Spring Pharmaceutical Group Inc. Reports Financial Results for the Three and Nine Months Ended December 31, 2018

JINING, China, Feb. 15, 2019 /PRNewswire/ — Spring Pharmaceutical Group, Inc. (OTCQB: CYIG) (“Spring Pharmaceutical” or the “Company”) today announced its financial results for the three and nine months ended December 31, 2018.

Three Months Ended December 31, 2018 Financials Highlights

• Total revenues increased by 13.3% to $19.49 million with growth in sales across all three product categories. Sales of acer truncatum seed oil were particularly strong, increasing by 23.6% to $5.08 million and accounted for 26.1% of total revenues.
• Overall gross margin increased by 5.8% to 45.2%, as a result of increased contribution from the higher margin acer truncatum seed oil and decreased raw material, packaging and manufacturing costs.
• Net income attributable to the Company was $4.34 million, or $0.15 per share, compared to $2.78 million, or $0.09 per share, for the same period of the prior fiscal year.

“For the fiscal third quarter ended December 31, 2018, revenues grew by 13.3% (or 18.2% as measured in RMB) to $19.49 million with growth across all three product categories while net income increased by 56.4% to $4.48 million, highlighting continuing momentum in our businesses,” commented Mr. Tinghe Yan, Chairman and Chief Executive Officer of the Company.

Mr. Yan continued, “More exciting was that we have started harvesting seed pods from our self-grown acer truncatum bunge tree bases since November 2018, leading to solid increase in both revenues and margin for our acer truncatum seed oil business for the fiscal third quarter. With the rest of the acer truncatum bunge trees at our 5,880 mu planting bases set to become commercially productive one after another in the next two to three years, we are well positioned to further grow and integrate our acer truncatum seed oil business. Looking ahead, we firmly believe that our self-grown planting bases, modern production facilities, strong R&D capabilities, combined with our powerful direct sales model, give us significant competitive advantages in pricing, production and distribution in the long run.” 

Revenues

For the three months ended December 31, 2018, total revenues increased by $2.28 million, or 13.3%, to $19.49 million from $17.21 million for the same period of the prior fiscal year. The increase in total revenues was across the all three product categories with sales for acer truncatum seed oil was particularly strong. The increase in revenues in RMB was 18.2% which was partially offset by the RMB depreciation versus USD during the three months ended December 31, 2018.

Revenues from health care products increased by $0.55 million, or 8.4%, to $7.16 million for the three months ended December 31, 2018 from $6.60 million for the same period of the prior fiscal year. The actual increase in revenue in RMB was 13.4% as compared to the same period of the prior fiscal year, but 5.0% of the increase was offset by lower USD converted from RMB due to RMB depreciation. The increase in sales of the health care products was primarily due to the expansion of our customer base and the increase in online direct sales. 

Revenues from Huoliyuan capsules increased by $0.76 million, or 11.7%, to $7.25 million for the three months ended December 31, 2018 from $6.49 million for the same period of the prior fiscal year. The actual sales in RMB for the three months ended December 31, 2018 increased by 16.8% compared to the same period of the prior fiscal year but 5.1% of the increase was offset by lower USD converted from RMB due to RMB depreciation. The increase in sales of Huoliyuan capsules was primarily due to the stabilization of market competition.

Revenues from acer truncatum seed oil products increased by $0.97 million, or 23.6%, to $5.08 million for the three months ended December 31, 2018 from $4.11 million for the same period of the prior fiscal year. The actual increase in revenue in RMB was 28.2% as compared to the same period of the prior fiscal year, but 4.6% of the increase was offset by lower USD converted from RMB due to RMB depreciation. The increase in sales of acer truncatum seed oil products was primarily due to the continuing promotions of acer truncatum seed oil at conferences, which highlighted the features and benefits of the product to our distributors and customers. Since July 2015 the Company has produced and sold acer truncatum seed oil extracted from the acer truncatum pods purchased from third party vendors. Approximately 10% of the Company’s self-grown acer truncatum trees were harvested for production during the fiscal quarter ended December 31, 2018, and the rest of the self-grown acer truncatum pods will be gradually ready for use in production during the next two to three years depending upon the timing of their harvest.

The sales of health care products, Huoliyuan capsules, and acer truncatum seed oil products accounted for 36.7%, 37.2%, and 26.1%, respectively, of total revenues for the three months ended December 31, 2018, compared to 38.4%, 37.7%, and 23.9%, respectively, for the same period of the prior fiscal year.

