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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 2010 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,
                                                      2009          2009
    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
    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

    (Amounts expressed in US Dollars)

                                                     Nine months ended
                                                        December 31,
                                                   2009              2008
    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

     ACTIVITIES                                $13,122,357       $17,086,981
    Purchases of fixed assets                  $(3,183,483)     $(15,953,064)
    NET CASH USED IN INVESTING ACTIVITIES      $(3,183,483)     $(15,953,064)

    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                --

     ACTIVITIES                                $70,111,524               $--
    Effect of exchange rate changes on cash        204,165           979,753
     EQUIVALENTS BALANCES                      $80,254,563        $2,113,670
    BEGINNING OF PERIOD                         70,824,041        64,310,448
     END OF PERIOD                            $151,078,604       $66,424,118

    Supplemental disclosure cash flow
    Interest paid                                1,005,859           808,219
    Income tax paid                              3,539,063         2,010,345


                                              Three Months Ended December 31,
                                                      2010           2009
    Adjusted Net Income                            Net Income     Net Income
    Adjusted Amount                                $7,811,082     $4,260,887
      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
    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

    CCG Investor Relations
     Lei Huang, Account Manager
     Phone: +1-646-833-3417 (New York)

     Crocker Coulson, President
     Phone: +1-646-213-1915 (New York)

SOURCE China-Biotics, Inc.



SOURCE China-Biotics, Inc.
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