China-Biotics announces financial results for third-quarter of 2010 fiscal year

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."