP Certificate") from the State Food and Drug Administration (SFDA) in China. The new certificate will be valid until June 2014.

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 from the Board effective August 4, 2009. Dr. Wei Lee also replaces Mr. Jiang as a member of the Audit Committee, Compensation Committee and Finance Committee of the Board of Directors, and as "audit committee financial expert," as defined by 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 will continue to focus on increasing market share by both strengthening and further refining our effective sales and distribution network, building and enhancing our brand image, and making strategic acquisitions that could support our growth. In the first half of 2009, our sales representatives increased from approximately 1,300 to 1,500. Our total pharmacy coverage number in 2009 reached approximately 5,500 over 24 provinces in China versus 4,500 over 22 provinces in China in 2008. Over the long term, we will continue to focus on the development and manufacturing of biological diagnostic kits and our anti- cancer drugs, which we believe have very promising market opportunities," said Mr. Liu.

"Based on our progress so far this year, we are reaffirming our guidance for the year," added Mr. Liu. "We expect 2009 full year revenue to increase by 40%, or approximately $37.0 million, to $128-$130 million, driven by growth in all of our product sales categories. We expect 2009 gross margin to be approximately 75% due to market competition and possible higher raw material costs. Operating expenses will increase due to a higher percentage of R&D investment as well as additional costs to support our expanding distribution channels as well as our sales growth. We expect that net income will increase to $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 Daylight Time on Friday, August 14, 2009, to discuss its second quarter of fiscal year 2009 financial results. Joining Mr. Liu will be Stanley Hao, Chief Financial Officer of China Sky One Medical Inc.

To participate in this live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 1 800 688 0796. International callers should call 1 617 614 4070. The Conference Passcode is 588 592 19. If you are unable to participate in the call at that time, replay of the conference call will be available for 14 days starting on Friday, August 14, 2009 at 12:00 p.m. Eastern Daylight Time. To access the replay, 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 in the manufacturing, marketing and distribution of pharmaceutical, medicinal and diagnostic products. Through its wholly-owned subsidiaries, Harbin Tian Di Ren Medical Science and Technology Company, Harbin First Bio-Engineering Company Limited, Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company the Company manufactures and distributes over-the-counter pharmaceutical products, which make up its major revenue source. For more information, visit .

Safe Harbor Statement

Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding the progress of new product development and market conditions. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in The People's Republic of China, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.

                          Financial Statements Below

                   China Sky One Medical, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets

                                          June 30,         December 31,
                                            2009               2008
                                         (Unaudited)         (Audited)
    Current Assets
    Cash and cash equivalents          $  48,233,324  $      40,288,116
    Accounts receivable, net              16,172,625         14,978,648
    Inventories                            1,571,465            462,351
    Prepaid and other current assets          76,763            106,386
    Land and construction deposit          8,525,025          8,513,284
    Total current assets                  74,579,202         64,348,785

    Property and equipment, net           30,553,224         21,058,779
    Intangible assets, net                15,193,190         15,851,765
                                       $ 120,325,616  $     101,259,329


    Current Liabilities
    Accounts payable and accrued
     expenses                          $   4,274,858  $       2,937,068
    Taxes payable                          4,265,075          3,362,888
    Deferred revenues                             --             26,079
    Total current liabilities              8,539,933          6,326,035

    Commitments and Contingencies                 --                 --

    Stockholders' Equity
    Preferred stock ($0.001 par value,
     5,000,000 shares authorized, none
     issued and outstanding)                      --                 --
    Common stock ($0.001 par value,
     50,000,000 shares authorized,
     16,652,016 and 16,306,184 issued
     and outstanding, respectively)           16,652             16,306
    Additional paid-in capital            40,133,957         40,105,134
    Accumulated other comprehensive
     income                                5,690,195          5,566,806
    Retained earnings                     65,944,879         49,245,048
    Total stockholders' equity           111,785,683         94,933,294
                                       $ 120,325,616  $     101,259,329

                  China Sky One Medical, Inc. and Subsidiaries
    Condensed Consolidated Statements of Operations and Comprehensive Income

