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China-Biotics, Inc. Reports Third Quarter Fiscal 2010 Financial Results

SHANGHAI, Feb. 10 /PRNewswire-Asia-FirstCall/ -- China-Biotics, Inc. (Nasdaq: CHBT) ("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 third quarter of its 2010 fiscal year, ended December 31, 2009.

    Third Quarter 2010 Highlights
    -- Net sales increased 47% to $23.3 million from $15.8 million a year ago
    -- Gross profit rose 47% to $16.5 million from $11.2 million a year ago
    -- Gross margin was 71%, unchanged from a year ago
    -- Operating income increased 56% to $10.1 million, with an operating
       margin of 43%
    -- Excluding a book gain of $2.7 million related to the revaluation of
       convertible notes, adjusted net income was $7.8 million
    -- Earnings Per Share is $0.32 per diluted share up from $0.22 a year ago
    -- Eight new bulk additive customers and opened four new retail stores

"Our robust fiscal third quarter revenue and earnings growth reflect the Company's continued expansion of our bulk and retail customer bases," said Mr. Jinan Song, Chairman and Chief Executive Officer of China-Biotics. "Commercial production at our Qingpu production plant is scheduled to begin by the end of February and we continue to expect to reach approximately 50% capacity utilization by the end of calendar year 2010. With rising demand from the dairy and animal feed manufacturers, and movement by the government to encourage the use of probiotics, China continues to be a very favorable environment to grow our bulk and retail probiotics business in 20 2009 2009 ASSETS Current assets Cash and cash equivalents $151,078,604 $70,824,041 Accounts receivable 22,779,039 14,428,382 Other receivables 766,385 6,493 Inventories 1,204,149 563,853 Amount due from a director 2,374,172 -- Prepayment 5,169,721 1,547,582 Total current assets $183,372,070 $87,370,351 Property, plant and equipment and land use right 39,021,467 33,079,839 Deferred tax assets 298,833 354,157 Total assets $222,692,370 $120,804,347 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $6,004,849 $2,909,898 Tax payables 29,006,801 25,528,447 Other payables and accruals 1,555,535 1,517,753 Amount due to a director -- 2,380,007 Total current liabilities $36,567,185 $32,336,105 Non-current liabilities Convertible note, net of discount of $3,704,118 and $6,000,054 as of December 31, 2009 and March 31, 2009 respectively $21,295,882 $18,999,946 Embedded derivatives 8,908,000 2,660,000 Interest payable 2,660,533 1,411,942 Total non-current liabilities $32,864,415 $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 March 31, 2009 and 46,751,004 shares issued and 22,370,000 outstanding as of December 31, 2009) $4,675 $4,146 Additional paid-in capital 82,769,074 7,863,031 Retained earnings 62,557,798 49,794,033 Treasury stock at cost (24,381,004 shares) (2,438) (2,438) Accumulated other comprehensive income 4,905,867 4,711,788 Capital and statutory reserves 3,025,794 3,025,794 Total stockholders' equity $153,260,770 $65,396,354 Total liabilities and stockholders' equity $222,692,370 $120,804,347 CHINA-BIOTICS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Amounts expressed in US Dollars) Nine months ended December 31, 2009 2008 CASH FLOW FROM OPERATING ACTIVITIES Net income $12,763,702 $$13,377,757 Adjustment for: Changes in the fair value of embedded derivatives 6,248,000 (2,073,000) Loss on disposal of plant and equipment -- 30,022 Change in deferred tax 55,849 500,000 Depreciation 1,423,239 1,298,953 (Increase) in accounts receivable (8,298,996) (792,146) Decrease in others receivable 267,246 214,989 (Increase) in inventories (630,946) (841,095) (Increase)/Decrease in prepayments (4,489,544) 1,080 Increase in accounts payable 3,069,677 1,926,337 Increase/(Decrease) in other payables and accruals (716,386) 957,512 Increase in tax payables 3,430,453 2,486,572 NET CASH PROVIDED BY OPERATING ACTIVITIES $13,122,357 $17,086,981 CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of fixed assets $(3,183,483) $(15,953,064) NET CASH USED IN INVESTING ACTIVITIES $(3,183,483) $(15,953,064) CASH FLOWS FROM FINANCING ACTIVITIES Cash advance to a director 3,113,900 -- Repayment on advance from a director (7,908,948) -- Proceed from issuance of share capital 74,906,572 -- NET CASH PROVIDED BY FINANCING ACTIVITIES $70,111,524 $-- Effect of exchange rate changes on cash 204,165 979,753 NET INCREASE IN CASH AND CASH EQUIVALENTS BALANCES $80,254,563 $2,113,670 CASH AND CASH EQUIVALENTS BALANCES AT BEGINNING OF PERIOD 70,824,041 64,310,448 CASH AND CASH EQUIVALENTS BALANCES AT END OF PERIOD $151,078,604 $66,424,118 Supplemental disclosure cash flow information: Interest paid 1,005,859 808,219 Income tax paid 3,539,063 2,010,345 CHINA-BIOTICS, INC. AND SUBSIDIARIES RECONCILIATION OF ADJUSTED FINANCIAL DATA Three Months Ended December 31, 2010 2009 Adjusted Net Income Net Income Net Income Adjusted Amount $7,811,082 $4,260,887 Adjustments Non-cash gains from change in fair value of convertible bonds 2,668,000 1,408,000 Amount per consolidated statement of operations 10,479,082 5,668,887 Nine Months Ended December 31, 2010 2009 Adjusted Net Income Net Income Net Income Adjusted Amount $19,011,765 $11,304,757 Adjustments Non-cash gains from change in fair value of convertible bonds (6,248,000) 2,073,000 Amount per consolidated statement of operations 12,763,765 13,377,757 For more information, please contact: China-Biotics, Inc. Travis Cai, CFO Email: Web: CCG Investor Relations Lei Huang, Account Manager Phone: +1-646-833-3417 (New York) Email: Web: Crocker Coulson, President Phone: +1-646-213-1915 (New York) Email:

