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

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,

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 .

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

                                                 June 30,        December 31,
                                                   2009              2008
    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

    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
     EQUITY                                    $31,294,265       $33,044,273

                   China Shenghuo Pharmaceutical Holdings, Inc.
      Condensed Consolidated Statements of Operations and Comprehensive Loss

                         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
     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
    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
     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)
     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

                                                 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
    Depreciation and amortization                  473,840           429,102
    Noncontrolling interest in loss of
     subsidiaries                                 (248,365)         (165,334)
    Change in current assets and
    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

SOURCE China Shenghuo Pharmaceutical Holdings, Inc.
Copyright©2009 PR Newswire.
All rights reserved

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