Renhuang Reports Second Quarter 2010 Results

- Sales grew 39% while net income rose 63% year-over-year

- Management reiterates fiscal 2010 guidance

Jun 07, 2010, 16:30 ET from Renhuang Pharmaceuticals, Inc.

HARBIN, China, June 7 /PRNewswire-Asia-FirstCall/ -- Renhuang Pharmaceuticals, Inc. (Pink Sheets: RHGP) ("Renhuang" or the "Company"), a developer, manufacturer and distributor of botanical products, bio-pharmaceuticals and traditional Chinese medicines ("TCM"), today announced its financial results for the second quarter ended April 30, 2010 and affirmed financial guidance for fiscal year 2010.

    Second Quarter Fiscal 2010 Highlights and Recent Events
    -- Net sales grew 39.0% year-over-year to $12.1 million.
    -- Gross profit increased 44.5% to $6.2 million from $4.3 million in 2009
       while gross margin increased to 51.4% from 49.4% a year ago
    -- Net income rose 63.0% to $3.4 million or $0.09 per diluted share, as
       compared to $2.1 million or $0.06 per diluted share in 2009
    -- New products, Banlangen Granules and Compound Honeysuckle Granules,
       accounted for nearly $3.7 million in sales in the quarter
    -- Appointed three new independent directors, strengthening corporate
       governance practices

"Renhuang continued to deliver robust growth in the second quarter of fiscal 2010 with strong increases in revenue and earnings," said Mr. Shaoming Li, the Chairman and CEO of Renhuang. "We are pleased with the rapid market acceptance of our recently introduced products, Banlangen Granules and Compound Honeysuckle Granules, which were key drivers behind the sales growth and margin expansion to-date. Our operating leverage remained robust in the second quarter with a nearly 400 basis point operating margin increase year-over-year despite higher operating expenses."

Second Quarter Fiscal 2010 Results

For the second quarter ended April 30, 2010, net sales were $12.1 million, up 39.0% from $8.7 million in the same quarter last year. The sales increase was largely driven by strong growth in sales of the Company's recently introduced products, Banlangen Granules and Compound Honeysuckle Granules, and an increase in the net average selling price (ASP) of other products. Banlangen Granules and Compound Honeysuckle Granules accounted for 27.2% of gross sales in the quarter, as compared to 20.2% in the first quarter of fiscal 2010. Excluding Banlangen Granules and Compound Honeysuckle Granules, net ASP rose 5.1% year-over-year in the second quarter of fiscal 2010, which included lower average sales rebate.

Gross profit in the quarter increased 44.5% to $6.2 million, as compared to $4.3 million for the same period of 2009. Gross margin for the quarter ended April 30, 2010 increased to 51.4% from 49.4% in the comparable fiscal 2009 quarter. The year-over-year margin expansion was mainly due to lower sales rebates and higher average selling prices of several of the Company's products.

Operating expenses for the second quarter of fiscal 2010 were $2.8 million, as compared to $2.2 million in the same period last year. Sales and marketing expenses rose to $1.3 million from $1.1 million. The spending increase reflected Renhuang's ongoing distribution network expansion, including penetration into new rural markets, and direct-to-consumer TV advertising to promote product brand awareness. General and administrative expenses increased 63.0% to $1.0 million, primarily as a result of an increase in warrant expenses related to professional service contracts

Operating income in the fiscal 2010 quarter was $3.4 million, up 63.0% from $2.1 million in the 2009 quarter. Operating margin increased significantly year-over-year to 28.3% from 24.1%, with sales growth and gross margin expansion more than offsetting higher operating spend. The Company did not incur income tax expenses as its subsidiary registered in the PRC has been granted a tax holiday for fiscal 2010. For the second quarter ended April 30, 2010, net income grew 63.0% to $3.4 million, or $0.09 per diluted share, from $2.1 million, or $0.06 per diluted share, in the prior year period.