SOURCE China-Biotics, Inc.

10 and beyond."

Third Quarter 2010 Results

During the third quarter of the 2010 fiscal year, net sales increased 47% to $23.3 million from $15.8 million a year ago. The increase was primarily driven by new customers in the bulk business, the opening of four new retail outlets, an adjustment of product mix, and overall higher demand across our product lines. Sales of retail products were $17.4 million, up 18% year-over-year. Sales of bulk additives were $5.9 million, representing a 429% increase compared to a year ago. Retail products and bulk additives contributed 74% and 26% to total net sales, respectively, compared to 93% and 7% contribution in the prior year quarter.

Gross profit for the quarter increased 47% to $16.5 million from $11.2 million in the same period the prior year, primarily due to an increase in overall sales volume. Gross margin was 71%, unchanged from a year ago.

Operating expenses were $6.4 million, compared to $4.7 million a year ago. As of December 31, 2009, the Company had a total of 111 retail outlets in operation compared with 107 outlets as of December 31, 2008.

Operating income increased 56% to $10.1 million from $6.5 million in the third quarter of fiscal 2009. Operating margin was 43%, compared to 41% a year ago, reflecting higher net sales and gross profit combined with lower operating expenses as a percent of sales.

Other income in the third quarter of 2010 totaled $2.7 million, most of which was a non-cash gain in the change in fair value related to the Company's convertible notes issued in December 2007 as required by FAS133. This compares with a $1.4 million non-cash fair value gain in the year ago period. The Company expects the gain or loss associated with change in the fair value of these convertible notes to continue to have an impact on its GAAP net income until the end of 2010.

For the quarter, net income was $10.5 million, an increase of 85% from $5.7 million in the prior year. Excluding the $2.7 million non-cash fair value gain related to the convertible notes, adjusted net income was $7.8 million, up 81% from adjusted net income of $4.3 million in the same quarter of the prior year.

Diluted earnings per share were $0.32 up 45% from $0.22 per diluted share a year ago. The calculation of diluted earnings per share for both periods assumes full conversion of the Company's convertible notes and thus excludes the gain of $2.7 million and $1.4 million, respectively, related to the change in fair value of the notes.

Nine Month Results

Net sales for the first nine months of the 2010 fiscal year were $55.9 million, up 44% from $38.7 million in the same period the prior year. Gross profit was $39.6 million, or 71% of sales, up 45% from gross profit of $27.4 million, or 71% of sales, in the first nine months of fiscal 2009. Operating income was $24.5 million, or 44% of sales, an increase of 52% from $16.1 million, or 42% of sales, the prior year. Adjusted net income was $19.0 million for the first nine months of fiscal 2010, up 68% from $11.3 million during the same period last year. Including a non-cash loss of $6.2 million related to change in the fair value of the convertible notes, GAAP net income for the first nine months of fiscal 2010 was $12.8 million, compared to $13.4 million in the same period of fiscal 2009.

Financial Condition

As of December 31, 2009, the Company had cash and cash equivalents of $151.1 million and working capital of $146.8 million. In the first nine months of fiscal 2010, China-Biotics generated $13.1 million in cash flow from operations. At December 31, 2009, total stockholders' equity was $153.3 million.

