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Skystar Bio-Pharmaceutical (CGPN) Reports First Quarter 2012 Results


5/16/2012 8:25:06 AM

XI'AN, CHINA--(Marketwire - May 16, 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 first quarter fiscal year 2012 earnings, for the period ended March 31, 2012.

First Quarter 2012 Highlights

  • Revenue increases 12% YoY to $7.9 million
    • Veterinary vaccines totaled$0.75 million, up 150% YoY
    • Veterinary medicines totaled $3.0 million, decreasing 38% YoY
    • Feed additives totaled $1.0 million, up 217% YoY
    • Pro-biotic micro-organism products totaled $3.1 million, up 96% YoY
  • Gross Profit $4.3 million up 19% for the first three months of fiscal 2012 YoY
  • Gross Margin of 54% for the first three months of fiscal 2012, compared to 51% in the prior 2011 period
  • Net Income $1.9 million or $0.26 per fully diluted share, compared with $1.9 million or $0.27 per fully diluted share in the year ago period
  • Company reiterates Fiscal 2012 revenue guidance range of $53 million to $57 million

Management's Comments
Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar, commented, "Management is pleased to announce a strong start for Skystar closing the first quarter of the new fiscal year on pace to meet fiscal guidance. While 2012 marks a transitional year for the Company, Skystar continues to internally fund infrastructure projects that will increase production capability, develop product pipeline internally in addition to expanding our distribution footprint across new markets. We believe these efforts will generate meaningful new sources of revenue and profit, ultimately maximizing shareholder value.

"As a veterinary pharmaceutical manufacturer in China, Skystar is subject to periodic examinations of its manufacturing facilities every five years. Our Huxian facility which manufactures veterinary medicine in addition to the completed extension which will produce animal vaccines are currently closed for GMP inspections. We expect recertification of the medicine manufacturing plant to be completed in the third quarter of 2012 and first time GMP examination for the vaccine facility to be completed in the second half of the fiscal year. To date, the Company has submitted all application materials necessary for the medicine plant's GMP re-certification which have already been accepted by the Ministry of Agriculture. We expect that Skystar's vaccine facility will complete its GMP certification process by the second half of 2012. Unlike 2011, much of the sweeping concerns in China for human food manufacturing and safety have largely been addressed in the prior year allowing the government to shift its focus to other areas of need such as certification of newly built medical product manufacturing facilities.

"We currently have two veterinary medications plants located in Huxian and Jingzhou with Huxian being our main facility. The Jingzhou plant completed its GMP re-examination in 2011 and resumed its partial production in the first quarter of 2012 and is now under way to resume its normal production. We plan to increase the production and sales of veterinary medications in the Jingzhou plant while the Huxian facility awaits GMP re-examination.

"With this said, Skystar continues to actively position itself for the growth of its infrastructure using cash generated from operating activities and other non-dilutive measures. This fiscal quarter's results are evidence that management can successfully implement strategic growth initiatives while maintaining profitability for shareholders," concluded Mr. Lu.

Financial Summary
Skystar reported fiscal first quarter 2012 Revenues of $7,926,337, a 12% increase compared to the $7,086,954 in revenues reported for fiscal first quarter of 2011. Gross profit for first quarter 2012 was $4,282,679, up 19.1% from first quarter 2011. Gross profit margin for the period was 54.0% and in-line with historical year over year comparables.

The breakdown for Operating Expenses is as follows: Research and development costs totaled $3,654 for the three months ended March 31, 2012 as compared to $287,472 for the three months ended March 31, 2011, a decrease of $283,818 or 98.7%. The decrease was primarily due to no significant new R&D efforts undertaken during the first quarter of 2012. However, R&D is scheduled to ramp later in the fiscal year.

Selling expenses totaled $705,616 for the three months ended March 31, 2012 as compared to $369,404 for the three months ended March 31, 2011, an increase of $336,212 or 91.0%. This increase is primarily a result of significantly increased shipping and handling costs related to delivering our products to customers as we continued to expand our market to remote areas, and to rising oil price and continuing inflation pressure in China, which resulted in higher unit costs for transportation and delivery services. Shipping and handling costs totaled $383,703 and $194,216 for the three months ended March 31, 2012 and 2011, respectively, an increase of $189,487 or 97.6%. In addition, the increases in the sales forces and selling commission due to new sales incentive programs initiated later last year also contributed to the increase in selling costs. Selling salaries totaled $105,810 and $34,811 for the three months ended March 31, 2012 and 2011, respectively, an increase of $70,999 or 204.0%. Selling commission totaled $135,617 and $79,818 for the three months ended March 31, 2012 and 2011, respectively, an increase of $55,799 or 69.9%.

