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Skystar Bio-Pharmaceutical (CGPN) Reports Fiscal Year 2012 Financial Results



4/2/2013 9:25:30 AM

XI'AN, CHINA--(Marketwired - April 02, 2013) - 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 announced full financial results for fiscal year ended December 31, 2012.

Fiscal Year 2012 Summary

  • Revenues totaled $33.6 million, down 36% YoY
    • Veterinary vaccines totaled $3.6 million, up 53.1% YoY
    • Veterinary medicines totaled $10.7 million, down 68.4% YoY
    • Feed additives totaled $4.0 million, up 57.1% YoY
    • Micro-organism products totaled $15.4 million, up 8.5% YoY
  • Gross profit margin increased to 55% from 50% in the prior year
  • Net income decreased 54.5% year over year to $6.2 million or $0.83 per fully diluted share, as compared to $13.7 million or $1.90 per fully diluted share during the year ended December 31, 2011.
  • Improved cash balance to $11.3 million at the end of fiscal 2012

Management Comments
Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar is very pleased to share its 2012 financial results with investors. Financially, Skystar successfully maintained its historically clean and stable balance sheet, in addition to finishing the year bottom line profitable. In addition, the Company generated net positive cash flow from operations, maintained liquidity, met both long and short term debt obligations in addition to increasing its cash position as compared to the beginning of fiscal 2012 and end of fiscal 2011.

"Not counting Skystar's veterinary medication manufacturing plant in Huxian, whose production line was closed for three quarters of the 2012 fiscal year, due to the Ministry of Agriculture's mandatory GMP re-certification schedule. Skystar was able to ramp sales across all of it production lines. And through the shifting of Skystar's sales and marketing efforts; Vaccine revenues grew 53% year over year; Probiotics grew by 9% year over year; and Feed additives revenues grew 57% year over year. Skystar was not only able to maintain sales of these production lines in 2012 but increase selling despite China's economic slowdown.

"Operationally, Skystar's management trimmed operating expenses in 2012 in accordance with the shutdown of its Huxian veterinary medication facility, where unfortunately revenues were down 68% from the prior fiscal year due to its aforementioned closing prior to GMP inspection. Likewise R&D projects for fiscal 2012 were also strategically reduced in order to maintain profitability without shying away from planned research and from the Company's mission to stay ahead of trends and demands in China's animal husbandry space. As a result Skystar moderately increased its customer base to 3,964 customers consisting of independent distributors, franchise distributors and direct customers.

"With respect to Skystar's manufacturing facilities; the Company currently has four manufacturing facilities:

"The Sanqiao Plant has two facilities. The Micro-Organism facility is run in cooperation with experts from Microbiology Institute of Shaanxi Province, and Northwest Agro-Forestry Sci-tech University. The Second facility manufactures feed additives. Both facilities are operational and we look forward to solid revenue contribution in 2013 with respect to this product line.

"The Huxian Plant has two production lines for vaccines and medications. In the third quarter of fiscal of fiscal 2012, China's MOA inspected and renewed the GMP certificate for this facility's veterinary medication facility which will be valid for a period of five years. We look forward to the revenue contribution of this production facility and are eager to ramp sales of this product line. Additionally, the new vaccine facility was also inspected and received stage one GMP approval. Under China's revised inspection process, the vaccine production line is still waiting to undergo stage two of the GMP certification. Management expects the GMP certification process of the vaccine facility to be completed by the third quarter of 2013.

"The Jingzhou Plant, plant is GMP certified to produce veterinary medicines including aqua culture medicines and is fully operational.

"Skystar's probiotics plant in Kunshan was acquired in September 2011 for roughly $8 million. As of the end of 2012, the facility renovation for this facility is complete; inspection was completed and accepted in March 2013. However, the equipment installation, tooling and testing is not fully completed; thus this facility is not operational at this point," said Mr. Lu.

Fiscal Year 2012 Financial Results
In-line with revised guidance, Skystar reported full fiscal 2012 year Revenues of $33.6 million, a 36% decrease compared to the $52.8 million in revenues reported for the full fiscal 2011 year. Gross profit for the full fiscal 2012 year was $18.5 million, or 55% of revenues.

Net income decreased 54.5% year over year to $6.2 million or $0.83 per fully diluted share, as compared to $13.7 million or $1.90 per fully diluted share in the year ago period.

Skystar's Cost of Sales which consists of raw materials, direct labor, and manufacturing overhead for our four product lines, was $15.1 million for fiscal 2012 as compared to $26.6 million for the year ago period. This decrease was mainly due to the decrease in corresponding sales as a result of temporary suspension of production at the Huxian facility for the first three quarters of 2012.

Research and Development costs totaled $2.2 million for the fiscal 2012 as compared to $2.8 million for the year ago period, a decrease of $0.6 million or 23.5%. The decrease was due to a strategic reduction in R&D projects for the fiscal year.

