GUANGZHOU, China, Aug. 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 second quarter 2009 results.
Second Quarter 2009 Highlights:
-- Revenues increased 29.4% from Q2 of 2008 to $15.1 million
-- Gross profit decreased 15.1% from Q2 of 2008 to $3.5 million
-- Operating income decreased 40.5% from Q2 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 second quarter of 2009, was
$1.3 million, or $0.08 per diluted share
-- Net income was $0.04 million, or $0.01 per diluted share
-- Received third party feasibility report on rADTZ from the Feed Research
Institute (FRI) of the Chinese Academy of Agricultural Sciences (CAAS)
-- Commenced small scale-trial production and sales of rADTZ in June
-- Obtained national distribution rights for Qinpi Jiegu tablets in China
-- Obtained provincial distribution rights to Alendronate Sodium Tablets
-- Received a loan of RMB 20 million (approximately U.S. $2.9 million)
pursuant to the loan agreement with the Bank of China, Guangdong Branch
"We are pleased with our top line growth during the second quarter, during which we expanded regional and provincial distribution sales into rural areas and established trial sales of rADTZ, which has very high profit margins and promises to increase our profitability going forward. During the second quarter, our gross profit fell because of lower selling prices tied to severe price competition, an increase in sales of regional level distribution rights drugs, which have lower margins, and increased costs associated with promotional campaigns to increase sales. However, we believe that profitability will improve going forward since the second quarter is typically the slowest seasonally, and we have already seen an uptick in sales and profitability. As a result, we remain confident that our financial profile will improve and anticipate stronger sales in the second half of the year as we ramp up new proprietary products," said Mr. Senshan Yang, Chairman and CEO of China Medicine Corporation.
"Our top-selling drugs for the quarter included Iopamidol by injection, which accounted for 13.7% of revenues and is used to help diagnose heart, brain, blood and nervous system disorders in X-rays or CT scans; Kelinao (Cinepazide Maleate Injection), which accounted for 6.7% of revenues and is used for the treatment of cardio-cerebral vascular diseases; and Hongjin Xiaojie capsules, which accounted for 5.4% of revenues are used to treat pain and for blood circulation. Combined gross margins for these products were 32.2%. Collectively, our top three selling drugs accounted for approximately 25.8% of revenues," said Mr. Yang.
Second Quarter 2009 Results
China Medicine's total revenues in the second quarter were $15.1 million, an increase of 29.4% over the second quarter of 2008. This was attributable to an increase in the Company's provincial and regional distribution sales as the Chinese government's implementation of its rural health care reform policy presented new opportunities for expansion of the Company's business in keeping with its strategic focus in 2008 to lay a solid foundation for a rural distribution network.
Product sales in the second quarter totaled $15.1 million and accounted for 100% of total net revenues. Sales of Western-style prescription products and over-the-counter products accounted for 73.9% of total revenues in the second quarter of 2009. Sales of TCM, prescription and over-the-counter products accounted for 22.8% of total revenues. Sales of dietary supplements and medical equipment accounted for 3.1% of revenues. Sales of rADTZ accounted for 0.2% of total revenue.
Gross profit in the second quarter of 2009 was $3.5 million, a decrease of 15.1% over the second quarter of 2008. Gross margin was 23.4% of total revenues for the second quarter, compared to 35.7% in the second quarter of 2008, and 27.5% in the first quarter of 2009. The decrease in gross profit was attributable to overall lower selling prices in the second quarter of 2009 due to increased sales of lower margin regional distribution products and an increase in the cost of some of our pharmaceutical products imposed by our suppliers. In addition, to respond to a trend of lower consumer spending tied to the global economic slowdown affecting the pharmaceutical industry, the Company increased its advertising efforts and spent more on promotional campaigns to increase sales.
Operating expenses in the second quarter of 2009 were $1.8 million, up 49.9% from $1.2 million in the second quarter of 2008. The increase was due to higher selling, general and administrative expenses related to depreciation of assets and an increase in advertising fees, as well as higher transportation costs that resulted from increased sales during the quarter. Operating expenses represented 11.6% of total revenues in the second quarter of 2009, increase from 10.0% in the second quarter of 2008.
