China Shenghuo Reports Record Second Quarter 2007 Financial Results

KUNMING, China, Aug. 16 /Xinhua-PRNewswire-FirstCall/ -- China Shenghuo Pharmaceutical Holdings, Inc. ("China Shenghuo"; Amex: KUN) (the "Company"), which is engaged in the research, development, manufacture, and marketing of pharmaceutical, nutritional supplement and cosmetic products in the People's Republic of China ("PRC"), announced its financial results for the second quarter ended June 30, 2007.

Second Quarter 2007 Highlights

-- Net revenues increased 52.0% year-over-year and 46.9% quarter-over-

quarter to $6.4 million

-- Gross profit increased 81.5% year-over-year and 49.9% quarter-over-

quarter to $4.8 million

-- Gross margin increased to 75.1% from 62.9% a year ago

-- Net income increased 29.3% year-over-year to $1.3 million

Second Quarter 2007 Results

For the second quarter of 2007, net revenues increased 52.0% to $6.4 million from $4.2 million in the same quarter of 2006. Sales of Xuesaitong Soft Capsules, the Company's primary product, accounted for 80% of total sales, unchanged from a year ago. The increase in sales was attributed to improved sales in Beijing, Jiangsu and Henan provinces, increased control over the Company's sales and distribution network, sales price increases and increased commissions designed to stimulate sales. Sequentially, revenues increased 46.9% from the first quarter of 2007.

"The second quarter demonstrated the early positive impact of our revenue growth strategy as we improved both sales and gross profit," said Mr. Lan Guihua, Chairman and Chief Executive Officer of China Shenghuo. "The market has been receptive to our product offerings, and the expansion of our sales network in areas such as Beijing and Shanghai has generated new sources of revenue."

Gross profit for the second quarter increased 81.5% to $4.8 million from $2.6 million a year ago. Gross margin was 75.1%, compared to 62.9% in the second quarter of 2006. The increased gross margin was attributed to an increase in sales prices. The Company believes that gross margin for the full year should be above 70%.

Selling expenses were $2.0 million, compared with $0.8 million a year ago, primarily because of the growth of the sales distribution network, the conversion from cash to accrual accounting, increased commissions to stimulate sales and increased marketing expenses related to the launch of the Company's new cosmetics line. The Company expects selling expenses for the full year should be in the range of 30% to 35% of sales going forward.

General and administrative expenses increased to approximately $1.4 million from $0.3 million in the same period the prior year. This was primarily due to an increase in the allowance for doubtful accounts of $0.7 million and $0.1 million in consulting fees related to the Company's June public offering.

Total operating expenses in the second quarter increased to $3.4 million from $1.2 million a year ago for the reasons outlined above.

Net income during the quarter was $1.3 million, or $0.07 per diluted share, compared with net income of $1.0 million, or $0.05 per diluted share, in the same quarter of 2006.

Six Month Results

Net revenues for the first six months of 2007 were $10.7 million, compared to revenues of $8.7 million during the same period a year ago. Gross profit was $8.0 million, or 74.5% of sales, up 45.0% from $5.5 million, or 63.4% of sales in the first half of 2006. Operating income was $2.0 million, or 18.3% of sales, down 27.4% from $2.7 million, or 31.2% of sales, in the first half of 2006. Net income for the first half of 2007 was $2.8 million, or $0.15 per diluted share, compared to net income of $1.9 million, or $0.11 per diluted share, in the same period of 2006.

Financial Condition

As of June 30, 2007, the Company had cash and cash equivalents of $1.9 million and working capital of $5.9 million. At June 30, 2007, the Company had $3.9 million in long-term debt and had shareholders' equity of $11.7 million.

Business Outlook

For the 2007 fiscal year, the Company expects revenues of between $24.0 million and $26.0 million and earnings of between $5.0 million and $6.0 million. The Company forecasts earnings per share of between $0.26 and $0.31 for the full fiscal year.

"We are pleased with the strong growth we have seen in our top line so far this year," said Mr. Lan. "As we look forward to the remainder of 2007, we expect our top-line growth to benefit from our investment in the new cosmetics line and expansion of our sales network. We plan to continue to develop new drugs such as our Wei Dingkang Soft Capsules, broaden our offering of OTC drug products, expand our sales network into new regions, and execute the nationwide launch of the new cosmetics line -- which we hope will be a significant growth driver in 2008 and beyond."

