GUANGZHOU, China, May 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 first quarter 2009 results.
First Quarter 2009 Highlights:
-- Revenues increased 43% from Q1 of 2008 to $10.1 million
-- Gross profit increased 20.2% from Q1 of 2008 to $2.8 million
-- Operating income increased 25.3% from Q1 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 first quarter of 2009, was
$1.3 million, or $0.09 per diluted share
-- Net income was $0.5 million, or $0.04 per diluted share
-- Added 11 new customers
-- Granted manufacturing licenses for its facility to produce certain feed
additives, making the Company eligible to develop a new rADTZ feed
additives
-- Received provincial exclusive distribution rights for Nianlianping-
medical macrogol berberine solution
"We are pleased with our top line growth during the first quarter. Normally, pharmaceutical companies and hospitals place purchase orders to stock up their inventories in the first quarter of the year prior to the Chinese New Year holidays. However, due to the early Chinese New Year celebration in January 2009, a large portion of these sales recorded in the fourth quarter of 2008. Despite this, we achieved double digit growth in our pharmaceutical product sales," said Mr. Senshan Yang, Chairman and CEO of the China Medicine Corporation. "While our gross margin was down from the same period last year due to changes in our product mix adopted to maintain our market share, gross margin increased from the fourth quarter of 2008."
"Our top-selling drugs for the quarter included Iopamidol by injection, which accounted for 17% of revenues and is used to help diagnose heart, brain, blood and nervous system disorders in X-rays or CT scans; Hongjin Xiaojie capsules, which accounted for 15% of revenues are used to treat pain and for blood circulation and Xiasang Ju granules, which are used to treat coughs, headaches and dizziness, accounted for 15% of revenue. Collectively, our top three selling drugs accounted for approximately 47% of revenues," said Mr. Yang.
First Quarter 2009 Results
China Medicine's total revenues in the first quarter were $10.1 million, an increase of 43% over the first quarter of 2008. This was attributable to an increase in sales of pharmaceutical products from Guangdong Sunshine Medicine Public Internet Bidding System. Product sales in the first quarter totaled $10.1 million and accounted for 100% of total net revenues. Sales of Western-style prescription products and over-the-counter products accounted for 56.2% of total revenues in the first quarter. Sales of TCM prescription and over-the-counter products accounted for 42.8% of total revenues. Sales of dietary supplements, and medical equipment accounted for 1% of revenues.
Gross profit in the first quarter of 2009 was $2.8 million, an increase of 20.2% over the first quarter of 2008. Gross margin was 27.5% of total revenues for the first quarter, versus 32.7% in the first quarter of 2008. The government's health care plan, which is focused on restructuring the rural health care system in China, has changed the pricing structure and product mix in China's pharmaceutical industry. As a result, the Company experienced lower selling prices on certain generic drugs and a reduction in gross margin as a result. In addition, lower margin generic pharmaceutical product sales also increased during the first quarter, and medical formula sales fell to zero in the first quarter from 3% of total revenues in the year ago period due to stricter regulation by the State Food and Drug Administration (SFDA), which must approve every transfer of ownership of a medical formula in China and has increased the complexity of the approval process. However, the Company is confident that it can increase its gross margins in coming quarters by adjusting its portfolio to increase sales of pharmaceutical products with exclusive distribution rights as well as sales of self-branded products, which have higher margins.
Operating expenses in the first quarter of 2009 were $1.0 million, up 12.3% from $0.9 million in the first quarter of 2008. This increase was due to higher selling, general and administrative expenses related to the increase in expenses in the first quarter of 2009.
Operating expenses represented 10% of total revenues in the first quarter of 2009, decrease from 12.8% in the first quarter of 2008.
Operating income was $1.8 million in the first quarter of 2009, up 25.3% from $1.4 million in first quarter of 2008. Operating margin was 17.6%, as compared to 20% during the same period a year ago.
The Company's provision for income taxes was $0.5 million in the first quarter of 2009, compared to $0.3 million in the same period a year ago. The increase was subject to an effective income tax rate in China 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 first quarter of 2009 was $0.55 million, or $0.04 per diluted share, which included a $0.8 million non-cash expense related to a change in the fair value of warrants, compared to $1.2 million, or $0.08 per diluted share, in the first 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 first quarter of 2009 was $1.3 million, or $0.09 per fully diluted share, which translates to an 11% increase in net income for the first quarter of 2009 compared to the same period last year. Earnings per share were calculated using a diluted weighted share count of 15.2 million shares for the first quarter of 2009 and 15.3 million shares for the first quarter of 2008.
