GUANGZHOU, China, May 13 /Xinhua-PRNewswire/ -- China Medicine Corporation (OTC Bulletin Board: CHME) ("China Medicine" or "the Company"), a leading distributor and developer of prescription and over-the-counter pharmaceuticals, traditional Chinese medicines ("TCM"), nutritional and dietary-supplements, medical devices, and medical formulations in the People's Republic of China ("PRC"), today reported solid financial results for the first quarter ended March 31, 2008.
First Quarter 2008 Highlights
-- Revenues increased 38.6% from Q1 of 2007, to $7.1 million
-- Gross profit increased 37.2% from Q1 of 2007, to $2.3 million
-- Operating income increased 49.5% from Q1 of 2007, to $1.4 million
-- Net income increased 54.0% from Q1 of 2007, to $1.2 million
"During the first quarter, we saw double digit growth in our pharmaceutical product sales compared to the same quarter last year," said Mr. Senshan Yang, Chairman and CEO of the Company. "We are very pleased with the healthy performance of our sales of prescription and over-the-counter medicines as well as our traditional Chinese medicines. This increase in revenues was attributed to the expansion of our distribution network to rural areas in Guangdong Province and the increase in provincial distribution rights through the online bidding system last quarter."
China Medicine usually experiences seasonality in its business such that sales are usually strongest during the last three months of each calendar year, as most pharmaceutical companies and hospitals place purchase orders to stock up their inventory prior to the Chinese New Year holidays. Therefore, sales in the first calendar quarter of each year are typically the lowest.
First Quarter 2008 Results
China Medicine's total revenues in the first quarter were $7.1 million, an increase of 38.6% over the first quarter of 2007. This was attributed to a 40.3% increase in product sales driven by an increase in sales of pharmaceutical products with exclusive distribution rights in Guangdong Province. Product sales totaled $6.9 million and accounted for 97% of total net revenues. Sales of prescription products and over-the-counter products accounted for 58% of total revenues, and TCM accounted for 38% of total revenues for the quarter. Medical formula sales accounted for the remaining 3% of total revenues, totaling $0.2 million. This represented a decrease of 0.1% from the same quarter of 2007.
Gross profit in the first quarter of 2008 was $2.3 million, an increase of 37% over the first quarter of 2007. Gross margin remained the same at 33% of total revenues for the quarters ended March 31, 2007 and 2008. Gross margin improved from 29.4% in the fourth quarter of 2007 due to a decrease in sales of lower margin over-the-counter products.
Operating expenses in the first quarter of 2008 were $0.9 million, up 21.1% from $0.7 million in the first quarter of 2007. This increase was due to higher selling, general and administrative expenses, in line with the increase in revenues in the first quarter of 2008.
Operating expenses represented 12.8% of total revenues in the first quarter of 2008, down from 14.6% in the first quarter of 2007.
Operating income was $1.4 million in the first quarter of 2008, up 50% from $0.94 million in first quarter of 2007. Operating margin was 20.0%, as compared to 19% during the same period a year ago.
Net income for the first quarter of 2008 was $1.2 million, or $0.08 per diluted share, up 54.0% from $0.8 million, or $0.06 per diluted share in the first quarter of 2007. Earnings per share reflect an increase of 2.5 million diluted average shares compared to the first quarter of 2007, primarily due to the exercise of warrants and options.
Financial Condition
As of March 31, 2008, China Medicine had approximately $31.5 million in working capital, an increase of 10.5% from $28.5 million as of December 31, 2007. Also as of March 31, 2008, China Medicine had $5.2 million in cash and cash equivalents, a decrease of 11.2% from $5.7 million as of December 31, 2007. For the quarter ended March 31, 2008, cash used in operating activities was $1.1 million, compared with cash used in operating activities of $0.9 million for the quarter ended March 31, 2007. This increase in cash used in operations was primarily due to an increase in bank-guaranteed trade receivables of $1.7 million which resulted from our growth in sales. Stockholders' equity as of March 31, 2008 was $33.8 million, an increase of 3.7% over the $32.6 million recorded as of December 31, 2007.
2008 Outlook
"We believe our business is well positioned to take advantage of the industry growth as well as the increasing insurance coverage and government support in China," Mr. Yang commented. "Expenditures on pharmaceutical products in China are forecasted to grow 23.5% annually between 2007 and 2011 and reach $126.8 billion in 2011."
"As we enter into the second quarter, we remain focused on our near-term objectives of increasing our exclusive distribution rights and continuing our efforts to bulk up our proprietary product portfolio. We are also planning on identifying a pharmaceutical manufacturing acquisition target to become a more vertically integrated pharmaceutical company. We are confident that we have the right strategies for our Company. With a seasoned management team, we believe that we can continue to successfully execute our business plan going forward," concluded Mr. Yang.
Although China Medicine did not win any new exclusive distribution rights during the first quarter of 2008 due to the Chinese New Year holiday, the Company expects to make bids for, and succeed in obtaining, new exclusive distribution rights throughout Guangdong Province for a number of products before year end.
The Company is also on track to complete the documentation for laboratory trial results for Yutian Capsule for the treatment of chronic obstructive pulmonary disease, and plans to submit them for approval by the State Food and Drug Administration in June 2008. In addition, the Company expects to complete its final laboratory experiments for aflatoxin-detoxifizyme (ADTZ) products in May and to proceed with experiments in animal feed June. Upon successful completion of these experiments and approval of production permit, the Company intends to launch trial sales in late 2008.