First Half Fiscal 2010 Results

Total revenue for the six month period ended April 30, 2010 was $29.2 million, an increase of 30.0% from $22.5 million for the first six months in fiscal 2009. Year-over-year growth was mainly due to the introduction of Banlangen Granules and Compound Honeysuckle Granules in late 2009, and an increase in ASP across the rest of the product portfolio.

Gross profit in the first half of fiscal 2010 rose 35.4% to $15.7 million, representing a gross margin of 53.7% as compared to 51.6% in the first half of fiscal 2009. Operating income grew 29.1% year-over-year to $10.8 million. In the first six months of fiscal 2010, net income was $10.8 million or $0.29 per diluted share, up from $8.4 million or $0.24 per diluted share in the first six months of fiscal 2009.

Financial Condition

As of April 30, 2010, Renhuang had $23.4 million in cash and cash equivalents. Working capital was $40.4 million with a current ratio of 17.4x, as compared to $32.0 million and 12.9x as of October 31, 2009. The Company had no debt on its balance sheet. At the end of the second quarter of 2010, shareholders' equity was $61.1 million, as compared to $50.5 million at the end of fiscal 2009.

Cash flow from operating activities was $19.3 million for the six months ended April 30, 2010, as compared to $4.2 million during the same period in the prior year. The cash flow increase was primarily attributable to an increase in net income and a decrease in trade receivables that reflected a change in credit terms and more aggressive receive collection efforts year- over-year. Average days sales outstanding fell to 118 days in first half of fiscal 2010 from 186 in the first half of fiscal 2009.

Recent Events

In April 2010, Renhuang announced several major initiatives that further strengthened the Company's corporate governance practices, including the appointment of three new independent directors to its board of directors. With the addition of the independent board members, the Company also established a nominating and compensation committee. This represented a major step in the Company's active efforts to meet the requirements to move to a senior exchange during the fiscal year.

Additionally in May 2010, Renhuang engaged the global leader in Sarbanes-Oxley Section 404 ("SOX 404") compliance consulting, PricewaterhouseCoopers ("PWC"), to assist the Company in establishing and maintaining its SOX 404 compliance program. Renhuang's management team remains committed to work with PWC to further strengthen the Company's internal controls, corporate governance and risk management procedures.

During the second quarter of fiscal 2010, Renhuang entered into a purchase agreement to acquire two office floors for approximately $5.6 million cash. The new office space, intended to become the Company's new headquarters, is already housing some of Renhuang's offices for administrative and human resources functions. Of the total purchase price, $3.9 million was paid in April 2010 as a deposit with the remaining $1.7 million due by December 20, 2012.

Outlook - Affirming Fiscal 2010 Guidance

Renhuang is affirming its fiscal 2010 guidance for net sales in the range of $54.7-$55.6 million, which represents a 26% to 28% increase over reported revenues of $43.4 million in fiscal year 2009. The Company continues to expect fiscal 2010 net income, excluding any non-cash, non-operating gains and expenses (such as the change in fair market value of warrant liability), to be in the range of $18.6-$18.9 million, up 26% to 28% from net income of $14.8 million in fiscal year 2009.

Third quarter sales and net income are historically modestly lower as compared to those in the first two quarters due to seasonality of Renhuang's product portfolio. Demand for the Company's products often peak in the fourth quarter, which represents the start of the flu season.

In the second half of fiscal 2010, Renhuang continues to expect the commercial launch of its Qing Re Jie Du Oral Liquid, a TCM for the treatment of influenza and upper respiratory infections, and Badger Oil, a natural medicine for the treatment of burns. The new product introductions and continued market penetration of Renhuang's current product portfolio are expected to drive revenue growth for the remainder of fiscal 2010. The Company anticipates gross margin to remain above 50% during second half of fiscal 2010. Operating expenses are expected to increase in the second half of the fiscal year, with higher sales and marketing expenses to support new product roll out and increased R&D expenses as the development pipeline advances and grows.

