China Yongxin Pharmaceuticals reports financial results for third-quarter ended September 30, 2009

China Yongxin Pharmaceuticals, Inc. (OTC Bulletin Board: CYXN) ("Yongxin" or "the Company"), a leading pharmaceutical distributor and chain drugstore operator, today announced financial results for the third quarter ended September 30, 2009.

"While we recognize that many of our products depend on discretionary spending, we expect as the economy continues to recover and consumer confidence picks up further, sales will gain momentum in 2010 and beyond. In the third quarter, we maintained our sales activities and saw improved gross margin as the Company's shift to higher margin products in its retail segment contributed to a more profitable mix of business. Management believes that overall gross profit will continue to improve for the remainder of 2009 and into next year," commented Mr. Yongxin Liu, Chairman and Chief Executive Officer of Yongxin.

"Further, we have initiated distribution of essential drugs and believe the government's new efforts on centralized distribution and the broader healthcare reform provide a myriad of growth opportunities. As one of the leading drug distributors in Northeastern China, we are well positioned to capitalize on these developments and build sustainable and long-term shareholder value," concluded Mr. Liu.

Highlights for the three months Ended September 30, 2009

Net revenue totaled approximately $10.8 million for the three months ended September 30, 2009, a decline of 29.8% from $15.5 million for the same period of 2008, due to lower sales from the Company's wholesale business as result of a change in its sales strategy. In the third quarter, Yongxin shifted its focus to the retail sector as the benefits from China's proposed National Medical Policy for the Company's wholesale business segment have taken longer than initially anticipated.

Cost of goods sold for the third quarter of 2009 decreased to $12.4 million, or 70.9% of net revenue, from $7.7 million, or 80.3% in the 2008 third quarter, largely in line with sales decline.

Gross profit for the three months ended September 30, 2009 totaled $3.1 million, or 29.1% of net sales, compared with gross profit of $3.0 million, or 19.7% of net sales, for the same period of 2008. The improvement in gross margin was mainly due to a better sales mix and a focus on higher margin products, including cosmetics and certain health and organic products.

Operating expenses totaled approximately $3.3 million for the third quarter of 2009, up 168.7% from $1.2 million in the third quarter of 2008. As a percentage of net revenue, third-quarter 2009 total operating expenses amounted to 30.4%, compared to third-quarter 2008 operating expenses at 7.9% of net revenue. This was largely attributable to a sharp increase in general and administrative expenses, which more than quintupled in the third quarter, primarily driven by allowance for doubtful accounts for accounts receivable and accrued litigation fees. Selling expenses rose moderately by 6.3% as the Company opened two new retail stores during the third quarter.

Other income amounted to $1.1 million for the three months ended September 30, 2009, an increase of 85.5% from $0.5 million for the same period in 2008, largely due to higher sponsorship and rebates from customers and suppliers in combination with an 87.6% decline in interest expenses.

The Company's net income attributable to common shares during the three months ended September 30, 2009 was $0.5 million down 71.5% from $1.7 million for the three months ended September 30, 2008. In addition to higher operating expenses, third-quarter net income was also negatively affected by a change in the collection of sponsorship fees and rebates from customers and suppliers from an annual basis to a quarterly basis.

The earnings per basic and diluted share were $0.01 for the three months ended September 30, 2009, down from $0.05 for the three months ended September 30, 2008.

Nine Months Results Ended September 30, 2009

Total revenue for the first nine months of 2009 was approximately $29.2 million, down 35.1% from the first nine months of 2008. Gross profit for the first nine months of 2009 was $8.0 million, a decrease of 3.7% from gross profit of $8.4 million in the comparable period a year ago. Gross margin was 27.8% for the first nine months of 2009, up from 18.7% for the same period in 2008. The Company recorded an operating income of $1.7 million, compared with operating income of $4.4 million in the first nine months of 2008. Net income attributable to common shares for the first nine months of 2009 was $1.9 million, compared with $3.1 million in the first nine months of 2008. Basic and diluted earnings per share were $0.06 for the first nine months of 2009 compared to 0.10 in the first nine months of 2008.

Financial Condition

As of September 30, 2009, Yongxin had 1.4 million in cash and cash equivalents, and approximately $12.1 million in working capital. As of September 30, 2009, shareholders' equity was $20.5 million. For the first nine months of 2009, the Company generated $2.6 million in cash from operations versus $3.7 million for the same period in 2008.