SHANGHAI, China, Nov. 11 /Xinhua-PRNewswire-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 second quarter of its 2009 fiscal year, ended September 30, 2008.
Second Quarter 2009 Highlights
-- Net sales increased 47.0% year-over-year to $11.5 million
-- Gross profit increased 43.1% year-over-year to $8.0 million
-- Gross margin was 69.9%
-- Net income was $4.5 million
-- Excluding a $1.9 million gain related to the change in fair value of
convertible notes, net income increased 30.4% year over year to $2.6
million
-- Diluted earnings per share was $0.13, compared to $0.11 the prior year
-- Opened 27 retail outlets during the quarter, bringing the total number
of outlets to 110 in 13 cities in China
-- Signed agreement with Henan Square Pharmaceutical Co., Ltd to supply
probiotics for its probiotics-based medicines
-- Began installing equipment for its new manufacturing facility in Qing
Pu Industrial Park in Shanghai
-- Began trading on the Nasdaq Global Market in October
Second Quarter 2009 Results
During the second quarter of the 2009 fiscal year, net sales increased 47.0% to $11.5 million from $7.8 million the prior year, as a result of growth in the sales volume of new products and increases in the sales price of selected products. Sales also benefited from an increase in the number of the Company's Shining retail outlets to 110 from 22 the prior year. New products, including Shining Essence Stomach Protection Capsules, Shining Probiotics Protein Powder and other products accounted for 16.3% of total sales during the quarter, up from a combined 4.0% a year ago. Sales of bulk additives to commercial customers totaled $1.4 million, or 12.2% of sales, during the second quarter of 2009, up from $1.0 million, or 8.8% of sales, during the fiscal first quarter. There were no bulk additives sales in the second quarter the prior year.
"We are delighted to see continued revenue growth in the second quarter, as we benefited from strong volume and price increases in our retail business and increased demand from our existing bulk additives customers," said Mr. Jinan Song, Chairman and Chief Executive Officer of China-Biotics. "Our Shining retail outlet expansion resulted in an additional 27 openings during the quarter and should result in increased profits during the second half of the fiscal year. As we prepare for the completion of our new manufacturing facility, we are carefully balancing existing production capacity between our retail expansion and bulk additive business development. We signed one new bulk customer during the second quarter, and we remain in negotiations with more than 100 potential business clients."
Gross profit during the quarter increased 43.1% to $8.0 million from $5.6 million in the second quarter the prior year. Gross margin was 69.9%, compared to 71.8% a year ago. This was primarily caused by an increase in the price of electricity used to run the Company's manufacturing facility and an increase in the cost of packaging materials, including pulp and paper costs.
Selling expenses increased to $2.8 million, or 24.5% of sales, from $1.6 million, or 20.0% of sales, in the second quarter a year ago, as the Company significantly increased the number of retail outlets. General and administrative expenses increased to $1.4 million, or 12.5% of sales, from $1.1 million, or 13.9% of sales, in the second quarter of fiscal 2008. The increase was primarily related to $0.3 million of additional research costs to develop and launch new products and staff and administrative costs incurred in connection with the construction of the new manufacturing facility. As of September 30, 2008, the Company had 339 employees and operated 110 Shining-branded retail outlets, up from 266 employees and 22 Shining outlets on September 30, 2007.
Operating expenses during the quarter were $4.3 million, or 37.0% of sales, compared to $2.6 million, or 33.9% of sales, a year ago.
Operating income for the quarter was $3.8 million, compared to $3.0 million a year ago.
Other income of $2.0 million in the second quarter of 2009 consisted of a $1.9 million book gain related to the change in the fair value of the $25 million convertible notes issued in December 2007.
Net income for the second quarter was $4.5 million. Excluding the $1.9 million gain on the revaluation of the convertible notes, net income was $2.6 million, up 30.4% from $2.0 million during the same quarter a year ago.
Diluted earnings per share were $0.13, calculated on a weighted average basis, compared with $0.11 per diluted share in the second quarter of fiscal 2008. The calculation of diluted earnings per share for the second quarter of 2009 assumes full conversion of the convertible notes and thus excludes the gain from the change in fair value of the notes.
Six Month Results
Net sales for the first six months of fiscal 2009 were $22.9 million, up 31.9% from $17.3 million in the same period the prior year. Gross profit was $16.1 million, or 70.6% of sales, up 29.4% from gross profit of $12.5 million, or 72.0% of sales, in the first half of fiscal 2008. Operating income was $8.1 million, or 35.4% of sales, up 5.1% from operating income of $7.7 million, or 44.4% of sales, the prior year. Net income for the first six months of fiscal 2009 was $7.7 million, or $0.37 per diluted share, up from $5.5 million, or $0.32 per diluted share, in the same period of fiscal 2008.
