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

KUNMING, China, Nov. 16 /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 third quarter ended September 30, 2009.

    Third Quarter 2009 Financial Highlights
    -- Total revenues increased by 45% year-over-year to $10.56 million;
    -- Gross margin decreased to 72.08% from 72.89% in the same period of 2008;
    -- Net cash provided by operations was $0.88 million compared with
       negative cash flow of $ 0.23 million for the nine months ended
       September 30, 2009 and 2008, respectively.

Mr. Gui Hua Lan, Chief Executive Officer of China Shenghuo, commented, "Sales for the three months ended September 30, 2009 was approximately $10.56 million, an increase by 45.00 % from $7.28 million for the three months ended September 30, 2008. The increase in sales was primarily due to the Company's implementation of a new sales policy that has stimulated the enthusiasm of sales representatives, resulted in the increased sales of products. Our primary products, Xuesaitong Soft Capsules and the innovative 12 Ways cosmetic products continued to produce meaningful growth in a difficult market environment."

Third Quarter 2009 Financial Results

Revenues for the third quarter of 2009 increased by 45% to $10.56 million compared to $7.28 million for the same period in 2008. The increase in revenues was primarily due to the Company's implementation of a new sales policy that has stimulated the enthusiasm of sales representatives and resulted in increased sales of products.

Gross margin for the third quarter of 2009 increased by 43.41% to $7.61 million from $5.30 million for the same period in 2008. Gross margin for the three months ended September 30, 2009 was 72.09%, compared with 72.89% for the same period in 2008. The decrease in gross margin percentage was primarily due to the increasing price of raw material.

Selling expense for the third quarter of 2009 was $6.99 million compared with $2.99 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 best interest to grow our operations through the over-the-counter ("OTC") market, which we anticipate will produce higher profit margins. Accordingly, we began developing the OTC market in 2009 and as of September 30, 2009, revenue from the OTC market comprises approximately 10% of the total sales revenue for Medicine. As of September 30, 2009, we estimate that our expenditures for developing the Company's presence in the OTC market through such in 2009 are approximately RMB 10 million and that we will have to dedicate significant funds in the future to continue to develop in the OTC market. 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 being borne by us with respect to developing the OTC market are being accrued in selling expenses.

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 selling expenses are due within one to six months. The Company reimburses the sales representatives their accrued selling expenses when related accounts receivable are collected.

General and administrative expenses decreased by 41.53% to $1.06 million in the third quarter of 2009 compared with $1.82 million for the same period in 2008, primarily due to (i) reduction of the professional service fee relating to maintain our status as a public company with its securities traded on a U.S. national exchange; and (ii) our strengthened budget control over expense disbursements to reduce unnecessary expense.

Loss from operations for the third quarter of 2009 was $0.45 million compared with operating income of $0.43 million for the same period of 2008.

Net (Loss) Income attributable to shareholders for the third quarter of 2009 was $0.03 million, or $ (0.00) per basic and diluted share. This compares to a net income of $0.15 million, or $ 0.01 per basic and diluted share for the same period of 2008.

Balance Sheet

As of September 30, 2009, the Company's total cash and cash equivalents amounted to $2.72 million as compared with $1.6 million as of December 31, 2008. Total shareholders' equity amounted to $0.56 million as of September 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                 Approval Year
    Levofloxacin Hydrochloride  Antibiotic applications          2010
     Soft Capsule
    Dencichine Hemostat         Anti-hemorrhagic applications    2012
    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 therefore began developing the OTC market in 2009 and we can expect a further expansion of OTC market in the fourth quarter 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.

    For further information, please contact:

    China Shenghuo Pharmaceutical Holdings, Inc.
     Miss Shujuan Wang
     Director of Securities Affairs Department

                         CONSOLIDATED BALANCE SHEETS

                                             September 30,      December 31,
                                                  2009              2008
    Assets:                                    Unaudited          Audited
    Current Assets:
    Cash and cash equivalents              $     2,723,716  $      1,612,054
    Accounts and notes receivable, less
     allowance for doubtful accounts of
     $1,650,774 and $4,834,745, for
     2009 and 2008, respectively                13,721,541         9,108,703
    Other receivables, less allowance for
     doubtful accounts of $2,495,914 and
     $2,955,516, respectively                    7,212,920         8,637,653
    Advances to suppliers                          271,132           446,168
    Inventories, net of allowance for
     obsolescence of $148,335 and
     $147,978, respectively                      3,485,225         4,287,462
    Receivables from related parties               164,044                --
    Other current assets                            10,543            41,177

    Total Current Assets                        27,589,121        24,133,217

    Property, plant and equipment, net of
     accumulated depreciation of
     $5,761,407 and $5,341,933,
     respectively                                7,345,163         7,581,664
    Intangible assets, net of accumulated
     amortization of $186,951 and
     $71,456, respectively                       1,134,697           665,959
    Deferred tax assets                            401,300                --
    Long-term other receivables, less
     allowance for doubtful accounts
     of nil and $664,532, respectively                  --           663,433

                                           $    36,470,281  $     33,044,273


                                           September 30,        December 31,
                                                2009                2008
    LIABILITIES AND STOCKHOLDERS'           Unaudited              Audited
    Current Liabilities:
    Accounts payable                  $       3,228,171 $          1,293,460
    Other payables and accrued
     expenses                                 8,143,224            2,721,082
    Deposits                                  6,379,811            5,550,502
    Payables to related parties                      --              148,575
    Short-term notes payable                  5,337,043            9,850,211
    Advances from customers                   1,304,861              222,609
    Taxes and related payables                1,440,571            1,236,574
    Current portion of long-term notes
     payable                                  3,802,504            3,245,685

