China-Biotics fourth-quarter revenues up 64.4% to $25.5 million

China-Biotics, Inc. (Nasdaq: CHBT) ("China-Biotics" or "the Company"), a leading developer, manufacturer and distributor of probiotics products in China, today reported its financial results for the fourth quarter and the fiscal year ended March 31, 2010.

4Q10 Financial Highlights -- Revenues were a quarterly record $25.5 million for a 64.4% year-over-year increase; -- Gross margin was 69.4% versus 68.5% in 4Q09; -- Excluding the non-cash losses from change in fair value of convertible bonds, non-GAAP net income for Q4 was $8.8 million, or non-GAAP diluted EPS $0.36; -- GAAP net income was $2.9 million, or $0.13 per diluted share; -- Cash and cash equivalents were $155.6 million. Fiscal Year 2010 Highlights -- Annual net revenue increased 50% year-over-year to an annual record $81.4 million; -- Gross margin was 70.4%; -- Operating income rose 62% to $35.3 million from $21.8 million in 2009; -- Excluding the non-cash losses from changes in fair value of convertible bonds, non-GAAP net income for the fiscal year 2010 was $27.8 million, or non-GAAP diluted EPS $1.28; -- GAAP net income was $15.6 million, or $0.80 diluted per share. -- Free cash flow $14.4 million.

Mr. Jinan Song, China-Biotics' Chairman and CEO commented, "We are pleased with our fourth quarter results and delivery of annual top line growth exceeding our 50% guidance. In fiscal year 2010, our retail business continued its steady growth, as 'Shining Essence' remained one of the most popular products in the retail probiotics market while our diversifying product portfolio is attracting different customer groups. The long-term growth prospect of retail probiotics products in China is promising as more and more Chinese become aware of the benefit of probiotics to enhance their health condition. Therefore, our current business lines continued to generate record growth momentum.

"More excitingly, our new bulk additive line quickly expanded to account for 26.8% of annual revenue in fiscal year 2010, an increase from 8.3% in fiscal year 2009. We expect the application of bulk additive probiotics in dairy and animal feed products to grow robustly in the future. The Chinese yogurt market is quickly embracing probiotics and the market potential is large. We remain confident that the addition of the bulk franchise will become the engine to drive our growth from both near-term and long-term perspectives. We look forward to becoming the dominant provider of bulk probiotics products in China and creating our long-term shareholder value."

Fourth Quarter FY2010 Financial Results

Revenues in the fourth quarter of fiscal year 2010 increased to $25.5 million from $15.5 million in the fourth quarter of fiscal year 2009. The increase was primarily due to increased sales volume in retail and bulk additive products, and bulk additive products increasingly account for a larger share of total revenue.

Gross profit increased 66.5% to $17.7 million from $10.6 million in the same period of fiscal year 2009. Gross margin was 69.4% compared with 68.5% in the same period of fiscal year 2009. The improvement in gross margin was mainly attributable to a product mix change as bulk sales rose.

General and administrative (G&A) expenses amounted to $1.2 million, compared with $1.1 million in the previous year. The slight increase in G&A expenses were mainly due to staff and administrative costs associated with the new bulk additive plant. G&A expenses as a percentage of revenue decreased from 7.2% in the fourth quarter of fiscal year 2009 to 4.8% for the fourth quarter of fiscal year 2010.

Research and development (R&D) expenses were $1.4 million, a 52.4% increase from $0.9 million in the fourth quarter of fiscal year 2009. The increase in R&D expenses was mainly due to additional research costs related to the development and launching of new products. R&D expenses as a percentage of revenue was 5.4%, compared with 5.8% in the fourth quarter of fiscal year 2009.

Selling expenses for the fourth quarter of fiscal year 2010 were $4.3 million, compared with $3.0 million in fourth quarter in fiscal year 2009. This increase in selling expenses was primarily caused by the increase of overall sales. Selling expenses as a percentage of revenue decreased from 19.6% in the fourth quarter of fiscal year 2009 to 16.9% for the fourth quarter of fiscal year 2010.

Total operating expenses for the fourth quarter of fiscal year 2010 were $6.9 million compared with $4.9 million in the fourth quarter of fiscal year 2009. The increase was mainly due to higher selling and general and administrative expenses, as well as a large swing in Other Income from a gain to a loss due to changes in exchange values. SG&A expenses as a percentage of revenue decreased from 31.8% in the fourth quarter fiscal year 2009 to 27.1% in the fourth quarter of fiscal year 2010.

Operating income was $10.8 million compared with $5.7 million in the same period of fiscal year 2009, reflecting an 89.1% year-over-year increase.

Excluding the non-cash losses from the change in value of convertible bonds, non-GAAP net income was $8.8 million, compared with $5.6 million in the fourth quarter of fiscal year 2009. Non-GAAP diluted EPS was $0.36, compared with $0.39 in the fourth quarter of fiscal year 2009, on a greater number of shares outstanding in 2010.

