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China-Biotics, Inc. Reports Second Quarter Fiscal 2010 Financial Results SHANGHAI, Nov. 17 /PRNewswire-Asia-FirstCall/ -- China-Biotics, Inc.
(Nasdaq: CHBT - News; "China-Biotics", "the Company"), a leading Chinese firm
specializing in the manufacture, research, development, marketing and
distribution of probiotics products, today announced its financial results for
the second quarter of its 2010 fiscal year, ended September 30, 2009.
Second Quarter 2010 Highlights
-- Net sales increased 49.2% year-over-year to $17.1 million
-- Gross profit rose 51.5% year-over-year to $12.2 million
-- Gross margin was 71.0% up from 69.9% a year ago
-- Operating income increased 99.2% to $7.5 million, with an operating
margin of 43.9%
-- Excluding a book loss related to the revaluation of convertible notes,
adjusted net income was $5.9 million, or $0.31 per diluted share, up
131.6% year-over-year
-- Signed four new bulk additive customers
-- Attended the 2009 National Exchange Seminar on Probiotics in Shenzhen,
China
"We continued to improve margins in the second fiscal quarter and delivered strong year-over-year growth in our top and bottom lines. This was driven by increased sales volumes and pricing of new products, particularly in our bulk additives business where we made significant headway," said Mr. Jinan Song, Chairman and Chief Executive Officer of China-Biotics. "We made excellent progress in ramping-up our new facility during the quarter to address the growing commercial market for our high quality, customized bulk additive products." Second Quarter 2010 Results During the second quarter of the 2010 fiscal year, net sales increased 49.2% to $17.1 million from $11.5 million a year ago. The increase resulted from an increase in sales volume from all products, particularly for Shining Probiotics Protein Powder and significant growth in bulk additive sales and price increases on bulk additives products. Sales of retail products were $11.7 million, or 68.0% of total sales, up 15.5% from the same quarter of fiscal 2009. Sales of bulk additives were $5.5 million, or 32.0% of total sales, an increase of 292% from $1.4 million, or 12.2% of total sales, a year ago. On a sequential basis, sales of bulk additives increased 53.9% from the first quarter of fiscal 2010. Gross profit for the quarter increased 51.5% to $12.2 million from $8.0 million in the same period the prior year. Gross margin was 71.0% in the second quarter, up from 69.9% in the year-ago period, primarily due to increases in selling prices during the quarter. Operating expenses were $4.6 million, compared to $4.2 million a year ago. The increase in operating expenses during the second quarter of fiscal 2010 was primarily due to an increase in legal and professional fees associated with preparation for public offerings. Selling expenses for the second quarter of 2010 were $2.7 million, or 15.9% of sales, down from $2.8 million, or 24.5% of sales, in the year ago period. The decline in selling expenses was the result of the closure of three Shining retail outlets in early 2009 calendar year due to local community redevelopment. Operating income increased 97.1% to $7.5 million from $3.8 million in the second quarter of fiscal 2009. Operating margin was 43.9%, compared to 33.2% a year ago. Other expense in the second quarter of 2010 consisted of a $9.4 million non-cash fair value loss related to the Company's convertible notes issued in December 2007. This compares with $1.9 million non-cash fair value gain in the year ago period. For the second quarter of the 2010 fiscal year, the Company recorded a net loss of $3.5 million. Excluding the $9.4 million loss on the revaluation of the convertible notes, net income was $5.9 million, up 131.6% from adjusted net income of $2.6 million in the same quarter of the prior year. Diluted earnings per share were $0.31, calculated on a weighted average basis, compared with $0.13 per diluted share in the second quarter of fiscal 2009. The calculation of diluted earnings per share for both periods assumes full conversion of the convertible notes and thus excludes the loss of $9.4 million, and the gain of $1.9 million, respectively, from the change in fair value of the notes. Six Month Results Net sales for the first six months of the 2010 fiscal year were $32.6 million, up 42.4% from $22.9 million in the same period the prior year. Gross profit was $23.1 million, or 70.9% of sales, up 