ChinaBiotics Inc. 10% Owner Capital S.A. Value Holdings bought 34259 shares on 5-18-2011 at $ 11.68
We are engaged in the research, development, production, marketing, and distribution of probiotics products, which are products that contain live microbial food supplements that beneficially affect the host by improving its intestinal microbial balance.
Our first product, Shining Essence, was approved by the Chinese Ministry of Health for production and to market as a health product in August 2000. We launched Shining Essence in Shanghai in April 2001, and it currently our best-selling product. Sales of Shining Essence represent approximately 29% of our total sales for the year ended March 31, 2010, 40% for the year ended March 31, 2009, and 48% for the year ended March 31, 2008. The Health Food Association of China named Shining Essence as the best selling liver health product in 2001.
We currently have three patents for our production process, packaging design, and packing equipment design. We have applied those technologies in the manufacturing process of all products under the â€śShiningâ€ť brand. We also have a patent for the production of one of our products, a blood cholesterol reduction agent.
We obtained the certifications below from TĂśV Rheinland/Berlin-Brandenb urg Group of Companies. Management believes that our Shanghai production plant was the first and the only production plant in China for probiotics that obtained all four certifications.
ISO 9001. We obtained ISO 9001:2008 certification from TĂśV Anlagentechnik GmbH in respect of our production process for its leading product, Shining Essence, which expires in January 2015. According to the American National Standards Institute, ISO 9001:2008 specifies requirements for a quality management system where an organization needs to demonstrate its ability to consistently provide product that meets customer and applicable regulatory requirements, and aims to enhance customer satisfaction through the effective application of the system, including processes for continual improvement of the system and the assurance of conformity to customer and applicable regulatory requirements. All requirements of this international standard are generic and are intended to be applicable to all organizations, regardless of type, size and product provided.
ISO 14001. We obtained ISO 14001:2004 certification from TĂśV Anlagentechnik GmbH in respect of our production process for our Shining Essence product, which expires in February 2013. According to the American National Standards Institute, ISO 14001:2004 specifies requirements for an environmental management system to enable an organization to develop and implement a policy and objectives which take into account legal requirements and other requirements to which the organization subscribes, and information about significant environmental aspects. It applies to those environmental aspects that the organization identifies as those which it can control and influence. It does not itself state specific environmental performance criteria.
OHSAS 18001. We obtained OHSAS 18001:1999 certification from TĂśV Hong Kong Ltd in respect of our production process for our Shining Essence product, which expires in June 2012. According to BSI Management Systems - Asia, Occupational Health and Safety Assessment Series specification relates to an entityâ€™s occupational health and safety management systems that enable organizations to control its occupational health and safety risks and improve its performance. It does not state specific occupational health and safety performance criteria, nor does it give detailed specifications for the design of a management system. OHSAS 18001 is an assessment specification developed in response to the need for companies to meet their health and safety obligations in an efficient manner.
HACCP. We obtained HACCP DS 3027 E: 1997 certification from TĂśV Anlagentechnik GmbH in respect of our production process for our Shining Essence product, which expires in July 2012. The term â€śHACCPâ€ť stands for Hazard Analysis Critical Control Point. The HACCP DS 3027 E:1997 standard was developed to ensure food safety among food manufacturers and their suppliers in Denmark.
GMP. We obtained the Good Manufacturing Process (GMP) certification from the Shanghai Food and Drug Administration (SHFDA) for our new production facility in Qingpu Industrial Park, which expires on March 28, 2013. 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 based on evaluations of the factory and equipment, materials, hygiene certificates, waste and recycling, and after sales, among other things.
We manufacture and sell several health supplements under the â€śShiningâ€ť brand in China as set forth below. All of these products have been approved by the Ministry of Health in China and their content has been tested by the Shanghai Preventative Medicine Research Institute, which found that our products contain the quantities of bacteria specified by us. While management believes these products to be effective, their effectiveness has not been conclusively established.
Our four major retail products are:
Shining Essence - Composed of lactobacillus acidophilus and bifidobacterium bifidum, aimed at balancing the microecology of the digestive system, enhancing intestinal health and protecting and strengthening liver function;
Shining Signal - Composed of monascus rice and lactobacillus acidophilus, focused on reducing high blood pressure, high blood sugar level and hyperlipidemia;
Shining Golden Shield - Composed of bifidobacterium adolescentis and lentinusedodes, focused on enhancing the bodyâ€™s immune system; and
Shining Energy - Composed of Vitamin C, L. Arginine, and other amino acids, aimed at promoting the development of brain cells and enhancing alertness and energy.
In addition, in March 2006, we opened our first retail outlet in Shanghai and launched the following products in the market:
Shining Beauty Essence - Composed of soy bean isoflavones and pueraria lobata p extracts, aimed at increasing bone mineral density of elderly people and reducing negative health effects associated with the aging process;
Shining Companion Bifidus Factor Granule - Composed of bifidus, focused on enhancing the growth of bifidus in the human body and enhancing intestinal health;
Shining Stomach Protection Capsules - Composed of lactobacillus acidophilus, aimed at protecting stomach walls and improving the digestive system;
Shining Sicanel Capsules - Composed of lactobacillus acidophilus, focused on reducing hyperlipidemia, or excess levels of fats in the blood; and
Shining Golden Shield (kids version) - Composed of bifido bacterium adolescentis and lentinusedodes, focused on enhancing the bodyâ€™s immune system.
In February 2010, we commenced production at our new facility in Qingpu and began producing bulk additives products, which are sold to institutional customers, such as dairy manufacturers, animal feed manufacturers, pharmaceutical companies, and food companies. We intend to continue to develop new products to strengthen our product pipeline so that we may offer an array of products for sale in the market.