The following table summarizes revenues and gross profit by products for the three months ended December 31, 2018 and 2017, respectively:

Cost of Goods Sold

Cost of goods sold comprised primarily the cost of finished goods purchased from Shandong Yongchuntang, raw materials of our self-grown acer truncatum pods and pods that we purchased from third party vendors, and the manufacturing cost of acer truncatum seed oil products and Huoliyuan capsules. For the three months ended December 31, 2018, total cost of goods sold increased by $0.25 million, or 2.4%, to $10.67 million from $10.42 million for the same period of the prior fiscal year. The actual increase in RMB was 6.8%, but 4.4% of the increase was offset by lower USD converted from RMB due to RMB Depreciation. The increase in total cost of goods sold was due to increased sales and partially offset by decreased production cost of acer truncatum bunge seed oil products due to the using of self-grown acer truncatum pods with cost lower than the pods purchased from third parties.

As a percentage of revenues, total cost of goods sold was 54.8% for the three months ended December 31, 2018, compared to 60.6% for the same period of the prior fiscal year. The decrease in the percentages of the costs of goods sold to total revenues was primarily due to the decreased raw material, packaging and manufacturing cost for acer truncatum bunge seed oil products.

Cost of goods sold for health care products, Huoliyuan capsules, and acer truncatum seed oil products were $3.98 million, $5.07 million and $1.62 million, respectively for the three months ended December 31, 2018, compared to $3.67 million, $4.51 million, and $2.25 million, respectively, for the same period of the prior fiscal year.

Gross Profit

Gross profit increased by $2.03 million, or 29.9%, to $8.82 million for the three months ended December 31, 2018 from $6.79 million for the same period of the prior fiscal year. Gross profit for health care products, Huoliyuan capsules, and acer truncatum seed oil products were $3.18 million, $2.18 million, and $3.46 million, respectively, for the three months ended December 31, 2018, compared to $2.94 million, $1.99 million, and $1.87 million, respectively, for the same period of the prior fiscal year.

Overall gross margin was 45.2%, with gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil products being 44.4%, 30.1%, and 68.1%, respectively, for the three months ended December 31, 2018. Overall gross margin was 39.4%, and gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil products were 44.5%, 30.6%, and 45.4%, respectively, for the same period of the prior fiscal year. The increase in overall gross margin was mainly due to the increased contribution from the higher margin acer truncatum seed oil products.

Operating Expenses

Selling expenses consist primarily of sales commissions, advertising and promotion, freight charges, and related compensation. For the three months ended December 31, 2018, selling expenses was essentially unchanged at $1.28 million.

General and administrative expenses decreased by $0.13 million, or 9.2%, to $1.31 million for the three months ended December 31, 2018 from $1.45 million for the same period of the prior fiscal year. The decrease in general and administrative expenses was primarily due to the decrease in legal fees and social security payments offsetting by the increase in consulting fees. 

Research and development expenses were $0.30 million for the three months ended December 31, 2018, compared to $0.28 million for the same period of the prior fiscal year. Our long-term goal is to utilize advanced biological technology to refine and extract the beneficial compounds in plants that have traditionally been known to have medicinal benefits, primarily gingko and acer truncatum bunge plants. As of December 31, 2018, the Company had a staff of 27 in its R&D department.

As a result of the foregoing, total operating expenses decreased by $0.12 million, or 3.9%, to $2.89 million for the three months ended December 31, 2018, from $3.00 million for the same period of the prior fiscal year.

Operating Income

Total operating income increased by $2.15 million, or 56.8%, to $5.93 million for the three months ended December 31, 2018, from $3.78 million for the same period of the prior fiscal year. The increase in total operating income was mainly a result of increased gross profit as well as decreased operating expenses. Operating margin was 30.4% for the three months ended December 31, 2018, compared to 22.0% for the same period of the prior fiscal year.

Income before Income Taxes

Interest income was $35,141 for the three months ended December 31, 2018, compared to $32,376 for the same period of the prior fiscal year.

Income before income tax provisions increased by $2.15 million, or 56.4%, to $5.97 million for the three months ended December 31, 2018, from $3.82 million for the same period of the prior fiscal year.

Net Income

Provision for income tax increased by $0.54 million, or 56.4%, to $1.49 million for the three months ended December 31, 2018, from $0.95 million for the same period of the prior fiscal year.

Net income increased by $1.61 million, or 56.4%, to $4.48 million for the three months ended December 31, 2018, from $2.86 million for the same period of the prior fiscal year.