Selling expenses totaled $3.0 million for fiscal 2012 as compared to $4.0 million in the year ago period, a decrease of $1.0 million or 25.2%. This decrease is mainly due to decreased sales commission expenses as the Huxian veterinary medication facility was temporarily closed for the first three quarters of 2012 resulting in a significant decrease in veterinary medication sales in 2012. Shipping and handling costs and travelling expenses also decreased as less veterinary medicine sales activities during the year.

General and Administrative $4.7 million for the year ended December 31, 2012 as compared to $4.1 million for the year ended December 31, 2011, an increase of $0.6 million or 15.8%. The increase was mainly due to the stock based compensation expense of $1.0 million for stock grants on May 4, 2012 to the Company's employees and members of the Board of Directors, all of which grants were made pursuant to the terms and provisions of the 2010 Stock Incentive Plan.

Financial Position: as of December 31, 2012, Skystar had approximately $11.3 million in cash, current assets of $71.6 million and current liabilities of $17.2 million, which resulted in a net working capital of $54.4 million.

Business Outlook
Mr. Lu concluded, "Fiscal 2013 will be an exciting year for Skystar, following the successful application of GMP certifications for our various manufacturing facilities, the Company is another step closer to realizing the full revenue potential of its manufacturing facilities. Skystar currently anticipates delivering a 20% to 35% year over year increase in top line revenue for fiscal 2013. The expected revenue range is $40 million to $45 million with gross margin of roughly 50% for fiscal 2013. This view takes into consideration revenues from facilities that have come online following GMP recertification," concluded Mr. Lu.

Conference Call Information
The Company will host a conference call on Tuesday, April 2, 2013 to discuss its financial results for the year ended December 31, 2012. Skystar's conference call will begin promptly at 7:45 a.m. EST to review fiscal year 2012 financial 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.skystarbio-pharmaceutical.com or http://www.investorcalendar.com/IC/CEPage.asp?ID=170739.

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, referencing conference ID # 411773.

