China Medicine Announces Second Quarter 2009 Results

GUANGZHOU, China, Aug. 13 /PRNewswire-Asia/ -- China Medicine Corporation (OTC Bulletin Board: CHME) ("China Medicine" or "the Company"), a developer and a leading distributor of prescription and over the counter pharmaceuticals, traditional Chinese medicines (TCM), nutritional and dietary supplements, and medical devices and medical formulations, today announced its second quarter 2009 results.

    Second Quarter 2009 Highlights:
    -- Revenues increased 29.4% from Q2 of 2008 to $15.1 million
    -- Gross profit decreased 15.1% from Q2 of 2008 to $3.5 million
    -- Operating income decreased 40.5% from Q2 of 2008 to $1.8 million
    -- Adjusted net income, which excluded a non-cash expense related to
       change in fair value of warrants for the second quarter of 2009, was
       $1.3 million, or $0.08 per diluted share
    -- Net income was $0.04 million, or $0.01 per diluted share
    -- Received third party feasibility report on rADTZ from the Feed Research
       Institute (FRI) of the Chinese Academy of Agricultural Sciences (CAAS)
    -- Commenced small scale-trial production and sales of rADTZ in June
    -- Obtained national distribution rights for Qinpi Jiegu tablets in China
    -- Obtained provincial distribution rights to Alendronate Sodium Tablets
    -- Received a loan of RMB 20 million (approximately U.S. $2.9 million)
       pursuant to the loan agreement with the Bank of China, Guangdong Branch

"We are pleased with our top line growth during the second quarter, during which we expanded regional and provincial distribution sales into rural areas and established trial sales of rADTZ, which has very high profit margins and promises to increase our profitability going forward. During the second quarter, our gross profit fell because of lower selling prices tied to severe price competition, an increase in sales of regional level distribution rights drugs, which have lower margins, and increased costs associated with promotional campaigns to increase sales. However, we believe that profitability will improve going forward since the second quarter is typically the slowest seasonally, and we have already seen an uptick in sales and profitability. As a result, we remain confident that our financial profile will improve and anticipate stronger sales in the second half of the year as we ramp up new proprietary products," said Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation.

"Our top-selling drugs for the quarter included Iopamidol by injection, which accounted for 13.7% of revenues and is used to help diagnose heart, brain, blood and nervous system disorders in X-rays or CT scans; Kelinao (Cinepazide Maleate Injection), which accounted for 6.7% of revenues and is used for the treatment of cardio-cerebral vascular diseases; and Hongjin Xiaojie capsules, which accounted for 5.4% of revenues are used to treat pain and for blood circulation. Combined gross margins for these products were 32.2%. Collectively, our top three selling drugs accounted for approximately 25.8% of revenues," said Mr. Yang.

Second Quarter 2009 Results

China Medicine's total revenues in the second quarter were $15.1 million, an increase of 29.4% over the second quarter of 2008. This was attributable to an increase in the Company's provincial and regional distribution sales as the Chinese government's implementation of its rural health care reform policy presented new opportunities for expansion of the Company's business in keeping with its strategic focus in 2008 to lay a solid foundation for a rural distribution network.

Product sales in the second quarter totaled $15.1 million and accounted for 100% of total net revenues. Sales of Western-style prescription products and over-the-counter products accounted for 73.9% of total revenues in the second quarter of 2009. Sales of TCM, prescription and over-the-counter products accounted for 22.8% of total revenues. Sales of dietary supplements and medical equipment accounted for 3.1% of revenues. Sales of rADTZ accounted for 0.2% of total revenue.

Gross profit in the second quarter of 2009 was $3.5 million, a decrease of 15.1% over the second quarter of 2008. Gross margin was 23.4% of total revenues for the second quarter, compared to 35.7% in the second quarter of 2008, and 27.5% in the first quarter of 2009. The decrease in gross profit was attributable to overall lower selling prices in the second quarter of 2009 due to increased sales of lower margin regional distribution products and an increase in the cost of some of our pharmaceutical products imposed by our suppliers. In addition, to respond to a trend of lower consumer spending tied to the global economic slowdown affecting the pharmaceutical industry, the Company increased its advertising efforts and spent more on promotional campaigns to increase sales.

