China Shenghuo Pharmaceutical Reports Financial Results for the Third Quarter of 2011

Nov 14, 2011, 16:17 ET from China Shenghuo Pharmaceutical Holdings, Inc.

KUNMING, China, Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ -- China Shenghuo Pharmaceutical Holdings, Inc. (NYSE Alternext US: KUN) ("China Shenghuo" or the "Company"), today reported financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

  • Total revenue was approximately $10.9 million for the third quarter of 2011, an increase of 28% from approximately $8.6 million for the same period of 2010.
  • Gross profit as a percentage of revenues was approximately 64%, as compared to 65 % for the same period of 2010.
  • Net cash provided by operating activities for the nine months ended September 30, 2011 was approximately $2.3 million, an increase of approximately $0.1 million as compared to approximately $2.2 million for the same period of 2010.
  • Net loss attributable to shareholders was $506,454 for the three months ended September 30, 2011 as compared to the net income attributable to shareholders of $787,657 for the same period of 2010.

Sales: Sales for the three months ended September 30, 2011 was approximately $10.9 million, an increase of approximately $2.3 million, or 28%, from approximately $8.6 million for the three months ended September 30, 2010. The increase in sales was primarily due to the Company's main product Xuesaitong's sales increasing in Tianjin City and Yunnan Province as Xuesaitong was listed on the PIC list of Tianjin City since the second half year in 2010 and the Company strengthened sales promotion in the provinces and cities where Xuesaitong was listed on their PIC lists, especially Yunnan Province and Tianjin City. The OTC market also contributed part of increase of revenue as the Company also strengthened the OTC market development in 2011.

Cost of goods sold: Our cost of sales for the three months ended September 30, 2011 was approximately $3.9 million, an increase of approximately $0.9 million or 31% from approximately $3.0 million for the three months ended September 30, 2010. The increase in cost of sales was due to the increase of the sales volume and the purchase price of Sanqi which is the main raw material of our main product Xuesaitong. Although we have started to grow Sanqi within the Resort, we will not be able to harvest until 2014 because it has a three year growth cycle. In addition, the Zhonghuang Hotel began trial operation since January 2011 which has contributed approximately $0.5 million to the increase of cost of sales.

Gross profit: Our gross profit for the three months ended September 30, 2011 was approximately $7.0 million as compared with approximately $5.6 million for the three months ended September 30, 2010, an increase of approximately $1.4 million, or 26%. Gross profit as a percentage of revenues was approximately 64% for the three months ended September 30, 2011, a decrease of 1% from 65% for the three months ended September 30, 2010. The slight decrease in gross profit percentage was primarily due to the increase of cost of sales as set forth above.

Selling expense: Selling expenses were approximately $5.2 million for the three months ended September 30, 2011, an increase of approximately $1.4 million, or 36%, from approximately $3.8 million for the three months ended September 30, 2010. The primary reason for the increase in selling expenses was due to increase of sales commission to sales representative in line with the sales increment.

We reimburse the sales representatives their selling and marketing expenses when they submit the appropriate documentation to be reimbursed and their sales are collected. We reimburse the sales representatives their accrued selling expenses when related accounts receivable are collected.

General and administrative expense: General and administrative expenses were approximately $1.4 million for the three months ended September 30, 2011, an increase of approximately $0.5 million, or 53%, from approximately $0.9 million for the three months ended September 30, 2010. The increase was primarily due to the increase of the management's traveling and conference expenses for expanding our sales channel. In addition, Zhonghuang Hotel began trial operation since January 2011 which has contributed $94,100 to the increase of general and administrative expense.

Research and development expense: Research and development expense for the three months ended September 30, 2011 was $321,297, as compared to $160,795 for the three months ended September 30, 2010, an increase of $160,502. The increase was primarily due to the expenditures in the third quarter of 2011 for outside experts for the Phase I clinical test of Sh1002 which amounted to $168,680.