    Total Current Liabilities                29,636,185           24,268,698

    Long-term notes payable                   6,435,006            1,131,193

    Total Liabilities                        36,071,191           25,399,891

    Common stock, par value $0.0001;
     100,000,000 shares authorized;
     19,679,400shares outstanding,
     both periods                                 1,968                1,968
    Additional paid-in capital                6,193,927            6,193,927
    Statutory reserves                          147,023              147,023
    Accumulated deficit                      (7,372,543)            (603,572)
    Accumulated other comprehensive
     income                                   1,587,438            1,656,812
    Total shareholder's equity                  557,813            7,396,158
    Noncontrolling interest                    (158,723)             248,224

    Total equity                                399,090            7,644,382

                                      $      36,470,281 $         33,044,273

                      AND COMPREHENSIVE INCOME / (LOSS)

                           Three months ended        Nine months ended
                               September 30,            September 30,
                            2009         2008         2009          2008
                         Unaudited    Unaudited    Unaudited    Unaudited
    Sales               $10,558,218   $7,281,384  $25,459,077   $21,359,149
    Cost of Sales         2,947,511    1,973,865    7,643,566     7,061,446
    Gross Margin          7,610,707    5,307,519   17,815,511    14,297,703
    Operating Expenses:
       Selling expenses   6,988,017    2,989,486   19,604,857     8,666,561
       General and
        expenses          1,063,981    1,819,573    5,230,722     7,001,410
       Research and
        expenses             10,534       66,052       24,455       255,241
                          8,062,532    4,875,111   24,860,034    15,923,212
    (Loss) / Income
     from Operations       (451,825)     432,408   (7,044,523)   (1,625,509)
    Other Income /
       Interest income        1,349          588        2,661         5,701
       Income from
        research and
        activities           49,723        5,745      194,902       344,370
       Interest expense    (184,228)    (272,002)    (704,242)     (963,198)
        expenses             (2,847)        (330)     (22,038)     (138,812)

                           (136,003)    (265,999)    (528,717)     (751,939)
    (Loss) / Income
     Before Income Tax
     (Expense) Benefit
     and Non-controlling
     Interest              (587,828)     166,409   (7,573,240)   (2,377,448)
       Income tax
        benefit /
        (expense)           401,012       (4,471)     401,012        (4,484)
    Net (Loss) / Income    (186,816)     161,938   (7,172,228)   (2,381,932)
       Net loss /
        attributable to
        interest           154,892       (7,652)     403,257       146,089
    Net (Loss) / Income
     Attributable to
     Shareholders         $(31,924)    $154,286  $(6,768,971)  $(2,235,843)
    Basic and Diluted
     Earnings / (Loss)
     per Share              $(0.00)       $0.01       $(0.34)       $(0.11)
     Number of Shares
     Outstanding -
     Basic and Diluted  19,679,400   19,679,400   19,679,400    19,679,400
     (Loss) / Income:
    Net (Loss) /
     Income               (186,816)     161,938   (7,172,228)   (2,381,932)
        adjustment         (76,185)      54,116      (73,064)      744,189
     (Loss) / Income      (263,001)     216,054   (7,245,292)   (1,637,743)
    (Loss) / Income
     attributable to
     interest              158,739      (10,385)     406,947       108,507
     (Loss)  Income
     Attributable to
     Shareholders         (104,262)     205,669   (6,838,345)   (1,529,236)


                                             Nine months ended September 30,
                                                 2009                2008
                                              Unaudited           Unaudited
    Cash Flows from Operating
    Net loss                          $       (6,768,971)  $      (2,235,843)
    Adjustments to reconcile net loss
     to net cash provided by (used in)
     operating activities:
    Depreciation and amortization                542,040             619,402
    Deferred income taxes                       (401,012)                 --
    Non-controlling interest in loss
     of subsidiaries                            (403,257)           (146,089)
    Allowance for doubtful accounts            1,454,131           3,596,319
    Change in current assets and
    Accounts and notes receivable             (5,749,846)           (919,991)
    Other receivables                          1,783,691          (1,465,805)
    Advances to suppliers                        175,993             (60,460)
    Inventories                                  812,063             333,486
    Other current assets                          30,709             143,282
    Accounts payable                           1,930,185             655,989
    Accrued expenses and deposits              6,191,182            (538,712)
    Advances from customers                    1,080,935             119,991
    Taxes and related payables                   200,851            (334,217)

    Net Cash Provided by (Used in)
     Operating  Activities                       878,694            (232,648)

    Cash Flows from Investing
    Capital expenditures                        (738,350)           (218,780)
    Receivables from related parties            (163,926)             (3,957)

    Net Cash Used in Investing
     Activities                                 (902,276)           (222,737)

    Cash Flows from Financing
    Payables to related parties                 (181,445)             87,385
    Proceeds from short and long-term
     notes payable                            21,227,417           5,715,216
    Payments on short and long-term
     notes payable                           (19,915,434)         (7,215,461)

    Net Cash Provided by (Used in)
     Financing Activities                      1,130,538          (1,412,860)

    Effect of foreign currency
     exchange rate fluctuation
     on Cash and Cash Equivalents                  4,706             148,328
    Net Change in Cash and Cash
     Equivalents                               1,111,662          (1,719,917)
    Cash and Cash Equivalents at
     Beginning of Period                       1,612,054           2,800,641
    Cash and Cash Equivalents at End
     of Period                        $        2,723,716   $       1,080,724

    Supplemental Information
    Cash paid for interest            $          704,242   $         963,198
    Cash paid for income taxes        $               --   $              --

SOURCE China Shenghuo Pharmaceutical Holdings, Inc.

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