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China Sky One Medical Announces First Quarter 2010 Results

HARBIN, China, May 18 /PRNewswire-Asia-FirstCall/ -- China Sky One Medical, Inc. ("China Sky One" or "the Company") (Nasdaq: CSKI), a leading fully integrated pharmaceutical company producing over-the-counter drugs in the People's Republic of China ("PRC"), today announced record financial results for the first quarter of 2010. Management is working diligently to finalize the amended Annual Report on Form 10-K for 2009.

    First Quarter 2010 Financial Highlights
    -- Total revenues increased 16.4% year-over-year to $28.9 million
    -- Gross profit rose 15.1% to $21.6 million
    -- Operating income grew 11.8% to $10.1 million
    -- GAAP net income, including a non-cash gain from change in the fair
       value of derivative warrant liability, increased 73.8% year-over-year
       to $12.6 million, or $0.74 per diluted share
    -- Excluding the non-cash gain, non-GAAP adjusted net income rose 5.8% to
       $7.7 million or $0.45 per diluted share

    First Quarter 2010 Accomplishments
    -- Received CE certification for Myocardial Infarction and Urine
       Microalbumin Diagnostic Kits.
    -- Commenced commercial launch of Oxymetazoline Hydrochloride Nasal Drops
       and Moschus Liniment for Pain Relief in March 2010.
    -- Myocardial Infarction Diagnostic Kit and Antroquinonol (Hocena) capsule
       were recognized as "National Innovation Project" and "Breakthrough
       Drug" by Chinese government, respectively.
    -- Shifted R&D focus of Heilongjiang Tianlong Pharmaceutical Company, the
       Company's wholly owned subsidiary, from external use medicines to
       antibiotics and cardiac drugs.
    -- Listed the Company's common shares on the NASDAQ Global Select Market
       on January 4, 2010.
    -- Completed relocation of corporate headquarters to Harbin Song Bei New
       Development district to better accommodate significant growth

"Our first quarter double-digit revenue growth was partly driven by strength in the sales of our ointment products, including Compound Camphor Cream, which grew nearly 54% year-over-year and has become our best selling product," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. "While Slim Patch sales were adversely affected by new government restrictions limiting the promotion of weight loss products on TV and sales of our diagnostic kits were lower due to limited internal promotional support in the first quarter, we remain confident in our outlook to accelerate revenue growth in the coming quarters, driven by increased sales, marketing and distribution of our rich portfolio of over 90 products and new product launches."

First Quarter 2010 Results

In the first quarter of 2010, China Sky One's total revenues increased 16.4% to $28.9 million from $24.8 million in the same quarter last year. The top-line growth was primarily attributable to strong sales from the Ointment and Others product categories, which together represented 56.1% of total revenue. Sales of ointments increased 53.6% year-over-year to $7.8 million, primarily due to the rapid growth of the Company's Compound Camphor Cream and Kecuo Yintong Ointment. With the successful marketing of Compound Camphor Cream under the well established Yu Fu brand, the product has replaced Slim Patch to become China Sky One's best selling product, accounting for 10.5% of total revenues in the first quarter of 2010. Sales of acne prevention product Kecuo Yintong Ointment also increased significantly, reflecting the successful efforts of a new distributor since the third quarter of 2009.

Sales of Other Products grew 82.0% in the current year quarter to $8.4 million. Higher sales in this category were mainly driven by strong market demand for Naphazoline Hydrochloride eye drops, Napadil tablet and Tinea liniment.

Sales of patch products declined 9.9% year-over-year to $8.2 million in the first quarter of 2010 due to a decrease in Slim Patch sales to $1.6 million, as compared to $4.6 million in the comparable period of 2009. In late 2009, the Chinese government introduced new regulations limiting TV advertisement for weight loss products starting in 2010. As such, the Company's 2010 guidance already assumes more modest sales levels of the Slim Patch, with sales expected to increase in the second and third quarters relative to the first quarter due to seasonality. Excluding the Slim Patch, sales of other patch products, including Pain Relief Patch, Asthma Patch and Hypertension Patch, rose 46.7% to $6.6 million in the first quarter of 2010, as compared to $4.5 million in the year ago quarter.

