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"Our robust fiscal third quarter revenue and earnings growth reflect theCompany's continued expansion of our bulk and retail customer bases," said Mr.Jinan Song, Chairman and Chief Executive Officer of China-Biotics. "Commercialproduction at our Qingpu production plant is scheduled to begin by the end ofFebruary and we continue to expect to reach approximately 50% capacityutilization by the end of calendar year 2010. With rising demand from thedairy and animal feed manufacturers, and movement by the government toencourage the use of probiotics, China continues to be a very favorableenvironment to grow our bulk and retail probiotics business in 2010 andbeyond."
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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 primarilydriven by new customers in the bulk business, the opening of four new retailoutlets, an adjustment of product mix, and overall higher demand across ourproduct 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 additivescontributed 74% and 26% to total net sales, respectively, compared to 93% and7% contribution in the prior year quarter.
Gross profit for the quarter increased 47% to $16.5 million from $11.2million in the same period the prior year, primarily due to an increase inoverall 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 inoperation compared with 107 outlets as of December 31, 2008.
Operating income increased 56% to $10.1 million from $6.5 million in thethird quarter of fiscal 2009. Operating margin was 43%, compared to 41% a yearago, reflecting higher net sales and gross profit combined with loweroperating expenses as a percent of sales.
Other income in the third quarter of 2010 totaled $2.7 million, most ofwhich was a non-cash gain in the change in fair value related to the Company'sconvertible notes issued in December 2007 as required by FAS133. This compareswith a $1.4 million non-cash fair value gain in the year ago period. TheCompany expects the gain or loss associated with change in the fair value ofthese convertible notes to continue to have an impact on its GAAP net incomeuntil 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 valuegain 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 theprior year.
Diluted earnings per share were $0.32 up 45% from $0.22 per diluted sharea year ago. The calculation of diluted earnings per share for both periodsassumes full conversion of the Company's convertible notes and thus excludesthe gain of $2.7 million and $1.4 million, respectively, related to the changein fair value of the notes.
Nine Month Results
Net sales for the first nine months of the 2010 fiscal year were $55.9million, up 44% from $38.7 million in the same period the prior year. Grossprofit was $39.6 million, or 71% of sales, up 45% from gross profit of $27.4million, or 71% of sales, in the first nine months of fiscal 2009. Operatingincome was $24.5 million, or 44% of sales, an increase of 52% from $16.1million, or 42% of sales, the prior year. Adjusted net income was $19.0million for the first nine months of fiscal 2010, up 68% from $11.3 millionduring the same period last year. Including a non-cash loss of $6.2 millionrelated to change in the fair value of the convertible notes, GAAP net incomefor the first nine months of fiscal 2010 was $12.8 million, compared to $13.4million 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 monthsof fiscal 2010, China-Biotics generated $13.1 million in cash flow fromoperations. At December 31, 2009, total stockholders' equity was $153.3million.
Recent Event
On January 22, 2010, China-Biotics appointed Mr. Travis Cai as ChiefFinancial Officer to replace Ms. Eva Yan, who served as the Interim ChiefFinancial Officer. Mr. Cai brings more than 10 years of professional andcorporate 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 atA-Power Energy Generation Systems Ltd. since 2009 and was Director of Financeand 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. TheCompany's board of directors established Friday, January 8, 2010 as the recorddate for determining stockholders entitled to vote at the meeting. Managementexpects to mail the definitive proxy statement to stockholders on or aboutFriday, January 15, 2010.
The Company will attend two investor conferences next month, the Rodmanand Renshaw Annual China Investment Conference in Beijing on March 7-9, 2010,and the 22nd Annual ROTH OC Growth Stock Conference in California on March15-17, 2010.
Business Outlook
The Company is reiterating its fiscal year 2010 revenue growth guidance ofat least 50% and expects overall gross margin to remain approximately 70%.
"We will continue to seek a balance between current production capacityand sales to new customers until our new facility begins commercial production.We look forward to the continued expansion of our retail distribution networkand outlets," Mr. Song said. "Once the Qingpu facility comes online, we willhave the capacity to accommodate new orders as scheduled, which will begincontributing 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 quarterended December 31, 2009.
To participate in the event by telephone, please dial 1-877-485-3104 fiveto 10 minutes prior to the start time (to allow time for registration) andreference pass code 344080. International callers should dial +1-201-689-8579and use the same conference ID. The conference call will be broadcast liveover the Internet and can be accessed by all interested parties at theCompany's Web site, http://www.chn-biotics.com . To listen to the call on thewebsite, please visit the site at least 15 minutes prior to the start of thecall to register, download, and install any necessary audio software.
For those unable to participate during the live webcast, it will bearchived using the same link for 90 days. A digital replay of the call willalso be available on Wednesday, February 10, at approximately 9:00 p.m. ETthrough Wednesday, February 17, at midnight ET. Dial 1-877-660-6853 and enterthe 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, 2009and 2008 include non-cash gains and losses related to the change in fair valueof the Company's convertible notes. To supplement the Company's condensedconsolidated financial statements presented on a GAAP basis, the Company hasprovided adjusted financial information excluding the impact of these items inthis release, which are adjusted net income and adjusted diluted earnings pershare. The Company's management believes that these adjusted measures provideinvestors with a better understanding of how the results relate to theCompany's historical performance. A reconciliation of adjustments to GAAPresults appears in the tables accompanying this press release. This additionaladjusted information is not meant to be considered in isolation or as asubstitute for GAAP financials. The adjusted financial information that theCompany provides also may differ from the adjusted information provided byother companies.
About China-Biotics, Inc.
China-Biotics, Inc., a leading manufacturer of biotechnology products andsupplements, engages in the research, development, marketing and distributionof probiotics dietary supplements. Through its wholly owned subsidiary,Shanghai Shining Biotechnology Co., Ltd., the Company has operations inShanghai. Its proprietary product portfolio contains live microbialnutritional supplements under the "Shining" brand. Currently, the products aresold OTC through large distributors to pharmacies and supermarkets in Shanghai,Jiangsu, and Zhejiang. Currently, China-Biotics is strategically expanding itsproduction capacity of probiotics to meet growing demand in the bulk additivemarket. For more information, please visit http://www.chn-biotics.com .
Safe Harbor Statement Under the Private Securities Litigation Reform Actof 1995
The information in this release contains forward-looking statements whichinvolve risks and uncertainties, including statements regarding the Company'scapital needs, business strategy and expectations. Any statements containedherein that are not statements of historical fact may be deemed to beforward-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," thenegative of such terms or other comparable terminology. Readers should notrely 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 bewrong. They can be affected by inaccurate assumptions, risks and uncertaintiesand other factors which could cause actual events or results to be materiallydifferent 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 15and elsewhere in the Company's 2009 Annual Report on Form 10-K. These factorsmay cause the Company's actual results to differ materially from anyforward-looking statement. In addition, new factors emerge from time to timeand it is not possible for the Company to predict all factors that may causeactual results to differ materially from those contained in anyforward-looking statements. The Company disclaims any obligation to publiclyupdate any forward-looking statements to reflect events or circumstances afterthe date of this document, except as required by applicable law.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
SOURCE China-Biotics, Inc.