Operating income was $1.8 million in the second quarter of 2009, down 40.5% from $3.0 million in second quarter of 2008. Operating margin was 11.8%, as compared to 25.7% during the same period a year ago.
The Company's provision for income taxes was $570,014 for the three months ended June 30, 2009 compared to $572,176 for the comparable period of 2008. The decrease was due to the decrease in operating income. The decrease was subject to an effective income tax rate 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 second quarter of 2009 was $0.04 million, or $0.003 per diluted share, which included a $1.2 million non-cash expense related to a change in the fair value of warrants, compared to $2.5 million or $0.16 per diluted share, in the second 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 second quarter of 2009 was $1.3 million, or $0.08 per fully diluted share, which translates to a 49.1% decrease in net income for the second quarter of 2009 compared to the same period last year.
Six Month Results
For the first half of 2009, revenues increased to $25.2 million, up 34.5% from $18.7 million in first half of 2008. Gross profit decreased 2.5% to $6.3 million in the first six months of 2009, versus $6.5 million in the first six month of 2008. Gross margin was 25.1% in the first half of 2008 compared to 34.6% during the first half of 2008. Operating income in the first half of 2009 decreased 19.4% to $3.5 million compared to $4.4 million in the first half 2008. Net income for the first six months of 2009 was $0.6 million or $0.04 per diluted share, compared to $3.6 million, or $0.23 per diluted share in the first half of 2008. Adjusted net income, excluding expenses related to fair value of warrants, was $2.6 million in first half 2009, or $0.17 per diluted share, which translates to a 29.6% decrease in net income for the first half of 2009 compared to the same period last year.
Financial Condition
As of June 30, 2009, China Medicine had $1.8 million in cash and cash equivalents. Working capital was approximately $33.0 million, up 1.4% from $32.5 million as of December 31, 2008. Accounts receivable stood at $15.4 million as of June 30, 2009, down from $19.2 million as of December 31, 2008, reflecting increased customer collections. China Medicine Corporation Stockholders' equity as of June 30, 2009 was $42.9 million compared to $42.8 million recorded as of December 31, 2008. For the six months ended June 30, 2009, cash from operating activities was $1.5 million. Cash flow used in investing activities was $2.6 million for the six months ended June 30, 2009, versus $0.6 million for the six months ended June 30, 2008. The increase is attributable to the purchase of know-how for a non-prescription medicine, Shiwuwei Syrup, which is used to enhance the respiratory system and increase the amount of hemoglobin in the blood.
Business Outlook
"We continue to make progress on executing our business plan as we enter second half of 2009 and are excited about the prospects for recombinant Alfatoxin Detoxifizyme (rADTZ), our innovative product that has the potential to detoxify alfatoxin (AFT), a potential cancer causing agent, in food and feed when used as an additive. We are pleased to have successfully commenced trial production and sales for our rADTZ, which have generated RMB 153,000 (approximately $22,400), with gross margin of approximately 65.4%. As we produce the product in greater scale and refine the technology used in the production process, we believe gross margin could be improved. We are very enthusiastic about the prospects for rADTZ and the demand for the product, and believe it will become one of the most important contributors to our growth in the coming years.
"In terms of increasing our product portfolio to include products with exclusive national distribution rights, we added Qinpi Jiegu tablets to our portfolio in the second quarter, which are used to promote blood circulation to dissipate blood stasis and relieve pain. We also obtained exclusive provincial level distribution rights for Alendronate Sodium tablets used for treatment of osteoporosis. In keeping with our strategy, we plan to increase sales of pharmaceutical products with exclusive distribution rights, which have higher margins. Overall, we are confident that our margins will improve going forward as sales for these products increase during the year," said Mr. Yang.
"Recently, we have also received Quality Standard certification for our herbal tea series and expect to launch our self-branded herbal tea series into the market in August 2009. As we get further into the second half of 2009, we also expect to receive approval from the State Food and Drug Administration (SFDA) in October to start the production of our self-branded multivitamin series. We will be launching a comprehensive outdoor advertising campaign to promote our self-branded products, including our proprietary weight loss supplement-Bethin, during the second half of 2009. We remain confident that as we promote our brand image among Chinese consumers in Guangdong province, we will able to increase our profitability profile in the quarters ahead."
