Spring Pharmaceutical Group Inc. Reports Financial Results for the Three and Six Months Ended September 30, 2018

JINING, China, Nov. 13, 2018 /PRNewswire/ -- Spring Pharmaceutical Group, Inc. (OTCQB: CYIG) (the "Company") today announced its financial results for the three and six months ended September 30, 2018.

Three Months Ended September 30, 2018 Financials and Recent Highlights

• Total revenues increased by 34.7% to $18.68 million with growth in sales across all three product categories. Sales of acer truncatum seed oil were particularly strong, increasing by 215.2% to $4.70 million and accounted for 25.2% of total revenues.
• Overall gross margin increased by 6.7% to 43.2%, as a result of increased contribution from the higher margin acer truncatum seed oil and decreased raw material, packaging and manufacturing costs.
• Net income attributable to the Company was $4.08 million, or $0.14 per share, compared to $2.24 million, or $0.08 per share, for the same period of the prior fiscal year.
• On October 8, 2018, the Company held its Annual Meeting of Stockholders (the "AGM") at our headquarter in Sishui County, China.
• On August 31, 2018, the Company changed its name to "Spring Pharmaceutical Group, Inc." from "China YCT Pharmaceutical Group, Inc." as part of its plan to rebrand the Company. The Company's ticker symbol, "CYIG", remains unchanged.

"We are pleased to report strong results that exceeded our expectations for the fiscal second quarter ended September 30, 2018. With revenues and net income attributable to the Company increasing by 34.7% and 82.4%, respectively, during our second quarter, thanks to growth across all three product categories as well as significant improvement in margins, we believe that our fiscal second quarter results highlight continuing strength in our business," said Mr. Tinghe Yan, Chairman and Chief Executive Officer of the Company.

"We are also making progress with our strategic plan and initiatives for fiscal year 2019 that include the change of our company's name in August to "Spring Pharmaceutical Group, Inc." ; and the successful convening in October of the first Annual Meeting of Stockholders  in our history as a public company that attracted over 85 attendees.. We are optimistic about the prospect of our business and are committed to delivering consistent, profitable growth to return our investors," concluded Mr. Yan.

Three Months Ended September 30, 2018 Financial Results

Revenues

For the three months ended September 30, 2018, total revenues increased by $4.82 million, or 34.7%, to $18.68 million from $13.87 million for the same period of the prior fiscal year. The increase in total revenues was across the all three product categories with sales for acer truncatum seed oil was particularly strong. The increase in revenues in RMB was 38.7% which was partially offset by the RMB depreciation versus USD during the three months ended September 30, 2018.

Revenues from health care products increased by $1.40 million, or 25.3%, to $6.92 million for the three months ended September 30, 2018 from $5.52 million for the same period of the prior fiscal year. The increase in sales of the health care products was primarily due to the expansion of our customer base and the increase in online direct sales. 

Revenues from Huoliyuan capsules increased by $0.21 million, or 3.1%, to $7.07 million for the three months ended September 30, 2018 from $6.86 million for the same period of the prior fiscal year. The increase in sales of Huoliyuan capsules was primarily due to the stabilization of market competition.

Revenues from acer truncatum seed oil increased by $3.21 million, or 215.2%, to $4.70 million for the three months ended September 30, 2018 from $1.49 million for the same period of the prior fiscal year. The increase in sales of acer truncatum seed oil was primarily due to the continuing promotions of acer truncatum seed oil at conferences highlighting features and benefits of the product to our distributors and customers. Since July 2015, the Company has produced and sold acer truncatum seed oil extracted from the acer truncatum pods purchased from third party vendors. We expect that approximately 10% of our self-grown acer truncatum pods will be ready for use in production during the last quarter of 2018, and the rest of the self-grown acer truncatum pods will be gradually ready for use in production during the next two to three years depending upon the timing of their harvest.

The sales of health care products, Huoliyuan capsules, and acer truncatum seed oil accounted for 37.0%, 37.8%, and 25.2%, respectively, of total revenues for the three months ended September 30, 2018, compared to 39.8%, 49.4%, and 10.8%, respectively, for the same period of the prior fiscal year.

