China Sky One Medical (PINK:CSKI)

HARBIN, China, Feb. 15, 2012 /PRNewswire-Asia/ -- China Sky One Medical, Inc. ("China Sky One Medical" or "the Company") (NASDAQ: CSKI), a fully integrated pharmaceutical company in the People's Republic of China ("PRC"), today announced that Mr. Yanqing Liu, the Company's Chairman, President and Chief Executive Officer, is being treated for a life-threatening illness. Following surgery, he is expected to undergo long-term chemotherapy and traditional Chinese medicine treatments. As a result, Mr. Liu's availability to devote time to the Company's business will be substantially reduced.

Recently, 26 middle-management level employees have resigned, of which nine were in the accounting department, two were in the internal control department, two were in the information technology department, 11 were in the sales department, and two were in the production center. Although the Company is seeking to recruit personnel, it may not be able to hire qualified personnel in a timely manner, or at all.

Mr. Liu's health concerns and the loss of such management employees are likely to materially adversely affect many aspects of the Company's business, including its ability to maintain customer relationships, meet production schedules, as well as maintain its internal controls.

HARBIN, China, December 29, 2011 /PRNewswire-Asia/ -- China Sky One Medical, Inc. ("China Sky One Medical" or "the Company") (NASDAQ: CSKI), a leading fully integrated pharmaceutical company in the People's Republic of China ("PRC"), today announced that Hongyu Pan, the Company's Chief Financial Officer, will be leaving the Company effective December 22, 2011 for personal reasons. His resignation was not a result of any disputes or disagreements with the Company on any matter relating to its operations, policies or practices. The Company has initiated a search for a new Chief Financial Officer and will make an announcement as soon as a candidate has been chosen.

"We truly appreciate Mr. Pan's contributions during his tenure and wish him the best in all of his future endeavors," said Mr. Jianping Li, China Sky One Medical's General Manager and a Board Director.

Third Quarter 2011 Results

First Quarter Results:

• Total revenue declined 1.9% year-over-year to $28.4 million, but increased sequentially by 5.5% compared to fourth quarter 2010 revenue
• Gross profit decreased 10.8% year-over-year to $19.3 million
• Operating income decreased 34.4% year-over-year to $6.6 million
• GAAP net income, including a non-cash gain from change in the fair value of derivative warrant liability, decreased 51.4% year-over-year to $6.1 million, or $0.36 per diluted share
• Excluding the non-cash gain from change in the fair value of derivative warrant liability, non-GAAP adjusted net income decreased 38.1% to $4.7 million, or $0.28 per diluted share

The Company acquired 13 new drug production licenses from Heilongjiang Traditional Chinese Medical University

"In the first quarter of 2011, we saw encouraging early signs of a sales recovery as we took aggressive steps to rebuild and expand our distribution base after the loss of two major distributor relationships during the third quarter of 2010. Sales have been spread out across a number of new distributors and we begin 2011 with a more diversified client base compared to prior years. Not one of our customers accounted for more than 10% of our total revenue or accounts receivable in the quarter ending March 31, 2011," said Mr. Yan-Qing Liu, the Company's Chairman and CEO. "A more diversified and richer product portfolio also favorably impacted first quarter results and we plan to reinforce China Sky One's long term growth prospects by continuing to invest in our higher margin branded portfolio while introducing additional new drugs in 2011 and beyond."

GeoTeam Notes:

Business has been negatively impacted by the termination of business relationships with one domestic distributor and one overseas sales agent during the third quarter of 2010. The Company did not issue 2011 guidance, but estimates indicate that EPS growth will be dismal over the next two years.

The need for a capital restatement in the 2010 10K is somewhat more ambiguous that comments made in prior filings, where it was more evident that the company would not need to tap capital markets.

EPS: $0.21 vs. $0.36 est.

Our current ratio was 8.0 at December 31, 2010 compared to 3.9 at December 31, 2009, and the quick ratio was 7.7 at December 31, 2010 compared to 3.8 at December 31, 2009. We endeavor to ensure that funds are available to take advantage of new investment opportunities and that funds are sufficient to meet future liquidity and capital needs.

GeoTeam® Note: This statement is somewhat more ambiguous than comments made in prior filings, where it was more evident that the company would not need to tap capital markets.  

HARBIN, China, Feb. 22, 2011 /PRNewswire-Asia-FirstCall/ -- China Sky One Medical, Inc., today provided an update regarding its progress in amending financial reports previously filed with the State Administration for Industry and Commerce ("SAIC"), the PRC governmental agency responsible for issuing and renewing the Company's business license.  