General and administrative expenses totaled $1,105,435 for the three months ended March 31, 2012 as compared to $1,294,798 for the three months ended March 31, 2011, a decrease of $189,363 or 14.6%. The decrease was mainly due to decreased amortization expenses, G&A travel and office expenses during the first quarter of 2012. The decrease in amortization expense was because the patent acquired through the acquisition of Jingzhou plant was fully amortized in 2011. Amortization expenses totaled $100,373 and $230,922 for the three months ended March 31, 2012 and 2011, respectively, a decrease of $130,549 or 56.5%. In addition, the decreases in the G&A travel and office expenses due to the Company's continued efforts to optimize cost control also contributed to the decrease in G&A costs in the first quarter. G&A travel costs totaled $16,215 and $120,372 for the three months ended March 31, 2012 and 2011, respectively, a decrease of $104,157 or 86.5%. G&A office expenses totaled $31,042 and $142,140 for the three months ended March 31, 2012 and 2011, respectively, a decrease of $111,098 or 78.2%. The increase in the audit costs of $99,480 in the first quarter of 2012 partially offset the impact of the cost reduction in other G&A items.

Income from operations: increased 50.1% to $2,467,974 for first quarter fiscal 2012 as compared to $1,643,934 in the comparable fiscal 2011 period.

Net income: remained flat, decreasing slightly by 1.4% year over year to $1,904,754 or $0.26 per fully diluted share, as compared to $1,931,832 or $0.27 per fully diluted share in the year ago period.

Financial position: as of March 31, 2012 Skystar had $9,386,584 in cash, current assets of $65,028,677 and total liabilities of $19,188,340, which resulted in a net working capital of $45,840,337.

Business outlook: The Company reiterates Fiscal year 2012 revenue guidance to be in the range of $53 million to $57 million for the full year.

NASDAQ listing compliance matter: On January 12, 2012, the Company received a staff determination from the Nasdaq Stock Market ("Exchange") indicating that since the Company did not hold its 2010 annual shareholder meeting by December 31, 2011, the Company was not in compliance with Nasdaq Listing Rule 5620(a) and (b) relating to the time frame of and proxy solicitation in connection with annual shareholder meetings and, therefore, the Exchange staff determined to initiate proceedings to delist the Company's securities from Nasdaq at the open of business on January 23, 2012. On April 27, 2012, the Company held its 2011 Annual Meeting of Shareholders. On May 1, 2012, the Exchange confirmed that the Company had met the requirements of the Panel's decision dated March 26, 2012, and was in compliance with all other applicable requirements for continued listing on Nasdaq. The matter is now closed.

Conference Call & Webcast Information
A conference call will be held May 16, 2012 at 7:45 AM. The webcast will be made available on the investor relations section of the Skystar corporate website at http://www.skystarbio-pharmaceutical.com or http://www.investorcalendar.com/IC/CEPage.asp?ID=168301.

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 replay account code # 286 and conference ID # 393102. 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 287 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

Financial Tables Follow

                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME    
             FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011             
                                 (Unaudited)                                
                                                                            
                                                     Three months ended     
                                                          March 31,         
                                               -----------------------------
                                                    2012            2011    
                                               -------------  --------------
                                                                            
REVENUE, NET                                   $   7,926,337  $    7,086,954
                                                                            
COST OF REVENUE                                    3,643,658       3,491,346
                                               -------------  --------------
                                                                            
GROSS PROFIT                                       4,282,679       3,595,608
                                               -------------  --------------
                                                                            
OPERATING EXPENSES:                                                         
  Research and development costs                       3,654         287,472
  Selling expenses                                   705,616         369,404
  General and administrative expenses              1,105,435       1,294,798
                                               -------------  --------------
    Total operating expenses                       1,814,705       1,951,674
                                               -------------  --------------
                                                                            
INCOME FROM OPERATIONS                             2,467,974       1,643,934
                                               -------------  --------------
                                                                            