The following table summarizes revenues and gross profit by products for the three months ended September 30, 2018 and 2017, respectively:

Cost of Goods Sold

Cost of goods sold comprised primarily the cost of finished goods purchased from Shandong Yongchuntang, raw materials purchased from third party vendors, and the manufacturing cost of acer truncatum seed oil and Huoliyuan capsules. For the three months ended September 30, 2018, total cost of goods sold increased by $1.81 million, or 20.5%, to $10.62 million from $8.81 million for the same period of the prior fiscal year. As a percentage of revenues, total cost of goods sold was 56.8% for the three months ended September 30, 2018, compared to 63.5% for the same period of the prior fiscal year. The decrease was primarily due to the decreased raw material, packaging and manufacturing costs for acer truncatum seed oil.

Cost of goods sold for health care products, Huoliyuan capsules, and acer truncatum seed oil were $3.85 million, $4.94 million and $1.83 million, respectively for the three months ended September 30, 2018, compared to $3.06 million, $4.89 million, and $0.86 million, respectively, for the same period of the prior fiscal year.

Gross Profit

Gross profit increased by $3.01 million, or 59.5%, to $8.07 million for the three months ended September 30, 2018, from $5.06 million for the same period of the prior fiscal year. Gross profit for health care products, Huoliyuan capsules, and acer truncatum seed oil were $3.07 million, $2.13 million, and $2.87 million, respectively, for the three months ended September 30, 2018, compared to $2.46 million, $1.97 million, and $0.63 million, respectively, for the same period of the prior fiscal year.

Overall gross margin was 43.2%, with gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil being 44.3%, 30.2%, and 61.0%, respectively, for the three months ended September 30, 2018. Overall gross margin was 36.5%, and gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil were 44.5%, 28.7%, and 42.1%, respectively, for the same period of the prior fiscal year. The increase in overall gross margin was mainly due to the increased contribution from the higher margin acer truncatum seed oil.

Operating Expenses

Selling expenses consist primarily of sales commissions, advertising and promotion, freight charges, and related compensation. For the three months ended September 30, 2018, selling expenses increased by $0.23 million, or 21.3%, to $1.31 million, from $1.08 million for the same period of the prior fiscal year. The increase in selling expenses was primarily due to the increases in shipping cost and sales commission from increased sales and salary expense.

General and administrative expenses increased by $0.24 million, or 28.0%, to $1.11 million for the three months ended September 30, 2018 from $0.87 million for the same period of the prior fiscal year. The increase in general and administrative expenses was primarily due to the costs associated with our  efforts to up-list our common stock to the Nasdaq Capital Market.

Research and development expenses were $0.07 million for the three months ended September 30, 2018, compared to $0.06 million for the same period of the prior fiscal year. Our long-term goal is to utilize advanced biological technology to refine and extract the beneficial compounds in plants that have traditionally been known to have medicinal benefits, primarily gingko and acer truncatum bunge plants. As of September 30, 2018, the Company had a staff of 27 in its R&D department.

As a result of the foregoing, total operating expenses increased by $0.48 million, or 23.8%, to $2.49 million for the three months ended September 30, 2018, from $2.01 million for the same period of the prior fiscal year.

Operating Income

Total operating income increased by $2.53 million, or 83.1%, to $5.57 million for the three months ended September 30, 2018, from $3.04 million for the same period of the prior fiscal year. The increase in total operating income was mainly a result of increased gross profit, partially offset by increased operating expenses. Operating margin was 29.8% for the three months ended September 30, 2018, compared to 21.9% for the same period of the prior fiscal year.

Income before Income Taxes

Interest income was $34,972 for the three months ended September 30, 2018, compared to $31,199 for the same period of the prior fiscal year.

Income before income tax provisions increased by $2.53 million, or 82.4%, to $5.61 million for the three months ended September 30, 2018, from $3.07 million for the same period of the prior fiscal year.

Net Income

Provision for income tax increased by $0.63 million, or 82.4%, to $1.40 million for the three months ended September 30, 2018, from $0.77 million for the same period of the prior fiscal year.

Net income increased by $1.90 million, or 82.4%, to $4.21 million for the three months ended September 30, 2018, from $2.31 million for the same period of the prior fiscal year.

After the deduction of non-controlling interest, net income attributable to the Company was $4.08 million, or $0.14 per basic and diluted share for the three months ended September 30, 2018, compared to $2.24 million, or $0.08 per basic and diluted share, for the same period of the prior fiscal year.