According to the Company, corrected financial reports for 2007, 2008 and 2009 have been submitted to the local SAIC offices in the jurisdictions in which the Company's subsidiaries are located. The Company believes that the financial information included in the amended reports is consistent with the information included in reports filed by the Company with the U.S. Securities and Exchange Commission. As previously reported, the Company believes that, should the SAIC impose a penalty in connection with amending these financial reports, such penalty will not be material.

Liu Yan-qing, the Company's Chief Executive Officer, stated, "We always endeavor to follow all relevant rules and regulations when conducting our business, both in the PRC and abroad. If, on occasion, we become aware that an error was made, we seek advice of professionals to determine the appropriate course of action to correct it, and will continue to do so in the future."

HARBIN, China, Jan. 11, 2011 /PRNewswire-Asia-FirstCall/ -- China Sky One Medical, Inc. today announced that following the Tang Wang He forest land acquisition, the Company plans to develop, manufacture and market thirteen new health food products, including teas, oral liquids and herbal wines. These products are expected to receive approvals from China's State Food and Drug Administration ("SFDA") in 2011. The Company will leverage its existing sales network to sell the following new products to consumers through pharmacies:

The Company also reached an agreement with the research division of Heilongjiang Traditional Chinese Medicine University, which will transfer the ownership of eleven patch products at fair market value prices to the Company upon receipt of corresponding production approvals. These products include: Breast and Uterus Patch, Heart Patch, Headache Patch, Intestines Patch, Bowel Relaxing Patch, Onychomycosis Patch, Dry Skin Patch, Cold and Fever Patch, Carsickness Patch, Bone Healing Patch, and Waist Patch.

"We look forward to the commercial launch of these new health food and patch products and expect to continue to diversify our rich product portfolio to strengthen the Company's competitive position and support sustainable long-term growth," said Mr. Yan-Qing Liu, Chairman and CEO of China Sky One Medical. "We are now working on the sales forecast for these new products and will update investors with the 2011 full year financial forecast soon."

• For the three months ended September 30, 2010, total revenues decreased by approximately $7,034,000, or 16.3%, as compared to the same period of 2009.

• Net income decreased to $8.6 million from $12.6 million.

• EPS decreased to $0.51 from $0.76.

• Our sales and marketing strategy is to promote certain of our products which have less market competition by coordinating with reputable distributors who have extensive market channels. However, these distributors seek lower sales prices which will have a negative impact on our overall gross product margins.

Historically, our Slim Patch products have been one of our best selling products both domestically and outside of the PRC. Beginning in the fourth quarter of 2009, China domestic sales of Slim Patch products began to decline. The regulations and restrictions launched at that time by the Chinese government prohibiting television advertisement of weight loss products in the PRC have negatively impacted the Slim Patch distribution channel in the PRC. The revenue generated from the China domestic market of Slim Patch products was $4,193,000 and $9,879,000 for the nine months ended September 30, 2010 and 2009, respectively. In addition, following Hangzhou Jiupin’s termination of its business relationship with us, our overseas sales of Slim Patch products also decreased. Revenues generated from the Slim Patch overseas sales were $5,928,000 and $8,956,000 for the nine months ended September 30, 2010 and 2009, respectively. We expect sales of our Slim Patch products in the PRC to remain lower for the foreseeable future due to the Chinese government’s restrictions, and to remain lower overseas until we are able to locate a new overseas sales agent to handle sales in the affected or new markets.

For the remainder of fiscal year 2010, we anticipate price increases of certain raw materials due to unforeseen natural disasters and inflation that will result in the increase of our cost of goods sold. In addition, our sales and marketing strategy to promote certain of our products which have less market competition by coordinating with reputable distributors who have extensive market channel and will launch these products at lower margins. These factors will have negative impact on our overall gross product margins.

Business Outlook

The Company reiterates guidance for 2010 of

• Revenue from $128 million to $136 million

• Adjusted net income, excluding the impact of the derivative warrant liability, from $26 million to $31 million.  

• The Company currently is in the process of evaluating its outlook for 2011 and will provide guidance for next year once its forecast has been finalized.

"We believe that our strong and efficient sales network, combined with new relationships with national and provincial distributors, provides a solid base from which we can rekindle growth heading into 2011. Furthermore, our healthy cash position provides us with flexibility to pursue value creating acquisitions and to enter into beneficial strategic relationships. We are very excited about our recently announced joint application with Heilongjiang Traditional Chinese Medical University ("HTCMU") for production licenses of 15 new medical products.  We look forward to revenue and earnings contribution in 2011 from these products as well as from another 3 to 5 products that we hope will obtain SFDA approval by the end of 2010.  We will continue our efforts in research and development of high margin branded products, while focusing on increasing sales and promotion of our current products, including our promising portfolio of diagnostic kits," concluded Mr. Liu.