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, probiotics, vaccines and feed additives) and over 275 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 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in US. Dollars, except share and amounts) Years ended December 31, ------------------------- 2012 2011 ------------ ------------ REVENUE, net $ 33,586,791 $ 52,788,279 COST OF REVENUE 15,095,004 26,562,748 ----------- ----------- GROSS PROFIT 18,491,787 26,225,531 ----------- ----------- OPERATING EXPENSES: Research and development 2,154,241 2,814,328 Selling expenses 3,040,036 4,062,126 General and administrative 4,746,529 4,099,153 ----------- ----------- Total operating expenses 9,940,806 10,975,607 ----------- ----------- INCOME FROM OPERATIONS 8,550,981 15,249,924 ----------- ----------- OTHER INCOME (EXPENSE): Other income, net 498,614 43,696 Interest expense, net (706,842) (140,920) Change in fair value of warrant/purchase option liability 37,800 1,376,239 ----------- ----------- Total other income (expense), net (170,428) 1,279,015 ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 8,380,553 16,528,939 PROVISION FOR INCOME TAXES 2,168,125 2,871,299 ----------- ----------- NET INCOME 6,212,428 13,657,640 OTHER COMPREHENSIVE INCOME : Foreign currency translation adjustment 662,542 2,955,344 ----------- ----------- COMPREHENSIVE INCOME $ 6,874,970 $ 16,612,984 =========== =========== EARNINGS PER SHARE: Basic $ 0.83 $ 1.90 =========== =========== Diluted $ 0.83 $ 1.90 =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES: Basic 7,471,350 7,182,969 =========== =========== Diluted 7,471,350 7,184,484 =========== =========== SKYSTAR BIO-PHARMACEUTICAL COMPANY CONSOLIDATED BALANCE SHEETS (Amounts in US. Dollars, except share and amounts) December 31, December 31, 2012 2011 ------------ ------------ ASSETS CURRENT ASSETS: Cash $ 11,321,848 $ 7,048,968 Accounts receivable, net of allowance for doubtful accounts of $247,269 and $438,678, respectively 10,010,796 3,391,493 Inventories 22,962,209 14,851,159 Deposits, prepaid expenses and other receivables 2,839,850 3,421,487 Prepayments to suppliers 23,438,735 29,226,961 Loans receivable 1,078,827 964,088 ------------ ------------ Total current assets 71,652,265 58,904,156 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, NET 28,867,816 28,376,559 CONSTRUCTION-IN-PROGRESS 8,691,360 8,839,055 OTHER ASSETS: Long-term prepayments 1,050,327 1,512,817 Long-term prepayments for acquisitions 177,744 569,788 Intangible assets, net 5,319,831 5,674,206 Total other assets 6,547,902 7,756,811 ------------ ------------ Total assets $ 115,759,343 $ 103,876,581 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,017,530 $ 1,047,067 Other payable and accrued expenses 4,374,047 5,274,598 Short-term loans 4,443,600 7,366,320 Deposits from customers 1,621,061 1,432,529 Taxes payable 1,950,757 160,081 Due to related parties 798,925 56,273 ------------ ------------ Total current liabilities 17,205,920 15,336,868 ------------ ------------ OTHER LIABILITIES: Long-term loan 1,269,600 - Deferred government grants 1,063,290 393,500 Warrant/purchase option liability 5,600 43,400 Total other liabilities 2,338,490 436,900 ------------ ------------ Total liabilities 19,544,410 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 December 31, 2012 and 2011, respectively 7,605 7,162 Paid-in capital 37,021,085 35,784,378 Statutory reserves 5,897,298 5,708,135 Retained earnings 44,515,296 38,492,031 Accumulated other comprehensive income 8,773,649 8,111,107 ------------ ------------ Total shareholders' equity 96,214,933 88,102,813 ------------ ------------ Total liabilities and shareholders' equity $ 115,759,343 $ 103,876,581 ============ ============ SKYSTAR BIO-PHARMACEUTICAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in US. Dollars, except share and amounts) Year ended December 31, 2012 2011 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,212,428 $ 13,657,640 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,035,829 1,347,090 Amortization 401,114 524,662 (Reversal of) provision for doubtful accounts (194,971) 85,561 Provision for obsolete inventories - 7,562 Common stock to be issued to related parties for compensation 86,162 146,189 Common stock issued under 2010 stock incentive plan 1,037,911 - Change in fair value of warrant/purchase option liability (37,800) (1,376,239) Change in operating assets and liabilities Accounts receivable (6,394,244) 1,660,343 Inventories (7,985,875) (7,482,193) Deposits, prepaid expenses and other receivables 1,651,478 162,188 Prepayments to suppliers 6,027,718 (12,298,451) Accounts payable 2,307,066 724,579 Other payables and accrued expenses (500,127) 1,667,267 Deposits from customers 176,645 123,215 Taxes payable 1,788,790 (608,350) ---------- ----------- Net cash provided by (used in) operating activities 5,612,124 (1,658,937) ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (163,049) (524,574) Payments on construction-in-progress (393,032) (7,028,129) Long-term prepayments (358,077) (1,365,671) Refund of long-term prepayments 475,950 - Loans to third parties (2,023,393) (3,849,994) Collection of loans to third parties 1,916,651 11,113,731 ---------- ----------- Net cash used in investing activities (544,950) (1,654,637) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term and long-term loans 5,774,860 10,856,498 Repayment of short-term loans (7,488,280) (6,695,279) Proceeds from government grants 666,330 - Repayment of government grants (475,950) - Due to (from) related parties 743,755 (75,505) ---------- ----------- Net cash (used in) provided by financing activities (779,285) 4,085,714 ---------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (15,009) 388,997 ---------- ----------- INCREASE IN CASH 4,272,880 1,161,137 CASH, beginning of year 7,048,968 5,887,831 ---------- ----------- CASH, end of year $11,321,848 $ 7,048,968 ========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 647,249 $ 362,713 ========== =========== Cash paid for income taxes $ 972,739 $ 5,366,046 ========== =========== Non-cash investing and financing activities Long-term prepayment transferred to construction- in-progress $ 1,004,635 $ 3,895,580 ========== =========== Long term prepayment transferred to plant and equipment $ - 4,752,513 ========== =========== Construction-in-progress transferred to property, plant and equipment $ 1,129,588 $ 813,562 ========== =========== Share issued to settle payables to related parties $ 199,239 $ - ========== =========== SKYSTAR BIO-PHARMACEUTICAL COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in US. Dollars, except share and amounts) Common stock Paid-in ---------------- Shares Amount capital --------- ------ ----------- BALANCE, January 1, 2011 7,161,919 $7,162 $35,784,378 Foreign currency translation Net income Appropriation to statutory reserves --------- ------ ----------- BALANCE, December 31, 2011 7,161,919 $7,162 $35,784,378 Share issued under 2010 stock incentive plan 442,881 443 1,236,707 Foreign currency translation Net income Appropriation to statutory reserves --------- ------ ----------- BALANCE, December 31, 2012 7,604,800 $7,605 $37,021,085 ========= ====== =========== Accumulated Retained earnings other ------------------------ Statutory comprehensive reserves Unrestricted income Total ---------- ------------- -------------- ----------- BALANCE, January 1, 2011$5,695,236 $ 24,847,290 $ 5,155,763 $71,489,829 Foreign currency translation 2,955,344 2,955,344 Net income 13,657,640 13,657,640 Appropriation to statutory reserves 12,899 (12,899) - ---------- ------------- -------------- ----------- BALANCE, December 31, 2011 $5,708,135 $ 38,492,031 $ 8,111,107 $88,102,813 Share issued under 2010 stock incentive plan 1,237,150 Foreign currency translation 662,542 662,542 Net income 6,212,428 6,212,428 Appropriation to


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