After the deduction of non-controlling interest, net income attributable to the Company was $4.34 million, or $0.15 per basic and diluted share for the three months ended December 31, 2018, compared to $2.78 million, or $0.09 per basic and diluted share, for the same period of the prior fiscal year.

• Total revenues increased by 22.5% to $59.07 million with growth in sales across all three product categories. Sales of acer truncatum seed oil products were particularly strong, increasing by 76.9% to $15.03 million and accounted for 25.4% of total revenues.
• Overall gross margin increased by 4.9% to 43.7%, benefitting from increased contribution from the higher margin acer truncatum seed oil products and decreases in raw material, packaging and manufacturing costs.
• Net income attributable to the Company was $12.91 million, or $0.43 per share, compared to $8.82 million, or $0.30 per share, for the same period of the prior fiscal year.

Revenues

For the nine months ended December 31, 2018, total revenues increased by $10.86 million, or 22.5%, to $59.07 million from $48.21 million for the same period of the prior fiscal year. The increase in total revenues was across the all three product categories with sales for acer truncatum seed oil particularly strong.

Revenues from health care products increased by $2.12 million, or 10.6%, to $22.08 million for the nine months ended December 31, 2018 from $19.97 million for the same period of the prior fiscal year. The increase in sales of the health care products was primarily due to the expansion of our customer base and the increase in online direct sales. 

Revenues from Huoliyuan capsules increased by $2.21 million, or 11.2%, to $21.95 million for the nine months ended December 31, 2018 from $19.75 million for the same period of the prior fiscal year. The increase in sales of Huoliyuan capsules was primarily due to the stabilization of market competition.

Revenues from acer truncatum seed oil products increased by $6.53 million, or 76.9%, to $15.03 million for the nine months ended December 31, 2018 from $8.50 million for the same period of the prior fiscal year. The increase in sales of acer truncatum seed oil was primarily due to the continuing promotions of acer truncatum seed oil at conferences highlighting features and benefits of the product to our distributors and customers. Since July 2015 the Company has produced and sold acer truncatum seed oil extracted from the acer truncatum pods purchased from third party vendors. Approximately 10% of the Company’s self-grown acer truncatum trees were harvested for production during the fiscal quarter ended December 31, 2018, and the rest of the self-grown acer truncatum pods will be gradually ready for use in production during the next two to three years depending upon the timing of their harvest.

The sales of health care products, Huoliyuan capsules, and acer truncatum seed oil accounted for 37.4%, 37.2%, and 25.4%, respectively, of total revenues for the nine months ended December 31, 2018, compared to 41.4%, 41.0%, and 17.6%, respectively, for the same period of the prior fiscal year.

The following table summarizes revenues and gross profit by products for the nine months ended December 31, 2018 and 2017, respectively:

Cost of Goods Sold

Cost of goods sold comprised primarily the cost of finished goods purchased from Shandong Yongchuntang, raw materials of our self-grown acer truncatum pods and pods that we purchased from third party vendors, and the manufacturing cost of acer truncatum seed oil and Huoliyuan capsules. For the nine months ended December 31, 2018, total cost of goods sold increased by $3.74 million, or 12.7%, to $33.26 million from $29.52 million for the same period of the prior fiscal year.

As a percentage of revenues, total cost of goods sold was 56.3% for the nine months ended December 31, 2018, compared to 61.2% for the same period of the prior fiscal year. The decrease was primarily due to the decreased raw material, packaging and manufacturing costs for acer truncatum seed oil products.

Cost of goods sold for health care products, Huoliyuan capsules, and acer truncatum seed oil products were $12.28 million, $15.44 million and $5.53 million, respectively for the nine months ended December 31, 2018, compared to $11.07 million, $13.74 million, and $4.72 million, respectively, for the same period of the prior fiscal year.

Gross Profit

Gross profit increased by $7.12 million, or 38.1%, to $25.81 million for the nine months ended December 31, 2018, from $18.69 million for the same period of the prior fiscal year. Gross profit for health care products, Huoliyuan capsules, and acer truncatum seed oil were $9.80 million, $6.51 million, and $9.50 million, respectively, for the nine months ended December 31, 2018, compared to $8.90 million, $6.01 million, and $3.78 million, respectively, for the same period of the prior fiscal year.

Overall gross margin was 43.7%, with gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil being 44.4%, 29.6%, and 63.2%, respectively, for the nine months ended December 31, 2018. Overall gross margin was 38.8%, and gross margins for health care products, Huoliyuan capsules, and acer truncatum seed oil were 44.6%, 30.4%, and 44.5%, respectively, for the same period of the prior fiscal year. The increase in overall gross margin was mainly due to the increased contribution from the higher margin acer truncatum seed oil.

