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»06/04/2010 [Company watch]
China Yongxin Pharmaceuticals Reports Increase in net Income for 2009

China Yongxin Pharmaceuticals, Inc. a fast-growing vertically-integrated health products company in China, announced today its financial results for the fourth quarter and for the year ended December 31, 2009.

China Yongxin Pharmaceuticals Inc. Reports a 26% Increase in net Income for the 2009 Fiscal Year 4/6/2010 China Yongxin Pharmaceuticals, Inc. a fast-growing vertically-integrated health products company in China, announced today its financial results for the fourth quarter and for the year ended December 31, 2009. Net income increased to $5.1 million in 2009, a 26% increase over $4.1 million in 2008. The increase was primarily related to higher margin sales and was largely due to an increase in gross profit resulting from a change in the composition of products sold, specifically, an increase in retail product sales. Revenues for the year ended 2009 decreased to $47.6 million, or 19.5% from $59.1 million for 2008. The decrease in total revenue was due to the transition of the Company\'s sales strategy, which, because of the uncertain direction of the National Medical Policy, had been refocused from the wholesale business to the retail and medical facilities sector. Although a broader product portfolio and expanded marketing activities increased 2009 revenues from the Company\'s retail drug stores by approximately 27.9% over the prior year, it was not sufficient to completely offset a decrease in revenue from the Company\'s wholesale business, resulting in comparably lower total net revenue. The substantial increase in revenue from the retail segment was attributable to the addition of seven new retail drugstores in 2009, all located in prime locations in the center of cities in Jilin province. To further its new retail oriented sales strategy, the Company recently announced its plan to open 28 new retail stores in 2010. The Company also reported that basic and diluted earnings per share increased to $0.15 for the year ended December 31, 2009 compared to $0.13 for 2008, based on 35.1 million and 31.2 million diluted weighted average shares outstanding for 2009 and 2008, respectively, and 33.2 million and 31.2 million basic weighted averages shares outstanding for 2009 and 2008, respectively. These shares do not include approximately 1.67 million shares of preferred stock owned by management, which is convertible into 10 million shares of common stock. The cost of goods sold for the year was $31.3 million, a significant reduction compared to $47.2 million in the prior year. The decrease corresponded with a decrease in sales volume. However, the Company was able to reduce the cost of sales to net sales percentage from approximately 80% in 2008 to 66% in 2009 due to a change in product mix in which the proportion of products sold with higher profit margins increased, such as cosmetics and certain health and nutritional products. The Company improved its gross profit margin by approximately 37.2% from $11.9 million in 2008 to $16.3 million in 2009. The increase in gross margins was primarily due to higher margin retail and medical facilities sales. Operating expenses for 2009 were $7.1 million, compared to $6.0 million in 2008. Selling expenses remained at approximately the same level, at $3.5 million. Management believes that in 2009 the Company prudently managed utilities usage, transportation costs and sales people to effectively reduce selling expenses and maintain its gross profit. General and administrative expenses for 2009 increased approximately 43.0% to $3.6 million, compared to $2.5 million in 2008. The majority of the increase was related to litigation which was recently concluded. Income from operations for 2009 was approximately $9.2 million, an increase from the $5.9 million for 2008. Operating margins were 18% and 9.8% for 2009 and 2008, respectively. A substantial portion of the increase resulted from the expansion of the hospital market business and the increase of the sale of the health care, cosmetic and nutrition products as well as medical facilities sales. Mr. Yongxin Liu, Chairman and Chief Executive Officer of the Company, commented, \"During 2007, the Company anticipated potential impact on its wholesale distribution business resulting from uncertainty created by the proposed National Medical Policy. We were pleased that the Chinese government\'s August 18th issuance of China\'s Essential Drug List (the \"EDL\") included over 300 commonly used pharmaceuticals that will be subsidized by the government to provide easier access to all citizens. The Company is a retailer or distributor of 295 of the products on the EDL. We continue to be encouraged by the government\'s successful effort toward healthcare reform and efforts to boost domestic spending.\" Mr. Liu also added, \"Our income growth in 2009 indicates that our business model has placed the Company in a strong position to take positive advantage of increased government support of health care and the continued expansion of the economy in China.\" On March 9 2009, China Yongxin once again demonstrated its \"state-of-the-art\" approach to providing retail drug customers with a high level of service by formally launching its proprietary Electronic Diagnosis System (the \"System\"), of which 20 Systems have been installed so far in chain drugstores located in Changchun, Jilin. This proprietary system enables our customers to remotely receive medical diagnosis and conveniently purchase prescription drugs at that store. The Company continues to improve the level of service it offers and leverage its large and growing base of customers who opt in as drugstore \"members\" and who are then entitled to discounts, rebates and special offers. This strategy, in addition to selling a broader array of higher margin health, beauty and cosmetic products has increased customer retention and improved revenue and profitability in this business segment. Since the beginning of 2009, China Yongxin has signed 12 exclusive distribution agreements for high margin pharmaceutical products within Jilin province with several well-known pharmaceutical manufacturers including Tianjin Smith Kline and French Laboratories Ltd. As of June 30, 2009, China Yongxin has approximately 216 drugs with exclusive distribution rights in Jilin province. This portfolio is a key component of its long-term growth strategy to leverage the large distribution center and channels established to drive incremental future revenue growth. These agreements are typically one year in duration and are renewable.

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