                       Three Months Ended June 30,  Six Months Ended June 30,
                          2009           2008         2009          2008
    Revenues           $32,181,590   $23,748,592   $57,015,282   $36,162,022
    Cost of Goods
     Sold                7,752,371     5,522,314    13,793,289     8,382,742
    Gross Profit        24,429,219    18,226,278    43,221,993    27,779,280

    Depreciation and
     amortization          449,294       139,004       900,666       215,352
    Research and
     development         3,681,914     1,372,579     6,094,694     2,042,412
    Selling, general
     administrative      8,216,348     6,587,059    15,093,816    10,543,854
    Total operating
     expenses           12,347,556     8,098,642    22,089,176    12,801,618

    Other Income
    Other income
     (Expense)              (1,918)      (35,539)       (1,128)       27,509
    Interest income
     (expense, net)         15,921      (132,495)       26,954      (133,642)
    Total other
     (expense)              14,003      (168,034)       25,826      (106,133)

    Net Income Before
     Provision for
     Income Tax         12,095,666     9,959,602    21,158,643    14,871,529

    Provision for
     Income Taxes
     Current             2,638,673     1,848,935     4,458,812     2,895,951

    Net Income          $9,456,993    $8,110,667   $16,699,831   $11,975,578

    Basic Earnings
     Per Share               $0.57         $0.54         $1.01         $0.84

    Basic Weighted
     Outstanding        16,537,066   $14,971,652    16,475,833    14,253,547

    Diluted Earnings
     Per Share               $0.57         $0.50         $1.01         $0.78

    Diluted Weighted
     Average Shares
     Outstanding        16,628,892    16,090,211    16,547,037    15,372,106

    Net Income          $9,456,993    $8,110,667   $16,699,831   $11,975,578
    Foreign currency
     adjustment              6,447     1,507,587       123,389     3,155,780

     Income             $9,463,440    $9,618,254   $16,823,220   $15,131,358

                   China Sky One Medical, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows

                                               Six Months Ended June 30,
                                                2009              2008
    Cash flows from operating activities
    Net Income                          $     16,699,831  $      11,975,578
    Adjustments to reconcile net cash
     provided by operating activities
    Depreciation and amortization              1,168,601            352,833
    Share-based compensation expense                  --             20,234

    Net change in assets and liabilities
    Accounts receivables                      (1,184,343)         1,972,239
    Inventories                               (1,108,724)          (807,993)
    Prepaid expenses and other current
     assets                                       40,536            (14,607)
    Accounts payable and accrued expenses      1,307,906          2,474,459
    Taxes payable                                897,750          1,872,324
    Deferred revenues                                 --            (24,504)
    Net cash provided by operating
     activities                               17,821,557         17,820,563

    Cash flows from investing activities
    Purchase of fixed assets                     (83,687)          (667,432)
    Purchase of subsidiary -
     TianLong and Haina                               --         (8,437,375)
    Purchase of construction in
     progress                                 (9,877,830)                --

    Purchase of intangible assets                     --             (7,139)
    Net cash used in investing
     activities                               (9,961,517)        (9,111,946)

    Cash flows from financing activities
    Sale of common stock for cash, net of
     offering costs                                   --         23,487,963
    Proceeds from warrants conversion             29,169            840,000
    Net cash provided by financing
     activities                                   29,169         24,327,963

    Effect of exchange rate changes
     on cash                                      55,997            303,955

    Net increase in cash and cash
     equivalents                               7,945,206         33,340,535

    Cash and cash equivalents at
     beginning of period                      40,288,117          9,190,870

    Cash and cash equivalents at
     end of period                      $     48,233,324  $      42,531,405

    Supplemental disclosure of
     cash flow information
    Interest paid                       $             --  $           1,157
    Taxes paid                          $      3,928,870  $       6,366,350

    For more information, please contact:

    Company Contact:
     China Sky One Medical, Inc.
     Mr. Stanley Hao, CFO
     Tel:   +86-451-5399-4069

    Investor Relations Contact:
     CCG Investor Relations
     Mr. Crocker Coulson, President
     Tel:   +1-646-213-1915

SOURCE China Sky One Medical, Inc.
Copyright©2009 PR Newswire.
All rights reserved

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