Leveraging on what our management believes is our technical competence, cost efficiencies, and highly recognized brand, our management expects to achieve significant growth through:
the introduction of bulk additives products - We are expanding into the bulk additives business for institutional customers through our 150-ton capacity plant, which commenced production in February 2010. We are focusing on two fast growing industries: dairy and animal food in China. Management believes our new facility will meet the industry requirements of quality and scalability. Management estimates that Phase 1 of the project, which involves constructing a facility capable of producing 150 tons of probiotics per annum, will cost $28 million. Phase 2 of this project, which commenced in December 2009, is expected to cost $18 million. The construction cost of Phase 1 of the plant is being funded by cash received from the sale of a convertible promissory note to Pope Investments II LLC on December 11, 2007 as disclosed in â€śBusiness-History.â€ť The construction cost of Phase 2 of the plant is being funded by cash received from the public offering of our common stock in October 2009 as disclosed in â€śBusiness â€” Historyâ€ť;
the geographical expansion of its retail sales through direct sales and traditional sales channels - We intend to expand the sale of our retail products to the other metropolitan cities in China through a combination of traditional distribution channels and dedicated Shining outlets. We have a total of 111 outlets as of March 31, 2010. About three quarters of these outlets are located in Shanghai, and the rest are located in 12 other cities in China. With respect to our bulk additives business, we have secured 31 bulk additives probiotics customers nationwide in tier-one urban areas such as Beijing and Shanghai, as well as inland provinces such as Qinghai and Inner Mongolia; and
the improvement in research and development of new products and services - We plan to continue to develop new products aimed at improving the general health conditions of humans, enhancing their immune system, and reducing health problems. We are also in the process of developing new products to strengthen our product pipeline so that we may offer an array of products for sale in the Shining outlets. To further improve our competency in the bulk additives market, we continue to improve our services to our institutional clients by facilitating their lab testing and production testing and providing customized technical support, among other things.
Industry overview and market condition
We manufacture and sell probiotics. Most probiotics are bacteria-based and naturally exist in the human body in the lower intestinal tract. The introduction of â€śhelpfulâ€ť bacteria and other organisms may aid in preventative fights against infection and improve digestion, especially with respect to dairy products.
Probiotics generally have a very short life-span. Water, acid, and oxygen are harmful to probiotics and most die or cease to function after a short period of time after extraction from the source. A reduction of these naturally-occurring organisms due to poor eating habits, stress, or the use of antibiotic drugs or other factors may disrupt the natural equilibrium of the body and could lead to a variety of abdominal ailments and an overall decrease in the function of the immune system. Based on information available on the website www.usprobiotics.org , a non-profit research and education website sponsored by the California Dairy Research Foundation and Dairy & Food Culture Technologies, researchers are also studying potential links between low probiotics microbial levels and hypertension, certain types of cancer, high cholesterol, and allergies (to access this information, click on the Section â€śProbiotics Basics,â€ť and then click on the Section â€śHealth Effects of Probioticsâ€ť). Subsections of â€śHealth Effects of Probioticsâ€ť include â€śhypertension,â€ť â€ścancer,â€ť â€śelevated blood cholesterolâ€ť and â€śallergy.â€ť
China has very limited capacity to produce probiotics. We believe that demand for probiotics and functional foods in China will continue to increase in the foreseeable future. We believe that China lacks manufacturing capabilities of bulk additives in a scale necessary to support the functional foods industry. This has forced processed food producers to either import most of their probiotics or produce finished products abroad and re-import the final product. We believe this creates significant inefficiencies in both cost and probiotics efficacy, as some bacteria die during transport.
Demand for functional food products is expected to grow significantly. As the discretionary income and health-consciousness of the average Chinese consumer increase, we expect the demand for functional foods and dietary supplements to increase. We believe that the demand for functional foods and dietary supplements will be bolstered by the stated commitment of the Chinese government to reduce the use of antibiotics and promote the use of probiotics and other preventative measures.
Curtailment of the use of antibiotics may stimulate demand for probiotics. According to two Chinese newspaper articles entitled â€ś 80,000 people in China die from inappropriate use of antibiotics each year, children suffer the most ,â€ť published in Xin Kuai Bao, dated December 12, 2003, available in Chinese at http://info.china.alibaba.com/news/detail/v8-d5779... under â€śNews/Detail,â€ť and â€ś How many people die from inappropriate use of antibiotics in China each year? ,â€ť published on July 19, 2005 by Bio Information Net (available in Chinese at www.bio168.com/news/200507/46448F8BB O5D.html under â€śHomepage/News/Main Text of the Newsâ€ť) china has the highest per capita consumption of antibiotics in the world. In 2000, the World Health Organization cautioned that â€śsuperdiseasesâ€ť are being created by the overuse of antibiotics. In order to stem the tide of these drug resistant strains, many nations have taken steps to limit the use of antibiotic drugs. In July 2004, the Chinese government took an active role in the fight against the overuse of antibiotics by requiring prescriptions for these drugs. To further reduce the use of antibiotics, the Chinese government has slashed the retail price of antibiotics by 60%, so that it is no longer profitable for a large number of antibiotics manufacturers to continue to manufacture such products. This resulted in a marked increase in the use of other products to not only treat existing infections but prevent infections from occurring. In addition, on May 20, 2005 (effective July 1, 2005) the State Food and Drug Administration (reference no. Guo Shi Yao Jian Zhu (2005) no. 202) issued a notice acknowledging that probiotics are beneficial for human health and also introduced guidelines for regulating manufacturers of probiotics products and registration of probiotics products with the State Food and Drug Administration.
Demand for dairy product additives is expected to increase significantly. The demand for functional foods and foods that use probiotic supplements is growing at a significant rate. According to AC Nielsen (article available at http://cn.en.acnielsen.com/news/20050916.shtml ), yogurt and yogurt drinks are the fastest growing products in the food products segment in China, with sales increasing by 38% in 2004 alone. Sales of infant formula grew 23% in the same year. Moreover, according to statements made by the Nutrition Development Centre of National Development and Reform Commission in China, effective April 1, 2007, probiotics will be added to baby milk powders produced in China. The relevant regulations are expected to be announced at a later date. These factors translate into significant growth in demands in China for live bacteria as food addictives.
More use of probiotics in animal feed industry. Antibiotics have been widely used in animal feed by Chinese farmers. Human health has been indirectly impacted negatively by drinking milk and eating meat produced by the farms using antibiotics added feed. With the increasing public awareness of those issues, the government is encouraged to set up stricter regulations to monitor the non-therapeutic use of antibiotics in livestock feed to ensure food safety. (Please see the article, â€ś Call to keep antibiotics out of the food chain â€ť in China Daily at http://www.chinadaily.com.cn/china/2010-04/13/cont... ). At the same time, organic food is getting more attention in Chinese daily life. This creates a favorable trend of using more probiotics in animal feed.
Leveraging on what management believes are our technical competence, cost efficiencies, and highly recognized brand, our management expects to achieve significant growth through:
the introduction of bulk additives products, with a focus on fast growing industries, including dairy and animal feed;
the geographic expansion of our retail sales through direct sales and traditional sales channels; and
enhancement in R&D to develop new products and provide value-added services.