Sales of spray products were up slightly from the prior year at $3.0 million. Diagnostic kit sales fell year-over-year to $1.5 million from $3.1 million. The Company has begun to improve training of its sales professionals to enhance cooperation with its distributors to increase marketing support and reviewing its distribution policies to provide additional sales incentives.

Gross profit rose 15.1% to $21.6 million in the first quarter of 2010. Gross margin in the quarter was 74.8%, as compared to 75.7% in the 2009 quarter. As reflected in the Company's 2010 financial guidance, full year gross margin will be affected by two key factors. First is the anticipated increase in raw material prices and storage cost for the raw materials. Second, the Company has increased its sales and marketing strategy to increase promotion of certain products by partnering with reputable distributors with extensive channels. Sales of these products via these channels are expected to drive product volume growth and yield a lower margin.

Operating expenses increased 18.1% year-over-year to $11.5 million in the first quarter of 2010. The increase was principally due to $1.4 million increase in R&D expenses, as well as $0.4 million increase in depreciation & amortization expenses associated with two proprietary technologies acquired in the fourth quarter of 2009. First quarter 2010 operating income was $10.1 million, representing an operating margin of 35.0%, as compared to $9.1 million and 36.4% in the year ago quarter.

Total other income was $4.9 million in the first quarter of 2010, as compared to $12,000 in the prior year quarter. The increase reflected a non-cash gain related to change in the fair value of derivative warrant liability related to the private placement in January 2008.

Provision for income taxes was $2.5 million in the first quarter of 2010, as compared to $1.8 million in the same period last year.

GAAP net income for the first quarter of 2010 was $12.6 million, as compared to $7.2 million in the first quarter of 2009. Excluding the non-cash $4.9 million gain related to the change in fair value of derivative warrant liability, the Company's non-GAAP adjusted net income rose 5.8% to $7.7 million or $0.45 per diluted share.

Financial Condition

As of March 31, 2010, China Sky One had $65.4 million in cash and equivalents, with a current ratio of 5.8x. Working capital was approximately $71.3 million, up from $56.9 million at the end of 2009. Stockholders' equity at March 31, 2010, was $134.4 million, an 11.2% increase over the $120.9 million recorded at December 31, 2009.

Accounts receivable turnover days increased to 61.9 days in the three months ended March 31, 2010, as compared to 52.7 days in the same period of 2009. Accounts receivable collections are generally slower during the first fiscal quarter, partly due to the Chinese New Year holiday. Inventory turnover days increased to 28.6 days in the first quarter of 2010 from 13.3 days in the year ago quarter. This increase primarily reflected management's decision to increase raw material inventory during the second half of 2009, ahead of anticipated price increases and in anticipation of expected sales growth in 2010.

The Company generated $12.6 million in net cash flow from operating activities in the first quarter of 2010, an increase from $8.5 million in the year ago quarter. The increase was primarily attributable to higher income from operations, decreased level of accounts receivable and increased level of accounts payable and accrued expenses in the 2010 quarter. The management believes current working capital and borrowing capabilities are sufficient to cover their operating and capital requirements in the near future.

Guidance Update and Business Outlook

China Sky One is raising its previous 2010 revenue guidance by $4 million to a range of $160 million to $164 million to reflect incremental sales from the previously announced 13 new products, which have been launched or will be launched in 2010. Similarly, the Company's net income guidance, excluding any non-cash item (gain or loss related to change in the fair market value of derivative warrant liability), increased by $1 million to a range of $40 million to $41 million. The net income guidance continues to represent a net profit margin of 25%. Estimated R&D expenditure remains at 15% of total revenue in 2010.

The first quarter is typically the slowest period, partly due to a temporary slow down in customer orders during the Chinese New Year holiday. China Sky One's management expects revenue growth to accelerate in future quarters, driven by further optimization of the Company's distribution channels and enhancement of product promotional efforts, and is confident in achieving the 2010 financial guidance.