43.0% from gross profit of $16.1 million, or 70.6% of sales, in the first six months of fiscal 2009. Operating income was $14.4 million, or 44.2% of sales, an increase of 50.2% from $9.6 million, or 41.9% of sales, the prior year. Net income for the first six months of fiscal 2010 was $2.3 million, compared to $7.7 million in the same period of fiscal 2009. Adjusted net income, excluding loss on the revaluation of the convertible notes, was $11.2 million for the first six months of fiscal 2010, up 59.0% from $7.0 million during the same period last year. Diluted earnings per share were $0.58 compared with $0.37 per diluted share in the second quarter of fiscal 2009. The calculation of diluted earnings per share for both periods assumes full conversion of the convertible notes and thus excludes gains and losses related to the change in fair value of the notes. Financial Condition As of September 30, 2009, the Company had cash and cash equivalents of $79.4 million and working capital of $64.7 million. In the first six months of fiscal 2010, China-Biotics generated $10.3 million in cash flow from operations and recorded $2.0 million in capital expenditures, primarily for the construction of the new plant. Approximately 78% of the projected $27.5 million in capital expenditures related to the phase 1 of new facility had been made as of September 30, 2009. Accounts receivable were $17.1 million, and days' sales outstanding were 87. At September 30, 2009, the Company had stockholders' equity of $67.9 million. Recent Events In October, China-Biotics completed an underwritten public offering of 5,290,000 shares of its common stock at a price of $15.00 per share, including the exercise of the underwriters' over-allotment option, generating net proceeds of approximately $75.4 million. The Company expects to use the net proceeds from the offering for general corporate purposes, including expanding its retail operations, expanding its products, acquiring additional retail outlets and for general working capital purposes. On October 23, China-Biotics announced that Lewis Fan, Chief Financial Officer, resigned to pursue other professional interests and had no disagreements with the Company in regard to its financial statements or accounting matters. Eva Yan, Chief Administration Officer and Director of Shanghai Shining Biotechnology Ltd., a subsidiary of China-Biotics, will serve as interim Chief Financial Officer until a successor is named. In October, China-Biotics signed four new bulk additive customers, mainly engaged in manufacture of dairy, nutritional supplement and animal feed products, bringing its total number of its bulk additive customers to 24. In October, China Biotics strengthened its senior management team with the additions of Mr. Bin Li as vice president general manager of manufacturing, and Dr. Xiaoping Zhang as deputy director of the Company's R&D center. The Company also appointed of Dr. Tom Gu as vice president to oversee the research and development of its probiotics products. Business Outlook "We look forward with anticipation to the remainder of fiscal 2010 and are excited about the traction we are gaining in our bulk additives business. Our new manufacturing facility is expected to begin commercial production in the first quarter of calendar year 2010, and our pipeline of potential new bulk additives customers continues to be strong," Mr. Song said. "As the new capacity comes online, we will be able to resume our Shining retail outlet expansion later in the fiscal year. We are already directing our attention to the second phase of the capacity expansion, which we expect to begin by December 31, 2009. Demand for our bulk additive products has been significant, which should result in revenue growth of at least 50% during the 2010 fiscal year." Conference Call The company will host a conference call at 11:00 a.m. EST on, Tuesday, November 17, 2009, to discuss its financial results for the second quarter ended September 30, 2009. To participate in the event by telephone, please dial 1-877-407-4134 five to 10 minutes prior to the start time (to allow time for registration) and reference pass code 337783. International callers should dial +1-201-689-8430. The conference call will be broadcast live over the Internet and can be accessed by all interested parties at the Company's Web site, http://www.chn-biotics.com . To listen to the call, please visit the site at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live webcast, it will be archived using the same link for 90 days. A digital replay of the call will also be available on Friday, November 17, at approximately 1:00 p.m. EST through Friday, December 1, at midnight EST. Dial 1-877-660-6853 and enter the conference ID number 337783. International callers should dial +1-201-612-7415 and enter the same conference ID number. Use of Adjusted Financial Information GAAP results for the three and six month periods ended September 30, 2009 and 2008 include non-cash gains and losses related to the change in fair value of the Company's convertible notes. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release, which are adjusted net income and adjusted diluted earnings per share. The Company's management believes that these adjusted measures provide investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of adjustments to GAAP results appears in the tables accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. About China-Biotics, Inc. China-Biotics, Inc., a leading manufacturer of biotechnology products and supplements, engages in the research, development, marketing and distribution of probiotics dietary supplements. Through its wholly owned subsidiary, Shanghai Shining Biotechnology Co., Ltd., the Company has operations in Shanghai. Its proprietary product portfolio contains live microbial nutritional supplements under the "Shining" brand. Currently, the products are sold OTC through large distributors to pharmacies and supermarkets in Shanghai, Jiangsu, and Zhejiang. Currently, China-Biotics is strategically expanding its production capacity of probiotics to meet growing demand in the bulk additive market. For more information, please visit http://www.chn-biotics.com . Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The information in this release contains forward-looking statements which involve risks and uncertainties, including statements regarding the Company's capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements, which may be identified by terminology such as "may," "should," "will," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "forecast," "project," or "continue," the negative of such terms or other comparable terminology. Readers should not rely on forward-looking statements as predictions of future events or results. Any or all of the Company's forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions, risks and uncertainties and other factors which could cause actual events or results to be materially different from those expressed or implied in the forward-looking statements. In evaluating these statements, readers should consider various factors, including the risks described in "Item 1A. Risk Factors" beginning on page 15 and elsewhere in the Company's 2009 Annual Report on Form 10-K. These factors may cause the Company's actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to time and it is not possible for the Company to predict all factors that may cause actual results to differ materially from those contained in any forward-looking statements. The Company disclaims any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this document, except as required by applicable law.
- FINANCIAL TABLES FOLLOW -
CHINA-BIOTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts expressed in US Dollars)
Three months ended Six months ended
September 30, September 30,
2009 2008 2009 2008
Net sales $17,148,659 $11,495,249 $32,561,121 $22,865,906
Cost of sales (4,980,623) (3,462,853) (9,479,296) (6,721,522)
Gross profit $12,168,036 $8,032,396 $23,081,825 $16,144,384
Operating expenses:
Selling expenses $(2,733,234) $(2,813,563) $(5,080,826) $(5,183,422)
General and
administrative
expenses (1,937,218) (1,438,137) (3,671,883) (2,864,933)
Other income 32,483 39,859 68,931 1,492,362
Total operating
expenses $(4,637,969) $(4,211,841) $(8,683,778) $(6,555,994)
Income from
operations $7,530,067 $3,820,555 $14,398,047 $9,588,390
Other income and
expenses:
Changes in the fair
value of embedded
derivatives $(9,430,000) $1,904,000 $(8,916,000) $665,000
Interest income 72,781 66,662 139,869 153,048
Total other
(expenses)/
income $(9,357,219) $1,970,662 $(8,776,131) $818,048
(Loss)/Income
before taxes $(1,827,152) $5,791,217 $5,621,916 $10,406,438
Provision for
income taxes (1,655,914) (1,319,097) (3,337,233) (2,697,568)
Net (loss)/
Income $(3,483,066) $4,472,120 $2,284,683 $7,708,870
(Loss)/ earnings
per share:
Basic $(0.20) $0.26 $0.13 $0.45