Recent Events

On June 14, 2007, China Shenghuo began trading on the American Stock Exchange. Concurrent with its debut, the Company issued 460,000 shares of its common stock, generating $1.6 million in gross proceeds.

In July 2007, China Shenghuo completed the testing during Phase II clinical trials for its Wei Dingkang Soft Capsules. The Company is applying to the Yunnan Provincial Development and Reform Committee and Yunnan Agriculture Bureau to begin a pilot cultivation project to produce 72 tons per year of Daemonorops margaritae palms, the key ingredient used to produce Wei Dingkang Soft capsules, on 3.35 square kilometers of land.

About China Shenghuo Pharmaceutical Holdings, Inc.

China Shenghuo is primarily engaged in the research, development, manufacture, and marketing of pharmaceutical, nutritional supplement and cosmetic products. Almost all of our products are derived from the medicinal herb Panax notoginseng, also known as Sanqi, Sanchi or Tienchi. Panax notoginseng is a greyish-brown or greyish-yellow plant that only grows in a few geographic locations on Earth, one of which is Yunnan Province in southwest China, where the Company is located. Panax notoginseng saponins (PNS), the active ingredients in Panax notoginseng, are extracted from the plant using high-tech equipment and in accord with Good Manufacturing Practice (GMP) standards. Our main product, Xuesaitong Soft Capsules, accounted for more than 80% and 90% of sales for the years ended December 31, 2006 and 2005, respectively. Since its establishment, the Company has focused primarily on the development of products to serve three major markets-cardiovascular and cerebrovascular disease, peptic ulcer disease and health products. China Shenghuo's goal has been to focus on the development of pharmaceutical products and over the counters products based on traditional Chinese medicines designed to address these areas.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release contains 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, the company's reliance on one supplier for Sanchi, ability to develop and market new products, ability to establish and maintain a strong brand, continued maintenance of certificates, permits and licenses required to conduct business in China, protection of 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, any recurrence of severe acute respiratory syndrome or avian flu, the company's ability to obtain all necessary government certifications and/or licenses to conduct the company's business, development of a public trading market for the company's securities, cost of complying with current and future governmental regulations and the impact of any changes in the regulations on the company's operations 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 risks included here are not exhaustive. Furthermore, our forward looking statements regarding the levels of our gross margin and selling expenses for the full year are subject to fluctuation and no assurance can be given that these levels will be met. 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. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results. Moreover, reported results should not be considered an indication of the Company's future performance.





For the Three Months For the Six Months

Ended June 30, Ended June 30,


2007 2006 2007 2006

Sale of Products $6,356,217 $4,181,685 $10,683,342 $8,654,206

Cost of Products Sold 1,580,478 1,550,138 2,722,176 3,163,555

Gross Profit 4,775,739 2,631,547 7,961,166 5,490,651

Operating Expenses:

Selling expense 2,031,590 763,481 3,634,414 1,715,147

General and

administrative expense 1,388,866 346,594 2,362,471 1,031,843

Research and development

expense 2,472 40,646 5,349 45,404

Total Operating Expenses 3,422,928 1,150,721 6,002,234 2,792,394

Income from Operations 1,352,811 1,480,826 1,958,932 2,698,257

Other Income (Expense):

Interest income 2,804 1,180 9,266 2,205

Non-operating income 79,786 18,692 81,004 71,148

Interest expense (209,458) (163,446) (389,641) (370,372)

Non-operating expenses -- (9) -- (4,881)

Net Other Expense (126,868) (143,583) (299,371) (301,900)

Income Before Income

Taxes 1,225,943 1,337,243 1,659,561 2,396,357

Benefit from (provision

for) income taxes 172,769 (210,121) 1,310,247 (438,123)

Minority interest in

income of subsidiaries (80,876) (107,935) (178,796) (107,935)

Net Income $1,317,836 $1,019,187 $2,791,012 $1,850,299

Foreign currency

translation adjustment 189,062 15,425 274,797 29,193

Comprehensive Income $1,506,898 $1,034,612 $3,065,809 $1,879,492

Basic and Diluted

Earnings Per Share $0.07 $0.05 $0.15 $0.11

Weighted-Average Shares


Basic 19,175,004 19,119,400 19,147,356 6,256,000

Diluted 19,228,838 19,119,400 19,200,691 16,256,000



December 31,

June 30, 2007 2006

ASSETS: (unaudited)

Current Assets:

Cash and cash equivalents $1,878,092 $3,691,438

Restricted cash 118,687 474,576

Accounts receivable, less allowance for

doubtful accounts of $2,256,761 at June 30,

2007 and $794,468 at December 31, 2006,

respectively 13,323,954 9,907,184

Employee advances, less allowance for

doubtful accounts of $1,438,998 and

$1,429,426 at June 30, 2007 and

December 31, 2006, respectively 4,707,362 3,130,045

Advances to suppliers 262,692 46,620

Inventory, net of reserve for obsolescence

of $117,346 and $111,128 at June 30, 2007

and December 31, 2006, respectively 3,483,491 2,581,519

Receivable from related parties 608,919 76,751

Other current assets 40,929 17,454

Total Current Assets 24,424,126 19,925,587

Property, plant and equipment, net of

accumulated depreciation of $3,745,486

and $3,333,305 at June 30, 2007 and

December 31, 2006, respectively 7,471,569 7,554,747

Intangible assets, net of accumulated

amortization of $32,173 and $22,569

at June 30, 2007 and December 31, 2006,

respectively 630,715 624,426

Deferred income taxes 878,656 655,223

TOTAL ASSETS $33,405,066 $28,759,983

Current Liabilities:

Accounts payable $1,497,344 $764,636

Accrued expenses 2,716,955 1,966,822

Deposits 2,167,766 1,573,426

Payable to related parties 79,582 393,213

Short-term notes payable 9,170,113 12,758,426

Advances from customers 204,365 342,531

Taxes and related payables 1,419,357 3,057,471

Current portion of long-term debt 1,311,510 --

Total Current Liabilities 18,566,992 20,856,525

Long-Term Debt 2,623,020 --

Total Liabilities 21,190,012 20,856,525

Minority Interest in Net Assets of

Subsidiaries 536,472 385,067

Stockholders' Equity:

Preferred stock, $0.0001 par value,

10,000,000 shares authorized, 0 shares

outstanding at June 30, 2007 and December 31,

2006, respectively -- --

Common stock, $0.0001 par value, 100,000,000

shares authorized, 19,579,400 and 19,119,400

shares issued and outstanding, respectively 1,958 1,912

Additional paid-in capital 5,923,969 4,829,633

Statutory reserves 147,023 147,023

Retained earnings 5,109,962 2,318,950

Other comprehensive income, foreign currency

translation 495,670 220,873

Total Stockholders' Equity 11,678,582 7,518,391





For the Six Months Ended June 30,

2007 2006

Cash Flows from Operating Activities:

Net income $2,791,012 $1,850,299

Adjustments to reconcile net income

to net cash provided

by operating activities:

Depreciation and amortization 332,839 341,936

Deferred income taxes (204,058) (98,226)

Minority interest in income of

subsidiaries 178,796 107,935

Change in current assets and


Accounts receivable (3,123,300) (4,800,828)

Employee advances (1,477,824) (211,224)

Advances to suppliers (211,970) (7,537)

Inventory (825,344) 1,174,740

Other current assets (23,170) 49,039

Accounts payable 703,676 115,515

Accrued expenses and deposits 1,238,609 (790,391)

Advances from customers (144,825) 39,487

Unearned revenue -- 4,452

Taxes and related payables (1,692,042) 1,369,807

Net Cash Used in Operating Activities (2,457,601) (854,996)

Cash Flows from Investing Activities:

Receivable from related parties (517,465) 104,143

Restricted cash 362,877 --

Capital expenditures (53,099) (95,450)

Net Cash (Used in) Provided by

Investing Activities (207,687) 8,693

Cash Flows from Financing Activities:

Payable to related parties (319,165) 1,249,991

Issuance of stock for cash 1,094,381 --

Proceeds from short and long-term

loans 9,145,423 6,917

Payments on short-term loans (9,121,972) (881,401)

Net Cash Provided by Financing

Activities 798,667 375,507

Effect of exchange rate changes on

cash 53,275 (12,732)

Net Decrease in Cash and Cash

Equivalents (1,813,346) (483,528)

Cash and Cash Equivalents at

Beginning of Period 3,691,438 1,488,438

Cash and Cash Equivalents at End of

Period $1,878,092 $1,004,910

Supplemental Information

Cash paid for interest $343,842 $402,021

For more information, please contact:

China Shenghuo Pharmaceutical Holdings, Inc.

Ms. Gao Qionghua, CFO

Phone: +86-871-7282608


CCG Elite Investor Relations

Crocker Coulson, President

Phone: +1-646-213-1915 (New York)


Source: China Shenghuo Pharmaceutical Holdings, Inc.
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