omniture

China Sky One Medical Announces Second Quarter 2010 Results

2010-08-10 17:49 2038

HARBIN, China, Aug. 10 /PRNewswire-Asia/ -- 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 second quarter of 2010.

Second Quarter 2010 Financial Highlights

-- Total revenues increased 26.7% year-over-year to $40.8 million

-- Gross profit rose 20.9% to $29.5 million

-- Operating income grew 13.4% to $13.7 million

-- GAAP net income, including a non-cash gain from change in the fair

value of derivative warrant liability, increased 45.9% year-over-year

to $12.2 million, or $0.73 per diluted share

-- Excluding the non-cash gain, non-GAAP adjusted net income rose 7.4% to

$10.2 million, or $0.60 per diluted share

Second Quarter 2010 Accomplishments

-- Obtained SFDA approval for Ciclopirox Olamine Vaginal Suppositories, a

broad-spectrum antibacterial that treats fungal infection and

inflammation

-- Obtained SFDA renewal of the Good Manufacturing Practices Certificate

for Pharmaceutical Products ("GMP Certificate") for the Company's

subsidiary, Heilongjiang Tianlong Pharmaceutical, Inc. ("Tianlong")

"Our second quarter revenue grew by nearly 27% year-over-year, driven by strong product sales across a number of our product categories, partially offset by lower revenue from Slim Patch and Diagnostic Kit Sales. A noteworthy contributor to our growth this quarter continues to be strength in the sales of our ointment products, including Compound Camphor Cream, which grew 85% year-over-year and remains our best selling product," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc. "In 2010, we have increased our cooperation with several larger scale distributors, who provide us with a powerful channel to expand our addressable market. We continue to make a significant investment in research and development, with a focus on innovative proprietary drugs and diagnostic kits that we expect will drive future sales growth."

Second Quarter 2010 Results

In the second quarter of 2010, China Sky One's total revenues increased 26.7% to $40.8 million from $32.2 million in the same quarter last year. Top-line growth was primarily attributable to strong sales from the Ointment and Others product categories, which together represented 57.9% of total revenue. Sales of ointments increased 51.7% year-over-year to $11.6 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 15.0% of total revenues in the second quarter of 2010 up from 10.5% of sales during the first quarter of 2010. Sales of the 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 98.5% in the current year quarter to $12.0 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 2.3% year-over-year to $9.7 million in the second quarter of 2010 due to a 31.1% decrease in Slim Patch sales to $4.8 million, as compared to $6.9 million in the comparable period of 2009. Excluding the Slim Patch, sales of other patch products, including Pain Relief Patch, Asthma Patch and Hypertension Patch, rose 63.6% to $4.9 million in the second quarter of 2010, as compared to $3.0 million in the year ago quarter.

Sales of spray products were up 5.5% from the prior year at $5.1 million. Diagnostic kit sales fell year-over-year to $2.3 million from $3.7 million. The Company has implemented training of its sales professionals to enhance cooperation with its distributors to increase marketing support for this category and is confident that new diagnostic kits under development have very significant market potential.

Gross profit rose 20.9% to $29.5 million in the second quarter of 2010. Gross margin in the quarter was 72.5%, as compared to 75.9% in the 2009 quarter. Regional flooding and droughts in the second quarter of 2010 led to higher pricing of herbal raw materials used by the Company to produce traditional Chinese medicine (TCM) products.

Operating expenses increased 28.3% year-over-year to $15.8 million in the second quarter of 2010. The increase was principally due to $2.2 million higher R&D expenses, a $0.7 million increase in general and administrative and a $0.4 million increase in depreciation and amortization expenses associated with two proprietary technologies acquired in the fourth quarter of 2009. Second quarter 2010 operating income was $13.7 million, representing an operating margin of 33.6%, as compared to $12.1 million and 37.5% in the same period a year ago.

Total other income was $2.1 million in the second quarter of 2010, as compared to an expense of $1.1 million in the prior year quarter. The increase reflected a non-cash gain related to the change in the fair value of our derivative warrant liability related to the private placement in January 2008.