Financial Condition
As of March 31, 2009, China Medicine had approximately $34.4 million in working capital, an increase of 5.7% from $32.5 million as of December 31, 2008. Accounts receivable stood at $14.9 million at quarter end, down from $19.2 million as of December 31, 2008. Also as of March 31, 2009, China Medicine had $1.8 million in cash and cash equivalents. Stockholders' equity as of March 31, 2009 was $43.6 million compared to $43.6 million recorded as of December 31, 2008. For the quarter ended March 31, 2009, cash used in operating activities was $1.4 million, primarily for purchases of inventory and advances to suppliers, compared with cash used in operating activities of $1.1 million for the quarter ended March 31, 2008. The Company increased inventory in anticipation of higher sales of prescription drugs as well as increased its new product portfolio and increased advances to suppliers associated with drugs that it distributes on a national basis.
2009 Outlook
"We remain confident about the prospect for our business in 2009 despite the challenging global economic environment. In the first quarter of 2009, we have obtained the exclusive provincial-level rights to distribute Nianlianping, which is widely used to prevent surgical adhesions, in Guangdong province, and believe that the addition of exclusive distribution rights products such as these will help improve our margins going forward," said Mr. Yang.
"As we get further into the second quarter, we are also excited about the progress we have made on our novel product, recombinant Aflatoxin Detoxifizyme (rADTZ). Our previous announcement on obtaining a manufacturing license for a premixed feed additive and a manufacturing license for a feed additive for our production facility, which is leased from Guangzhou Municipal Microbe Research Institute, has enabled us to enter into a trial production phase. We expect trial sales phase for rADTZ to begin in late May. We expect gross margin for this product to be approximately 90%," added Mr. Yang.
Based on China Medicine's research, total feed production in China in 2008 was 404 million tonnes. Assuming 1 kilogram of rADTZ will eliminate aflatoxins in one tonne of feed at a cost $10, the total addressable feed market for rADTZ is estimated at approximately $4.04 billion. The Company is actively working with potential rADTZ customers and is currently carrying out experiments with them in order to prepare for the launch and commercialization of rADTZ in second quarter of 2009. In addition, the projected revenues contributed from rADTZ are expected to reach approximately $2.3 million in 2009.
"We believe that the strength and experience of our management team, our exciting new self-branded pharmaceutical products, which include a new herbal tea and "BeThin," our weight loss product, combined with our strategy of obtaining more national exclusive distribution rights to pharmaceutical products and further improving our core business, will enable us to perform well this year and expand our overall market share. We are strongly committed to increasing value for our shareholders in 2009 and beyond and look forward to reporting many quarters of positive performance."
Conference Call
China Medicine will hold its first quarter conference call for all interested persons at 9:00 a.m. Eastern Time on Wednesday, May 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 888.419.5570. International callers should dial 617.896.9871. When prompted by the operator, mention conference passcode 991 874 58. If you are unable to participate in the call at its scheduled time, a replay will be available for seven days starting on Wednesday, May 13 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 (international callers dial
617-801-6888, and enter the passcode 460 255 05.