Most probiotics used for the manufacture of yogurt, milk powder products, and food preservatives are currently imported. However, we believe imported probiotics are generally more expensive and are of lower quality, as most bacteria die during transport. In addition, according to statements made by the Nutrition Development Centre of National Development and Reform Commission in China, on April 1, 2007, probiotics must be added to baby milk powders and other products produced in China. The relevant regulations will be implemented at a later date. We are expanding into the bulk additives business for functional foods through the completion of our 150-ton capacity plant, which commenced commercial production in February 2010. Management estimates that Phase 1 of the project, which involves constructing a facility capable of producing 150 tons of probiotics per year, will cost $28 million. Phase 2 of this project is expected to cost $18 million. The construction cost of Phase 1 of the plant is being funded by cash received from the sale of a convertible promissory note to Pope Investments II LLC on December 11, 2007, as disclosed in â€śBusiness-History.â€ť The construction cost of Phase 2 of the plant is being funded by cash received from the public offering of our common stock in October 2009 as disclosed in â€śBusiness â€” History.â€ť
Geographic expansion and direct sales
We sell our retail products mainly in greater Shanghai through distributors. Over the past five years, we believe we have firmly established ourselves in Shanghai as the leading supplier and manufacturer of probiotics products. We are now expanding the sale of our retail products to other metropolitan cities in China through a combination of traditional distribution channels and dedicated Shining outlets.
We opened the first Shining retail outlet in Shanghai in March 2006. We have also repackaged our products for sale in our outlets, and have introduced several new products, which are sold exclusively in our outlets. As at March 31, 2010, we have opened 111 outlets in Shanghai and 12 other cities in China.
In preparation for the opening of additional retail outlets, we have also been actively recruiting and training retail sales staff. We have already successfully recruited a number of very experienced sales professionals and have trained a pool of sales staff. We have also designed and implemented control systems to manage this new business.
Currently, we have a network of 111 outlets in China. We continue to survey cities in China to assess and select suitable locations for new outlets. As part of our strategy, we will also consider licensing franchisees to operate retail outlets in due course. We intend to finance the costs of our business expansion by our internal working capital.
Introduction of new retail products
In connection with the opening of our first Shining outlet, we launched several new retail products under the Shining brand. We currently have regulatory approval to produce 41 retail products that can be marketed under the Shining brand. We plan to develop new products to strengthen our product pipeline so that we may offer an array of retail products for sale in the Shining outlets.
Our Business Prospects
Growth potential from geographic expansion leveraging on the Shining brand.
We have experienced rapid sales growth of our retail products that are sold through retail sales in the greater Shanghai area under our â€śShiningâ€ť brand. Management believes that the â€śShiningâ€ť brand is one of the most recognized health supplement brands in Shanghai. We are expanding the sales of our retail products to the other major metropolitan cities in China, such as Changchun and Jilin. Given our high gross margin and low overhead structure, management anticipates that distribution in these areas could be profitable, assuming there is sufficient demand. Expansion of retail sales is also a key component of the marketing of our food additives. We intend to co-brand with food producers allowing consumers to identify food products that use our additives as high quality and beneficial. We require our â€śShiningâ€ť logo to be incorporated in the packaging of products manufactured by food producers, which contain probiotics additives supplied by us. We have already entered into agreements with 29 producers for use of our products as food additives.
Significant potential from the new bulk business (yogurt).
Live bacteria are essential to the formulation of yogurt and yogurt-based drinks. Yogurt and yogurt drinks were the fastest growing food product segments in China in 2004 according to AC Nielsen. As a result, yogurt producers in China currently import most of their probiotics additives. We believe that importation of probiotics is costly and a portion of the effective ingredient (bacteria) dies during transportation. Our new plant is intended for bulk manufacturing of probiotics for use as food additives for foods such as yogurt and yogurt drinks.
Mr. Song Jinan , age 48, Chief Executive Officer, President, Director, Treasurer and Secretary since March 2006 â€” Mr. Song was one of the founders of Shanghai Shining Biotechnology Co. Ltd. (â€ś Shining â€ť) in 1999, and has been the principal executive officer of Shining since inception. Prior to founding Shining, Mr. Song served as the chief engineer of Sai Bao Bio-Chemical Manufacturing Corporation. Mr. Song received his Bachelorâ€™s Degree in Polymers from the University of Hei Long Jiang and his Masterâ€™s degree in Politics and Economics from Habin Industrial University.
Mr. Songâ€™s day-to-day leadership as our Chief Executive Officer provides him with detailed knowledge of our business and operations. Among other professional experiences, qualifications, and skills, Mr. Song brings in-depth knowledge and understanding of the probiotics industry, scientific expertise and management skills that have been critical to formulating the Companyâ€™s short- and long-term strategies and to establishing the Company as a leading probiotics developer and producer in China. As the Companyâ€™s largest stockholder, Mr. Songâ€™s interest is aligned with other China-Biotics stockholdersâ€™ interest in increasing the long-term value of the Company.
Dr. Chin Ji Wei , age 53, Director since January 2007 â€” Dr. Chin has over 20 years of academic experience as a lecturer and researcher in the field of horticulture, where he has been focused on the areas of efficient agriculture industry and food safety. Dr. Chin has served as a Vice Principal, professor, and lecturer at Northeast Agricultural University in China since 1999. From 1985 to 1995, Dr. Chin served as a Researcher at the Northeast Agricultural University and the Northeast Agricultural Institute. Dr. Chin has Bachelors, Masters, and Doctorate degrees, all from Northeast Agricultural University. Among other professional experiences, qualifications, and skills, Dr. Chinâ€™s expertise in horticulture and agriculture industries, and in particular his focus on food safety, provide scientific knowledge and expertise in the regulatory aspects of food safety that are critical to the development and distribution of the Companyâ€™s products.
Dr. Du Wen Min , age 42, Director since January 2007 â€” Dr. Du has served as the Deputy Director in charge of the Centre for Adverse Drug Reactions in Shanghai since 2001. The Centre was established in June 2001 as a technology unit governed by The Shanghai Food and Drug Authority. Dr. Du has also served as the Vice Chairman of Evaluation of Pharmacology & Clinical Pharmacy in Shanghai, China, and the Vice Chairman at the Centre for the Study of Liver Disease in Shanghai, China since 2006. Dr. Du has Bachelors and Masters degrees from Shanxi Medical University and a Doctorate in Medicine from Fudan University. Among other professional experiences, qualifications, and skills, Dr. Duâ€™s experience in the pharmaceutical industry and knowledge of food and drug safety issues are critical to the development and distribution of the Companyâ€™s products.
