Skystar Bio-Pharmaceutical Announces Results for Third Quarter Fiscal Year 2012

Veterinary Medication Facility Resumes Production and Distribution; Veterinary Vaccine Facility Receives Initial GMP Certification

Marketwired

XI'AN, CHINA--(Marketwire - Nov 15, 2012) - Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI) ("Skystar" or the "Company"), a China-based manufacturer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives, today reported unaudited third quarter fiscal year 2012 earnings, for the period ended September 30, 2012.

Third Quarter 2012 Highlights

  • Revenue decrease 57% YoY to $8.9 million
    • Veterinary vaccines totaled $1.0 million, up 19% YoY
    • Veterinary medicines totaled $1.8 million, down 86% YoY
    • Feed additives totaled $1.2 million, up 13% YoY
    • Probiotics products totaled $4.9 million, down 18% YoY
  • Gross margin of 59% for the third quarter of fiscal 2011 as compared to 52% in the year ago period
  • GAAP net income declined 65% to $2.7 million or $0.36 per fully diluted share, compared with net income of $7.7 million or $1.08 per fully diluted share in the year ago period
  • Fiscal 2012 top line revenue guidance range revised from $33 million to $38 million reflecting inactivity of the veterinary medications facility due to timing of its GMP re-certification process.

Nine Month 2012 Highlights

  • Net revenue declined 31% YoY to $25.7 million
  • Gross profit of $14.7 million for the nine months of fiscal 2012 as compared to $18.9 million in the year ago period
  • GAAP net income $6.3 million, compared with GAAP net income of $11.2 million in the year ago period

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's Chairman and Chief Executive Officer, commented, "Skystar has made significant strides in moving its infrastructure forward in support of manufacturing capacity for the Company's veterinary medication and vaccine lines providing a solid outlook in the medium and long term.

"Skystar has resumed production and distribution of its primary veterinary medicine following GMP recertification by the Ministry of Agriculture. In addition, Skystar's animal and aquaculture vaccine production facility passed initial GMP certification, and, when it operates and reaches its full production levels, is expected to generate at minimum $15 million in annual sales.

"Once operational, the much anticipated vaccine facility will allow Skystar to mass produce vaccines currently produced by hand in large quality controlled batches. Both the certification of the veterinary medicine and vaccine plants are significant milestones for Skystar and are vital in supporting the Company's growth in upcoming years." 

Mr. Lu concluded, "In terms of Skystar's performance for the 3rd quarter of 2012, it is noteworthy that, in spite of China's 'soft' economic performance which is partly attributable to fiscal policies designed to control inflation, Skystar has been able to maintain and, at times, marginally increase sales pricing for its products. With this in mind, Skystar's 3rd quarter revenue and bottom line largely reflect a revenue drop in its veterinary medication business in the 3rd quarter, which accounts for nearly 60% of Skystar's revenues in any given period. This is a short term effect related to the closure of Skystar's veterinary medication facility during the pendency of the GMP recertification process. Now that Skystar has resumed production at this facility, Skystar can continue its commitment to maintaining bottom line profitability in its organic business in order to fund growth and expansion initiatives internally for years to come." 

Forecast
With the loss of revenue from the veterinary medication plant for all of the third quarter, Skystar's seasonally strongest quarter, the Company is recasting guidance to be in the range of $33 million to $38 million for fiscal 2012.

Financial Summary
Revenues for third quarter 2012, decreased 57% to $8.9 million as compared to $20.9 million in the year ago period.

Gross profit third quarter 2012 was roughly $5.3 million, down 52% from third quarter 2011.

Gross margin for the period was higher at 59% compared to 52% in the year ago period, due to the change in available product mix for sale.

Total operating expenses for third quarter 2012 was $1.6 million, or 18% of total revenue, compared with $1.9 million or 9% of total revenue in the year ago period.

Research and development costs totaled roughly $200,000 for the period, as compared to roughly $91,000 for the three months ended September 30, 2011, an increase of 118%. 

