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Skystar Bio-Pharmaceutical (CGPN) Reports Record Fourth Quarter and Fiscal Year 2010 Financial Results


1/31/2012 1:19:23 PM

XI'AN, CHINA--(Marketwire - April 12, 2011) - 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 fourth quarter and full financial results for fiscal year 2010, for the period ended December 31, 2010.

Fourth Quarter 2010 Highlights
--  Revenue increases 45% YoY to $15.8 million
    --  Veterinary vaccines totaled $0.6 million, up 52% YoY
    --  Veterinary medicines totaled $11.0 million, up 39% YoY
    --  Feed additives totaled $0.6 million, up 50% YoY
    --  Micro-organism products totaled $3.6 million,  up 66% YoY
--  Gross margin increased from 50% for the three months ending
    December 31, 2009 to 54% for the three months ended December 31, 2010
--  Net income increased 26% to $3.9 million or $0.55 per fully diluted
    share, compared with $3.1 million or $0.44 per basic share in the
    fourth quarter of 2009

Fiscal Year 2010 Highlights
--  Revenues totaled $47.5 million, up 40.8% YoY
    --  Veterinary vaccines totaled $1.9 million, up  39.1% YoY
    --  Veterinary medicines totaled $32.0 million, up 39.9% YoY
    --  Feed additives totaled $1.9 million, up 38.4% YoY
    --  Micro-organism products totaled $11.5 million,  up 43.9% YoY
--  Gross profit margin was 53.7% in line with historical gross margin
--  Net income increased 21.9% year over year to $14.0 million or $1.98
    per fully diluted share, as compared to $8.8 million or $1.62 per basic
    share during the year ended December 31, 2009. Increased net cash
    provided by operating activities position to $7.7 million up from
    $1.3 million in the year ago period
--  Improved cash balance to $5.9 million at the end of fiscal 2010

Management Year in Review

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "We are pleased to announce strong financial results for the fourth quarter and full fiscal 2010 year. The Company was able to grow top line revenue by over 40% year-over-year to $47.5 million and net income by over 20% year-over-year to $14.0 million. Additionally, Skystar improved net cash from operating activities significantly to $7.7 million as compared $1.3 million in the year ago period.

"In fiscal 2010, Skystar continued to build both brand and presence across all 29 farming regions in China and was able to increase its number of customers by 36% to 2,703 customers consisting of independent distributors, franchise distributors and direct customers.

"Accordingly, a report by the World Resource institute indicated that meat intake per person has grown from 55 pounds per annum in 1990 to roughly 116 pounds in 2008. This statistical trend highlights Skystar's opportunity to service a growing industry and we expect to successfully expand sales with profitability in mind.

"In 2010, Skystar continued to utilize working capital to prepay for raw materials. This buy-forward strategy helped Skystar manage fluctuations in raw material costs. Skystar as of current has adequate working capital to fund its operations and prepayment of raw materials but will continue to seek ways to improve its working capital position. Additionally the Company will continue to utilize a buy-forward strategy in order to mitigate and better forecast raw material costs for 2011.

"In 2010, the Company increased its product line to 256 products as compared to 173 products at the end of fiscal 2009. The newly acquired Jingzhou facility contributed $1.3 million in sales revenue for fiscal 2010, nearly all of which occurred in the fourth quarter which on an annualized run rate would generate $3.0 million to $5.0 million in revenue per year.

"Skystar owns three production facilities in total: two are in Xi'an City in Shaanxi Province and one facility in Jingzhou City in Hubei Province. Both the Huxian plant and the Jingzhou plant are 'GMP' certified to produce veterinary animal medicines.

"The vaccine facility in the Huxian plant finished construction in June of 2010; equipments installations, tooling and testing of the plant's manufacturing processes was finished later in the third quarter of 2010. The Company has applied to the MOA for GMP certification and is currently waiting for the appointment date from the Ministry. The GMP approval process is taking much longer than we initially expected due to sweeping regulatory changes in the GMP certification and approval process for veterinary vaccine manufacturers. Skystar believes that its facilities will pass new GMP standards.