Mr. Simon Yick , age 52, Director since January 2007 â€” Mr. Yick has over 25 years experience in corporate finance, direct investment and auditing. From March 2002 to January 2004, Mr. Yick worked as an Executive Director of Kingsway Capital Ltd. Mr. Yick has served as the managing director at Sinovest Capital Ltd., which makes direct investments, is involved with merger & acquisition activities, and operates a full service consultancy business for both Hong Kong and PRC enterprises, since 2004. His experience includes working for Ernst & Young in London and Hong Kong, in addition to holding senior positions at multiple U.S., Taiwan, and Hong Kong based investment banking firms in Hong Kong. In addition, he is currently a non-executive director and chairman of the audit committee for four Hong Kong listed companies and a member of both the Association of the Chartered Certified Accountants in UK and the Hong Kong Institute of Certified Public Accountants. Among other professional experiences, qualifications, and skills, Mr. Yickâ€™s knowledge and understanding of the capital markets and his in-depth experience in corporate finance, mergers and acquisitions, accounting, and business management provide knowledge and experience that are vital in formulating the Companyâ€™s short- and long-term business and growth strategies. Mr. Yick is also the Companyâ€™s Audit Committee financial expert.
MANAGEMENT DISCUSSION FROM LATEST 10K
We manufacture and sell probiotics products. Probiotics comprise mainly live bacteria, which we produce using advanced proprietary fermentation technology. Currently, our products are sold primarily in the Chinese domestic market.
Our retail products are mainly sold to distributors, which then distribute them to various retail outlets such as drug stores and supermarkets. During the year ended March 31, 2010, over 84% of our sales revenue comprised amounts receivable from the distributors for the sale of these products. Typically, 60 to 90 daysâ€™ credit is given to the distributors. Our bulk additives products are mainly sold to institutional customers, such as dairy manufacturers, animal feed manufacturers, pharmaceutical companies, and food companies.
Our first retail product, Shining Essence, which was launched in April 2001, remains our best-selling product. Sales of Shining Essence represented approximately 29%, 40% and 48% of our total sales for the years ended March 31, 2010, 2009 and 2008, respectively. In addition to Shining Essence, our research and development team has successfully developed other new retail products, such as Shining Probiotics Protein Powder. As of March 31, 2010, we have a retail product portfolio of 41 products, and we are currently selling 11 of them in the market. As we have released new products, the percentage contribution of Shining Essence to our total retail sales has decreased.
As our retail products comprise mainly live bacteria, which are reproduced by fermentation, we have historically had a low cost of production of which packaging costs represent the largest cost item.
Our bulk products have a revenue contribution of 26.8% in fiscal year 2010 increased from 8.3% in fiscal year 2009. The significant increase reflects an increased focus by management on the rapidly growing bulk additives business. In February 2010, our new bulk production facility was ready for commercial production. The state of art bulk additives production facility has a full capacity of 150 metric tons. Management believes our new facility will help us to continue to meet the increasing market demand for high quality and low cost products.
Our management believes that the following trends in China will have an important impact on, and present significant opportunities for, our business:
Increasing demand for functional food and health supplement products. As the discretionary income and health-consciousness of the average Chinese consumer increase, we expect the demand for functional foods and health supplements to increase.
Curtailment of the use of antibiotics and preservatives and government support for probiotics. China has the highest per capita consumption of antibiotics in the world. To curtail the overuse of antibiotics, the Chinese government has taken steps to limit the use of antibiotic drugs and preservatives for both humans and animals. Moreover, the Chinese State Food and Drug Administration has also acknowledged that probiotics are beneficial for human health. Recently, the Ministry of Health in China announced an expanded list of probiotics strains allowed to be used in the food industry. The number of probiotics strains on the list has doubled. It reflects Chinese government is encouraging wider uses of probiotics products in the food industry, and it also demonstrates the rapidly expanding probiotics market in China.
Increasing demand for dairy product additives. The demand for functional foods and foods that use probiotic supplements is growing at a significant rate, and our management believes that it will continue to do so. According to statements made by the Nutrition Development Centre of National Development and Reform Commission in China, effective April 1, 2007, probiotics will be added to baby milk powders produced in China.
Our management expects to capitalize on the opportunities created by these trends to achieve significant growth through:
The introduction of bulk additives products. We are expanding into the bulk additives business through our 150-ton capacity plant, which commenced production in February 2010. Government approval for the plant was received on November 30, 2007. Management estimates that Phase 1 of the project, which involves constructing a facility capable of producing 150-tons of probiotics per annum, will cost $28 million. Phase 2 of this project, which commenced in December 2009, is expected to cost $18 million. The construction cost of Phase 1 of the plant is being funded by cash received from the sale of a convertible promissory note to Pope Investments II LLC on December 11, 2007 as disclosed in â€śBusiness â€” History.â€ť The construction cost of Phase 2 of the plant is being funded by cash received from the public offering of our common stock in October 2009 as disclosed in â€śBusiness â€” History.â€ť On March 21, 2006, Growing State, our subsidiary, entered into an agreement with Shanghai Qingpu Industrial Park District Development (Group) Company Limited for the lease of 73,157 square meters of land in the Shanghai Qingpu Industrial Park District on which we are constructing this plant. The agreement provides for the payment of leasing fees of approximately $1.89 million. The Qingpu Peopleâ€™s Republic Government issued its formal confirmation of the land use right necessary for the plant construction on November 30, 2007 and confirmed the leasing fee of $1,777,680 (reduced from $2.1 million because the size of the leased land was reduced to 36,075 square meters) and a refundable land deposit of $210,083. We paid the leasing fee on December 28, 2007. In February 2009, the refundable land deposit was fully refunded and the formal land use right certificate was issued. There are no future lease payments under this land lease.
The geographical expansion of retail sales through direct sales and traditional sales channels. We intend to expand our sales to other cities in China through a combination of distributors and our own outlets. In this regard, we had 111 Shining branded outlets in Shanghai and 12 other major Chinese cities as of March 31, 2010. We expect that the additional demands from opening new outlets will be met initially by increasing production from our existing plant, which currently has the necessary capacity, and in the future from our new plant, which will have a capacity of 150-300 tons.
