China Kangtai Cactus Biotech Q2 Revenue Up 9% to $9.5M; Q2 Operating Income Up 68% to $3.85M; EPS $0.13; YTD Revenue Up 12% to $15.96M; Operating Income Up 69% to $5.88M

HARBIN, China--(BUSINESS WIRE)--

China Kangtai Cactus Biotech Inc. CKGT, a vertically integrated grower, developer, manufacturer and marketer of a variety of cactus-based products in China, announced today that revenue for the second quarter of 2011 increased 9% to $9.5 million, compared to $8.7 million in the same period of 2010. Income from operations rose 68% to $3.85 million, compared to $2.3 million in the same period of 2010. Net income for the second quarter of 2011 was $2.8 million or $0.13 per diluted share compared to $3.0 million for the same period of 2010, or $0.14 per diluted share. The second quarter results included the impact of the revaluation of Series A Preferred Stock and A, B, C and D warrants with characteristics of liabilities at fair value.

Second Quarter Highlights

• Revenue for the second quarter of 2011 increased 9% to $9.5 million, up from $8.7 million recorded in the same period of 2010.
• Income from operations increased 68% to $3.85 million, compared to $2.3 million in the second quarter of 2010.
• Net income decreased 6% to $2.8 million or $0.13 per diluted share versus $3.0 million in the second quarter of 2010.
• Gross profit margin decreased to 34% compared with 38% in Q2 of 2010 as a result of changes in product mix.
• Sheng Cao brand of new low-nicotine cigarettes was approved for sale to consumers by the Chinese Center for Disease Control and Prevention (China CDC).
• CKGT expanded the use of cactus dry powder to increase raw material revenue streams.

Q2 Product Categories Performance

• Sales of cactus cigarettes were up 155% to $2.1 million, from $0.84 million in Q2 2010.
• Nutraceuticals revenue increased 21% to $3.9 million, up from $3.2 million recorded in Q2 2010.
• Cactus feed increased 32% to $1.8 million, up from $1.3 million recorded in the second quarter of 2010.
• Beverage sales decreased 62% to $1.2 million from $3.2 million recorded in the second quarter of 2010 as the company discontinued certain product lines that were not profitable and no longer competitive.
• Raw & intermediate material increased 226% to $483,868 from $148,447 recorded in the second quarter of 2010.

Six Months Financial Highlights

• Revenue for the first six months of 2011 increased 12% to $15.9 million, up from $14.3 million recorded in the same period of 2010.
• Income from operations increased 69% to $5.88 million, compared to $3.48 million in the first six months of 2010.
• Net income decreased 12% to $4.69 million or $0.21 per diluted share versus $5.35 million or $0.25 per diluted share in the first six months of 2010.
• Net income from Shandong Qingdao cigarettes was $1.4 million for the six months of 2011.
• Gross profit margin increased to 35% compared with 34% in the first six months of 2010.

Six Months Product Categories Performance

• Sales of cactus cigarettes increased 209% to $3.25 million from $1.05 million recorded in the first six months of 2010.
• Nutraceutical sales revenue increased 28% to $6.4 million, up from $5.0 million in the same period of 2010.
• Raw & intermediate material sales decreased 61% to $0.7 million from $1.8 million recorded in the first six months of 2010.
• Cactus feed increased 49% to $2.7 million, up from $1.8 million recorded in the first six months of 2010.
• Beverage sales decreased 37% to $2.9 million from $4.6 million recorded in the same period of 2010 reflecting the company's discontinuance of certain product lines that were not profitable and no longer competitive.

Liquidity and Capital Resources

As of June 30, 2011, cash and cash equivalents were $4.0 million. Accounts receivable net of allowance was $9.98 million. Net cash provided by operating activities was $979,913 in the six months ended June 30, 2011, a decrease from $6.1 million for the same period in 2010. Net cash provided by investing activities was $111,169 in the six months ended June 30, 2011. As of August 15, 2011, the number of shares of the company's common stock issued and outstanding was 22,355,527.

Management Comment

China Kangtai CEO Jinjiang Wang said, “Income from operations increased 68% year over year in the recent quarter. This was mainly from $1,257,490 in net income earned during the three months ended June 30, 2011 from the Shandong Qingdao Cooperative Processing Agreement. We also recorded $357,647 lower operating expenses in the current three months period compared to 2010.”

“Earlier this month we announced our new 'Tai Shan Sheng Chao' cigarette that we have co-developed with China Tobacco Shandong. Initial product samples are already being produced by Shandong Jinan Tobacco Company, a subsidiary of China Tobacco Shandong. This new cigarette has been developed primarily for the Russian market, with cactus ingredients specially blended to appeal to this audience. We have a high degree of confidence in the success of this new product.”

“Our Nutraceuticals posted excellent gains in the quarter, with revenues up 21%. Cactus feed sales grew even faster, and were up 32%. We also saw an increase in the sale of raw and intermediate materials by 226% as a result of increased production stemming from crop rotation. But we do not expect this growth rate to be consistent going forward.”

“The decline in revenue from our beverage segment reflects our decision to terminate weak profit beverage products that were no longer competitive in the market. We also sold old beverage machines that were purchased in 2001-2003. Our beverage emphasis now is on dry red wine and cactus juice. Looking forward, we expect revenue from our beverage segment to be about 20% to 25% of total revenue,” Mr. Wang said.

About China Kangtai Cactus Biotech, Inc.

China Kangtai Cactus Biotech, Inc. is a leading grower, developer, producer, and marketer of cactus-derived products, including nutraceuticals, wine and juice, extracts and powders, cactus cigarette and animal feed. China Kangtai controls over 387 acres of plants and maintains an active R&D group that holds 18 product patents and is seeking another 12. China Kangtai's high-quality “green” products are sold throughout China via a distribution network that covers 12 of China's 23 provinces and two of China's four municipalities. More information may be found at http://www.biocactus.com or via e-mail: chinakangtai@gmail.com.

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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 regulation, 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 the cautionary statements 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.