"Looking ahead, we will continue our efforts in research and development of high margin branded products. We look forward to receiving SFDA final approvals for 3-5 new products in 2010. In addition, we will focus on increasing the sales and promotion of our current products, including our promising portfolio of diagnostic kits," concluded Mr. Liu.

Pending 2009 Restatement

On May 11, 2010, the Company announced that it will file an amendment to its 2009 Annual Report on Form 10-K to reflect the application of accounting standards related to the valuation of 750,000 warrants issued in 2008 (the "Warrants"). This analysis is ongoing and the Company is working closely with its counsel and auditor, under the guidance of the SEC, to amend the 2009 Form 10-K filing as soon as practical.

As already announced, China Sky One's previously reported 2009 income from operations of $46.3 million and cash flow from operations of $33.4 million will not be affected by the restatement. The Company continues to expect to restate 2009 GAAP net income to include a non-cash, non-operating charge of estimated $4.5 to $5.5 million to reflect the change in the fair value of the Warrants, partly offset by approximately $1.3 million of previously recorded liability in connection with a registration rights obligation related to the Warrants.

Conference Call

China Sky One Medical will conduct a conference call at 8:00 a.m. Eastern Daylight Time (EDT) on Tuesday, May 18, 2010, to discuss its first quarter 2010 financial results. To participate on the live call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-585-2309. International callers should dial 706-902-4207. The Conference ID for this call is 73235080.

If you are unable to participate in the call at this time, a replay will be available for two weeks starting on Tuesday, May 18, 2010 at 9:00 a.m. EDT. To access the replay, dial 800-642-1687, international callers dial 706-645-9291. The Conference Replay Passcode is 73235080.

Use of Non GAAP Financial Measures

GAAP results for the three month period ended March 31, 2010 include gain related to the change in the fair market value of the derivative warrant liability. To supplement its consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP adjusted financial information, which excludes the impact of this item in this release. The Company's management believes that this adjusted measure provides investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of adjustment to GAAP results appears in the tables accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About China Sky One Medical, Inc.

China Sky One Medical, Inc., a Nevada corporation, 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 ("TDR"), Harbin First Bio-Engineering Company Limited ("First"), Heilongjiang Tianlong Pharmaceutical, Inc. ("Tianlong") and Peng Lai Jin Chuang Pharmaceutical Company ("Jin Chuang") 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," "intend," "anticipate," "estimate," "should", "would", "could", "may", "plan", "possible", "project" or similar expressions. Such statements typically involve risks and uncertainties and may include financial projections or business development. 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 PRC, the ability to achieve guidance, the announcement or execution of any acquisitions or other strategic deals, the success of any pipeline projects, 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.

    For more information, please contact:

    Company Contact:
     China Sky One Medical, Inc.
     Mr. Stanley Hao, CFO
     Tel:   +86-0451-8703-2617

    Investor Relations Contact:
     CCG Investor Relations
     Ms. Lei Huang, Account Manager
     Tel:   +1-646-833-3417

     Ms. Mabel Zhang, Vice President
     Tel:   +1-310-954-1353

                             FINANCIAL TABLES FOLLOW

                          CHINA SKY ONE MEDICAL, INC.

    (in thousands
    except EPS)                       For Three Months Ended March 31
                                      2010                       2009

    Net Income               $12,589        $0.74          $7,243      $0.43
    Loss (gain)
     related to change
     in fair value of
     liabilities             ($4,927)      ($0.29)             --      $0.00

    Adjusted Net
     Income                   $7,662        $0.45          $7,243      $0.43

    Diluted Weighted
     Average Shares
     Outstanding              16,956                       16,665

                  China Sky One Medical, Inc. and Subsidiaries
    Condensed Consolidated Statements of Operations and Comprehensive Income
           (Unaudited, $ in thousands except share and per share data)

                                                 Three Months Ended March 31,
                                                    2010              2009