The development of new products. With respect to our retail products, we plan to continue to research and develop new products aimed at improving the general health conditions of humans, enhancing their immune system, and reducing health problems. The new products will strengthen our product pipeline so that we may offer a wider array of products to the market. With respect to our bulk additives products, we will leverage our rich bacteria strain library, the largest in China, to provide customized products to meet the needs of our institutional clients.
Our operation is generally not labor-intensive. We employed 513 people as of March 31, 2010. With production ramp up in the Phase 1 facility and the construction of Phase 2, we expect significant increases in our number of employees over the next two years. We have been recruiting senior executives to strengthen our management team. However, as wages in China are relatively inexpensive, we expect that labor costs will remain insignificant.
Results of Operations for Fiscal Year Ended March 31, 2010 Compared with the Fiscal Year Ended March 31, 2009
Our net income was $15.6 million for the fiscal year ended March 31, 2010. This included a $12.1 million deficit arising from the revaluation of the conversion feature embedded in the convertible note issued in December 2007 as required by FAS133 (now known as ASC 815). The convertible note will expire in December 2010, and will not have an impact on our net income after that date. Excluding this revaluation deficit, our net income was $27.7 million, which was 63.9% above our net income of $16.9 million (excluded $3.1 million revaluation surplus) for the fiscal year ended March 31, 2009. Our growth in net income primarily resulted from growth in our sales volume of in both our retail products and bulk additives products. Shining Essence continued to be our best selling retail product. We have enjoyed strong growth in demand for many products such as Shining Essence Stomach Protection and Shining Probiotics Protein Powder, which outpaced that of Shining Essence. In addition, bulk additives product sales now account for 26.8% of our sales revenue during the year ended March 31, 2010 (8.31% in the year ended March 31, 2009), the increase of which is a result of the rapid growth in shipments to dairy and animal feed customers.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
We manufacture and sell probiotics products. Probiotics comprise mainly live bacteria, which we produce using advanced proprietary fermentation technology. Currently, our products are primarily sold in the Chinese domestic market.
Our retail products are mainly sold to distributors, who then distribute them to various retail outlets such as drug stores and supermarkets or sell directly to enterprise accounts. Typically, 60 to 90 daysâ€™ credit is given to the distributors. Our bulk additives products are primarily sold to institutional customers, such as dairy manufacturers, animal feed manufacturers, pharmaceutical companies, and food companies. Typically, 60 daysâ€™ credit is given to the bulk customers.
We intend to expand our retail products sales to other cities in China through our growing distribution network. Our management believes that as China becomes more affluent, its citizens are becoming more health conscious, which has led to higher demand for health and functional food such as probiotics and yogurt.
In addition, probiotics are increasingly used as additives in a variety of industries, including the dairy and animal feed industries. According to statements made by the Nutrition Development Centre of National Development and Reform Commission in China, effective April 1, 2007, probiotics will be added to baby milk powders produced in China. Currently, the probiotics used in China for such purposes are imported. To capitalize on what we believe is a significant opportunity in those industries, our newly built plant enables us to capture the anticipated demand for food additives and animal feed additives.
The Companyâ€™s construction of its new production facility has been on schedule since the most recent year-end report. The Company commenced commercial production at the Phase 1 facility in February 2010. Phase 1 of the project involves constructing a facility with a capacity of 150 tons of probiotics per year and costs $36 million in total, the sum of which was paid off in calendar year 2010. Phase 2 of this project commenced in September 2010 and is expected to cost $18 million, $11 million of which was paid in calendar year 2010 and $7 million of which is scheduled to be paid by the end of June 2011, the date when Phase 2 is expected to be completed. The construction of Phase 1 of the plant was funded by cash received from the sale of a convertible promissory note to Pope Investments II LLC on December 11, 2007 and the proceeds of the public offering of our common stock in October 2009. The construction cost of Phase 2 of the plant is being funded by cash received from the public offering of our common stock in October 2009. In this regard, we have acquired the land use right of 36,075 square meters of land in the Shanghai Qingpu Industrial Park District on which the new bulk manufacturing facilities are located. The plant has an initial capacity of 150 tons per year with room for expansion to 300 tons per year.
Encouraged by the growing demand for the animal feed market in China, the Company plans to leverage its technology and R&D capability in probiotics-based animal feed applications to build a new facility in the Yangling Agricultural High-tech Industries Demonstration Zone (â€śYanglingâ€ť). The Yangling facility is expected to spend over $58 million in two years. The facility will produce probiotics and probiotics-related biological additives for the animal feed industry. Currently, the facility is in the design stage, and the plan is subject to government approval prior to implementation. During this quarter, the Company made its first payment of RMB13,251,355 (or approximately $ 2 million) to acquire the land use right of 118.54 mu land (or approximately 79,029.3 square meters).We expect to received the land certificate by the end of June 2011.
As of December 31, 2010, we have entered into contracts with 49 customers for the bulk additives business. In this regard, we have created a number of formulations for testing by many potential customers. We have established an array of business relationships with commercial customers located in some major cities, including Beijing, Tianjin, and Shanghai, and 14 provinces including Jiangsu and Jiangxi, among others. These growing companies are among the leaders in the dairy, animal feed, baked foods, and pharmaceutical industries. The Companyâ€™s Pudong manufacturing and packaging facility is used to produce retail products. In late February 2010, we commenced commercial production at our new facility in Qingpu, Shanghai, and we expect the volume of production to ramp up gradually. We have reached the production run-rate of 75 metric tons/year as of the end of 2010. We have been carefully managing the use of our production capacity and adjusting our products mix to make sure that we strike a balance between achieving current and future sales.
In our continuing effort to shift our focus from retail to bulk business and to improve operating efficiency, we plan to consolidate our retail outlets. We currently have a total of 15 retail outlets. On the retail business front, we believe the distribution network for our retail products is more efficient than directly selling through retail outlets, which involves increased leasing expenses and large staffing cost. By selecting four new distributors, we have expanded our distribution network into the Pan-Beijing area to sell the Company's retail products. The local distributors sell the Companyâ€™s retail probiotics products through established distribution networks, including malls, supermarkets, and functional food stores adding approximately 30 new points of sale. During the quarter ended December 31, 2010, we added 5 more distributors. We now have a total of 34 distributors for retail products. In light of increasing online sales of health food in China, we have started to work with two on-line selling companies to sell our retail products. Further more, the Company established an e-commerce department this quarter, which will be dedicated to selling our retail products online. We plan to build our own online selling platform, which will be launched by the end of fiscal year 2011 to promote our retail products sales.