"Renhuang completed a very strong first half performance with significant momentum for the remainder of fiscal 2010," added Mr. Li. "Increased market acceptance of our portfolio of natural products and introduction of new products are expected to continue the Company's strong pace of growth in the coming quarters. In addition to focusing on organic growth, Renhuang continues to actively evaluate external growth opportunities, including the potential acquisition of complementary operations and overseas expansion."

Conference Call

The Company will host a conference call at 9:00 a.m. ET on Tuesday, June 8, 2010 to discuss the second quarter 2010 results. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-812-1464. International callers should dial +1 706-902-4248. The conference ID number for the call is 79282265.

If you are unable to participate in the call at this time, a replay will be available from Tuesday, June 8, 2010 at 10:00 a.m. Eastern Time, through Tuesday, June 22, 2010. To access the replay, dial 800-642-1687. International callers should dial +1 706-645-9291. The conference ID number for the replay is 79282265.

ABOUT RENHUANG PHARMACEUTICALS, INC.

Renhuang Pharmaceuticals, Inc. is engaged in the research, development, manufacturing, and distribution of botanical products, bio-pharmaceutical products, and TCM, in the People's Republic of China. All of the Company's products are produced at its three GMP-certified production facilities in Ah City, Dongfanghong and Qingyang. The Company distributes its botanical anti-depression and nerve-regulation products, biopharmaceutical products, and botanical antibiotic and OTC TCMs through its network of over 3,000 distributors and over 70 sales centers across 24 provinces in China. Company Website: http://www.renhuang.com .

Safe Harbor Statement

This press release contains certain statements that may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon management's beliefs, assumptions and expectations of the Company's future operations and economic performance, taking into account the information currently available to management. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known that may cause actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition expressed or implied in any forward-looking statements. These forward-looking statements are based on current plans and expectations and are subject to a number of uncertainties including, but not limited to, the Company's ability to achieve its financial guidance, ability to list its shares on a senior stock exchange, ability to manage expansion of its operations effectively, competition in the marketing and sales of its products, and other factors detailed in the Company's annual report on Form 10-K and other filings with the Securities and Exchange Commission. 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. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein.

                         - Financial Tables Follow -



                         RENHUANG PHARMACEUTICALS, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                               Three months ended        Six months ended
                                   April 30,                April 30,
                                2010        2009        2010         2009
                                US$         US$          US$          US$
                            (Unaudited) (Unaudited)  (Unaudited)  (Unaudited)

    Sales, net               12,092,506   8,702,878   29,225,120   22,472,875

    Cost of goods sold       (5,877,856) (4,402,550) (13,530,494) (10,883,043)

    Gross profit              6,214,650   4,300,328   15,694,626   11,589,832

    Operating and
     administrative
     expenses:
    Sales and marketing       1,265,319   1,119,855    2,404,300    1,417,945
    General and
     administrative             974,825     597,740    1,791,794    1,219,773
    Research and development    570,557     494,202      722,921      605,980
    Total operating expenses  2,810,701   2,211,797    4,919,015    3,243,698

    Income from operations    3,403,949   2,088,531   10,775,611    8,346,134

    Other income:
    Interest income              15,699      10,022       27,166       19,150
    Income from operations
     before income tax
     expenses                 3,419,648   2,098,553   10,802,777    8,365,284

    Income tax expenses              --          --           --           --
    Net income                3,419,648   2,098,553   10,802,777    8,365,284

     Earnings per common
     stock- Basic                  0.09        0.06         0.29         0.24
    Earnings per common
     stock - Diluted               0.09        0.06         0.29         0.24

    Weighted average common
     stock outstanding
    Basic                    37,239,536  35,096,680   37,239,536   35,096,680
    Diluted                  37,917,140  35,096,680   37,724,214   35,096,680



