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China Shenghuo Reports Year 2008 Financial Results

KUNMING, China, April 1 /PRNewswire-Asia-FirstCall/ -- China Shenghuo Pharmaceutical Holdings, Inc. (NYSE Amex Equities: KUN) ("China Shenghuo" or the "Company"), reported financial results for the year ended December 31, 2008.

    Year 2008 Highlights
    -- Total revenue for the year 2008 increased 43.6% to a record $28.69
    -- Gross margin for the year 2008 was 73.2%
    -- Cash provided by operating activities was $1.95 million

"I am pleased to report that China Shenghuo continued to deliver strong revenue growth during 2008," commented Mr. Gui Hua Lan, CEO of China Shenghuo. "Our flagship product, Xuesaitong Soft Capsule, again reported strong year-over-year growth, as its sales grew almost 35% in 2008. We continued to expand the product's geographic footprint in China, as we leveraged the strength of our growing internal sales and marketing capabilities. We are also encouraged by the strong performance from our 12Ways cosmetics products and OTC drugs. As we enter 2009, we expect our flagship Xuesaitong Soft Capsule product to continue as a major generator of our overall sales. However, we believe that our 12Ways cosmetics will be a growing contributor to revenue and a key long-term growth driver for the Company."

Total revenue for the full year 2008 was a record $28.69 million, representing a 43.6% increase from $19.97 million for the 2007 year. The sales growth was largely due to higher sales of the Company's flagship product, Xuesaitong Soft Capsule, as well as an increase in the sale of the 12Ways cosmetic products by our expanding business to more cities and provinces. Specifically, the increase is due to (i) an increase of $6.50 million in revenue from our main product, Xuesaitong Soft Capsules and two other prescription drugs; (ii) an increase of $0.68 million in revenue from other pharmaceuticals and export to other countries; (iii) an increase of $0.95 million in revenue from our 12Ways cosmetic products; (iv) fluctuations in foreign exchange rates and other retail sales of $0.5 million. Xuesaitong Soft Capsule accounted for approximately 87% of the total net revenues in 2008. It is expected that revenues from the 12Ways cosmetics products will contribute a bigger portion of the total revenue going forward.

Our costs of products sold for the year ended December 31, 2008 was approximately $7.69 million, an increase of approximately $2.65 million from approximately $5.04 million for the year ended December 31, 2007. The increase in the cost of products sold is due to the increase in sales of our products and a slight increase in production costs per unit in 2008 compared to 2007, because of the increase in the price of our main raw material and other ingredients.

Gross profit for 2008 was $20.99 million, an increase of 40.6% from the $14.94 million a year ago. Gross profit margin was 73.2%, a slight decline from 74.8% for the 2007 year. The gross margin decline was mainly due to higher production costs as the price of raw materials increased during the year.

Selling expenses for the year ended December 31, 2008 were $13.27 million, an increase of $6.43 million when compared with 2007. Selling expenses accounted for 46.3% of total revenue in 2008, as compared to 34.2% of total revenue in 2007. The primary reasons for the increase are (i) an increase of $4.20 million of commissions that we paid to sales representatives and sales offices in an effort to stimulate the sales in existing and new markets; (ii) an increase of $1.80 million in advertising of new products, particularly in our cosmetics line; and (iii) the impact of the fluctuation in foreign exchange rate and other expenses of $0.40 million.

General and administrative ("G&A") expenses for 2008 were $10.86 million, an increase of $4.98 million, when compared with $5.88 million for the 2007 year. Overall, G&A expenses accounted for 37.8% of total revenue in 2008 as compared to 29.4% in 2007. The increase was primarily a result of an increase in legal, auditing and other expenses related to being a public company and an increase in management expenses due to the expansion of business. In 2008, we incurred one-time, additional auditing and legal fees because of the internal investigation conducted by the Audit Committee of the Company regarding the accounting errors identified by our independent auditor, resulting in the restatement of our financial statements for fiscal year 2007 and the first fiscal quarter of 2008.

The operating loss for 2008 was $3.47 million, as compared with operating income of $1.94 million in the prior year.

For the 2008 year, the Company recorded a net loss of $4.64 million, and a fully diluted loss per share of $0.24, compared to net income of $1.72 million, and fully diluted earnings per share of $0.09 in 2007. The weighted average number of fully diluted shares increased 1.2% from 19,439,077 shares in 2007 to 19,679,400 shares in 2008.

As of December 31, 2008, the Company had cash and cash equivalents of $1.61 million.

Business Outlook for Full Year 2009

This outlook is based on China Shenghuo's current views on the operating and market conditions, which are subject to change. The Company does not provide net income projection on a quarterly and full year basis.