On the bulk business front, we signed 12 new customers for bulk additives probiotics products in this quarter. Among the 12 small to medium sized new customers, one is an animal feed manufacturer, five are functional food, nutritional products, and pharmaceutical producers, and the remaining six are dairy companies.
Results of Operations
Quarter Ended December 31, 2010 Compared with the Quarter Ended December 31, 2009
Our net profit was $13.3 million in the quarter ended December 31, 2010. This includes a $2.85 million surplus arising from the change in the value of derivatives. Excluding the value change of the derivatives and fair value change of the Note, our net income was $10.45 million, which is 33.4% higher than our net income for the quarter ended December 31, 2009.
The contributions of the retail products as a percentage of the total value on sales were approximately 55.8% and 74.3% for the three months ended December 31, 2010 and 2009, respectively, and were approximately 58.0% and 73% for the nine months ended December 31, 2010 and 2009, respectively. The contributions of the bulk additives products as a percentage of the total value on sales were approximately 44.2% and 25.7% for the three months ended December 31, 2010 and 2009, respectively, and were approximately 42.0% and 27% for the nine months ended December 31, 2010 and 2009, respectively. The percentage weight increase of bulk additives in total sales over the nine month period of fiscal year 2011 represented the Companyâ€™s strategic shift from retail products to bulk additive products. We expect the trend will continue in both the short-term and long-term.
Selling expenses were $3,861,261 or 11.92% of net sales for the three months ended December 31, 2010, compared with $4,140,738 or 17.78% of net sales for the three months ended December 31, 2009. Selling expenses were $9,478,796 or 11.78% of net sales for the nine months ended December 31, 2010, compared with $9,221,564 or 16.51% of net sales for the nine months ended December 31, 2009. The decrease of selling expenses as a percentage of total sales was primarily due to the decrease of operating costs of retail outlets. As of December 31, 2010, we had a total of 15 retail outlets in operation compared with 111 outlets as of December 31, 2009. The Company had 59 employees working for retail outlet operations as of December 31, 2010, compared with 222 employees in retail outlet operations as of December 31, 2009. The operating costs of the retail outlets, including both rental and hiring expenses, dropped significantly when the Company closed the majority of its retail outlets in 2010. For the bulk business, our selling expense is slightly lower this quarter, but we expect it will increase slightly in the future as we will have more spending in sales promotion.
General and administrative expenses
General and administrative expenses were $3,190,506 or 9.85% of net sales for the three months ended December 31, 2010, compared with $1,366,243 or 5.86% of net sales for the three months ended December 31, 2009. General and administrative expenses were $5,870,538 or 7.26% of net sales for the nine months ended December 31, 2010, compared with $3,649,818 or 6.53% of net sales for the nine months ended December 31, 2009. The increase of general and administrative expenses was primarily due to the increased operating costs of our newly established bulk addictives products business, combined with an increase of general and administrative expenses at the holding company level, such as the legal and consulting expenses. As of December 31, 2010, although the total number of employees was decreased, this did not result in the decrease in relative general and administrative expenses because the decrease in the number of employees resulted from a combined effect of a decrease in the number of employees for retail outlets, the expenses of which were included in selling expenses, and an increase in the number of employees for our bulk addictives business.
Provision for income taxes
Provision for income taxes was $2.48 million and $2.38 million for the three months ended December 31, 2010 and 2009, respectively. Income before taxes was $12.89 million for the three month period ended December 31, 2010, compared with a $10.42 million profit, excluding the $2.85 million surplus on revaluation of the Note, for the three month period ended December 31, 2009. The increase in income tax payable is attributable to an increase in operating profit. (See Note 9)
We have adopted the â€śproducts and servicesâ€ť approach for segment reporting. For the three months ended December 31, 2010 and 2009, the Company had only one category of products and services, the probiotics products as a health supplement, which is manufactured, delivered, and sold in one geographic area, the PRC. Moreover, all of our long-lived assets are physically located in China.
Liquidity and Capital Resources
We had cash of $132.29 million and working capital of $133.27 million as of December 31, 2010. Cash generated from operations was $18.17 million in the nine months ended December 31, 2010.
We had capital expenditures totaling $16.36 million in the nine months ended December 31, 2010, mainly in connection with the construction of the new plant.
Our Pudong facility commenced operations in 2000. With the increases in sales volume in the last couple of years, the Pudong facility is reaching its full production capacity. We are constructing a new Phase 2 plant with an overall project size of $54 million. (See Overview) At our Pudong plant, the Company plans to expand the retail product packaging facility and make technical improvements to the existing fermentation facility, which will cost approximately $3 million.
During the quarter ended September 30, 2010, the Company obtained admission to enter the Yangling Agricultural High-tech Industries Demonstration Zone. The Company will inject the full amount of registered capital, an amount no less than $50 million, within 24 months of the project commencement date. The Company plans to fund this project with its cash reserves.
On October 5, 2009, the Company closed an underwritten public offering of 4,600,000 shares of its common stock at a price of $15.00 per share. On October 26, 2009, an additional 690,000 shares were sold pursuant to the exercise of an over-allotment option at the same price. Net proceeds of the offering, including the over-allotment, after deducting underwriting discounts, and offering expenses, were approximately $74.9 million. The Company expects to use the net proceeds from the offering for general corporate purposes, including expanding its retail operations, expanding its products, funding Phase 2 of our bulk manufacturing facility, funding our newly announced Yangling project, and for general working capital purposes.
The offering was made pursuant to an Underwriting Agreement, dated September 29, 2009, by and between the Company and Roth Capital Partners, LLC, as sole manager and representative of the underwriters named therein. The offering of the shares was registered under the Securities Act of 1933, as amended, pursuant to the Companyâ€™s shelf registration statement on Form S-3, as amended by Amendment No. 1 and Amendment No. 2 to Form S-3 (File No. 333-160519).
On December 11, 2007, we issued the Note to Pope Investments II LLC, an affiliate of Pope Investments, LLC, with a maturity date of December 11, 2010. The principal amount of the Note was convertible into shares of our common stock at an exercise price of $12.00 per share at any time until the maturity date. Net proceeds of the Note were used to fund the construction of the 150-metric-ton-per-year manufacturing facility in Qingpu and other capital expenditures.