Financial Condition
As of September 30, 2008, the Company had cash and cash equivalents of $65.6 million and working capital of $49.2 million. We were able to slightly increase our cash balance despite having $11.7 million of capital expenditures during the first six months of 2009. Days' sales outstanding for the second quarter of the 2009 fiscal year was 85 days. At September 30, 2008, the Company had stockholders' equity of $53.1 million.
In the first six months of 2009, China-Biotics generated $12.7 million in cash flow from operations and recorded $11.7 million in capital expenditures mainly related to the construction of its new $27.5 million manufacturing facility, $25 million of which is to be paid by the end of the third quarter of fiscal 2009. The remaining balance is expected to be paid during fiscal 2010. The Company believes its current cash balance, combined with cash flow from operations, will be sufficient to fund its planned expenditures during the next 12 months.
Business Outlook
The Company's new bulk additives production facility remains scheduled to begin production during the fiscal third quarter. As of September 30, 2008, China-Biotics had signed contracts with five business customers to supply those customers with bulk probiotics in powder form that can be added to products such as milk, ice cream, yogurt, baked goods and nutritional supplements. The Company was in discussions with more than 100 other potential customers in that segment in preparation for the plant coming online at the end of this calendar year.
With limited capacity in its existing production facility, management believes it is prudent to proceed with the retail outlet expansion at a measured pace, which will enable the Company to focus on the completion of the new manufacturing facility and signing on customers to fill production capacity once the new facility becomes operational. As a result, the Company's plan to open a total of 300 Shining retail outlets is expected to be completed in the 2010 fiscal year.
"As we look to the second half of the year, we continue to make great progress in our retail expansion strategy, and we expect that our new manufacturing facility will come online during the fiscal third quarter," Mr. Song said. "We now have 22 Shining outlets that have been open at least one year, and all of these have demonstrated very strong growth year-over-year. As we accelerate our rollout of Shining outlets, we expect a significant increase in selling expenses. However, sales from existing outlets should help to offset increased expenses, as 60% of our retail sales typically occur during the second half of our fiscal year. The bulk additive business should continue to expand, as our new facility becomes operational and we are able to take on additional orders."
Recent Events
In October 2008, the Company announced it was approved to list shares of its common stock on the Nasdaq Global market. Shares began trading on Nasdaq on October 23 under the symbol "CHBT."
Also in October 2008, the Company announced that it has engaged the Shanghai office of KPMG Advisory (China) Limited to assist the Company in complying with the financial reporting and controls requirements of Sarbanes-Oxley Act Section 404 ("SOX 404"). KPMG Shanghai's engagement is designed to assist China-Biotics as it complies with SOX 404, which requires the Company and its external auditor to report on the adequacy of the Company's internal financial reporting and controls systems after documenting and testing financial reporting and control procedures.
Conference Call
The company will host a conference call at 9:00 a.m. EST on, Tuesday, November 11, 2008, to discuss its financial results for the fiscal second quarter ended September 30, 2008. To participate in the event by telephone, please dial 888-241-0558 five to 10 minutes prior to the start time (to allow time for registration) and reference passcode 71784337. International callers should dial 647-427-3417. The conference call will be broadcast live over the Internet and can be accessed by all interested parties atthe 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 Tuesday, November 11, at approximately 11:00 a.m. EST through Tuesday, November 18, at midnight EST. Dial 800-677-6425 and enter the conference ID number 71784337. International callers should dial 402-220-1449 and enter the same conference ID number.
Use of Non-GAAP Financial Information
GAAP results for the second quarter ended September 30, 2008, include a non-cash gain 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 non-GAAP financial information excluding the impact of this item, which is non-GAAP net income, in this release. The Company's management believes that this non-GAAP measure provides 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 table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About China-Biotics, Inc.