China Sky One Medical shocked investors when, after the close, it announced that it lowered its guidance:

• The Company has lowered its 2010 revenue guidance from a prior range of $160 million and $164 million to between $128 million and $136 million.
  
  
• The Company also has lowered its 2010 adjusted net income guidance, excluding the impact of derivative warrant liabilities, from between $40 million and $41 million to between $26 million and $31 million.
  
  
• Management's reduced guidance reflects the termination of relationships with certain private distributors, who after several rounds of discussions, chose to end their cooperation with the Company after learning that their business information was disclosed in the Company's public SEC filings and would continue to be disclosed in such documents as required by SEC regulations. This disclosure, these distributors claim, has led to increased scrutiny of their financial performance by government authorities within China. While the Company expects to replace these lost distribution arrangements over time, revenue and net income in the second half of 2010 are expected to be negatively impacted by the disruption in distribution channels. The Company expects to incur higher selling and marketing costs during second half 2010 to develop new distributor relationships.

GeoTeam® note:

We found it very interesting that the PRC government has poked its head into the CSKI story and we are surmising that it will not be the last. It may be that China is finally getting wind of the fraud allegations taking place in the ChinaHybrid® space. We are curious if part of the issue  in CSKI's case could be with the existence of possible discrepancies between distributor sales reported in its SEC filings and those reported by its distributors in China.   Furthermore, as tax evasion may be prevalent in China, maybe the distributors see a potential risk on their end as they may have under reported income. Any theory is just speculation for now, but this could open up a can of worms and give shorts another avenue to champion their cause by contacting PRC government officials.

This development gives investors another reason to perform extreme due diligence in the ChinaHybrid sector.

2010 Second Quarter Highlights:

• Revenues increased by approximately $8,579,000, or 26.7%, as compared to the same period of 2009. The increase is primarily due to the strong sales from products in our Ointment and Others product categories, partially offset by the decreased revenue from the sales of our Slim Patch and Diagnostic Kits.
  
• Non-GAAP EPS after taking warrant gains/losses into account was $0.61 vs $.57.

"Historically, we signed agreements with suppliers that allowed us to hold extra raw materials at the cost of the suppliers. As a result, we were able to minimize our own inventory carrying costs, and improve our cash management, by keeping the inventory at the minimum level required to support the short-term sales. However, due to our forecasts for certain cost increases of raw materials and the overhead costs for storing such raw materials in fiscal 2010, we began to increase our inventory levels toward the second half of 2009 and in 2010. We expect this practice to continue for the foreseeable future.

For the remainder of fiscal year 2010, we anticipate price increases of certain raw materials due to unforeseen natural disasters and inflation that will result in the increase of our cost of goods sold. In addition, our sales and marketing strategy to promote certain of our products which have less market competition by coordinating with reputable distributors who have extensive market channel and will launch these products at lower margins. These factors will have negative impact on our overall gross product margins."

CSKI removed from GeoBargain List.

No longer meets the 30% EPS growth minimum requirement.

Added to GeoBargain list on Friday, May 30, 2008 @ $12.85.

Reached a high of $25.45 on December 28, 2009.

Current Price: $14.50

The GeoTeam will follow the story for developments that could lead to the resumption of 30% EPS growth.

"We are confident about the prospects for our business in 2009 and will continue to focus on increasing market share by both strengthening and further refining our sales and distribution network, building and enhancing our brand image, and seeking out strategic acquisitions that support our growth. In the first nine months of 2009, we increased our number of sales representatives to roughly 1,500 from 1,300. Currently, our products are sold in approximately 5,500 pharmacies in 24 provinces in China compared to 4,500 pharmacies in 22 provinces in 2008. Over the long term, we will continue to focus on developing and manufacturing our biological diagnostic kits and on our cord stem cell bank initiative, areas that we believe have very promising market opportunities," said Mr. Liu.

"Based on our progress so far this year, we are reaffirming our guidance for the year," added Mr. Liu. "We expect 2009 full year revenue to increase by 40%, or approximately $37.0 million, to $130 million, driven by growth in all of our product sales categories. We estimate that 2009 gross margin to be approximately 75%, which factors in market competition and possibly higher raw material costs. We expect 2009 net income will increase to approximately $39 million, resulting in net profit margin of approximately 30%."

Source: PR Newswire (November 17, 2009)

^a For valuation purposes the GeoTeam� prefers to adjust EPS to reflect a standard United States rate.