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 first quarter 2009 include $0.76 million non-cash charge related to change in Company's fair value of warrants. Because the charge 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
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Unaudited)
2009 2008
REVENUES:
Product sales $10,098,390 $6,851,384
Medical formula sales -- 209,655
Total revenues 10,098,390 7,061,039
COST OF GOOD SOLD 7,318,762 4,749,019
GROSS PROFIT 2,779,628 2,312,020
OPERATING EXPENSES:
Research and development 184,880 88,392
Selling, general and administrative 827,184 812,508
Reverse acquisition -- --
Total operating expenses 1,012,064 900,900
INCOME FROM OPERATIONS 1,767,564 1,411,120
OTHER INCOME (EXPENSE):
Other Income, Net 5,553 5,983
Change in Fair Value of Warrants (758,689) --
INCOME BEFORE INCOME TAXES
AND NONCONTROLLING INTEREST 1,014,428 1,417,103
PROVISION FOR INCOME TAXES 545,486 268,767
NET INCOME BEFORE NONCONTROLLING
INTEREST 468,942 1,148,336
Add: Net Income Attributable to
Noncontrolling Interest 81,140 27,477
NET INCOME ATTRIBUTABLE TO CHINA
MEDICINE CORPORATION 550,082 1,175,813
OTHER COMPREHENSIVE (LOSS) INCOME:
Foreign Currency Translation
Adjustment (58,708) 1,290,620
Comprehensive (loss) attributable to
noncontrolling interest (1,133) 36,546
COMPREHENSIVE INCOME $490,241 $2,502,979
EARNINGS PER SHARE:
Basic $0.04 $0.08
Diluted $0.04 $0.08
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 15,226,742 15,029,865
Diluted 15,226,742 15,339,834
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
AND DILUTED EPS
For the Three Months ended March 31,
2009 2008
Diluted Diluted
Net Income EPS Net Income EPS
Adjusted Amount of Net
Income available to
Common Shareholders $1,308,771 $0.09 $1,175,813 $0.08
Adjustment
Change in fair value of
warrants (1) 758,689 0.05 -- --
Amount per consolidated
statement of
operations $550,082 $0.04 $1,175,813 $0.08
(1) Change in fair value of warrants
Weighted average diluted shares, 15,226,742 for three months ended March
31, 2009 and 15,339,834 for three months ended March 31, 2008
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 AND DECEMBER 31, 2008
ASSETS
March 31, December 31,
2009 2008
Unaudited
CURRENT ASSETS
Cash $1,770,955 $2,791,814
Notes receivables 996,200 600,911
Accounts receivable, trade, net of
allowance for doubtful accounts of
$96,447 and $96,609 as of March 31,
2009 and December 31, 2008,
respectively 14,919,635 19,225,091
Inventories 7,879,305 4,725,322
Advances to suppliers 9,415,546 6,121,974
Other current assets 230,801 192,080
Total current assets 35,212,442 33,657,192
EQUIPMENT, net 3,559,893 3,761,637
OTHER ASSETS
Long term prepayment 5,536,804 6,014,920
Intangible assets, net 1,245,844 1,247,567
Total other assets 6,782,648 7,262,487
Total assets $45,554,983 $44,681,316
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $57,758 $61,243
Other payables and accrued liabilities 23,292 50,559
Customer deposits 88,914 151,429
Taxes payable 570,184 772,289
Liquidated damages payable 44,003 44,003
Total current liabilities 784,151 1,079,523
Fair value of warrant liabilities 1,174,231 --
Total liabilities 1,958,382 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;
900,000,000 shares authorized,
15,226,742 shares issued and
outstanding at March 31, 2009
and December 31, 2008 1,522 1,522
Paid-in capital 12,470,726 13,011,012
Statutory reserves 3,178,861 3,178,861
Retained earnings 22,822,647 22,146,572
Accumulated other comprehensive income 4,369,586 4,428,294
Total shareholders' equity 42,843,342 42,766,261
NONCONTROLLING INTEREST 753,259 835,532
Total shareholders' equity 43,596,601 43,601,793
Total liabilities and
shareholders' equity $45,554,983 $44,681,316
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Unaudited)
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to China
Medicine Corporation $550,082 $1,175,813
Net income attributable to
noncontrolling interest (81,140) (27,477)
Consolidated net income 468,942 1,148,336
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization 216,195 96,744
Loss on sale of assets 5,934 --
Stock option and warrant compensation 1,249 26,157
Amortization of deferred expenses -- 86,431
Change in fair value of warrant
liabilities 758,689 --
Change in operating assets and
liabilities
Notes receivables (396,135) (1,646,491)
Accounts receivable, trade 4,279,540 959,968
Inventories (3,160,625) (793,559)
Advances to suppliers (3,302,140) (662,079)
Other current assets (38,849) (79,904)
Accounts payable, trade (3,402) (30,774)
Other payables and accrued
liabilities (17,056) (49,957)
Customer deposits (62,312) (54,499)
Taxes payable (201,065) (142,540)
Net cash used in operating
activities (1,451,035) (1,142,167)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (25,478) (4,490)
Long term prepayment 469,949 --
Net cash provided by (used in)
investing activities 444,471 (4,490)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options
and warrants -- 362,500
Net cash provided by financing
activities -- 362,500
EFFECT OF EXCHANGE RATE ON CASH (14,295) 193,444
DECREASE IN CASH (1,020,859) (590,713)
CASH, beginning of period 2,791,814 5,767,774
CASH, end of period $1,770,955 $5,177,061
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