Selling expenses totaled $690,000 for third quarter 2012 as compared to $1.2 million for the comparable year ago period this was a decrease of roughly $480,000 or 41%. 

General and administrative expenses totaled $730,000 in the third quarter of 2012 as compared to $602,000 for the year ago period, an increase of $128,000 or 21%.

Operating income decreased 59% year over year and was $3.6 million in the third quarter of fiscal 2012 as compared to $9.0 million in the year ago period, operating margin remained level at 41% as compared to 43% from the year ago period.

Net income for the third quarter of 2012 was $2.7 million, or $0.36 per fully diluted share. This compares to net income of $7.7 million or $1.08 per fully diluted share in the same quarter of 2011.

As of September 30, 2012, Skystar had approximately $2.7 million in cash and current assets of $73 million and current liabilities of $20 million.

Conference Call & Webcast Information
The Company will host a conference call on Thursday, November 15, 2012 to discuss the quarter. Skystar's conference call will begin promptly at 7:45 a.m. ET to discuss third quarter financial results and operational performance. Mr. Weibing Lu, Skystar's chairman and chief executive officer, will host the call, which will be webcast live.

Webcast
The webcast will be made available on the investor relations section of the Skystar corporate website at http://www.investorcalendar.com/IC/CEPage.asp?ID=170249.

Phone dial-in
Telephone access to the conference call will be available in North America by dialing +1 (877) 407-8031 or internationally by dialing +1 (201) 689-8031.

An audio replay of the conference call will be available approximately two hours following the conclusion of the call and for the following 30 day period. To access the replay in North America, dial +1 (877) 660-6853 or, when calling internationally, dial +1 (201) 612-7415, using conference ID # 398886. An archived replay of the conference webcast will also be available on investor relations section of the Skystar corporate website at http://www.skystarbio-pharmaceutical.com.

To be added to the Company's email distribution for future news releases, please send your request to skystar@grayling.com.

About Skystar Bio-Pharmaceutical Company
Skystar is a China-based developer and distributor of veterinary healthcare and medical care products. Skystar has four product lines (veterinary medicines, micro-organisms, vaccines and feed additives) and over 284 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

   
   
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME  
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011  
(Unaudited)  
                       
    For Three Months Ended September 30,   For Nine Months Ended September 30,  
    2012     2011   2012     2011  
                               
REVENUE, NET   $ 8,933,005     $ 20,903,063   $ 25,730,190     $ 37,086,158  
                               
COST OF REVENUE     3,670,230       10,057,212     11,060,826       18,185,565  
                               
GROSS PROFIT     5,262,775       10,845,851     14,669,364       18,900,593  
                               
OPERATING EXPENSES:                              
Research and development costs     198,838       91,124     533,024       2,180,147  
Selling expenses     692,009       1,174,928     2,068,192       2,154,158  
General and administrative expenses     730,539       602,248     3,670,254       2,412,339  
Total operating expenses     1,621,386       1,868,300     6,271,470       6,746,644  
                               
INCOME FROM OPERATIONS     3,641,389       8,977,551     8,397,894       12,153,949  
                               
OTHER INCOME (EXPENSE):                              
Other income (expense), net     (734 )     9,421     55,264       5,054  
Interest income (expense), net     (199,238 )     15,036     (378,779 )     (54,265 )
Change in fair value of warrant/purchase option liability     7,000       171,765     29,400       1,267,412  
Total other income (expense), net     (192,972 )     196,222     (294,115 )     1,218,201  
                               
INCOME BEFORE PROVISION FOR INCOME TAXES     3,448,417       9,173,773     8,103,779       13,372,150  
                               
PROVISION FOR INCOME TAXES     717,163       1,446,112     1,768,905       2,205,267  
                               
NET INCOME     2,731,254       7,727,661     6,334,874       11,166,883  
                               
OTHER COMPREHENSIVE INCOME                              
Foreign currency translation adjustment     (198,269 )     898,786     484,203       2,494,959  
                               
