China Shenghuo Pharmaceutical Holdings, Inc. (KUN) will restate its financial reports from the past twelve months, saying that the company has discovered errors in sales commission advances and trade receivables. The Audit Committee and an independent counsel will review Shenghuo’s internal controls and the personnel who are involved. The company did not hint at the magnitude of the restatement, though it does expect to complete the review and present restated results within two months.

Because of the review, Shenghuo did not file its report for the current quarter by the August 14th due date and is in non-compliance with American Stock Exchange rules. The company faces potential de-listing from the AMEX as a result.

Over the past 12 months, Shenghuo reported net income of $2.2 million on revenues of $21 million (numbers that can no longer be relied upon). Shenghuo produces pharmaceutical, nutritional supplement and cosmetic products that are derived from the Sanchi root (panax notoginseng). The vast majority of its sales come from Xuesaitong Soft Capsules, a prescription product that promotes blood circulation. Xuesaitong Soft Capsules produced 80% of the company’s revenues in the first quarter of 2008.

Shenghuo made its IPO on the American Exchange in June of 2007in a very small offering of just 2% of its outstanding shares. The initial reaction to the IPO was very positive. Shenghuo traded higher from its IPO price of just $3.50 per share to reach a high of $15 three months later. But it has been in downtrend since then, and the news of the restatement sent the price of Shenghuo’s stock to a new all-time low. Following the restatement announcement, Shenghuo’s shares gave up 27% of their value, dropping 64 cents to $1.69. The company now has a market capitalization of $33 million.