    Revenues                                     $28,903           $24,834

    Cost of Goods Sold                             7,275             6,041

    Gross Profit                                  21,628            18,793

    Operating Expenses

      Depreciation and amortization                  841               451

      Research and development                     3,764             2,413

      Selling                                      5,911             5,967

      General and administrative                     990               911

        Total operating expenses                  11,506             9,742

    Income from Operations                        10,122             9,051

    Other Income (Expense)

      Interest income                                 29                12

      Change in fair value of derivative
       warrant liability                           4,927                --

        Total other income (expense)               4,956                12

    Net Income Before Provision for
     Income Tax                                   15,078             9,063

    Provision for Income Taxes                     2,489             1,820

    Net Income                                   $12,589            $7,243

    Basic Earnings Per Share                       $0.75             $0.44

    Basic Weighted Average Shares             16,776,864        16,413,920

    Diluted Earnings Per Share                     $0.74             $0.43

    Diluted Weighted Average Shares
     Outstanding                              16,955,535        16,665,221

    Comprehensive Income

      Net Income                                 $12,589            $7,243

      Foreign currency translation
       adjustment                                     21               117

    Comprehensive Income                         $12,610            $7,360

                  China Sky One Medical, Inc. and Subsidiaries
                     Condensed Consolidated Balance Sheets
                      ($ in thousands, except share data)

                                                    March 31,      December 31,
                                                      2010            2009
                                                  (Unaudited)      (Restated)
    Current Assets

      Cash and cash equivalents                       $65,399        $52,756

      Accounts receivable, net                         18,583         21,146

      Inventories                                       2,223          2,413

      Prepaid and other current assets                     98             74

        Total current assets                           86,303         76,389

      Property and equipment, net                      15,319         15,491

      Intangible assets, net                           24,438         25,114

      Construction in progress                         12,932         12,932

      Land use rights, net                              4,577          4,586

      Construction deposit                              5,851          5,851

        Total Assets                                 $149,420       $140,363


    Current Liabilities

      Accounts payable and accrued expenses            $5,329         $4,186

      Taxes payable                                     4,011          3,873

      Derivative warrant liability                      5,636         11,435

        Total current liabilities                      14,976         19,494

    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,
       16,790,851 and 16,714,267
       issued and outstanding,
       respectively)                                       17             17

      Additional paid-in capital                       38,154         37,188

      Accumulated other comprehensive income            5,900          5,879

      Retained earnings                                90,374         77,785

        Total stockholders' equity                    134,445        120,869

        Total Liability and Shareholders'
         Equity                                      $149,420       $140,363

                 China Sky One Medical, Inc. and Subsidiaries
                Condensed Consolidated Statements of Cash Flows
                          (Unaudited, $ in thousands)

                                                   Three Months Ended March 31,
                                                         2010           2009
    Cash flows from operating activities
      Net Income                                      $12,589         $7,243

      Adjustments to reconcile net cash provided
       by operating activities
        Depreciation and amortization                     944            588

        Change in fair value of derivative
        liability                                      (4,927)            --

      Net change in assets and liabilities
        Accounts receivable                             2,563            912

        Inventories                                       190           (857)

        Prepaid expenses and other current
         assets                                           (24)            36

        Accounts payable and accrued expenses           1,143            736

        Taxes payable                                     138           (165)

    Net cash provided by operating activities          12,616          8,493

    Cash flows from investing activities

      Purchase of fixed assets                            (77)           (66)
      Purchase of intangible assets                        --             (4)

    Net cash used in investing activities                 (77)           (70)

    Cash flows from financing activities

    Proceeds from warrants conversion                      94             29

    Net cash provided by financing activities              94             29

    Effect of exchange rate changes on cash and
     cash equivalents                                      10             48

    Net increase in cash and cash equivalents          12,643          8,500

    Cash and cash equivalents at beginning of
     period                                            52,756         40,288

    Cash and cash equivalents at end of period        $65,399        $48,788

    Supplemental disclosure of cash flow
    Taxes paid                                         $2,452         $2,107

SOURCE China Sky One Medical, Inc.
Copyright©2010 PR Newswire.
All rights reserved

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