OTHER INCOME (EXPENSE):                                                     
  Other income, net                                   53,760             182
  Interest income (expense), net                    (153,612)         29,672
  Change in fair value of warrant/purchase                                  
   option liability                                    5,600         735,494
                                               -------------  --------------
    Total other income (expense), net                (94,252)        765,348
                                               -------------  --------------
                                                                            
INCOME BEFORE PROVISION FOR INCOME TAXES           2,373,722       2,409,282
                                                                            
PROVISION FOR INCOME TAXES                           468,968         477,450
                                               -------------  --------------
                                                                            
NET INCOME                                         1,904,754       1,931,832
                                                                            
OTHER COMPREHENSIVE INCOME:                                                 
  Foreign currency translation adjustment            558,757         465,593
                                               -------------  --------------
                                                                            
COMPREHENSIVE INCOME                           $   2,463,511  $    2,397,425
                                               =============  ==============
                                                                            
EARNINGS PER SHARE:                                                         
  Basic                                        $        0.26  $         0.27
                                               =============  ==============
  Diluted                                      $        0.26  $         0.27
                                               =============  ==============
                                                                            
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                   
  Basic                                            7,210,256       7,166,919
                                               =============  ==============
  Diluted                                          7,210,256       7,179,309
                                               =============  ==============
                                                                            
                                                                            
                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
                                                                            
                    CONDENSED CONSOLIDATED BALANCE SHEETS                   
                                                                            
                    ASSETS                                                  
                                                  March 31,     December 31,
                                                     2012           2011    
                                                 (Unaudited)                
                                               -------------- --------------
                                                                            
CURRENT ASSETS:                                                             
  Cash                                         $    9,386,584 $    7,048,968
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $480,237 (Unaudited)                                
   and $438,678 as of March 31, 2012 and                                    
   December 31, 2011, respectively                  5,783,831      3,391,493
  Inventories                                      13,962,087     14,851,159
  Deposits, prepaid expenses and other                                      
   receivables                                     34,914,476     32,648,448
  Loans receivable                                    981,699        964,088
                                               -------------- --------------
    Total current assets                           65,028,677     58,904,156
                                               -------------- --------------
                                                                            
PLANT AND EQUIPMENT, NET                           28,273,028     28,376,559
                                                                            
CONSTRUCTION-IN-PROGRESS                            9,434,227      8,839,055
                                                                            
OTHER ASSETS:                                                               
  Long-term prepayments                             1,189,788      1,512,817
  Long-term prepayments for acquisitions              652,609        569,788
  Intangible assets, net                            5,610,135      5,674,206
                                               -------------- --------------
    Total other assets                              7,452,532      7,756,811
                                               -------------- --------------
      Total assets                             $  110,188,464 $  103,876,581
                                               ============== ==============
                                                                            
     LIABILITIES AND SHAREHOLDERS' EQUITY                                   
                                                                            
CURRENT LIABILITIES:                                                        
  Accounts payable                             $    2,046,341 $    1,047,067
  Other payable and accrued expenses                6,059,237      5,274,598
  Short-term loans                                  7,476,480      7,366,320
  Deposits from customers                           1,640,457      1,432,529
  Taxes payable                                     1,585,156        160,081
  Due to related parties                              380,669         56,273
                                               -------------- --------------
    Total current liabilities                      19,188,340     15,336,868
                                               -------------- --------------
                                                                            
OTHER LIABILITIES:                                                          
  Deferred government grant                           396,000        393,500
  Warrant/purchase option liability                    37,800         43,400
                                               -------------- --------------
    Total other liabilities                           433,800        436,900
                                               -------------- --------------
      Total liabilities                            19,622,140     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, 7,161,919 shares issued                               
   and outstanding as of March 31, 2012                                     
   (Unaudited) and December 31, 2011                    7,162          7,162
  Paid-in capital                                  35,784,378     35,784,378
  Statutory reserves                                5,708,135      5,708,135
  Retained earnings                                40,396,785     38,492,031
  Accumulated other comprehensive income            8,669,864      8,111,107
                                               -------------- --------------
    Total shareholders' equity                     90,566,324     88,102,813
                                               -------------- --------------
      Total liabilities and shareholders'                                   
       equity                                  $  110,188,464 $  103,876,581
                                               ============== ==============
                                                                            
                                                                            
                                                           
    SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES    
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 
                        (Unaudited)                        
                                                           
                                                           
                                                           
