- Teleconference to be Held at 10 a.m. EST on Nov 25th -

KUNMING, China, Nov. 20 /PRNewswire-FirstCall/ -- China Shenghuo Pharmaceutical Holdings, Inc. (NYSE Alternext US: KUN) ('China Shenghuo' or the 'Company'), today announced that, consistent with its previous announcements, it has filed with the United States Securities and Exchange Commission (the 'SEC') an amended Annual Report on Form 10-KSB/A for the year ended December 31, 2007, an amended Quarterly Report on Form 10-Q/A for the first quarter ended March 31, 2008 and Quarterly Reports on Form 10-Q for the second quarter ended June 30, 2008 and the third quarter ended September 30, 2008.

As previously discussed, an independent internal investigation found that two of the Company's financial department personnel improperly accounted for the collection of certain trade receivables and employee advances. As a result of these accounting errors, the Company determined that it had understated its bad debt allowance, which resulted in the understatement of general and administrative expenses and the overstatement of net income and earnings per share for the full year 2007 and first quarter 2008.

The Audit Committee found no evidence to suggest that these accounting errors were made at the direction of, or with the knowledge or involvement of, the Company's executive officers and management. The two employees found to be responsible for the accounting errors have been dismissed by the Company. The Company also recently announced the appointment of Wendy Fu, a US licensed CPA, as the Company's new Chief Financial Officer. Ms. Fu has replaced Ms. Gao, the Company's former Chief Financial Officer, who now heads the Company's internal control group.

Mr. Gui Hua Lan, Chief Executive Officer of China Shenghuo, said, 'As a result of the errors that have come to light, we are implementing significant remedial measures and other actions to address our weaknesses in internal control. The appointment of our new CFO and the new independent director Dr. Jason Zhang, who is also on our Audit Committee, is to bring their expertise in accounting, auditing, corporate governance and reporting to help restore shareholders' confidence. These steps should result in substantial improvement in our financial reporting process.'

Restatement Impact on Full-Year 2007 and First Quarter 2008

    The summarized restated results for 2007 and first quarter 2008 are as
follows:
    Full Year 2007             As Previously Reported     As Restated
    Net Income (Loss)               $4,016,640             $1,720,387
    Net Income (Loss)
     Per Diluted Share                    0.21                   0.09
    First Quarter 2008         As Previously Reported     As Restated
    Net Income (Loss)                ($338,341)             ($852,660)
    Net Income (Loss)
     Per Diluted Share                   (0.02)                 (0.04)

More detail regarding these amounts and the restatements can be obtained from the Company's amended Annual Report on Form 10-KSB/A for the year ended December 31, 2007, and its amended Quarterly Report on Form 10-Q/A for the first quarter ended March 31, 2008, which were filed with the U.S. Securities and Exchange Commission on Friday November 14, 2008.

Second Quarter 2008 Financial Highlights

Revenues for the second quarter of 2008 were $8.59 million, up 35% year- over-year compared with $6.36 million reported in the second quarter of 2007. The increase in sales was driven mainly by the increase in sales of the Company's main product, Xuesaitong Soft Capsules, as well as the Company's non-prescription ('OTC') pharmaceutical products.

Gross profit for the three months ended June 30, 2008 was $5.60 million compared with $4.77 million in the same period last year. Gross margin was 65.2%, a decline from 75.1% in the second quarter of 2007. The decrease in gross margin percentage was primarily due to the sales of other branded OTC products, which carry lower profit margins. Sales of these products were terminated at the end of the second quarter.

Net loss for the second quarter of 2008 was $1.54 million compared with net income of $1.32 million for the same period last year. Second quarter 2008 loss per diluted share was $0.08 compared to earnings per diluted share of $0.07 for the same period last year.

Third Quarter 2008 Financial Results

Revenues for the third quarter ended September 30, 2008 were $7.28 million, representing an increase of 73% compared to $4.20 million for the third quarter of 2007. The increase in sales was driven mainly by increased sales of the Company's main product, Xuesaitong Soft Capsules, augmented by increased sales of the OTC products, cosmetic products and increased export of products.

Third quarter 2008 gross profit was $5.31 million, an increase of 68% over $3.16 million for the same period in 2007. Gross margin for the third quarter of 2008 was 72.9%, compared with 75.3% for the third quarter of 2007. The decrease in gross margin percentage was driven largely by the increase in the cost of the raw material used in the Company's primary product.

Sales and marketing expenses for the third quarter of 2008 increased 93% to $2.99 million over $1.55 million in the third quarter of 2007, primarily due to the increase in commission paid to sales representatives due to increased sales of the Company's primary product and the increase in marketing expenses for the Company's cosmetic products. General and administrative expenses for the third quarter of 2008 increased to $1.82 million compared to $341,372 for the same quarter in 2007, primarily due to the increase in expenses related to the Company's status as a public company with its securities traded on a U.S. national exchange (including accounting and legal expenses in connection with the restatement), and the increase in expenses related to business expansion of cosmetic products.

Third quarter 2008 operating income decreased to $432,408 compared to $1.27 million for the third quarter of 2007.

Third quarter 2008 net income decreased to $154,286, or $0.01 earnings per diluted share. This compares to net income of $867,641 or $0.04 earnings per diluted share for the same quarter in 2007.

Nine-Month Results

Revenues for the first nine months of 2008 increased 43% to $21.35 million compared to $14.88 million for the first nine months of 2007. The increase was primarily due to increased sales of the Company's main product, Xuesaitong Soft Capsules, OTC products and cosmetic products, and the increased export of products.

Gross profit for the first nine months of 2008 increased 29% to $14.30 million over $11.12 million for the same period in 2007. Gross margin for the first nine months of 2008 was 66.9%, compared with 74.7% for the first nine months of 2007. The decrease in gross margin percentage was primarily due to the fact that, in the first and second quarter of 2008, there were sales of other brand's products which have a higher purchasing price and thus generate a smaller profit margin.

Sales and marketing expenses rose 67% to $8.67 million in the first nine months of 2008 over $5.18 million in the same period of 2007, primarily due to the increase in marketing and advertising of the Company's cosmetic products and the increase in commission paid to sales representatives. General and administrative expenses increased to $7.00 million in the first nine months of 2008 compared to $2.70 million for the same period in 2007, primarily due to the increase of the expenses related to the Company's status as a public company with its securities traded on a U.S. national exchange (including accounting and legal expenses in connection with the restatement), expenses relating to business expansion, and the allowance for doubtful accounts due to the increase of trade receivables aging over one to two years.

Operating loss for the first nine months of 2008 was $1.63 million compared with operating income of $3.23 million for the same period of 2007.

Net loss the first nine months of 2008 was $2.24 million, or $0.11 loss per diluted share.