Diluted $0.31 $0.13 $0.58 $0.37
Weighted average
shares outstanding
Basic 17,080,000 17,080,000 17,080,000 17,080,000
Diluted 19,163,333 19,163,333 19,163,333 19,163,333
CHINA-BIOTICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts expressed in US Dollars)
September 30, March 31,
2009 2009
ASSETS
Current assets
Cash and cash equivalents $79,444,634 $70,824,041
Accounts receivable 17,111,551 14,428,382
Other receivables 2,352 6,493
Inventories 912,505 563,853
Prepayment 1,615,913 1,547,582
Total current assets $99,086,955 $87,370,351
Property, plant and equipment and
land use right 36,994,021 33,079,839
Deferred tax assets 488,075 354,157
Total assets $136,569,051 $120,804,347
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $3,142,732 $2,909,898
Tax payables 27,263,898 25,528,447
Other payables and accruals 1,479,406 1,517,753
Amount due to a director 2,534,755 2,380,007
Total current liabilities $34,420,791 $32,336,105
Non-current liabilities
Convertible note, net of discount
of $4,510,473 and $6,000,054 as of
September 30, 2009 and March 31,
2009 respectively $20,489,527 $18,999,946
Embedded derivatives 11,576,000 2,660,000
Interest payable 2,209,460 1,411,942
Total non-current liabilities $34,274,987 $23,071,888
Commitments and contingencies
Stockholders' equity:
Common stock (par value of
$0.0001, 100,000,000 shares
authorized, 41,461,004 shares
issued and 17,080,000 outstanding
as of September 30, 2009 and
March 31, 2009) $4,146 $4,146
Additional paid-in capital 7,863,031 7,863,031
Retained earnings 52,078,716 49,794,033
Treasury stock at cost (24,381,004
shares) (2,438) (2,438)
Accumulated other comprehensive
income 4,904,024 4,711,788
Capital and statutory reserves 3,025,794 3,025,794
Total stockholders' equity $67,873,273 $65,396,354
Total liabilities and
stockholders' equity $136,569,051 $120,804,347
CHINA-BIOTICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts expressed in US Dollars)
Six months ended
September 30,
2009 2008
CASH FLOW FROM OPERATING ACTIVITIES
Net income $2,284,683 $7,708,870
Adjustment for:
Changes in the fair value of
embedded derivatives 8,916,000 (665,000)
Change in deferred tax (133,353) --
Depreciation 937,500 863,740
(Increase)/Decrease in accounts
receivable (2,632,668) 3,044,946
(Increase)/Decrease in inventories (339,362) (344,093)
(Increase)/Decrease in prepayments (67,851) 19,822
Increase/(Decrease) in accounts
payable 178,523 586,894
Increase/(Decrease) in other
payables and accruals (540,397) 682,843
Increase/(Decrease) in tax
payables 1,687,907 205,230
NET CASH PROVIDED BY OPERATING
ACTIVITIES $10,290,982 $12,103,252
CASH FLOWS USED IN INVESTING
ACTIVITIES
Purchases of fixed assets $(1,987,755) $(11,662,222)
NET CASH USED IN INVESTING
ACTIVITIES $(1,987,755) $(11,662,222)
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash advance from a director 3,113,900 11,661
Repayment on loan from
shareholders (2,999,641) (1,120)
NET CASH PROVIDED BY FINANCING
ACTIVITIES $114,259 $10,541
Effect of exchange rate changes on
cash 203,107 871,476
NET INCREASE IN CASH AND CASH
EQUIVALENTS BALANCES $8,620,593 $1,323,047
CASH AND CASH EQUIVALENTS BALANCES
AT BEGINNING OF PERIOD 70,824,041 64,310,448
CASH AND CASH EQUIVALENTS BALANCES
AT END OF PERIOD $79,444,634 $65,633,495
CHINA-BIOTICS, INC. AND SUBSIDIARIES
RECONCILIATION OF ADJUSTED FINANCIAL DATA
Three Months Ended September 30,
2009 2008
Net Diluted Net Diluted
Adjusted Net income Income EPS(1) Income EPS(1)
Adjusted Amount $5,946,934 $0.31 $2,568,120 $0.13
Adjustments
Non-cash gains (losses)
from change in fair
value of convertible bonds (9,430,000) ($0.49) 1,904,000 $0.10
Amount per consolidated
statement of operations (3,483,066) ($0.18) 4,472,120 $0.23
Six Months Ended September 30,
2009 2008
Net Diluted Net Diluted
Adjusted Net income Income EPS(1) Income EPS(1)
Adjusted Amount $11,200,683 $0.58 $7,043,870 $0.37
Adjustments
Non-cash gains (losses)
from change in fair value
of convertible bonds (8,916,000) ($0.47) 665,000 $0.03
Amount per consolidated
statement of operations 2,284,683 $0.12 7,708,870 $0.40
(1) Diluted earnings per share based on 19, 163,333 weighted average
shares
For more information, please contact:
China-Biotics, Inc.
Eva Yan, CFO
Email: evayan@chn-biotics.com
Web: http://www.chn-biotics.com
CCG Investor Relations
Crocker Coulson, President
Tel: +1-646-213-1915 (New York)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
Source: China-Biotics, Inc.
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