China-Biotics, Inc. ("China-Biotics," "the Company"), 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. China-Biotics plans to launch 300 Shining brand retail outlets in major cities in China. 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: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to market existing and new products, ability to access to capital for expansion, and changes from anticipated levels of sales, future national or regional economic and competitive conditions, market acceptance of its retail store concept, changes in relationships with customers, dependence on its flagship product profits and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
--FINANCIAL TABLES FOLLOW--
CHINA-BIOTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts expressed in US Dollars)
September 30, March 31,
2008 2008
ASSETS (unaudited)
Current assets
Cash and cash equivalents $65,633,495 $64,310,448
Accounts receivable 10,447,251 13,214,531
Other receivables 243,497 238,835
Inventories 765,640 408,358
Prepayment 1,828,612 1,806,605
Total current assets $78,918,495 $79,978,777
Property, plant and equipment
and land use right 27,309,641 13,812,749
Total assets $106,228,136 $93,791,526
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $3,448,485 $2,786,180
Tax payables 24,094,685 22,317,982
Other payables and accruals 2,127,050 1,792,156
Total current liabilities $29,670,220 $26,896,318
Non-current liabilities
Convertible note, with embedded
derivatives of $5,087,000, net
of discount of $7,341,762 as of
September 30, 2008 $22,745,238 $22,197,635
Interest payable 740,628 302,306
Total non-current liabilities $23,485,866 $22,499,941
Commitments and contingencies
Stockholders' equity:
Common stock (par value of $0.0001,
100,000,000 shares authorized,
41,461,004 shares issued and
outstanding as of September 30, 2008) $4,146 $4,146
Additional paid-in capital 7,863,031 7,863,031
Retained earnings 37,536,014 29,827,144
Treasury stock at cost
(24,381,004 shares) (2,438) (2,438)
Accumulated other comprehensive
income 4,645,503 3,677,590
Capital and statutory reserves 3,025,794 3,025,794
Total stockholders' equity $53,072,050 $44,395,267
Total liabilities and stockholders'
equity $106,228,136 $93,791,526
CHINA-BIOTICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts expressed in U.S. Dollars)
Three months ended Six months ended
September 30, September 30,
2008 2007 2008 2007
Net sales $11,495,249 $7,820,163 $22,865,906 $17,335,496
Cost of sales (3,462,853) (2,205,623) (6,721,522) (4,856,595)
Gross profit $8,032,396 $5,614,540 $16,144,384 $12,478,901
Operating expenses:
Selling expenses $(2,813,563) $(1,561,936) $(5,183,422) $(2,878,280)
General and
administrative
expenses (1,438,137) (1,087,053) (2,864,933) (1,896,617)
Total operating
expenses $(4,251,700) $(2,648,989) $(8,048,355) $(4,774,897)
Income from operations $3,780,696 $2,965,551 $8,096,029 $7,704,004
Other income and
expenses:
Changes in the fair
value of embedded
derivatives $1,904,000 $-- $665,000 $--
Other income 157,468 282 1,862,988 71,942
Other expenses (50,947) (13,011) (217,579) (19,935)
Total other income
(expenses) $2,010,521 $(12,729) $2,310,409 $52,007
Income before taxes $5,791,217 $2,952,822 $10,406,438 $7,756,011
Provision for income
taxes (1,319,097) (982,689) (2,697,568) (2,245,645)
Net income $4,472,120 $1,970,133 $7,708,870 $5,510,366
Earnings per share:
Basic $0.26 $0.11 $0.45 $0.32
Diluted $0.13 $0.11 $0.37 $0.32
Weighted average
shares outstanding:
Basic 17,080,000 17,080,000 17,080,000 17,080,000
Diluted 19,163,333 17,080,000 19,163,333 17,080,000
CHINA-BIOTICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts expressed in US Dollars)
Six months ended
September 30,
2008 2007
CASH FLOW FROM OPERATING ACTIVITIES
Net income $7,708,870 $5,510,366
Adjustment for:
Changes in the fair value of embedded
derivatives (665,000) --
Depreciation 863,740 349,111
(Increase)/Decrease in accounts
receivable 3,044,946 5,992,036
(Increase)/Decrease in inventories (344,093) (383,380)
(Increase)/Decrease in prepayments 19,822 (1,693,248)
Increase/(Decrease) in accounts
payable 586,894 239,274
Increase/(Decrease) in income tax,
surcharge tax and dividends
withholding tax 1,249,548 828,172
Increase/(Decrease) in other payables
and accruals, and value added tax
payable 205,230 348,841
NET CASH PROVIDED BY OPERATING
ACTIVITIES $12,669,957 $11,191,172
CASH FLOWS USED IN INVESTING
ACTIVITIES
Purchases of fixed assets $(11,662,222) $(4,027,160)
CASH FLOWS FROM FINANCING ACTIVITIES
Interest paid $(556,164) $--
Effect of exchange rate changes on
cash $871,476 $1,065,937
NET INCREASE IN CASH AND CASH
EQUIVALENTS BALANCES $1,323,047 $8,229,949
CASH AND CASH EQUIVALENTS BALANCES AT
BEGINNING OF PERIOD 64,310,448 26,992,025
CASH AND CASH EQUIVALENTS BALANCES AT
END OF PERIOD $65,633,495 $35,221,974
CHINA-BIOTICS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL DATA
Three months Three months
ended ended
September 30, September 30,
Non-GAAP Net income 2008 2007
Net Income (Loss) $2,568,120 $1,970,133
Adjustments
Non-cash gain from change in fair
value of embedded derivatives 1,904,000 --
Amount per consolidated statement of
operations $4,472,120 $1,970,133
Six months Three months
ended ended
September 30, September 30,
Non-GAAP Net income 2008 2007
Net Income (Loss) $7,043,870 $5,510,366
Adjustments
Non-cash gain from change in fair
value of embedded derivatives 665,000 --
Amount per consolidated statement of
operations $7,708,870 $5,510,366
For more information, please contact:
CCG Investor Relations
Crocker Coulson, President
Tel: +1-646-213-1915 (New York)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