Based on China Medicine's solid first quarter performance, the Company expects to meet its prediction of 25-35% growth in revenue with gross margins in the range of 30-35% for the full year 2008. Additionally, the Company also expects to achieve 20-22% growth in net income for the full year 2008.
Conference Call
China Medicine will hold its first quarter conference call for all interested persons at 10:00 a.m. Eastern Time on May 12, 2008 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:
800-688-0796. International callers should dial 617-614-4070. When prompted by the operator, mention conference passcode 91479292. If you are unable to participate in the call at its scheduled time, a replay will be available for seven days starting on Monday, May 12 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 57612969.
About China Medicine Corporation
China Medicine Corporation is a leading pharmaceutical company which discovers and develops medical formulations and distributes over 2,200 pharmaceutical products in China including prescription and over-the-counter drugs, traditional Chinese medicine products, herbs and dietary supplements. The Company distributes the products to wholesale distributors in 28 provinces and to more than 300 hospitals, 500 medicine companies, and 1,788 drug stores throughout China. The Company actively develops a number of proprietary products for many 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 .
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.
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
2008 2007
REVENUES
Product sales $6,851,384 $4,883,209
Medical formula sales 209,655 209,786
Total revenues 7,061,039 5,092,995
COST OF GOOD SOLD 4,749,019 3,405,417
GROSS PROFIT 2,312,020 1,687,578
OPERATING EXPENSES
Research and development 88,392 100,112
Selling, general and administrative 812,508 643,846
Total operating expenses 900,900 743,958
INCOME FROM OPERATIONS 1,411,120 943,620
OTHER INCOME (EXPENSE), NET 5,983 (2,972)
INCOME BEFORE INCOME TAXES 1,417,103 940,648
AND MINORITY INTEREST
PROVISION FOR INCOME TAXES 268,767 199,959
INCOME BEFORE MINORITY INTEREST 1,148,336 740,689
MINORITY INTEREST 27,477 23,032
NET INCOME 1,175,813 763,721
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment 1,327,166 256,489
COMPREHENSIVE INCOME $ 2,502,979 $ 1,020,210
EARNINGS PER SHARE
Basic $ 0.08 $ 0.08
Diluted $ 0.08 $ 0.06
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 15,029,865 9,152,458
Diluted 15,339,834 12,808,226
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2008 AND DECEMBER 31, 2007
ASSETS
2008 2007
Unaudited
CURRENT ASSETS
Cash $5,177,061 $5,767,774
Accounts receivable, trade, net of
allowance for doubtful accounts of
$57,954 and $55,640 as of March 31,
2008 and December 31, 2007,
respectively 13,212,089 13,626,347
Notes receivables 1,682,184 -
Inventories 4,923,381 3,948,460
Advances to suppliers 6,908,467 5,983,277
Other current assets 166,236 81,221
Total current assets 32,069,418 29,407,079
EQUIPMENT, net 1,352,430 1,388,919
OTHER ASSETS
Deferred expenses 618,131 678,237
Intangible assets, net 1,214,460 1,166,003
Total other assets 1,832,591 1,844,240
Total assets $ 35,254,439 $ 32,640,238
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $48,664 $76,907
Other payables and accrued liabilities 21,497 70,343
Customer deposits 156,052 203,281
Taxes payable 342,019 468,184
Liquidated damages payable 44,003 44,003
Total liabilities 612,235 862,718
MINORITY INTEREST 866,385 893,337
SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value;
10,000,000 shares authorized,
60,000 and 111,649 shares issued
and outstanding at March 31, 2008
and December 31 2007, respectively 6 11
Common stock, $0.0001 par value;
100,000,000 shares authorized,
15,164,887 and 14,821,641 shares
issued and outstanding at March 31,
2008 and December 31, 2007,
respectively 1,516 1,482
Paid-in capital 12,948,706 12,560,078
Statutory reserves 2,191,230 2,191,230
Retained earnings 15,184,400 14,008,587
Accumulated other comprehensive
income 3,449,961 2,122,795
Total shareholders' equity 33,775,819 30,884,183
Total liabilities and
shareholders' equity $35,254,439 $32,640,238
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,175,813 $763,721
Adjustments to reconcile net income
to cash used in operating activities:
Minority interest (27,477) (23,032)
Depreciation and amortization 96,745 55,946
Bad debt expense - 345
Amortization of stock option and
warrant compensation 26,157 21,279
Amortization of deferred expenses 86,431 -
Change in operating assets
Accounts receivable, trade 959,968 94,745
Notes receivables (1,646,491) -
Inventories (793,559) (1,110,151)
Advances to suppliers (662,079) (761,889)
Other current assets (79,904) (44,544)
Change in operating liabilities
Accounts payable, trade (30,774) 46,475
Other payables and accrued liabilities (49,957) (5,688)
Customer deposits (54,499) 54,531
Taxes payable (142,540) 36,802
Net cash used in operating
activities (1,142,167) (871,460)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (4,490) (35,399)
Purchase of intangible asset - (129,010)
Net cash used in investing
activities (4,490) (164,409)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants
and options 362,500 2,838,062
Net cash provided by financing
activities 362,500 2,838,062
EFFECT OF EXCHANGE RATE ON CASH 193,444 138,282
INCREASE (DECREASE) IN CASH (590,713) 1,940,475
CASH, beginning of period 5,767,774 371,480
CASH, end of period $5,177,061 $2,311,955