Other expenses: Other expenses were $592,448 for the three months ended September 30, 2011, which consisted of interest expense and non-operating expense, offset by subsidy income, interest income and non-operating income, a decrease of $890,991, or 298%, from an income of $298,543 for the three months ended September 30, 2010. The decrease was mainly due to an increase in interest expenses occurring and less subsidy income received as compared the same period in 2010.

Income tax benefit (expense): Income tax benefit was $37,949 for the three months ended September 30, 2011 as compared to income tax expense of $118,370 for the three months ended September 30, 2010. The tax benefit was mainly attributable to the medicine segment of the Company and the deferred tax assets benefit from accrued expenses and provisions for inventory.

Net (loss) income attributable to shareholders: Net loss was $506,454 for the three months ended September 30, 2011 as compared to the net income of $787,657 for the three months ended September 30, 2010. The net loss was primarily due to the increase of the cost of raw material, expenses related to the trial operation of Shenghuo Plaza, research and development expense on the Phase I clinical test of Sh1002 in America, operating expenses, interest expense, and less government subsidy income ($1,011 as compared to $492,451 for the prior year period).

The Company expects to receive mortgage financing for its completed Shenghuo Plaza and two office buildings upon obtaining the Building Completion Certificates and the Property Ownership Certificate. This financing should help address the imbalance between the Company's ratio of current liabilities to current assets and result in an improved balance sheet.

About China Shenghuo

Founded in 1995, China Shenghuo is primarily engaged in 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 is currently being listed in the 2010 Provincial Insurance Catalogue of sixteen provinces around China. 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, Tajikistan, Russia and Kyrgyzstan.

With the substantial completion of Shenghuo Plaza at the end of 2010, China Shenghuo entered into a new business - the hotel and hospitality business.  Two floors of Shenghuo Plaza are designed to be utilized as 12 Ways Chinese Herbal Beauty Demonstration Center.  The balance of Shenghuo Plaza is used as a business hotel - Zhonghuang Hotel, restaurant and banquet facilities and an entertainment venue.

China Shenghuo is also expanding into the businesses of wellness tourism.  For more information, please visit http://www.shenghuo.com.cn.

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.


Company Contact:

China Shenghuo Pharmaceutical Holdings, Inc.

Ms. Shujuan Wang

Secretary of Board of Directors

+86-871-7282698


Investor Relations Contact:

The Trout Group

Mark Xu

+86-15821996861




CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in USD)




September 30,


December 31,


2011



2010




(Unaudited)




Assets:







Current assets:







  Cash and cash equivalents


$

3,936,948


$

1,669,387

  Restricted Cash



314,718



-

  Accounts and notes receivable, net of allowance of 2,355,552 and 2,260,505 for 2011 and 2010, respectively



15,895,009



11,531,027

  Other receivables, net of allowance of 3,292,772 and 3,159,623 for 2011 and 2010, respectively



4,271,421



4,111,315

  Advances to suppliers



590,735



580,168

  Inventories



2,102,299



2,599,351

  Due from related parties



201,077



190,614

  Current deferred tax assets



1,133,114



833,568

Other current assets



135,549



208,111

Total current assets



28,580,870



21,723,541








  Property, plant and equipment, net



22,586,801



21,069,139

  Other non-current assets



2,395,763



2,554,193

Total assets 


$

53,563,434


$

45,346,873








Liabilities and equity:







Current liabilities:







  Accounts payable


$

8,643,563


$

8,964,404

  Other payables and accrued expenses



12,133,317



9,699,857

  Sales representative deposits



5,532,182



4,936,429

  Due to related parties



-



79,864

  Short-term borrowings



16,864,031



5,289,178

  Advances from customers



1,337,319



1,158,649

  Taxes payable and other current liabilities



1,071,970



881,506

  Current portion of long-term borrowings



6,199,940



6,039,833

Total current liabilities



51,782,322



37,049,720

  Long-term borrowings



-



6,251,227

Total liabilities



51,782,322



43,300,947

Commitments and contingencies







Equity:







  Common stock, $0.0001 par value, 100,000,000 shares    authorized and 19,679,400 shares issued and outstanding



1,968




1,968

  Additional paid-in capital



6,077,003



6,193,927

  Appropriated retained earnings



147,023



147,023

  Accumulated deficit



(6,243,196)



(5,940,439)

  Accumulated other comprehensive income



1,677,434



1,638,109

  Total stockholder's equity



1,660,232



2,040,588

Non-controlling interest



120,880



5,338

Total equity



1,781,112



2,045,926

Total Liabilities and equity 


$

53,563,434


$

45,346,873




CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Amounts in USD, except shares)




Three Months Ended September 30,


Nine Months ended September 30,



2011


2010


2011


2010










Sales


$

10,910,079


$

8,551,182


$

31,248,165


$

23,340,191

Cost of goods sold



3,936,610



2,996,674



11,749,518



7,561,650

Gross profit



6,973,469



5,554,508



19,498,647



15,778,541

Operating expenses:













Selling expenses



5,233,061



3,849,347



14,255,496



11,869,164

General and administrative expenses



1,366,711



894,301



3,638,386



2,493,749

Research and development expense



321,297



160,795



587,871



417,184




6,921,069



4,904,443



18,481,753



14,780,097

Income from operations



52,400



650,065



1,016,894



998,444

Other income (expenses):













Subsidy income



1,011



492,451



155,753



654,013

Interest and other expense



(593,459)



(193,908)



(1,494,441)



(718,323)




(592,448)



298,543



(1,338,688)



(64,310)

(Loss) income before income tax



(540,048)



948,608



(321,794)



934,134

Income tax benefit (expense)



37,949



(118,370)



10,786



(141,001)

Net (loss) income



(502,099)



830,238



(311,008)



793,133

Net income (loss) attributable to non-controlling interests



4,355



42,581



(8,252)



34,313

Net (loss) income attributable to stockholders


$

(506,454)


$

787,657


$

(302,756)


$

758,820

Comprehensive income (loss):













Net (loss) income



(502,099)



830,238



(311,008)



793,133

Foreign currency translation adjustment



(9,388)



21,221



40,397



26,135

Comprehensive (loss) income:


$

(511,487)


$

851,459


$

(270,611)


$

819,268

Comprehensive gain (loss) attributable to non-controlling interests



8,711



42,617



(7,180)



35,444

Comprehensive (loss) income attributable to stockholders


$

(520,198)


$

808,842


$

(263,431)


$

783,824

Basic and diluted (loss) earnings per share


$

(0.03)


$

0.04


$

(0.02)


$

0.04

Weighted average number of shares outstanding-basic and diluted



19,679,400



19,679,400



19,679,400



19,679,400





CHINA SHENGHUO PHARMACEUTICAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in USD)



Nine months ended September 30,


2011


2010







Net cash provided by operating activities

$

2,275,642


$

2,239,891

Cash flows from investing activities:


 




Purchase of long-lived assets


(4,425,497)



(5,607,809)

Proceeds from disposal of property


171



308,229

Net cash used in investing activities


(4,425,326)



(5,299,580)



 




Cash flows from financing activities:






Proceeds from borrowings


22,083,616



24,640,172

Transfer to restricted cash


(314,718)



-

Payments on borrowings


(17,444,806)



(21,904,375)

Net cash provided by financing activities


4,324,092



2,735,797



 




Effect of foreign currency fluctuation on cash and cash equivalents


93,153



40,775

Net increase (decrease) in cash and cash equivalents


2,267,561



(283,117)

Cash and cash equivalents at beginning of period


1,669,387



1,986,540

Cash and cash equivalents at end of period

$

3,936,948


$

1,703,423







Supplemental information


 




Cash paid for interest

$

1,041,719


$

543,799

Cash paid for income taxes

$

71,077


$

130,489




SOURCE China Shenghuo Pharmaceutical Holdings, Inc.



RELATED LINKS

http://www.shenghuo.com.cn