Six Months Ended September 30, 2018 Financial Results

• Total revenues increased by 27.7% to $39.57 million with growth in sales across all three product categories. Sales of acer truncatum seed oil were particularly strong, increasing by 126.8% to $9.95 million and accounted for 25.1% of total revenues.
• Overall gross margin increased by 4.5% to 42.9%, benefitting from increased contribution from the higher margin acer truncatum seed oil and decreases in raw material, packaging and manufacturing costs.
• Net income attributable to the Company was $8.57 million, or $0.29 per share, compared to $6.05 million, or $0.20 per share, for the same period of the prior fiscal year.

Revenues

For the six months ended September 30, 2018, total revenues increased by $8.57 million, or 27.7%, to $39.57 million from $31.00 million for the same period of the prior fiscal year. The increase in total revenues was across the all three product categories with sales for acer truncatum seed oil particularly strong. The increase in revenues in RMB was 24.6%. RMB appreciation versus USD contributed to 3.1% of the increase in revenues for the six months ended September 30, 2018.

Revenues from health care products increased by $1.56 million, or 11.7%, to $14.93 million for the six months ended September 30, 2018 from $13.36 million for the same period of the prior fiscal year. The increase in sales of the health care products was primarily due to the expansion of our customer base and the increase in online direct sales. 

Revenues from Huoliyuan capsules increased by $1.45 million, or 10.9%, to $14.70 million for the six months ended September 30, 2018 from $13.25 million for the same period of the prior fiscal year. The increase in sales of Huoliyuan capsules was primarily due to the stabilization of market competition.

Revenues from acer truncatum seed oil increased by $5.56 million, or 126.8%, to $9.95 million for the six months ended September 30, 2018 from $4.39 million for the same period of the prior fiscal year. The increase in sales of acer truncatum seed oil was primarily due to the continuing promotions of acer truncatum seed oil at conferences highlighting features and benefits of the product to our distributors and customers. Since July 2015, the Company has produced and sold acer truncatum seed oil extracted from the acer truncatum pods purchased from third party vendors. We expect that approximately 10% of our self-grown acer truncatum pods will be ready for use in production during the last quarter of 2018, and the rest of the self-grown acer truncatum pods will be gradually ready for use in production during the next two to three years depending upon the timing of their harvest.

The sales of health care products, Huoliyuan capsules, and acer truncatum seed oil accounted for 37.7%, 37.1%, and 25.1%, respectively, of total revenues for the six months ended September 30, 2018, compared to 43.1%, 42.7%, and 14.1%, respectively, for the same period of the prior fiscal year.

The following table summarizes revenues and gross profit by products for the six months ended September 30, 2018 and 2017, respectively:

Cost of Goods Sold

Cost of goods sold was comprised primarily of the cost of finished goods purchased from Shandong Yongchuntang, raw materials purchased from third party vendors, and the manufacturing cost of acer truncatum seed oil and Huoliyuan capsules. For the six months ended September 30, 2018, total cost of goods sold increased by $3.49 million, or 18.3%, to $22.58 million from $19.10 million for the same period of the prior fiscal year. As a percentage of revenues, total cost of goods sold was 57.1% for the six months ended September 30, 2018, compared to 61.6% for the same period of the prior fiscal year. The decrease was primarily due to the decreased raw material, packaging and manufacturing costs for acer truncatum seed oil.

Cost of goods sold for health care products, Huoliyuan capsules, and acer truncatum seed oil were $8.31 million, $10.37 million and $3.91 million, respectively for the six months ended September 30, 2018, compared to $7.40 million, $9.23 million, and $2.47 million, respectively, for the same period of the prior fiscal year.

Gross Profit

Gross profit increased by $5.09 million, or 42.7%, to $16.99 million for the six months ended September 30, 2018, from $11.90 million for the same period of the prior fiscal year. Gross profit for health care products, Huoliyuan capsules, and acer truncatum seed oil were $6.62 million, $4.32 million, and $6.04 million, respectively, for the six months ended September 30, 2018, compared to $5.96 million, $4.02 million, and $1.92 million, respectively, for the same period of the prior fiscal year.

Overall gross margin was 42.9%, with gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil being 44.4%, 29.4%, and 60.7%, respectively, for the six months ended September 30, 2018. Overall gross margin was 38.4%, and gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil were 44.6%, 30.4%, and 43.7%, respectively, for the same period of the prior fiscal year. The increase in overall gross margin was mainly due to the increased contribution from the higher margin on acer truncatum seed oil.