                               Common stock                
                           --------------------            
                                                  Paid-in  
                              Shares    Amount    capital  
                           ----------- -------- -----------
BALANCE, December 31, 2011   7,161,919 $  7,162 $35,784,378
                                                           
  Foreign currency                                         
   translation                                             
  Net income                                               
                                                           
                           ----------- -------- -----------
BALANCE, March 31, 2012      7,161,919 $  7,162 $35,784,378
                           =========== ======== ===========

                                                                           
                              Retained earnings                             
                           -----------------------                          
                                                    Accumulated             
                                                       other                
                            Statutory              comprehensive            
                            reserves  Unrestricted     income       Total   
                           ---------- ------------ ------------- -----------
BALANCE, December 31, 2011 $5,708,135 $ 38,492,031 $   8,111,107 $88,102,813
                                                                            
  Foreign currency                                                          
   translation                                           558,757     558,757
  Net income                             1,904,754                 1,904,754
                                                                            
                           ---------- ------------ ------------- -----------
BALANCE, March 31, 2012    $5,708,135 $ 40,396,785 $   8,669,864 $90,566,324
                           ========== ============ ============= ===========
                                                                            
                                                                            
            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES             
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
             FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011             
                                (Unaudited)                                 
                                                                            
                                                     Three months ended     
                                                         March 31,          
                                               ---------------------------- 
                                                    2012           2011     
                                               -------------  ------------- 
CASH FLOWS FROM OPERATING ACTIVITIES:                                       
  Net income                                   $   1,904,754  $   1,931,832 
  Adjustments to reconcile net income to net                                
   cash provided by (used in) operating                                     
   activities:                                                              
    Depreciation                                     343,129        332,428 
    Amortization                                     100,373        230,922 
    Provision for doubtful accounts                   38,869              - 
    Change in fair value of warrant/purchase                                
     option liability                                 (5,600)      (735,494)
  Change in operating assets and liabilities                                
    Accounts receivable                           (2,415,647)      (757,356)
    Inventories                                      985,908     (6,826,437)
    Deposits, prepaid expenses and other                                    
     receivables                                  (2,144,356)    (2,603,343)
    Accounts payable                                 980,926        197,277 
    Other payable and accrued expenses               606,331        360,449 
    Deposits from customers                          199,329         14,989 
    Taxes payable                                  1,427,655      1,566,418 
                                               -------------  ------------- 
      Net cash provided by (used in) operating                              
       activities                                  2,021,671     (6,288,315)
                                               -------------  ------------- 
                                                                            
CASH FLOWS FROM INVESTING ACTIVITIES:                                       
                                                                            
  Payments of long-term prepayments                        -       (451,722)
  Loans receivables                                  (11,515)             - 
  Collection of loans receivables                          -      7,609,000 
  Purchases of plant and equipment                   (54,965)       (22,275)
  Purchases of intangible assets                           -        (38,045)
  Payments on construction-in-progress               (44,940)      (634,222)
                                               -------------  ------------- 
      Net cash (used in) provided by investing                              
       activities                                   (111,420)     6,462,736 
                                               -------------  ------------- 
                                                                            
CASH FLOWS FROM FINANCING ACTIVITIES:                                       
  Proceeds from short-term loans                      63,520      1,257,007 
  Due to related parties                             326,061         62,834 
                                               -------------  ------------- 
      Net cash provided by financing                                        
       activities                                    389,581      1,319,841 
                                               -------------  ------------- 
                                                                            
EFFECT OF EXCHANGE RATE CHANGES ON CASH               37,784         21,296 
                                               -------------  ------------- 
                                                                            
INCREASE IN CASH                                   2,337,616      1,515,558 
                                                                            
CASH, beginning of year                            7,048,968      5,887,831 
                                               -------------  ------------- 
                                                                            
CASH, end of year                              $   9,386,584  $   7,403,389 
                                               =============  ============= 
                                                                            
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                        
 INFORMATION:                                                               
  Cash paid for interest                       $     152,583  $      54,409 
                                               =============  ============= 
  Non-cash investing and financing activities                               
    Long-term prepayment transferred to                                     
     construction-in-progress                  $     333,480  $     421,843 
                                               =============  ============= 
    Construction-in-progress transferred to                                 
     property, plant and equipment             $       3,633  $           - 
                                               =============  ============= 
                                                                            
                                                                            

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
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, 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 c


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