                        RENHUANG PHARMACEUTICALS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                                April 30,         October 31,
                                                   2010              2009
    ASSETS                                      (Unaudited)         (Audited)
    Current assets:
    Cash and cash equivalents                   23,391,609         8,111,514
    Trade receivables, net                      14,900,545        23,203,410
    Due from related parties                            --           130,199
    Inventory, net                               2,934,928         3,024,016
    Deposits                                     1,462,887                --
    Prepayments                                         --            89,281
    Other receivables, net                         164,566           102,613
    Total current assets                        42,854,535        34,661,033

    Property and equipment, net                  2,164,720         2,352,163

    Deposits                                    18,557,480        16,137,000

    Total assets                                63,576,735        53,150,196

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Liabilities
    Current liabilities:
    Accounts payable                               279,063           369,329
    Value added tax payable                        498,090         1,186,642
    Accrued employee benefits                    1,339,371         1,136,267
    Warranty liability                             342,770                --
    Total current liabilities                    2,459,294         2,692,238

    Shareholders' equity
    Preferred stock (no par value,
     1,000,000 shares authorized; none
     issued and outstanding as of April
     30, 2010 and October 31, 2009)                     --                --
    Common stock ($0.001 par value,
     100,000,000 shares authorized;
     37,239,536 issued and outstanding as
     of April 30, 2010 and October 31,
     2009)                                          37,240            37,240
    Additional paid-in capital                   7,613,119         7,596,525
    Common stock warrants                          496,732           496,732
    Reserves                                     3,372,697         3,372,697
    Accumulated other comprehensive
     income                                      3,207,770         3,367,659
    Retained earnings                           46,389,883        35,587,105
    Total shareholders' equity                  61,117,441        50,457,958

    Total liabilities and shareholders'
     equity                                     63,576,735        53,150,196



                          RENHUANG PHARMACEUTICALS, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                            For the six months ended April 30,
                                                  2010              2009
                                                   US$               US$
                                               (Unaudited)       (Unaudited)
    Cash flows from operating activities:
    Net income                                  10,802,777         8,365,284
    Adjustments to reconcile net income
     to operating activities:
    Depreciation of property and
     equipment                                     181,076           177,224
     Warrants issued for services                  342,770                --
     Share compensation                             16,594                --

    Changes in assets and liabilities:
    Decrease (increase) in trade
     receivables                                 8,238,225        (4,458,764)
    Decrease (increase) in due from
     related parties                               129,841          (448,118)
    Decrease in inventory, net                      80,613           569,231
    Decrease in prepayments                         89,036            33,659
    (Increase) decrease in other
     receivables, net                              (62,244)           80,803
    Decrease in accounts payable                   (89,235)          (77,331)
    Decrease in value added tax payable           (685,259)         (270,979)
    Increase in accrued employee benefits          206,296           216,565
    Net cash provided by operating
     activities                                 19,250,490         4,187,574

    Cash flows from investing activities:
    Purchase of property and equipment                  --           (16,212)
    Deposits for office properties              (3,928,614)               --
    Net cash used in investing activities       (3,928,614)          (16,212)

    Effect of exchange rate changes on
     cash                                          (41,781)            6,215

    Net increase in cash and cash
     equivalents                                15,280,095         4,177,577
    Cash and cash equivalents, beginning
     of year                                     8,111,514         9,747,693
    Cash and cash equivalents, end of
     year                                       23,391,609        13,925,270

    Supplemental disclosure of cash flow information:
    Cash paid during the year for income
     taxes                                              --                --
    Interest paid during the year                       --                --



    For more information, please contact:

    Company Contact:
     Renhuang Pharmaceuticals, Inc.
     Ms. Portia Tan, IR Contact
     Tel:   +86-451-5392-5461
     Email: ir@renhuang.com

    CCG Investor Relations:
     Ms. Lei Huang, Account Manager
     Phone: +1-646-833-3417 (New York)
     Email: lei.huang@ccgir.com
     Web:   www.ccgirasia.com

     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915 (New York)
     Email: crocker.coulson@ccgir.com

SOURCE Renhuang Pharmaceuticals, Inc.



RELATED LINKS

http://www.renhuang.com