On December 9, 2010, the Company repaid in full its obligations under the Note in the original aggregate principal amount of $25,000,000. The payoff amount of $29,684,932, consisting of $25,000,000 of outstanding principal and $4,684,932 of accrued interest, was paid to Pope Investments II LLC, and all security interests and liens held by Pope Investments II LLC were terminated and released, including (1) a guaranty by Mr. Song Jinan of the Companyâ€™s obligations under the Note backed by a pledge of 4,000,000 shares of China-Bioticsâ€™ common stock owned by Mr. Song; and (2) a pledge by the Company of 100% of the stock of SGI to Pope Investments II LLC.
During the quarter ended December 31, 2010, there were small increases in cost of pulp, paper, other raw materials. We also saw price increases in the lease market. The closure of a number of retail outlets, however, reduced the leasing costs, and staff cost and overall we believe that inflation did not have a significant impact on our results of operations for the quarter.
Typically, 60% of our retail sales take place in the second half of the fiscal year because many of our customers purchase our products to give as gifts during the Chinese festivals that occur during this time of the year. While it is still too early to tell, we expect that our bulk additive sales will not be seasonal in nature because the bulk products are purchased by food manufacturers consistently over the year.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
The next company is China-Biotics. This is a company specializing in probiotics. And with us today is the Company's Chairman and CEO, Mr. Jinan Song, the CFO, Raymond Li, and Mr. Henry Tai, who is the Senior Vice President for Corporate Development. And he will give a presentation for us. And I would like Henry to take over.
Thank you, John. Good afternoon, ladies and gentlemen. I'm Henry Tai, VP of Corporate Development of China-Biotics. Welcome to our presentation. I'll spend about 20 minutes or so presenting about our company, and then I'll be able to take some questions at the end.
First of all, our mission. Our mission is to become the dominant supplier of naturally occurring probiotics bacteria in China. Now, first of all, what are probiotics? Well, in my own three words, probiotics are simply beneficial live bacteria. But there is a definition defined by the FAO of the United Nations for whoever wants to have a more technical definition.
Now, why -- there is nothing new about probiotics. It was discovered in the early 1900s in Bulgaria, and the benefits are widely documented. But only in the last 10 years has there been a breakthrough in the extraction and preservation technology that will see more widespread use of probiotics in China and in the rest of the world.
If you to go to foodnavigator.com and just type in "probiotics," you'll see a slew of articles talking about the benefits of probiotics as well as the companies that are making probiotics in the world like Dansk Droge, Dannon, Hansen, [Brocare]. This is a French -- these are French companies and Danish companies.
Now, what are the benefits of probiotics? Well, we need probiotics; i.e., beneficial live bacteria to help our digestion and absorption of food from the day we're born to the day we die. If we don't keep a good balance of beneficial live bacteria in our systems, we would end up having diarrhea, constipation. And as we grow older, our system tends to be less -- we do a worse job in keeping the balance.
And therefore, we need replenishment, once we reach the mid-40s onwards. And then, if we don't have a good balance of probiotics in our system, what happens is that in our system are harmful bacterial as well as beneficial bacteria. If we don't have enough -- if we don't have a good balance of the good bacteria, we'd end up having toxins created from the food being worked on by the bad bacteria.
Now, what does that do? In the long run, I think, our liver would go into -- we will have (inaudible), and then it would increase the risk of having cancers, if we don't have a good balance. We also contrast probiotics with antibiotics. Antibiotics, as you all know, are used to kill bad bacteria. Until probably five or ten years ago, it's been so widely used that we're now seeing the bad effects.
I remember ten years ago if I went to see a doctor and said, "hey, doc, I've got a flu," he'd say, "no problem, I'll give you some antibiotics." Of course, nowadays, the doctors do not prescribe that anymore. However, the bacteria have also learned a lesson and they are now becoming antibiotic resistant. So we now have a problem to deal with, and we'll see later on how the Chinese -- what the Chinese government is doing to address this issue which will in turn help our business.
Then, I would like you to take a look at the Company's overall performance and give you an overview. We are one of the largest suppliers of probiotics in China. Our Shining Essence brand is a very recognized brand, one of the most recognized brands, in fact, in the nutrient market in Shanghai.
We have proprietary technology that gives us significant cost and portfolio advantage. And we have achieved consistent strong growth in the last couple of years. In the nine months through the end of December, our topline increased 47.6% to $22.2 million, and our net profit increased 32.7% to $8.1 million.
And then fiscal year ended March '06 compared with the year before, we did $21.9 million from $14.4 million topline and bottomline of $8.4 million. We have in fact very strong gross margin of 70%. And at the end of December, the Company had net cash of $25 million.
Our current facility has got a capacity of about 9 tons of probiotics per annum production capacity. Our current utilization is about 7 tons. We currently only manufacture probiotics in capsule form in the Shanghai -- Greater Shanghai area only.
Now, we think about it. Last year, our topline sales was about US$22 million. At the retail level, that probably translates into maybe US$35 million. And this is the sales probiotics in capsule form in the Greater Shanghai area only.
From this year onwards, we do plan to go sell this product in the other cities in China. Initially, probably, weâ€™ll be targeting a couple of cities of like Beijing, Harbin, Shenyang and Heilongjiang, four cities. So far we have been selling our products in the Greater Shanghai area via distributors only.
Starting from 2006, we are starting a new retail strategy to try to sell our products through network marketing. In that connection, we have opened nine, what we call, retail store or logistics and training centers in Greater Shanghai.
The idea is that over time, we will develop a nationwide distribution infrastructure. And I think that would be a significant competitive advantage to us when itâ€™s built, because we would be able to sell different products through our channels throughout China.
At the same time, we are also expanding our product distribution into new directions of sales. We are now targeting the bulk additive business, by which we mean, right now, probiotics are added in baby milk powder and are used widely in yogurt manufacturing.
China doesnâ€™t have really the capacity to produce this stuff, and they import most of it. Right now, we are building a plant that has got 150 tons of capacity. And hopefully, most of that will be targeting the bulk business using the capacity from that particular plant.
Next, Iâ€™d like to just recap on our capital structure. We have 17 million shares in issue, market cap of US$120 million. About 60% of our shares are held by management and directors, and about 35% held by institutions with March year end date, and our auditors is BDO.
Next, Iâ€™d like to take a look at the markets in which we operate and see why do we experience such a good growth potential and what is the potential going forward. What is driving our sales?
I think firstly, the Chinese affluence has driven the sales of health products and is expected by year 2010 the health care products market in China will total $10 billion. And thatâ€™s a very big market. Right now, our sales are only US$22 million out of $10 billion potential in a couple of yearsâ€™ time.