Operating expenses in the second quarter of 2009 were $1.8 million, up 49.9% from $1.2 million in the second quarter of 2008. The increase was due to higher selling, general and administrative expenses related to depreciation of assets and an increase in advertising fees, as well as higher transportation costs that resulted from increased sales during the quarter. Operating expenses represented 11.6% of total revenues in the second quarter of 2009, increase from 10.0% in the second quarter of 2008.

Operating income was $1.8 million in the second quarter of 2009, down 40.5% from $3.0 million in second quarter of 2008. Operating margin was 11.8%, as compared to 25.7% during the same period a year ago.

The Company's provision for income taxes was $570,014 for the three months ended June 30, 2009 compared to $572,176 for the comparable period of 2008. The decrease was due to the decrease in operating income. The decrease was subject to an effective income tax rate of 25% in 2009, versus a reduced rate of 16.5% in 2008, as tax exemptions enjoyed by the Company's Konzern subsidiary ended in 2008.

Net income for the second quarter of 2009 was $0.04 million, or $0.003 per diluted share, which included a $1.2 million non-cash expense related to a change in the fair value of warrants, compared to $2.5 million or $0.16 per diluted share, in the second quarter of 2008. This is due to the adoption of a new accounting policy that became effective January 1, 2009, which requires changes in the fair value of warrants to be recognized in earnings each quarter. Excluding this expense, adjusted net income for the second quarter of 2009 was $1.3 million, or $0.08 per fully diluted share, which translates to a 49.1% decrease in net income for the second quarter of 2009 compared to the same period last year.

Six Month Results

For the first half of 2009, revenues increased to $25.2 million, up 34.5% from $18.7 million in first half of 2008. Gross profit decreased 2.5% to $6.3 million in the first six months of 2009, versus $6.5 million in the first six month of 2008. Gross margin was 25.1% in the first half of 2008 compared to 34.6% during the first half of 2008. Operating income in the first half of 2009 decreased 19.4% to $3.5 million compared to $4.4 million in the first half 2008. Net income for the first six months of 2009 was $0.6 million or $0.04 per diluted share, compared to $3.6 million, or $0.23 per diluted share in the first half of 2008. Adjusted net income, excluding expenses related to fair value of warrants, was $2.6 million in first half 2009, or $0.17 per diluted share, which translates to a 29.6% decrease in net income for the first half of 2009 compared to the same period last year.

Financial Condition

As of June 30, 2009, China Medicine had $1.8 million in cash and cash equivalents. Working capital was approximately $33.0 million, up 1.4% from $32.5 million as of December 31, 2008. Accounts receivable stood at $15.4 million as of June 30, 2009, down from $19.2 million as of December 31, 2008, reflecting increased customer collections. China Medicine Corporation Stockholders' equity as of June 30, 2009 was $42.9 million compared to $42.8 million recorded as of December 31, 2008. For the six months ended June 30, 2009, cash from operating activities was $1.5 million. Cash flow used in investing activities was $2.6 million for the six months ended June 30, 2009, versus $0.6 million for the six months ended June 30, 2008. The increase is attributable to the purchase of know-how for a non-prescription medicine, Shiwuwei Syrup, which is used to enhance the respiratory system and increase the amount of hemoglobin in the blood.

Business Outlook

"We continue to make progress on executing our business plan as we enter second half of 2009 and are excited about the prospects for recombinant Alfatoxin Detoxifizyme (rADTZ), our innovative product that has the potential to detoxify alfatoxin (AFT), a potential cancer causing agent, in food and feed when used as an additive. We are pleased to have successfully commenced trial production and sales for our rADTZ, which have generated RMB 153,000 (approximately $22,400), with gross margin of approximately 65.4%. As we produce the product in greater scale and refine the technology used in the production process, we believe gross margin could be improved. We are very enthusiastic about the prospects for rADTZ and the demand for the product, and believe it will become one of the most important contributors to our growth in the coming years.