Recent Event

On January 22, 2010, China-Biotics appointed Mr. Travis Cai as Chief Financial Officer to replace Ms. Eva Yan, who served as the Interim Chief Financial Officer. Mr. Cai brings more than 10 years of professional and corporate finance experience with public companies and investment institutions. His areas of expertise include financial management, mergers and acquisitions, investor relations, risk controls, SOX 404 compliance, and SEC reporting. Prior to joining China-Biotics, Mr. Cai served as Vice President of Finance at A-Power Energy Generation Systems Ltd. since 2009 and was Director of Finance and Assistant to President at Vimicro International Corp. from 2007 to 2009.

Upcoming Events

China-Biotics will hold its 2009 Annual Meeting of Stockholders on Friday, March 5, 2010 at the Company's executive offices in Shanghai, China. The Company's board of directors established Friday, January 8, 2010 as the record date for determining stockholders entitled to vote at the meeting. Management expects to mail the definitive proxy statement to stockholders on or about Friday, January 15, 2010.

The Company will attend two investor conferences next month, the Rodman and Renshaw Annual China Investment Conference in Beijing on March 7-9, 2010, and the 22nd Annual ROTH OC Growth Stock Conference in California on March 15-17, 2010.

Business Outlook

The Company is reiterating its fiscal year 2010 revenue growth guidance of at least 50% and expects overall gross margin to remain approximately 70%.

"We will continue to seek a balance between current production capacity and sales to new customers until our new facility begins commercial production. We look forward to the continued expansion of our retail distribution network and outlets," Mr. Song said. "Once the Qingpu facility comes online, we will have the capacity to accommodate new orders as scheduled, which will begin contributing to our financial results in the fourth quarter of fiscal 2010."

Conference Call

The company will host a conference call at 7:00 p.m. ET on, Wednesday, February 10, 2010, to discuss its financial results for the third quarter ended December 31, 2009.

To participate in the event by telephone, please dial 1-877-485-3104 five to 10 minutes prior to the start time (to allow time for registration) and reference pass code 344080. International callers should dial +1-201-689-8579 and use the same conference ID. The conference call will be broadcast live over the Internet and can be accessed by all interested parties at the Company's Web site, . To listen to the call on the website, 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 Wednesday, February 10, at approximately 9:00 p.m. ET through Wednesday, February 17, at midnight ET. Dial 1-877-660-6853 and enter the conference ID number 344080. 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 nine month periods ended December 31, 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 .

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.


    (Amounts expressed in US Dollars)

                         Three months ended           Nine months ended
                            December 31,                 December 31,
                           2009         2008           2009         2008
    Net sales          $23,294,321  $15,810,111   $55,855,442   $38,676,017
    Cost of sales       (6,780,161)  (4,583,371)  (16,259,457)  (11,304,893)
    Gross profit       $16,514,160  $11,226,740   $39,595,985   $27,371,124
    Selling expenses   $(4,140,738) $(3,330,668)  $(9,221,564)  $(8,514,090)
    General and
     expenses           (2,260,344)  (1,353,561)   (5,932,227)   (4,218,494)
    Other income             3,179           --        72,110     1,492,361
    Other expense               --      (42,719)           --       (42,719)
    Total operating
     expenses          $(6,397,903) $(4,726,948) $(15,081,681) $(11,282,942)
    Income from
     operations        $10,116,257   $6,499,792   $24,514,304   $16,088,182
    Other income and
    Changes in the
     fair value of
     derivatives        $2,668,000   $1,408,000   $(6,248,000)   $2,073,000
    Interest income         74,438       60,442       214,307     1,923,430

    Total other
     income /(expense)  $2,742,438   $1,468,442   $(6,033,693)   $2,286,490
    Income before
     taxes             $12,858,695   $7,968,235   $18,480,611   $18,374,673
    Provision for
     income taxes       (2,379,613)  (2,299,348)   (5,716,846)   (4,996,916)
    Net income         $10,479,082   $5,668,887   $12,763,765   $13,377,757

    Earnings per
      Basic                  $0.48        $0.33         $0.68         $0.78
      Diluted                $0.32        $0.22         $0.68(1)      $0.59

    Weighted average
     shares outstanding
      Basic             21,978,242   17,080,000    18,706,788    17,080,000
      Diluted           24,061,575   19,163,333    18,706,788(1) 19,163,333

    (1) The calculation of diluted earnings per share for the nine months
        ended 12/31/09 excludes the potential common stock of 2,083,000 shares
        related to the Company's convertible notes as the inclusion would be

    (Amounts expressed in US Dollars)

                                                  December 31,    March 31,
SOURCE China-Biotics, Inc.
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