China Sky One Medical, Inc. (China Sky) has reported total revenues of $32.2 million for the second quarter of 2009, compared with the total revenues of $23.7 million in the year-ago quarter. It has also reported a net income of $9.5 million, or $0.57 per diluted share, for the second quarter of 2009, compared with the net income of $8.1 million, or $0.50 per diluted share, in the year-ago quarter.
Sales of patch products rose moderately to $9.9 million in the second quarter of 2009, accounting for 30.9% of revenue, compared to 37% a year ago. Sales of ointments rose 18.1% year-over-year to $7.7 million, accounting for 23.8% of revenue, versus 28% of revenue a year ago. Sales of spray products rose 69.3% year-over-year to $4.8 million, accounting for 14.9% of revenue, versus 20.0% a year ago. The increase in spray products was mainly from the increased sales of mouth sprays due to the outbreak of the H1N1 virus. Sales of bio-engineering products, i.e. three diagnostic testing kits, rose 71.9% year-over-year to $3.7 million, accounting for 11.5% of revenue during the quarter. Sales of the Company’s other 48 products reached $6.1 million for the second quarter of 2009, compared to $3.5 million for the same period last year. The higher sales in this category were mainly due to an increase in diversified products from the acquisitions of Heilongjiang Tianlong Pharmaceutical, Inc. and Peng Lai Jin Chuang Pharmaceutical Company in 2008. Contract sales of non-manufactured products were discontinued since the beginning of 2009.
Gross profit in the second quarter of 2009 was $24.4 million, an increase of 34% over the same period a year ago. Gross margin was 75.9% in the second quarter, a slight decrease compared to gross margin of 76.7% for the second quarter of 2008.
Operating expenses in the second quarter of 2009 were $12.3 million, up 52% from $8.1 million in the second quarter of 2008. The increase was mainly the result of higher research and development expenses, which was associated with the ongoing clinical trials for proposed products and studies under the patents, licenses and other technologies acquired in 2008, and higher selling, general and administrative expenses, which were primarily attributable to increased selling and marketing costs.
Operating income was $12.1 million for the second quarter of 2009, representing a 19.8% increase from $10.1 million in the second quarter of 2008. Operating margin was 37.6%, compared to 42.5% in the second quarter of 2008.
Provision for income taxes was $2.6 million in the second quarter of 2009, compared to $1.8 million in the same period last year.
Six Month Operating Highlights
Total revenues for the first half of 2009 increased 57.6% year over year to $57.0 million as a result of expanded distribution channels and successful acquisitions. Gross margin was about 75.8% compared to 76.8% for the first half of 2008. Net income for the first six months of 2009 reached $16.7 million, or $1.01 per diluted share, compared to net income of $12.0 million, or $0.78 per diluted share, in the same period of 2008.
Financial Condition
As of June 30, 2009, China Sky One Medical had $48.2 million in cash and cash equivalents, approximately $66.0 million in working capital, and no debt. Stockholders’ equity at June 30, 2009, was $111.8 million, a 17.8% increase over the $94.9 million recorded at December 31, 2008.
The company generated $17.8 million in net cash flow from operating activities in the first half of 2009. As of June 30, 2009, the company had spent approximately $9.9 million in constructing a new corporate headquarters in Harbin Song Bei New Development District. The project is expected to be completed by the end of 2009, at which time the Company plans to move its administration offices, R&D center, and cord blood stem cell and tissue bank to the new facility. The Company believes that combining its operations into one centralized location will result in greater efficiency and will make it easier for management to conduct business activities. The estimated cost of this project is approximately $13 million. The Company plans to fund the project using internally generated funds.
We are pleased to report another quarter of excellent results. Our products, especially our biological diagnostic kits achieved rapid sales growth, and sales of diversified products from our acquisitions in 2008 also made a strong contribution to our second quarter results. In the quarter, we launched a series of marketing campaigns in four of China’s provinces to promote our skin-care products under the ‘Yu Fu’ brand and received very positive feedback, said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical, Inc.
Over the past three months, consultants from PWC have been working closely with China Sky One Medical to examine and improve our internal controls in the fields of accounting, sales, purchasing and inventory management. We feel confident in the quality of our financial reporting, Mr. Liu added.