COMPREHENSIVE INCOME   $ 2,532,985     $ 8,626,447   $ 6,819,077     $ 13,661,842  
                               
EARNINGS PER SHARE:                              
Basic   $ 0.36     $ 1.08   $ 0.85     $ 1.56  
Diluted   $ 0.36     $ 1.08   $ 0.85     $ 1.56  
                               
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                              
Basic     7,604,800       7,172,354     7,426,082       7,171,530  
Diluted     7,604,800       7,172,354     7,426,082       7,174,668  
                               
                               
                               
 
 
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
         
    September 30,   December 31,
    2012   2011
    (Unaudited)    
ASSETS            
CURRENT ASSETS:            
  Cash   $ 2,668,532   $ 7,048,968
  Accounts receivable, net of allowance for doubtful accounts of $472,483 and $438,678 as of September 30, 2012 and December 31, 2011, respectively     15,457,752     3,391,493
  Inventories     15,272,511     14,851,159
  Deposits, prepaid expenses and other receivables     3,139,404     3,421,487
  Prepayments to suppliers     34,834,548     29,226,961
  Loans receivable     2,106,998     964,088
    Total current assets     73,479,745     58,904,156
             
PROPERTY, PLANT AND EQUIPMENT, NET     28,904,306     28,376,559
             
CONSTRUCTION-IN-PROGRESS     8,686,322     8,839,055
             
OTHER ASSETS:            
  Long-term prepayments     1,033,875     1,512,817
  Long-term prepayments for acquisitions     177,296     569,788
  Intangible assets, net     5,406,479     5,674,206
    Total other assets     6,617,650     7,756,811
      Total assets   $ 117,688,023   $ 103,876,581
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
             
CURRENT LIABILITIES:            
  Accounts payable   $ 4,123,218   $ 1,047,067
  Other payables and accrued expenses     3,575,584     5,274,598
  Short-term loans     9,181,400     7,366,320
  Deposits from customers     1,347,993     1,432,529
  Taxes payable     1,238,105     160,081
  Due to related parties     386,533     56,273
    Total current liabilities     19,852,833     15,336,868
             
OTHER LIABILITIES:            
  Long-term loan     1,266,400     -
  Deferred government grant     395,750     393,500
  Warrant/purchase option liability     14,000     43,400
    Total other liabilities     1,676,150     436,900
      Total liabilities     21,528,983     15,773,768
             
COMMITMENTS AND CONTINGENCIES            
             
SHAREHOLDERS' EQUITY            
  Preferred stock, $0.001 par value, 50,000,000 shares authorized. No Series "A" shares authorized. 48,000,000 Series "B" shares authorized. No Series "B" shares issued and outstanding     -     -
  Common stock, $0.001 par value, 40,000,000 shares authorized, 7,604,800 and 7,161,919 shares issued and outstanding as of September 30, 2012 (Unaudited) and December 31, 2011, respectively     7,605     7,162
  Paid-in capital     37,021,085     35,784,378
  Statutory reserves     5,708,135     5,708,135
  Retained earnings     44,826,905     38,492,031
  Accumulated other comprehensive income     8,595,310     8,111,107
    Total shareholders' equity     96,159,040     88,102,813
      Total liabilities and shareholders' equity   $ 117,688,023   $ 103,876,581
                   
                   
                   
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011  
(Unaudited)  
           
    Nine months ended  
September 30,  
    2012   2011  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income   $ 6,334,874   $ 11,166,883  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:              
  Depreciation     920,444     709,749  
  Amortization     300,589     432,098  
  Provision for doubtful accounts     31,340        
  Change in fair value of warrant/purchase option liability     (29,400 )   (1,267,412 )
  Common stock to be issued to related parties for compensation           72,965  
  Common stock issued under 2010 stock incentive plan     1,037,911        
Change in operating assets and liabilities              
  Accounts receivable     (12,094,949 )   (4,566,868 )
  Inventories     (336,902 )   (6,890,055 )
  Deposits, prepaid expenses and other receivables     404,130     151,534  
  Prepayments to suppliers     (5,426,601 )   (8,750,609 )
  Accounts payable     3,112,002     1,073,204  
  Other payables and accrued expenses     (1,361,439 )   710,264  
  Deposits from customers     (92,856 )   123,582  
  Taxes payable     1,078,604     4,234,408  
  Net cash used in operating activities     (6,122,253 )   (2,800,257 )
               