"2009 is an important, transitional year for China Medicine as we set out to achieve our major goals of bringing the Company up to a higher platform. The increase of higher margin pharmaceutical products to our distribution pipeline and our plan to launch self-branded products will contribute to our bottom line growth. Furthermore, with our novel rADTZ product currently under review by the Department of Agriculture for product permit approval, we expect by the end of 2009, we will be able to commercialize this product and compete for a share of the $4.04 billion addressable market for rADTZ in China's feed industry," said Mr. Yang.
Conference Call
China Medicine will hold its second quarter conference call for all interested persons at 10:00 a.m. Eastern Time on Thursday, August 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 866.800.8648. International callers should dial 617.614.2702. When prompted by the operator, mention conference passcode 175 848 10. If you are unable to participate in the call at its scheduled time, a replay will be available for 14 days starting on Thursday, August 13 at 12:00 p.m. Eastern Time. To access the replay, dial 888-286-8010 (international callers dial 617-801-6888, and enter the passcode 442 846 06.
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 second quarter 2009 include $1.2 million non cash expenses related to change in Company's fair value of warrants. Because the expense 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
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
REVENUES:
Product sales $15,055,093 $11,067,074 $25,153,483 $17,918,458
Medical formula sales -- 570,465 -- 780,120
Total revenues 15,055,093 11,637,539 25,153,483 18,698,578
COST OF GOODS SOLD 11,525,866 7,481,170 18,844,628 12,230,189
GROSS PROFIT 3,529,227 4,156,369 6,308,855 6,468,389
OPERATING EXPENSES:
Research and
development 285,256 107,824 470,136 196,216
Selling, general and
administrative 1,465,660 1,060,082 2,292,844 1,872,590
Total operating
expenses 1,750,916 1,167,906 2,762,980 2,068,806
INCOME FROM
OPERATIONS 1,778,311 2,988,463 3,545,875 4,399,583
OTHER INCOME
(EXPENSE):
Other income
(expense), net (26,400) 32,104 (20,847) 38,087
Change in fair value
of warrant
liabilities (1,213,218) -- (1,971,907) --
INCOME BEFORE INCOME
TAXES AND
NONCONTROLLING
INTERESTS 538,693 3,020,567 1,553,121 4,437,670
PROVISION FOR INCOME
TAXES 570,014 572,176 1,115,500 840,943
NET INCOME (CHINA
MEDICINE CORPORATION
AND NONCONTROLLING
INTERESTS) (31,321) 2,448,391 437,621 3,596,727
Add: Net income
attributable to
noncontrolling
interests 73,317 17,833 154,457 45,310
NET INCOME
ATTRIBUTABLE TO CHINA
MEDICINE CORPORATION 41,996 2,466,224 592,078 3,642,037
OTHER COMPREHENSIVE
(LOSS) INCOME:
Foreign currency
translation
adjustment (277) 781,204 (58,985) 2,071,824
Foreign currency
translation
adjustment
attributable to
noncontrolling
interests 68 19,497 (1,065) 56,043
COMPREHENSIVE INCOME $41,787 $3,266,925 $532,028 $5,769,904
EARNINGS PER SHARE:
Basic $ -- $0.16 $0.04 $0.24
Diluted $ -- $0.16 $0.04 $0.23
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 15,231,214 15,206,124 15,228,966 15,118,595
Diluted 15,355,660 15,634,713 15,248,178 15,547,183
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2009 2008
(Unaudited)
CURRENT ASSETS
Cash $1,814,200 $2,791,814
Notes receivables 556,700 600,911
Accounts receivable, trade, net of
allowance for doubtful accounts of
$96,477 and $96,609 as of June
30, 2009 and December 31,
2008, respectively 15,354,966 19,225,091
Inventories 8,006,235 4,725,322
Advances to suppliers 7,651,459 6,121,974
Other current assets 272,563 192,080
Total current assets 33,656,123 33,657,192
EQUIPMENT, net 3,632,511 3,761,637
OTHER ASSETS
Long term prepayment 7,940,563 6,014,920
Intangible assets, net 1,480,224 1,247,567