As the Chinese become more affluent, they tend to spend more on healthy food as well as health care products. And thatâ€™s the trend we are seeing in China right now.
At the same time, the second major driver is the increase in the sales of dairy products. Yogurt has been the fastest growing segment -- food segment in China over the last two years. Last two years, in fact, they -- in each year, the sales of yogurt products has gone up by more than 25% per annum and is expected that the demand for yogurt drinks and dairy products to increase 10-fold from 2007 through 2015.
Just last month, Goldman Sachs and Morgan Stanley invested $3 million in a Chinese lactobacillus yogurt drink manufacturer. And itâ€™s reported that currently that 150,000 tons of yogurt is being manufactured in China right now.
So what does that all mean? It means that we are operating in a market where there is significant underlying growth and weâ€™re just riding on it.
Then if we look at the supply side, right now, the bulk additive business, as I call it, which is the use of probiotics in the manufacture of yogurt and baby milk powder, they've all been imported. The problem with importing probiotics are twofold -- (a) it's costly. And secondly, bacterias don't travel well, and you get less live bacteria as you travel from one country to another in global customs and all of that.
So what does that all mean? Again, it means that there is significant potential for us, when our plant is up and running, to capture a lot of this market that has currently been imported.
I said earlier that the Chinese government is taking measures to address the overuse of antibiotics. In fact, in 2004, the government slashed the retail price of antibiotics in China by 60%, with a duty price reducing the number of suppliers.
And in July 2005 -- I think, I've probably made a mistake here -- in July 2005, the antibiotics were made prescription drugs. So the Chinese no longer can just go to the shop or drug store and buy antibiotics.
Now, again, what does it all mean for us? I think with people not having the ability to just go to the counter and buy antibiotics makes them wanting to spend money on healthcare products and consuming more healthy food such as yogurt. Again, it all means good news for us.
There are no statistics in China about the probiotics usage or consumption, right now, and -- but we've been able to get some statistics, projections that have been published, just to illustrate the size of the market. This forecast is done by Beijing Leadership Management Consulting Company.
It shows that in year 2006 the probiotics usage in China totaled 3,400 tons, of which about 60% or about 2,000 tons was used in the diary production industry -- I guess, mainly yogurt and yogurt drinks. And it's projected that by 2010, the total consumption usage would increase to 10,600 tons. Again, roughly 60% of that would be used by the diary industry. While these figures, I wouldn't put my money on them, but it does give an indication of the size of the market and the growth potential.
Then, I want to take a look at our financial performance. In the three months ended December 2006, we had a 31% increase in our sales compared with the year before and a 23% increase in our net profit compared with the year before. Our gross margin -- we achieved 71% and we achieved a net margin of 41%.
And then if we look at the three quarters through the end of December 2006, our topline increased 47% to $22.2 million and our net profit increased 32% to $8.1 million. And then if we look at our fiscal year ended March, 2006 compared to the year before, if you look at the bottom left-hand corner, you see that last year, the full year, we did $21.9 million in sales and $8.4 million net profits. So our profit for the first three quarters through the end of December has more or less already matched our performance of the years before.
And if you look at the margins, our margins have been very stable at roughly at gross level of about 70% and a net level of about -- over 30%. So we've been achieving, I'd say, very consistent strong growth and very healthy margins.
Then, next, I'd like you to take a look at our production facility and our production capabilities. I'll probably go to Slide 11 first.
On the right hand side there is summary of our production process. We manufacture -- produce probiotics basically -- through a multistage proprietary fermentation process from a test tube into a pellet, into a container and then into a solid.
And then we will spin dry the extracted solid and then we add additives to it, mainly sugar to keep the bacteria alive and make it into granule and capsule form. That's a quick summary of our production process.
Our manufacturing facility is currently leased with 9 tons of capacity. Currently, we produce up -- on average about 22 million capsules per month. And I'd say going forward, we will -- we are building a 150 ton facility mainly targeting the bulk market. Currently, the -- we understand the imported probotic prices about $3,750 per kilogram.
Because of our significant cost advantage, even if we have to sell at a fraction of that price -- but what does that mean? It means that there is significant potential for us to gain market share in bulk simply by displacing the current imports.
And then, I'd like to you show you the drawing for the facilities that are under construction. This is a 150 ton facility already built and expandable to 300 tons and we expect it to come online in probably mid 2008. At the -- at that kind of gross sum, we expect that direct new potential for this facility at the 150 tons level to be about US$90 million.
Then, I'd like to take a look at our distribution and our products. These are our foremost popular products. The very first one is Shining Essence, it accounts for about 70% of our sales. But all of the product sales are growing and the percentage contribution by Shining Essence keeps dropping.
We've released six new products and right now we are developing and we'll continue to develop new products with a bulk added business i.e. formulation for baby milk powder as well as yoghurt drinks. And at the same time, we expect that we will release about 10 new products in year 2007.
So far, we have sold our products through 11 large distributors in Shanghai, with which we've done over five years of business with each of them. The products will be sold in department stores -- sorry -- drug stores and hypermarkets.
At the same time in 2006, I was saying that we have opened nine logistics and training centers, as you can see, at the bottom left-hand corner. That's a picture of our logistics and training center.
When the new plant is up and running and we're doing the bulk business, we will be selling to yogurt manufacturers, yogurt trade manufacturers as well as the baby milk powder manufacturers. Right now, the large baby milk powder, such as NestlĂ© and Mead Johnson -- their baby milk powder in China already contain probiotics.
Just wanted to take a quick look at our balance sheet. I think we have a very healthy balance sheet. We don't have any debt. We had, at the end of December 19, 2006, $25 million of net cash. We have a shareholders' fund of about US$20 million.
Lastly, our management team is led by Mr. Song Jinan, who is the Founder and CEO of our company. He also spearheads the R&D efforts. So he is a scientist by training background. Mr. Raymond Li, our CFO, is a qualified accountant with 20 years of finance and accounting experience, and he was Financial Controller of a Hong Kong listed company before.
And then, myself -- I'm also an accountant, been an accountant by training, also with 20 years of finance and accounting experience. And then with our three independent Directors, Mr. Simon Yick is again a finance professional, who heads up our audit committee.
And then we have got two other guys, who are very strong in the government side as well as on some technical side who would be able to help us with government relations as well as product development.
Well, gentlemen, that concludes my presentation. And I will be happy to address any questions that you may have. Thank you.