Operating Expenses

Selling expenses consist primarily of sales commissions, advertising and promotion, freight charges, and related compensation. For the nine months ended December 31, 2018, selling expenses increased by $0.39 million, or 10.7%, to $3.98 million from $3.60 million for the same period of the prior fiscal year. The increase in selling expenses was primarily due to the increases in shipping cost and sales commission as a result of increased sales.

General and administrative expenses increased by $0.28 million, or 8.7%, to $3.50 million for the nine months ended December 31, 2018 from $3.22 million for the same period of the prior fiscal year. The increase in general and administrative expenses was primarily due to the increase in depreciation and amortization expenses, and legal and consulting fees.

Research and development expenses increased by $0.28 million, or 69.3%, to $0.69 million for the nine months ended December 31, 2018 from $0.41 million for the same period of the prior fiscal year. The increase in research and development expenses was mainly due to the increased cost of the materials used by the R&D department. As of December 31, 2018, the Company had a staff of 27 in its R&D department.

As a result, total operating expenses increased by $0.95 million, or 13.1%, to $8.18 million for the nine months ended December 31, 2018, from $7.23 million for the same period of the prior fiscal year.

Operating Income

Total operating income increased by $6.17 million, or 53.8%, to $17.63 million for the nine months ended December 31, 2018, from $11.47 million for the same period of the prior fiscal year. The increase in total operating income was mainly a result of increased gross profit, partially offset by increased operating expenses. Operating margin was 29.9% for the nine months ended December 31, 2018, compared to 23.8% for the same period of the prior fiscal year.

Income before Income Taxes

Interest income was $0.11 million for the nine months ended December 31, 2018, compared to $0.09 million for the same period of the prior fiscal year. The Company also booked gain on disposal of acer truncatum bunge plants of $0.57 million for the nine months ended December 31, 2018.

Income before income tax provisions increased by $5.62 million, or 46.3%, to $17.74 million for the nine months ended December 31, 2018, from $12.13 million for the same period of the prior fiscal year.

Net Income

Provision for income tax increased by $1.40 million, or 46.3%, to $4.44 million for the nine months ended December 31, 2018, from $3.03 million for the same period of the prior fiscal year.

Net income increased by $4.21 million, or 46.3%, to $13.31 million for the nine months ended December 31, 2018, from $9.10 million for the same period of the prior fiscal year.

After the deduction of non-controlling interest, net income attributable to the Company was $12.91 million, or $0.43 per basic and diluted share for the nine months ended December 31, 2018, compared to $8.82 million, or $0.30 per basic and diluted share, for the same period of the prior fiscal year.

Liquidity and Capital Resources

As of December 31, 2018, the Company had cash and cash equivalents of $35.96 million, compared to $25.35 million as of March 31, 2018. Inventories was $3.58 million as of December 31, 2018, compared to $2.38 million as of March 31, 2018. The increase in inventories was mainly due to the increase in raw materials. Total working capital was $39.60 million as of December 31, 2018, compared to $28.08 million as of March 31, 2018.

Net cash provided by operating activities was $13.79 million for the nine months ended December 31, 2018, compared to $12.13 million for the same period of the prior fiscal year. Net cash used in investing activities was $0.74 million for the nine months ended December 31, 2018, compared to $4.45 million for the same period of the prior fiscal year. Net cash provided by financing activities was $nil for the nine months ended December 31, 2018 and 2017, respectively. 

About Spring Pharmaceutical Group, Inc.

Based in Jining, Shandong Province and founded in January 1989, Spring Pharmaceutical Group, Inc., through its subsidiaries, engages in the business of (i) distributing health care supplement products manufactured by Shandong Yongchuntang Group Co., Ltd. in the PRC, (ii) developing, manufacturing, and selling Huoliyuan capsules, a prescription medicine, (iii) developing acer truncatum bunge planting bases, and manufacturing and selling acer truncatum bunge seed oil in the PRC. Acer truncatum bunge plants are a species of maple tree. For more information about the Company, please visit http://www.yctgroup.com/.

Forward-Looking Statements

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulations, and other risks contained in reports filed by the Company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company, are expressly qualified by this cautionary statement and any other cautionary statements which may accompany the forward-looking statements. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

For more information, please contact:

At the Company:
Zecheng Shao, Vice President
Phone: +86-156-5377-2006
Email: zc_shao@126.com

Investor Relations:
Tony Tian, CFA
Weitian Group LLC
Phone: +1-732-910-9692
Email: ttian@weitianco.com

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