China Sky One Medical Announces Second Quarter 2011 Results

HARBIN, China, August 10, 2011 /PRNewswire-Asia-FirstCall/ -- 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 financial results for the second quarter of 2011.

Second Quarter 2011 Financial Highlights

• Total revenues decreased 7.6% year-over-year to $37.7 million
• The Company marketed 101 products, compared with 114 products in the quarter ended June 30, 2010
• Gross profit fell 15.7% to $24.9 million
• Operating income declined 39.6% to $8.3 million
• GAAP net income, including a non-cash gain from change in the fair value of derivative warrant liability, decreased 50.2% year-over-year to $6.1 million, or $0.36 per diluted share
• Excluding the non-cash gain, non-GAAP adjusted net income declined 42.0% to $5.9 million, or $0.35 per diluted share

"Our second quarter revenue declined 7.6% year-over-year, primarily reflecting the loss of two distribution relationships in the third quarter of 2010. We continue to aggressively pursue new customers to distribute our broad portfolio of pharmaceutical products, while investing in China Sky One's future, as exemplified by our winning bid on land use rights for land in Harbin's Song Bei District. We intend to build a research and development center, an injection manufacturing facility, a logistics center and an office building on the land during the first phase of development, which we expect to complete by mid-2012," said Mr. Yan-Qing Liu, Chairman and CEO of China One Medical, Inc. "Despite the challenges of the past year, we are optimistic that we can reestablish robust revenue and earnings growth at China Sky One Medical by continuing to invest in R&D, securing new distributor relationships and identifying uses for our strong balance sheet and cash flow."

Second Quarter 2011 Results

In the second quarter of 2011, China Sky One's total revenues decreased 7.6% to $37.7 million from $40.8 million in the same quarter last year, largely reflecting the continuing impact of terminated business relationships with a domestic distributor and an overseas sales agent during the third quarter of 2010, which negatively impacted the sales of the Company's Ointments, Patches, Sprays and Diagnostic Kits categories. These two distributors accounted for 0% and 17.4% of the Company's overall revenue in the second quarter of 2011 and second quarter of 2010, respectively.

By product category, lower sales from Ointments, Patches, Sprays and Drops contributed to the Company's overall year-over-year revenue decline, offset somewhat by top-line growth in Wash Fluids, Dignostic Kits, Suppositories and the Others category.

Sales of ointments declined 28.5% year-over-year to $8.3 million in the second quarter of 2011, primarily due to a $2.6 million year-over-year decline in the Company's Hemorrhoids Ointment product.

Sales of patches declined 34.2% year-over-year to $6.4 million in the second quarter of 2011. The decrease in patch product sales was primarily due to a 63.3% decrease in Slim Patch sales, along with sales declines of several other Patch products, primarily due the termination of a key distributor relationship in the third quarter of 2010.

Sales of wash fluids increased 133.5% year-over-year to $4.3 million in the second quarter of 2011, driven by strong sales of Metronidazole and Chlorhexidine wash fluids.

Sales of spray products decreased 22.6% year-over-year to $4.0 million in the second quarter of 2011, primarily due to lower sales of YinKe Spray and JieYin Spray.

Revenue from drops decreased 33.6% year-over-year to $1.9 million in the second quarter of 2011, primarily due to lower sales of Naphazoline Hydrochloride Eye Drops.

Diagnostic kit sales increased year-over-year by 36.4% to $3.2 million in the second quarter of 2011, primarily due to increased sales of Cardiac Arrest Early Examination Kits.

Sales of suppositories grew by 12.9% year-over-year to $2.6 million in the second quarter of 2011, driven by increased sales of Policresulen Vaginal Suppositories and Chlorhexidine Acetate Hemorrhoids Suppositories.

Sales from the Others product category increased by 43.0% year-over-year to $7.2 million in the second quarter of 2011. Higher revenues from Other Products were mainly driven by the sale of the thirteen additional products launched after the first quarter of 2010.

Gross profit declined 15.7% to $24.9 million in the second quarter of 2011. Gross margin in the quarter was 66.1%, as compared to 72.5% in the second quarter of 2010, mainly due to increases in the price of certain raw materials used to produce the Company's products, and lower sales prices of certain products due to the competitive sales market.

Operating expenses increased 5.1% year-over-year to $16.6 million in the second quarter of 2011. The increase was principally due to $0.6 million higher depreciation and amortization expenses and $0.5 million higher selling expenses, somewhat offset by $0.3 million lower general and administrative expenses. Second quarter 2011 operating income was $8.3 million, or 22.0% or revenue, as compared to an operating income of $13.7 million, or 33.6% of revenue, in the same period a year ago.

Total other income was $0.3 million in the second quarter of 2011, as compared to $2.1 million in the prior year quarter. The decrease reflected non-cash gain related to the change in the fair value of our derivative warrant liability related to the private placement in January 2008, which was $0.2 million in the second quarter of 2011 and $2.1 million in the same period a year ago.

Provision for income taxes was $2.4 million in the second quarter of 2011, as compared to $3.6 million in the same period last year.

GAAP net income for the second quarter of 2011 was $6.1 million, as compared to $12.2 million in the second quarter of 2010. Excluding the non-cash gain related to the change in fair value of derivative warrant liability, the Company's non-GAAP adjusted net income declined 42.0% to $5.9 million, or $0.35 per diluted share, as compared to $10.2 million, or $0.60 per diluted share, in the prior year period.

Financial Condition

As of June 30, 2011, China Sky One had $44.3 million in cash and equivalents, with a current ratio of 6.2. Working capital was approximately $61.2 million, up from $57.4 million at December 31, 2010. Stockholders' equity at June 30, 2011, was $179.9 million, 9.7% higher than the $164.0 million recorded at December 31, 2010.

Accounts receivable turnover days decreased to 51.6 for the six months ended June 30, 2011, as compared to 53.4 days in the same period of 2010. Inventory turnover days increased to 46.0 for the first six months of 2011 from 30.4 days in the year ago period.

The Company generated $13.0 million in net cash flow from operating activities in the first six months of 2011, compared to $19.3 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.

Conference Call

China Sky One will conduct a conference call at 9:30 a.m. Eastern Time (ET) on Wednesday, August 10, 2011, to discuss second quarter 2011 financial results. A full version of the Company's quarterly report will be filed with the SEC on Form 10-Q prior to the call. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (866) 395-5819. International callers should dial (706) 643-6986. The Conference ID for this call is 89304197. If you are unable to participate in the call at this time, a replay will be available for two weeks starting on Wednesday, August 10, 2011 at 11:30 a.m. ET. To access the replay, dial (855) 859-2056, international callers dial (404) 537-3406. The Conference Replay Passcode is 89304197.

Use of Non GAAP Financial Measures

GAAP results for the three and six month periods ended June 30, 2011 and June 30, 2010 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.

-- Financial Tables Follow --