Shanghai, China, Aug. 14 - China-Biotics Inc., a leading Chinese firm specializing in the manufacture, research, development, marketing and distribution of probiotics products, today announced its financial results for the first quarter of its 2009 fiscal year, ended June 30, 2008.
First Quarter 2009 Highlights
-- Net sales increased 19.5% year-over-year to $11.4 million
-- Gross profit increased 18.2% year-over-year to $8.1 million
-- Gross margin was 71.3%, up from 66.3% in the fourth quarter of 2008
-- Net income was $3.2 million
-- Excluding a $1.2 million loss related to the change in fair value of convertible notes, net income increased 26.4% year-over-year to $4.5 million, or $0.23 per diluted share
-- Added 23 retail outlets during the quarter, bringing the total number of outlets to 83 in nine cities in China
-- Signed agreement with a subsidiary of Holiland Enterprise Investment Management Co., Ltd. (''Holiland'') to supply probiotics for Holiland's bakery products
-- Signed agreement with Jiangxi Lijia Pharmaceutical Co., Ltd. ("Lijia") to supply probiotics for Lijia's probiotics-based dietary supplements in both powder and tablet forms
-- Established three board committees in preparation for future stock exchange listing
-- Filed application for listing approval on the Nasdaq Global Market
First Quarter 2009 Results
During the first quarter of the 2009 fiscal year, net sales increased 19.5% to $11.4 million from $9.5 million the prior year. The increase primarily resulted from growth in the sales volume of new products and increases in the sales price of selected products. These new products, including Shining Essence Stomach Protection Capsules and Shining Probiotics Protein Powder, accounted for 16.6% of total sales during the quarter, up from 5.0% a year ago. Sales of bulk additives to commercial customers totaled $1.0 million, or 8.8% of sales, during the first quarter of 2009, contributing meaningful sales for the first time.
''We are pleased with this strong beginning to the 2009 fiscal year, and we are confident in our retail expansion and bulk additive business development strategies,'' said Mr. Jinan Song, Chairman and Chief Executive Officer of China-Biotics.
"We have accelerated the pace of new customer acquisition for our additive business in preparation for launching our new plant. Currently, we are in negotiations with another 50 potential business clients. Of these, 30 have begun or completed sample testing for their probiotics-based products. We look forward to increasing the number of business customers in order to occupy the capacity of our new plant when it is up and running.''
Gross profit during the first quarter increased 18.2% to $8.1 million from $6.9 million in the first quarter of 2008. Gross margin was 71.3%, down slightly from 72.1% a year ago. Gross margin improved sequentially 5 percentage points from 66.3% in the fourth quarter of 2008, as the Company was able to increase prices on selected products.
Operating expenses increased to $3.8 million from $2.1 million in the first quarter of fiscal 2008. The increase was attributed to setup and operations costs for new retail outlets; increased salary expense stemming from new hires to support the Company's expansion; and additional research costs associated with the development and launch of new products. As of June 30, 2008, the Company had 339 employees and operated 83 Shining-branded retail outlets, up from 208 employees and 14 Shining outlets on June 30, 2007.
Operating income for the quarter was $4.3 million, compared to $4.7 million a year ago.
Other expense of $1.2 million in the first quarter of 2009 consisted of a $1.2 million book loss recorded in the first quarter of 2009 related to the change in the fair value of the $25 million convertible notes issued in December 2007.
Net income for the first quarter of the 2009 fiscal year was $3.2 million. Excluding the $1.2 million loss on the revaluation of the convertible notes, net income was $4.5 million, up from $3.5 million in the same quarter of the prior year.
Diluted earnings per share were $0.23 calculated on a weighted average basis, compared with $0.21 per diluted share in the first quarter of fiscal 2008. The calculation of diluted earnings per share for the first quarter of 2008 assumes full conversion of the convertible notes and thus excludes the loss from the change in fair value of the notes.
Financial Condition
As of June 30, 2008, the Company had cash and cash equivalents of $66.2 million and working capital of $50.7 million. The increase in cash resulted in part from the private placement of $25 million of the Company's convertible notes in December 2007. In the first quarter of 2009, China-Biotics generated $8.3 million in cash flow from operations and recorded $7.2 million in capital expenditures related to the construction of the new manufacturing facility. Accounts receivable declined to $10.7 million from $13.2 million on March 31, 2008, and days' sales outstanding for the first quarter of 2009 was 96 days. At June 30, 2008, the Company had stockholders' equity of $48.5 million.
Business Outlook
The Company's new bulk additives production facility remains scheduled to begin production in the Company's fiscal third quarter. As of June 30, 2008, China-Biotics had signed contracts with four business customers to supply those customers with bulk probiotics in powder form that can beadded to products such as milk, ice cream, yogurt, baked goods and nutritional supplements.
The Company's retail strategy is also on schedule, with 83 Shining retail outlets open as of June 30, 2008, in Shanghai and eight other cities in China. Management continues to work toward its goal of operating 300 Shining outlets by the end of the Company's 2009 fiscal year.
'As our retail and bulk additives businesses continue to expand, we are managing our capacity utilization carefully to strike a balance between achieving current and future sales growth,'' Mr. Song said. ''We are pleased that we were able to begin achieving meaningful sales of our bulk additives to commercial customers. We are also working on rolling out new retail outlets as quickly as we can. Those outlets already open more than one year have demonstrated tremendous year-over-year sales growth, and we believe that, in time, the retail strategy will contribute significantly to our growth. Meanwhile, construction of our new bulk additives facility ison schedule, and we continue working to add new customers in that segment in preparation for the plant coming online at the end of this calendar year.''
Recent Events
On July 9, 2008, Dr. Shuguang Fang, China-Biotics' Chief Technology Officer, was the guest speaker at China's 3rd Annual Food Safety Technology Forum 2008. Dr. Fang spoke on the importance of probiotics safety in dairy products.
Also in July 2008, China-Biotics announced the appointment of American Stock Transfer & Trust Company as its new transfer agent and registrar, effective August 15, 2008. AST, headquartered in New York City, replaces the Company's former transfer agent and registrar, American Registrar & Transfer Company.
On July 18, 2008, the Company announced it has applied for listing approval on the Nasdaq Global Market. The application is subject to review by Nasdaq's Listing Qualifications Department for compliance with all
Nasdaq Global Market requirements. The Company's common stock will continue to trade on the OTC Bulletin Board under its current symbol, CHBT, until the Company is notified of its acceptance, which it hopes to receive within two to three months.