Operating Expenses

Selling expenses consist primarily of sales commissions, advertising and promotion, freight charges, and related compensation. For the six months ended September 30, 2018, selling expenses increased by $0.39 million, or 16.7%, to $2.70 million, from $2.32 million for the same period of the prior fiscal year. The increase in selling expenses was primarily due to the increases in shipping cost and sales commission from increased sales and salary expense.

General and administrative expenses increased by $0.42 million, or 23.4%, to $2.19 million for the six months ended September 30, 2018 from $1.78 million for the same period of the prior fiscal year. The increase in general and administrative expenses was primarily due to the costs associated with our efforts to up-list our common stock to the Nasdaq Capital Market.

Research and development expenses were $0.39 million for the six months ended September 30, 2018, compared to $0.13 million for the same period of the prior fiscal year. The increase in research and development expenses was mainly due to the increased cost of the materials used by the R&D department. As of September 30, 2018, the Company had a staff of 27 in its R&D department.

As a result, total operating expenses increased by $1.07 million, or 25.3%, to $5.29 million for the six months ended September 30, 2018, from $4.22 million for the same period of the prior fiscal year.

Operating Income

Total operating income increased by $4.02 million, or 52.3%, to $11.70 million for the six months ended September 30, 2018, from $7.68 million for the same period of the prior fiscal year. The increase in total operating income was mainly a result of increased gross profit, partially offset by increased operating expenses. Operating margin was 29.6% for the six months ended September 30, 2018, compared to 24.8% for the same period of the prior fiscal year.

Income before Income Taxes

Interest income was $75,045 for the six months ended September 30, 2018, compared to $56,302 for the same period of the prior fiscal year.  The Company also booked gain on disposal of acer truncatum bunge plants of $0.57 million for the six months ended September 30, 2018.

Income before income tax provisions increased by $3.47 million, or 41.7%, to $11.78 million for the six months ended September 30, 2018, from $8.31 million for the same period of the prior fiscal year.

Net Income

Provision for income tax increased by $0.87 million, or 41.7%, to $2.94 million for the six months ended September 30, 2018, from $2.08 million for the same period of the prior fiscal year.

Net income increased by $2.60 million, or 41.7%, to $8.83 million for the six months ended September 30, 2018, from $6.23 million for the same period of the prior fiscal year.

After the deduction of non-controlling interest, net income attributable to the Company was $8.57 million, or $0.29 per basic and diluted share for the six months ended September 30, 2018, compared to $6.05 million, or $0.20 per basic and diluted share, for the same period of the prior fiscal year.

Liquidity and Capital Resources

As of September 30, 2018, the Company had cash and cash equivalents of $31.95 million, and inventories of $1.95 million, compared to $25.35 million, and $2.38 million, respectively, as of March 31, 2018. Total working capital was $33.96 million as of September 30, 2018, compared to $28.08 million as of March 31, 2018.

Net cash provided by operating activities was $9.94 million for the six months ended September 30, 2018, compared to $10.74 million for the same period of the prior fiscal year. Net cash used in investing activities was $0.78 million for the six months ended September 30, 2018, compared to $2.42 million for the same period of the prior fiscal year. Net cash provided by financing activities was $nil for the six months ended September 30, 2018 and 2017, respectively. 

About Spring Pharmaceutical Group, Inc.

Based in Jining, Shandong Province and founded in January 1989, Spring Pharmaceutical Group, Inc., through its subsidiaries, engages in the business of (i) distributing health care supplement products manufactured by Shandong Yongchuntang Group Co., Ltd. in the PRC, (ii) developing, manufacturing, and selling Huoliyuan capsules, a prescription medicine, (iii) developing acer truncatum bunge planting bases, and manufacturing and selling acer truncatum bunge seed oil in the PRC. Acer truncatum bunge plants are a species of maple tree. For more information about the Company, please visit http://www.yctgroup.com/.

Forward-Looking Statements

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulations, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company, are expressly qualified by this cautionary statement and any other cautionary statements which may accompany the forward-looking statements. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

For more information, please contact:

At the Company:

Zecheng Shao, Vice President
Phone: +86-156-5377-2006
Email: zc_shao@126.com

Investor Relations:

Tony Tian, CFA
Weitian Group LLC
Phone: +1-732-910-9692
Email: ttian@weitianco.com

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