GAAP net income for the fourth quarter of fiscal year 2010 was $2.9 million, compared with net income of $6.6 million in the same period of fiscal year 2009. Diluted net income per share were $0.13, compared with diluted earning per share $0.39 in the same period of 2009, on a greater number of shares outstanding.

As of March 31, 2010, the Company had cash and cash equivalents totaling $155.6 million, compared with $151.1 million at the end of December 2009, and compared with total liabilities of $76.8 million. Total stockholders' equity rose to $156.2 million at March 31, 2010, from $153.3 million at December 31, 2009.

The Company expects to complete its 10-K filing on or before June 14, 2010.

Fiscal year 2010 Results

For the fiscal year 2010, net revenue increased year-over-year by 50% to a record $81.4 million. The increase was primarily due to increased sales volume in both retail and bulk additive products, and the product mix changed as bulk additive products accounted for a larger share of total revenue.

Gross profit increased 50.8% to $57.3 million from $38.0 million in fiscal year 2009 due primarily to higher sales. Gross margin was 70.4% compared with 70.1% in fiscal year 2009.

Selling, general and administrative expenses were $18.4 million compared with $14.6 million in 2009. The increase was mainly due to the increase of overall sales as well as higher administrative costs associated with the new bulk additive production facility in Qingpu Industrial Park. Selling, general and administrative expenses as a percentage of revenue decreased from 26.9% in fiscal year 2009 to 22.6% in fiscal year 2010.

Research and development expenses were $3.7 million, representing a 13.5% increase from $3.2 million in the previous fiscal year. The Company continues to strengthen its R&D capability and plans to introduce more new products in fiscal year 2011.

Operating income in 2010 rose 62.0% to $35.3 million from $21.8 million in fiscal year 2009.

Excluding the non-cash losses from change in fair value of convertible bonds, non-GAAP net income was $27.8 million, or $1.28 earnings per share, compared with $16.9 million and $0.88 earnings per share in fiscal year 2009, on a greater number of shares outstanding in fiscal year 2010.

GAAP net income was $15.6 million, or $0.80 earnings per diluted share, compared with net income of $20.0 million, or $1.17 earnings per diluted share in fiscal year 2009, on a greater number of shares outstanding.

Free cash flow was $14.4 million compared with $6.4 million in fiscal year 2009.

Key Fiscal 2010 Milestones

In August 2009, China-Biotics' wholly owned subsidiary, Shanghai Shining Biotechnology Co., Ltd. was awarded the High-Technology Enterprise Certificate by the municipal government of Shanghai. The Company now receives a preferential income tax rate of 15% on substantially all of its operating income for the three-year period that began on January 1, 2010 versus the statutory tax rate of 25%.

In October 2009, the Company completed a public offering with net proceeds of $74.9 million, after deducting underwriting discounts, offering expenses and the exercise of over-allotment.

In February 2010, the Company's new state-of-the-art bulk additive production facility commenced commercial production in the Shanghai Qingpu Industrial Park. Its production area has a designed total capacity of 150 tons annually and a world-class fermentation workshop equipped with a sophisticated control system and customized design for its proprietary fermentation technology.

Recent Developments

In April 2010, China-Biotics received the Good Manufacturing Process ("GMP") approval from the Shanghai Food and Drug Administration ("SHFDA") for the new production facility in the Qingpu Industrial Park. The certificate is valid through March 28, 2013 and is renewable. GMP is a global quality assurance system that covers the testing and manufacturing of food, pharmaceutical products, and medical devices. GMP stipulates stringent approval guidelines on various aspects of production including approvals for both the organization and personnel based on evaluations of the factory and equipment, materials, hygiene certificates, waste and recycling, and aftersales, etc. Most developed countries legislate the use of GMP. The implementation of GMP in China has introduced a comparable level for safety and efficacy standards for pharmaceutical-related products.

In May 2010, the Ministry of Health in China announced an expanded list of probiotics. China-Biotics currently carries all of the 21 probiotics strains on the list. These probiotics strains are widely used in the Company's bulk additive products.

Outlook for the Fiscal Year 2011

For fiscal year 2011, the management is expecting net sales to be at least 50% year-over-year growth. This target is based on the Company's current views on the operating and market conditions, which are subject to change.

Mr. Jinan Song, Chairman and CEO of China-Biotics, stated, "With our established state-of-the-art facility in Shanghai and our growing capacity utilization, we believe that we are well positioned to ride the wave of rising market demand and increasing government support for probiotics. We will continue to broaden our distribution network as well as diversify our retail portfolio through launching new products. We also look forward to winning more bulk customers as we have received encouraging feedback from potential customers during the initial trial period."