Provision for income taxes was $3.6 million in the second quarter of 2010, as compared to $2.6 million in the same period last year.

GAAP net income for the second quarter of 2010 was $12.2 million, as compared to $8.4 million in the second quarter of 2009. Excluding the non-cash $2.1 million gain related to the change in fair value of derivative warrant liability, the Company's non-GAAP adjusted net income rose 7.4% to $10.2 million or $0.60 per diluted share, as compared to $9.5 million or $0.57 per diluted share, in the prior year period.

Financial Condition

As of June 30, 2010, China Sky One had $64.7 million in cash and equivalents, with a current ratio of 5.5. Working capital was approximately $77.2 million, up from $60.6 million at the end of second quarter 2009. Stockholders' equity at June 30, 2010, was $147.2 million, a 21.8% increase over the $120.9 million recorded at December 31, 2009.

Accounts receivable turnover days increased to 53.4 in the three months ended June 30, 2010, as compared to 47.1 days in the same period of 2009. Inventory turnover days increased to 30.4 in the second quarter of 2010 from 15.4 days in the year ago quarter. This increase primarily reflected management's decision to increase raw material inventory ahead of anticipated price increases and in anticipation of expected sales growth in 2010.

The Company generated $19.3 million in net cash flow from operating activities in the first six months of 2010, an increase from $17.8 million in the year ago comparable period. Management believes current working capital and borrowing capabilities are sufficient to cover their operating and capital requirements in the near future.

Business Outlook

The Company is currently in the process of negotiating with a few of its key customers for business in the second half of 2010 and plans to provide an update to its annual guidance in the near future if there is any material change.

"We delivered strong organic revenue growth of nearly 27% this quarter and continued to invest in our pipeline. Our strong balance sheet and cash flow provide us with the flexibility to invest in new products, expand our capacity and pursue additional acquisitions. We remain optimistic that we will obtain SFDA approval of 3 to 5 of new products during the second half of 2010, leading to new revenue streams beginning in 2011. We will continue our efforts in research and development of high margin branded products, while focusing on increasing sales and promotion of our current products, including our promising portfolio of diagnostic kits," concluded Mr. Liu.

Conference Call

China Sky One Medical will conduct a conference call at 8:00 a.m. Eastern Daylight Time (EDT) on Tuesday, August 10, 2010, to discuss its second 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 92105755.

If you are unable to participate in the call at this time, a replay will be available for two weeks starting on Tuesday, August, 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 92105755.

Use of Non GAAP Financial Measures

GAAP results for the three and six month periods ended June 30, 2010 and June 30, 2009 include gains or losses 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 are adjusted net income and adjusted diluted earnings per share, excluding the impact of these items. 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"), 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 http://www.cski.com.cn .

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. Yan-qing Liu, CEO

Email: ir@cski.com.cn

Investor Relations Contact:

CCG Investor Relations

Mr. Crocker Coulson, President

Tel: +1-646-213-1915

Email: crocker.coulson@ccgir.com

Website: http://www.ccgirasia.com

Ms. Mabel Zhang, Vice President

Tel: +1-310-954-1353

Email: mabel.zhang@ccgir.com

- FINANCIAL TABLES FOLLOW -

China Sky One Medical, Inc. and Subsidiaries

Reconciliation of Non-GAAP Net Income and Diluted EPS

(Unaudited, $ in thousands except share and per share data)

For Three Months Ended June 30,

2010 2009

(restated)

Net Diluted Net Diluted

Income EPS Income EPS

Net Income $12,242 $0.73 $8,390 $0.51

Loss (gain) related to change in

fair value of derivative warrant

liabilities ($2,087) ($0.12) $1,066 $0.06

Adjusted Net Income $10,155 $0.60 $9,456 $0.57

Diluted Weighted Average Shares

Outstanding 16,812,810 16,628,892

For Six Months Ended June 30,

2010 2009

(restated)

Net Diluted Net Diluted

Income EPS Income EPS

Net Income $24,830 $1.47 $17,873 $1.08

Loss (gain) related to change in

fair value of derivative warrant

liabilities ($7,013) ($0.42) ($1,173) ($0.07)