"We are confident that China Shenghuo can achieve its targeted revenue growth in 2009 as the domestic healthcare industry remains one of the few growing segments of the economy," commented Mr. Lan. "As a producer of traditional Chinese medicine (TCM), we expect the upcoming China medical reforms will have a very positive impact on our business in the long term. Our domestic traditional drug business will benefit as the government builds more rural hospitals and community health clinics as part of the 850 billion RMB health care reform package. As more patients receive basic health coverage, we believe there will be increased demand for our medicinal products. We continue to execute our plan to optimize and diversify our product mix. Our growing market position, diversified product portfolio, and the sterling reputation and strength of our branded products will help China Shenghuo continue to grow through these challenging economic times and capitalize on any new opportunities that may arise."

Business Update

On March 16, 2009, the Company appointed Dr. Xiaobo Sun as an independent director. Dr. Sun is currently the deputy director of the Institute of Medicinal Plant Development at the Chinese Academy of Medical Sciences.

"We are excited to have Dr. Sun join our Company as an independent director. His experience and knowledge in the Chinese health care industry will be very beneficial, and we believe his vast experience will contribute greatly to the growth of our business," Mr. Lan concluded.

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.
    Consolidated Balance Sheets
                                                          December 31,
                                                       2008          2007
    Current Assets:
      Cash and cash equivalents                     $1,612,054    $2,800,641
      Accounts and notes receivable, less
       allowance for doubtful accounts of
       $4,834,745 and $3,218,661, respectively       9,108,703    10,567,672
      Sales representative advances, less
       allowance for doubtful accounts of
       $2,955,516 and $729,955, respectively         8,637,653     8,249,806
      Advances to suppliers                            446,168       669,858
      Inventory, net of reserve for
       obsolescence of $147,978 and $136,359,
       respectively                                  4,287,462     4,125,193
      Receivable from related parties                       --        27,555
      Other current assets                              41,177       159,657
    Total Current Assets                            24,133,217    26,600,382
      Property, plant and equipment, net of
       accumulated depreciation of $5,341,933
       and $4,247,993, respectively                  7,581,664     7,573,204
      Intangible assets, net of accumulated
       amortization of $71,456 and $42,957,
       respectively                                    665,959       648,090
      Long-term sales representative advances,
       less allowance for doubtful accounts of
       $664,532 and $1,717,078, respectively           663,433       514,042
    TOTAL ASSETS                                   $33,044,273   $35,335,718

    Current Liabilities:
      Accounts payable                              $1,293,460      $745,514
      Accrued expenses                               2,721,082     2,017,748
      Deposits                                       5,550,502     3,439,892
      Payable to related parties                       148,575        94,939
      Short-term notes payable                       9,850,211     5,334,260
      Advances from customers                          222,609       119,287
      Taxes and related payables                     1,236,574       855,084
      Current portion of long-term debt              3,245,685     4,101,667
    Total Current Liabilities                       24,268,698    16,708,391
    Long-Term Debt                                   1,131,193     6,836,111
    Total Liabilities                               25,399,891    23,544,502

    Minority Interest in Net Assets of
     Subsidiaries                                      248,224       479,318

    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) earnings                     (603,572)    4,039,337
      Accumulated other comprehensive income,
       foreign currency translation                  1,656,812       929,643
    Total Stockholders' Equity                       7,396,158    11,311,898

     EQUITY                                        $33,044,273   $35,335,718

    China Shenghuo Pharmaceutical Holdings, Inc.
    Consolidated Statements of Operations and Comprehensive (Loss) Income

                                                       Years Ended
                                                       December 31,
                                                   2008            2007

    Sale of Products                           $28,690,509     $19,973,918
    Cost of Products Sold                        7,693,635       5,038,290
    Gross Profit                                20,996,874      14,935,628

    Operating Expenses:
      Selling expense                           13,274,942       6,840,824
      General and administrative expense        10,856,184       5,877,948
      Research and development expense             338,546         272,295
    Total Operating Expenses                    24,469,672      12,991,067

    (Loss) Income from Operations               (3,472,798)      1,944,561

    Other Income (Expense):
      Interest income                                7,755          22,431
      Income from research and
       development activities                      408,500         448,254
      Interest expense                          (1,309,984)       (946,456)
      Non-operating expenses                       (73,421)        (78,164)
    Net Other (Expense)                           (967,150)       (553,935)

    (Loss) Income Before Income Taxes           (4,439,948)      1,390,626
    Income tax (expense) benefit                  (438,279)        449,198
    Minority interest in loss (income)
     of subsidiaries                               235,318        (119,437)
    Net (Loss) Income                          $(4,642,909)     $1,720,387
      Foreign currency translation
       adjustment                                  727,169         708,770
    Comprehensive (Loss) Income                $(3,915,740)     $2,429,157

    (Loss) Earnings Per Share
      Basic                                         $(0.24)          $0.09
      Diluted                                       $(0.24)          $0.09
    Weighted-Average Shares Outstanding
      Basic                                     19,679,400      19,387,619
      Diluted                                   19,679,400      19,439,077

    For more information, please contact:

    China Shenghuo Pharmaceutical Holdings, Inc.
     Mr. Changhua Mu
     Securities Affairs Representative
     Tel:   +86-871-7282698

     Eddie Cheung
     Investor Relations
     Tel:   +1-646-284-9414

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

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