CASH FLOWS FROM INVESTING ACTIVITIES:              
Payments of long-term prepayments     (343,960 )   (357,226 )
Refund of long-term prepayments     475,560        
Loans to third parties     (1,941,248 )   (2,885,501 )
Collection of loans to third parties     802,270     11,054,921  
Purchases of property, plant and equipment     (157,782 )   (58,560 )
Purchases of intangible assets           (46,496 )
Payments on construction-in-progress     (182,774 )   (7,316,494 )
Net cash (used in) provided by investing activities     (1,347,934 )   390,644  
               
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds from short-term loans     4,503,728     3,277,016  
Repayment of short-term loans     (2,726,544 )   (3,043,340 )
Proceeds from long-term loan     1,266,400        
Repayment of government grants     (317,040 )      
Due to related parties     331,158     4,960  
Net cash provided by financing activities     3,057,702     238,636  
               
EFFECT OF EXCHANGE RATE CHANGES ON CASH     32,049     66,298  
               
DECREASE IN CASH     (4,380,436 )   (2,104,679 )
               
CASH, beginning of period     7,048,968     5,887,831  
               
CASH, end of period   $ 2,668,532   $ 3,783,152  
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:              
Cash paid for interest   $ 508,667   $ 266,797  
Cash paid for income taxes   $ 971,784   $ 1,271,193  
Non-cash investing and financing activities              
Long-term prepayments transferred to construction-in-progress   $ 832,230   $ 5,497,461  
Long-term prepayments transferred to plant and equipment   $       4,727,364  
Construction-in-progress transferred to property, plant and equipment   $ 1,128,662   $    
Share issued to settle payables to related parties   $ 199,239   $    
               
               
               
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
                             
                Retained earnings        
    Common stock                    
    Shares   Amount   Paid-in capital   Statutory reserves   Unrestricted   Accumulated other comprehensive income   Total
BALANCE, December 31, 2011   7,161,919   $ 7,162   $ 35,784,378   $ 5,708,135   $ 38,492,031   $ 8,111,107   $ 88,102,813
                                         
Share issued under 2010 stock incentive plan   442,881     443     1,236,707                       1,237,150
Foreign currency translation                                 484,203     484,203
Net income                           6,334,874           6,334,874
                                         
BALANCE, September 30, 2012   7,604,800   $ 7,605   $ 37,021,085   $ 5,708,135   $ 44,826,905   $ 8,595,310   $ 96,159,040
                                         
                                         

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding the progress of new product development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the Company's ability to receive timely certification and related government approvals, its ability to increase production at its existing and future facilities, its ability to maintain and meet forecast production and other performance parameters, effect of changing economic conditions in The People's Republic of China, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual events to differ from the forward-looking statements. More information about some of these risks and uncertainties may be found in the reports filed with the Securities and Exchange Commission by the Company. The Company operates in a highly competitive and changing business and regulatory environment, thus new or unforeseen risks may arise. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results. Except as is expressly required by the federal securities laws, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances or future events or for any other reason. Additional risks that could affect our future operating results are more fully described in our U.S. Securities and Exchange Commission filings, including the Company's most recently filed Quarterly Report for the quarter ended September 30, 2012 and other subsequent filings. These filings are available at www.sec.gov.

Contact:

Grayling Investor Relations
Christopher Chu
(646) 284-9426
Email Contact

Skystar Bio-Pharmaceutical Company
Scott Cramer Director
Director Corporate Development and U.S. Representative
(407) 645-4433
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