China Botanic third-quarter net sales increase 33.6% to $12.4 million

China Botanic Pharmaceutical Inc. (AMEX: CBP) ("China Botanic" or the "Company"), a developer, manufacturer and distributor of botanical products, bio-pharmaceuticals and traditional Chinese medicines ("TCM") in China, today announced financial results for the three months ended July 31, 2011.

Third-Quarter 2011 Highlights and Recent Events

• Net sales increased 33.6% year-over-year to $12.4 million
• Gross profit increased 60.8% to $7.5 million from $4.6 million in the third quarter of fiscal year 2010
• Gross margin increased to 60.3% from 50.1% a year ago
• Net income rose 73.0% to $2.5 million or $0.07 per diluted share
• The Company was named "High Integrity Enterprise" by a prominent industry group at the 2nd Session of Heilongjiang Pharmaceutical Integrity Enterprise Selection Committee, which is made up of government and trade association including Heilongjiang Integrity Promotion Association, Heilongjiang Food and Drug Administration, the Heilongjiang Pharmaceutical Industry Association.

"We are pleased to report double digit revenue and net income growth in the third quarter of fiscal year 2011. Our strong growth in sales, profitability, and operating cash flow during the quarter was largely driven by increase in our average selling prices and four new products introduced in the fourth quarter of fiscal year 2010," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic.  "Our Siberian Ginseng products exhibited strong year-over-year sales growth and accounted for 50% of our total revenue in the third quarter of fiscal year 2011 compared with 44% in the same period of last year.  This reflected our continued commitment to create awareness and promote our premier product, the Siberian Ginseng Series, and it will continue to remain our top priority in the future. In addition, our four new products, namely Qing Re Jie Du Oral Liquid, Compound Schizandra Tablets, Ginseng and Venison Extract, and Badger Oil have established a strong foothold in the market and contributed nearly 19% of the quarter's total sales revenue."

Third Quarter Fiscal Year 2011 Results

During the three months ended July 31, 2011, net sales increased 33.6% to $12.4 million, from $9.3 million during the same period in 2010.  The rise was mainly attributable to year-over-year increase in average selling prices of the Company's products and the growing market acceptance of the Company's new products introduced in the fourth quarter of 2010. Sales declined compared to the first and second quarters fiscal 2011 due to seasonality.  April to August is typically the company's slowest sales period.

Gross profit increased 60.8% to $7.5 million compared to $4.6 million in the third quarter of fiscal 2010. Gross margin increased to 60.3% as compared to 50.1% in the same period of 2010. The growth in gross profit was mainly driven by price increases across all of the Company's products, somewhat mitigated by modest increases in raw material prices. The Company's new high-margin products, Qing Re Jie Du Oral Liquid, Compound Schizandra Tablets, Ginseng and Venison Extract, and Badger Oil also contributed to the gross margin growth.

Operating expenses for the third quarter of fiscal 2011 were $4.5 million, as compared to $3.2 million in the same period last year. Sales and distribution expenses rose 21.4% to $1.6 million from $1.3 million a year ago. The spending increase reflected the Company's efforts to expand its distribution network, market share, and awareness of its premium quality products. General and administrative expenses increased 212.1% to $1.2 million, primarily due to rental expenses of our Ah City Natural and Pharmaceutical Plant, accounting and attorney expenses, and amortization expenses related to exclusive land use rights of YiChun Redstar Forestry and patents. Research and development expenses were $1.7 million, up 10.3% from $1.6 million in the year ago period, reflecting the Company's continued commitment to invest into new product development and other research efforts.

Operating income in the third quarter was $3.0 million, compared to $1.4 million in the third quarter of 2010. Operating margin increased year-over-year to 24.1% from 15.5%.

The Company incurred income tax expenses $0.5 million in the third quarter of fiscal 2011, compared to no taxes paid for the third quarter of 2010, due to the 15% tax rate imposed effective January 1, 2011. For the third quarter ended July 31, 2011, net income increased 73.0% to $2.5 million, or $0.07 per diluted share, from $1.5 million, or $0.04 per diluted share for the same period a year ago.

Nine Month Results

Total revenue for the nine month period ended July 31, 2011 was $53.9 million, an increase of 40.0% from $38.5 million for the first nine months of fiscal 2010. Gross profit in the first nine months of fiscal 2011 rose 59.4% to $32.4 million, representing a gross margin of 60.2% as compared to 52.8% in the first nine months of fiscal 2010. Operating income grew 86.0% year-over-year to $22.7 million. In the first nine months of fiscal 2011, net income was $20.5 million or $0.54 per diluted share, up from $12.2 million or $0.32 per diluted share in the first nine months of fiscal 2010.

Financial Condition

As of July 31, 2011, the Company had cash and cash equivalents of approximately $38.3 million and total current assets of approximately $58.9 million. As of July 31, 2011, China Botanic had working capital of approximately $45.8 million as compared to $47.1 million for the fiscal year ended October 31, 2010.  The Company had no long-term debt on its balance sheet as of July 31, 2011. Shareholders' equity stood at $93.4 million, compared with $69.8 million as of October 31, 2010. Net cash flow from operating activities for the nine months ended July 31, 2011 was $26.4 million compared to $22.9 million for the same period of 2010.

Business Outlook

"We will continue to focus on our botanical anti depression and nerve regulations products, and continue to invest in research and development of these products," said Mr. Li. "We remain confident that we will meet our fiscal year 2011 guidance for revenue in the range of $70.6 million and $71.7 million and net income of $25.5 million. We have completed the architectural design of our Ah City phase two project and are in the process of obtaining approval from relevant government authorities. and expect to begin construction following receipt of approval documents. The Ah City phase two project is expected to be completed in the end of 2012. In the longer term, we expect Ah City natural and pharmaceutical plant expansion and new products which are currently in our R&D pipeline will provide sizeable contribution to our future revenue and net income growth."