"In terms of increasing our product portfolio to include products with exclusive national distribution rights, we added Qinpi Jiegu tablets to our portfolio in the second quarter, which are used to promote blood circulation to dissipate blood stasis and relieve pain. We also obtained exclusive provincial level distribution rights for Alendronate Sodium tablets used for treatment of osteoporosis. In keeping with our strategy, we plan to increase sales of pharmaceutical products with exclusive distribution rights, which have higher margins. Overall, we are confident that our margins will improve going forward as sales for these products increase during the year," said Mr. Yang.

"Recently, we have also received Quality Standard certification for our herbal tea series and expect to launch our self-branded herbal tea series into the market in August 2009. As we get further into the second half of 2009, we also expect to receive approval from the State Food and Drug Administration (SFDA) in October to start the production of our self-branded multivitamin series. We will be launching a comprehensive outdoor advertising campaign to promote our self-branded products, including our proprietary weight loss supplement-Bethin, during the second half of 2009. We remain confident that as we promote our brand image among Chinese consumers in Guangdong province, we will able to increase our profitability profile in the quarters ahead."

"2009 is an important, transitional year for China Medicine as we set out to achieve our major goals of bringing the Company up to a higher platform. The increase of higher margin pharmaceutical products to our distribution pipeline and our plan to launch self-branded products will contribute to our bottom line growth. Furthermore, with our novel rADTZ product currently under review by the Department of Agriculture for product permit approval, we expect by the end of 2009, we will be able to commercialize this product and compete for a share of the $4.04 billion addressable market for rADTZ in China's feed industry," said Mr. Yang.

Conference Call

China Medicine will hold its second quarter conference call for all interested persons at 10:00 a.m. Eastern Time on Thursday, August 13, 2009, to discuss its results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time 866.800.8648. International callers should dial 617.614.2702. When prompted by the operator, mention conference passcode 175 848 10. If you are unable to participate in the call at its scheduled time, a replay will be available for 14 days starting on Thursday, August 13 at 12:00 p.m. Eastern Time. To access the replay, dial 888-286-8010 (international callers dial 617-801-6888, and enter the passcode 442 846 06.

About China Medicine Corporation

China Medicine Corporation is a developer and leading distributor of prescription and over the counter ("OTC") drugs, traditional Chinese medicine products, herbs and dietary-supplements, medical devices, and medical formulations in China. China Medicine also has its research and development force for certain products it manufactures through OEM arrangement makes the distribution. The Company distributes its products to wholesale distributors including more than 300 hospitals and 500 medicine companies that sell to over 2,000 drug stores in 28 provinces throughout China. The Company actively develops a number of proprietary products for a variety of uses, including oncology, high blood pressure and the removal of toxins from food and animal feeds. For more information visit the Company's website at http://www.chinamedicinecorp.com

Use of Non-GAAP Financial Measures

GAAP results for second quarter 2009 include $1.2 million non cash expenses related to change in Company's fair value of warrants. Because the expense is non-cash, and is not related to the Company's operating results, the Company believes that the non-GAAP information is useful to supplement the Company's condensed consolidated financial statements. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

Cautionary Statement

This press release contains forward-looking statements concerning the Company's business and products. The Company's actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, obtaining regulatory approval for new products, the expected contribution of higher margin products, government support for rural health care, competition from existing and new competitors, changes in technology, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. China Medicine Corporation undertakes no duty to revise or update any forward- looking statement to reflect events or circumstances after the date of this release.

                         - FINANCIAL TABLES FOLLOW -



                   CHINA MEDICINE CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
                                   (Unaudited)

                              Three months ended         Six months ended
                                  June 30,                  June 30,
                              2009         2008         2009         2008
    REVENUES:
     Product sales         $15,055,093  $11,067,074  $25,153,483  $17,918,458
     Medical formula sales          --      570,465           --      780,120
      Total revenues        15,055,093   11,637,539   25,153,483   18,698,578

    COST OF GOODS SOLD      11,525,866    7,481,170   18,844,628   12,230,189

    GROSS PROFIT             3,529,227    4,156,369    6,308,855    6,468,389

    OPERATING EXPENSES:
     Research and
      development              285,256      107,824      470,136      196,216
     Selling, general and
      administrative         1,465,660    1,060,082    2,292,844    1,872,590
      Total operating
       expenses              1,750,916    1,167,906    2,762,980    2,068,806