Adjusted Net Income $17,817 $1.05 $16,700 $1.01

Diluted Weighted Average Shares

Outstanding 16,894,775 16,547,037

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 Six Months Ended

June 30, June 30,

2010 2009 2010 2009

(restated) (restated)

Revenues $40,760 $32,181 $69,663 $57,015

Cost of Goods Sold 11,216 7,752 18,491 13,793

Gross Profit 29,544 24,429 51,172 43,222

Operating Expenses

Depreciation and

amortization 827 449 1,668 901

Research and development 5,910 3,682 9,674 6,095

Selling 7,983 7,796 13,894 13,763

General and administrative 1,123 420 2,113 1,330

Total operating expenses 15,843 12,347 27,349 22,089

Income from Operations 13,701 12,082 23,823 21,133

Other Income (Expense)

Interest income 30 14 59 26

Change in fair value of

derivative warrant

liability 2,087 (1,066) 7,013 1,173

Total other income

(expense) 2,117 (1,052) 7,072 1,199

Net Income Before

Provision for Income Tax 15,818 11,030 30,895 22,332

Provision for Income Taxes 3,576 2,639 6,065 4,459

Net Income $12,242 $8,391 $24,830 $17,873

Basic Earnings Per Share $0.73 $0.51 $1.48 $1.09

Basic Weighted Average

Shares Outstanding 16,790,851 16,537,066 16,783,896 16,475,833

Diluted Earnings Per Share $0.73 $0.51 $1.47 $1.08

Diluted Weighted Average

Shares Outstanding 16,812,810 16,628,892 16,894,775 16,547,037

Other Comprehensive Income

Foreign currency

translation adjustment $535 $6 $556 $123

Net Income 12,242 8,391 24,830 17,873

Comprehensive Income $12,777 $8,397 $25,386 $17,996

China Sky One Medical, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

($ in thousands, except share data)

June 30, December 31,

2010 2009

(Unaudited) (Restated)

ASSETS

Current Assets

Cash and cash equivalents $64,656 $52,756

Accounts receivable, net 23,964 21,146

Inventories 5,559 2,413

Prepaid and other current assets 24 74

Total current assets 94,203 76,389

Property and equipment, net 15,451 15,491

Intangible assets, net 23,853 25,114

Construction in progress 12,986 12,932

Land use rights, net 4,559 4,586

Construction and land deposits 13,219 5,851

Total Assets $164,271 $140,363

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued expenses $7,768 $4,186

Taxes payable 5,734 3,873

Derivative warrant liability 3,549 11,435

Total current liabilities 17,051 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

Retained earnings 102,615 77,785

Accumulated other comprehensive

income 6,434 5,879

Total stockholders' equity 147,220 120,869

Total Liabilities and Stockholders'

Equity $164,271 $140,363

China Sky One Medical, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, $ in thousands)

Six Months Ended June 30,

2010 2009

(restated)

Cash flows from operating activities

Net Income $24,830 $17,873

Adjustments to reconcile net cash

provided by (used in) operating

activities:

Depreciation and amortization 1,919 1,168

Change in fair value of derivative

warrant liability (7,013) (1,173)

Net change in assets and liabilities

Accounts receivable (2,719) (1,184)

Inventories (3,124) (1,109)

Prepaid and other current assets 50 41

Accounts payable and accrued expenses 3,487 1,308

Taxes payable 1,838 898

Net cash provided by operating

activities 19,268 17,822

Cash flows from investing activities

Land deposit (7,316)

Purchase of fixed assets (407) (84)

Purchase of construction in progress -- (9,878)

Net cash used in investing activities (7,723) (9,962)

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 261 56

Net increase in cash and cash

equivalents 11,900 7,945

Cash and cash equivalents at

beginning of period 52,756 40,288

Cash and cash equivalents at end of

period $64,656 $48,233

Supplemental disclosure of cash flow

information

Interest paid $-- $--

Taxes paid $4,942 $3,929

Source: China Sky One Medical, Inc.
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