Total other assets 9,420,787 7,262,487
Total assets $46,709,421 $44,681,316
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $200,851 $61,243
Other payables and accrued liabilities 25,368 50,559
Customer deposits 308,748 151,429
Taxes payable 54,020 772,289
Liquidated damages payable 44,003 44,003
Total current liabilities 632,990 1,079,523
Fair value of warrant liabilities 2,481,112 --
Total liabilities 3,114,102 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;
90,000,000 shares authorized,
15,244,242 shares issued and
outstanding at June 30, 2009
and December 31, 2008 1,524 1,522
Paid-in capital 12,500,972 13,011,012
Statutory reserves 3,178,861 3,178,861
Retained earnings 22,864,643 22,146,572
Accumulated other comprehensive income 4,369,309 4,428,294
Total shareholders' equity 42,915,309 42,766,261
NONCONTROLLING INTERESTS 680,010 835,532
Total equity 43,595,319 43,601,793
Total liabilities and equity $46,709,421 $44,681,316
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to China
Medicine Corporation $592,078 $3,642,037
Net income attributable to
noncontrolling interests (154,457) (45,310)
Net income 437,621 3,596,727
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 433,934 193,572
Loss on sale of assets 27,816 --
Stock option and warrant compensation 48,050 52,314
Amortization of deferred expenses -- 175,421
Change in fair value of warrant liabilities 1,971,907 --
Change in operating assets and liabilities
Notes receivables 43,413 (1,670,875)
Accounts receivable, trade 3,845,752 (657,089)
Inventories (3,288,910) (804,759)
Advances to suppliers (1,538,563) (3,473,818)
Other current assets (3,707) 420
Change in operating liabilities
Accounts payable, trade 139,758 21,928
Other payables and accrued liabilities (25,157) (52,364)
Customer deposits 157,601 4,931
Taxes payable (717,560) (371,810)
Net cash provided by (used in)
operating activities 1,531,955 (2,985,402)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (381,321) (17,226)
Purchase of intangible assets (234,512) --
Proceeds from sale of equipment 21,986 --
Long term prepayment (1,934,767) (605,657)
Net cash used in investing activities (2,528,614) (622,883)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 21,875 362,500
Net cash provided by financing activities 21,875 362,500
EFFECT OF EXCHANGE RATE ON CASH (2,830) 249,470
DECREASE IN CASH (977,614) (2,996,315)
CASH, beginning of period 2,791,814 5,767,774
CASH, end of period $1,814,200 $2,771,459
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME AVAILABLE TO COMMON SHAREHOLDERS AND
DILUTED EPS
For the Three Months ended June 30,
2009 2008
Diluted Diluted
Net Income EPS Net Income EPS
Adjusted Amount of Net Income
available to Common
Shareholders $1,255,214 $0.08 $2,466,224 $0.16
Adjustment
Change in fair value of
warrants 1,213,218 0.08 -- --
Amount per consolidated
statement of operations $41,996 $0.003 $2,466,224 $0.16
Weighted average diluted shares, 15355660 for three months ended June 30, 2009 and 15634713 for three months ended June 30, 2008
Weighted average diluted shares, 15248654 for the six months ended June 30, 2009 and 15547183 for the six months ended June 30, 2009
For the Six Months ended June 30,
2009 2008
Diluted Diluted
Net Income EPS Net Income EPS
Adjusted Amount of Net Income
available to Common
Shareholders $2,563,985 $0.17 $3,642,037 $0.23
Adjustment
Change in fair value of
Warrants 1,971,907 0.13 -- --
Amount per consolidated
statement of operations $592,078 $0.04 $3,642,037 $0.23
Weighted average diluted shares, 15355660 for three months ended June 30, 2009 and 15634713 for three months ended June 30, 2008
Weighted average diluted shares, 15248654 for the six months ended June 30, 2009 and 15547183 for the six months ended June 30, 2009
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