    INCOME FROM
     OPERATIONS              1,778,311    2,988,463    3,545,875    4,399,583

    OTHER INCOME
     (EXPENSE):
     Other income
      (expense), net           (26,400)      32,104      (20,847)      38,087
     Change in fair value
      of warrant
      liabilities           (1,213,218)          --   (1,971,907)          --

    INCOME BEFORE INCOME
     TAXES AND
     NONCONTROLLING
     INTERESTS                 538,693    3,020,567    1,553,121    4,437,670

    PROVISION FOR INCOME
     TAXES                     570,014      572,176    1,115,500      840,943

    NET INCOME (CHINA
     MEDICINE CORPORATION
     AND NONCONTROLLING
     INTERESTS)                (31,321)   2,448,391      437,621    3,596,727

    Add: Net income
     attributable to
     noncontrolling
     interests                  73,317       17,833      154,457       45,310

    NET INCOME
     ATTRIBUTABLE TO CHINA
     MEDICINE CORPORATION       41,996    2,466,224      592,078    3,642,037

    OTHER COMPREHENSIVE
     (LOSS) INCOME:
     Foreign currency
      translation
      adjustment                  (277)     781,204      (58,985)   2,071,824
     Foreign currency
      translation
      adjustment
      attributable to
      noncontrolling
      interests                     68       19,497       (1,065)      56,043

    COMPREHENSIVE INCOME       $41,787   $3,266,925     $532,028   $5,769,904

    EARNINGS PER SHARE:
     Basic                        $ --        $0.16        $0.04        $0.24
     Diluted                      $ --        $0.16        $0.04        $0.23

    WEIGHTED AVERAGE
     SHARES OUTSTANDING:
     Basic                  15,231,214   15,206,124   15,228,966   15,118,595
     Diluted                15,355,660   15,634,713   15,248,178   15,547,183



                   CHINA MEDICINE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                      ASSETS
                                                  June 30,        December 31,
                                                    2009              2008
                                                (Unaudited)
    CURRENT ASSETS
      Cash                                       $1,814,200        $2,791,814
      Notes receivables                             556,700           600,911
      Accounts receivable, trade, net of
       allowance for doubtful accounts of
       $96,477 and $96,609 as of June
       30, 2009 and December 31,
       2008, respectively                        15,354,966        19,225,091
      Inventories                                 8,006,235         4,725,322
      Advances to suppliers                       7,651,459         6,121,974
      Other current assets                          272,563           192,080
        Total current assets                     33,656,123        33,657,192

    EQUIPMENT, net                                3,632,511         3,761,637

    OTHER ASSETS
      Long term prepayment                        7,940,563         6,014,920
      Intangible assets, net                      1,480,224         1,247,567
        Total other assets                        9,420,787         7,262,487

          Total assets                          $46,709,421       $44,681,316

                       LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES
      Accounts payable, trade                      $200,851           $61,243
      Other payables and accrued liabilities         25,368            50,559
      Customer deposits                             308,748           151,429
      Taxes payable                                  54,020           772,289
      Liquidated damages payable                     44,003            44,003
        Total current liabilities                   632,990         1,079,523

    Fair value of warrant liabilities             2,481,112                --
        Total liabilities                         3,114,102         1,079,523

    Commitment and contingencies

    SHAREHOLDERS' EQUITY
      Preferred stock, $0.0001 par value;
       10,000,000 shares authorized,
       no shares issued and outstanding                  --                --
      Common stock, $0.0001 par value;
       90,000,000 shares authorized,
       15,244,242 shares issued and
       outstanding at June 30, 2009
       and December 31, 2008                          1,524             1,522
      Paid-in capital                            12,500,972        13,011,012
      Statutory reserves                          3,178,861         3,178,861
      Retained earnings                          22,864,643        22,146,572
      Accumulated other comprehensive income      4,369,309         4,428,294
        Total shareholders' equity               42,915,309        42,766,261

    NONCONTROLLING INTERESTS                        680,010           835,532

        Total equity                             43,595,319        43,601,793

          Total liabilities and equity          $46,709,421       $44,681,316



                   CHINA MEDICINE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                     Six months ended June 30,
                                                         2009        2008
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income attributable to China
       Medicine Corporation                            $592,078   $3,642,037
      Net income attributable to
       noncontrolling interests                        (154,457)     (45,310)
      Net income                                        437,621    3,596,727
      Adjustments to reconcile net income to cash
       provided by (used in) operating activities:
        Depreciation and amortization                   433,934      193,572
        Loss on sale of assets                           27,816           --
        Stock option and warrant compensation            48,050       52,314
        Amortization of deferred expenses                    --      175,421
        Change in fair value of warrant liabilities   1,971,907           --
      Change in operating assets and liabilities
        Notes receivables                                43,413   (1,670,875)
        Accounts receivable, trade                    3,845,752     (657,089)
        Inventories                                  (3,288,910)    (804,759)
        Advances to suppliers                        (1,538,563)  (3,473,818)
        Other current assets                             (3,707)         420
      Change in operating liabilities
        Accounts payable, trade                         139,758       21,928
        Other payables and accrued liabilities          (25,157)     (52,364)
        Customer deposits                               157,601        4,931
        Taxes payable                                  (717,560)    (371,810)
          Net cash provided by (used in)
           operating activities                       1,531,955   (2,985,402)

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of equipment                            (381,321)     (17,226)
      Purchase of intangible assets                    (234,512)          --
      Proceeds from sale of equipment                    21,986           --
      Long term prepayment                           (1,934,767)    (605,657)
          Net cash used in investing activities      (2,528,614)    (622,883)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from exercise of options                  21,875      362,500
          Net cash provided by financing activities      21,875      362,500

    EFFECT OF EXCHANGE RATE ON CASH                      (2,830)     249,470

    DECREASE IN CASH                                   (977,614)  (2,996,315)

    CASH, beginning of period                         2,791,814    5,767,774

    CASH, end of period                              $1,814,200   $2,771,459




                   CHINA MEDICINE CORPORATION AND SUBSIDIARIES
    RECONCILIATION OF NON-GAAP NET INCOME AVAILABLE TO COMMON SHAREHOLDERS AND
                                    DILUTED EPS


                                       For the Three Months ended June 30,
                                           2009                   2008
                                               Diluted                 Diluted
                                   Net Income    EPS      Net Income     EPS
    Adjusted Amount of Net Income
     available to Common
     Shareholders                  $1,255,214   $0.08     $2,466,224     $0.16
    Adjustment
    Change in fair value of
     warrants                       1,213,218    0.08             --        --

    Amount per consolidated
     statement of operations          $41,996  $0.003     $2,466,224     $0.16

Weighted average diluted shares, 15355660 for three months ended June 30, 2009 and 15634713 for three months ended June 30, 2008

Weighted average diluted shares, 15248654 for the six months ended June 30, 2009 and 15547183 for the six months ended June 30, 2009

                                        For the Six Months ended June 30,
                                           2009                   2008
                                               Diluted                 Diluted
                                   Net Income    EPS      Net Income     EPS
    Adjusted Amount of Net Income
     available to Common
     Shareholders                  $2,563,985   $0.17     $3,642,037     $0.23
    Adjustment
    Change in fair value of
     Warrants                       1,971,907    0.13             --        --

    Amount per consolidated
     statement of operations         $592,078   $0.04     $3,642,037     $0.23

Weighted average diluted shares, 15355660 for three months ended June 30, 2009 and 15634713 for three months ended June 30, 2008

Weighted average diluted shares, 15248654 for the six months ended June 30, 2009 and 15547183 for the six months ended June 30, 2009

    For more information, please contact:

    Company Contact:
     Ms. Huizhen Yu
     Chief Financial Officer
     China Medicine Corp
     Tel:   +86-20-8739-1718
     Email: konzern08@163.com

    Investor Relations Contact:
     Mr. Crocker Coulson, President
     CCG Investor Relations
     Tel:   +1-646-213-1915 (NY Office)
     Email: crocker.coulson@ccgir.com
     Web:   http://www.ccgirasia.com

SOURCE China Medicine Corporation