"The Company is still in the process of closing the Kunshan based probiotics micro-organism manufacturing plant in Jiangsu province. The Company as of current has invested roughly $8 million in connection with the acquisition. As of October 2010 the Company has received the title of land use right for the facility. Skystar expects the final stages related to clearing all necessary government approvals to close this acquisition to be completed within the first half of fiscal 2011. Skystar forecasts this production facility will contribute approximately $35 million to $39 million in 5 years."

Key Fiscal 2010 Business Highlights
--  Started production in the newly acquired Jingzhou facility and seeing
    positive contributions to earnings
--  Increased customer count and started production of new products
--  Inducted in Forbes, "Asia's 200 Best Companies Under a Billion" list
--  Secured low interest $3.0 million dollar line of credit and loan
    facility of $0.7 million in China
--  Appointed Crowe Horwath as new independent auditor
--  Completed the build-out of the new vaccine facility

Fourth Quarter 2010 Results

Skystar's revenue for the fourth quarter 2010 was $15.8 million, up 45% from fourth quarter 2009.

Gross profit for fourth quarter 2010 was $8.5 million, up 57% from fourth quarter 2009. Gross margin for the period was 54%, slightly higher than historical comparables.

Operating expenses for fourth quarter 2010 were $2.8 million, or 18% of total revenue, compared with $1.6 million, or 15% of total revenue for fourth quarter 2009.

Research and development (R&D) costs increased to $0.2 million, or 2.0% of revenue in fourth quarter 2010, up from $0.3 million, or 3% of revenue during fourth quarter 2009. Skystar continues to anticipate that its research and development costs will increase in future periods as it invests in improvement of existing products and development of new products and product lines.

Selling expenses totaled $0.8 million, or 5.0% of revenue, for fourth quarter 2010, compared with $0.7 million, or 7% of revenue, in fourth quarter 2008. General and administrative expenses were $1.7 million, or 11% of revenue, in fourth quarter 2009, compared with $0.6 million, or 7% of revenue, in fourth quarter 2010.

Operating income increased by 53% year over year to $5.8 million in the fourth quarter of fiscal year 2010, compared with $3.8 million in the same quarter a year ago, and operating margin increased to 36% from 34% in the fourth quarter of 2009.

Net income for the fourth quarter of 2010 was $3.9 million. This compares to net income of $2.6 million in the same quarter of 2009.

Full Year 2010 Results

Skystar reported revenues of $47.5 million for the full fiscal 2010 year, a 40.8% increase compared to the $33.8 million in revenues reported for the full fiscal 2009 year. Gross profit for the full fiscal 2010 year was $25.5 million, or 53.7% of revenues.

Net income for the 2010 full fiscal year was $14.0 million, or $1.97 per diluted share, compared to net income of $8.9 million, or $1.62 per diluted share, for the full 2009 fiscal year.

Total operating expenses increased 33.7% as a result of Skystar's increased footprint; however, as a percentage of revenue decreased to 15.6% from 16.5% in the year prior. Research and Development costs for fiscal 2010 were $0.7 million as compared to $1.1 million in fiscal 2009. Selling expense as a percentage of revenue decreased due to localization of Skystar's sales force and expanded distributorships. General and administrative expenses for our Chinese operating entities increased due to expanded operations and asset acquisitions related to our Kunshan and with the Jingzhou-related acquisition. Approximately $0.4 million was charged to general and administrative expenses for expenses related to the Kunshan acquisition. Approximately $0.6 million was charged to the general and administrative expenses for expenses related to the Jingzhou acquisition.

As of December 31, 2010, Skystar had approximately $5.9 million in cash and restricted cash, current assets of $44.7 million and total liabilities of $9.8 million, which resulted in a net working capital of $37.3 million.

Selection of New Auditor in Fiscal 2010

In fiscal 2010, Skystar interviewed several top tier audit firms in its selection of a new independent auditor. Our new auditor for the 2010 10-K audit is Crowe Horwath LLP in the US. It is the ninth largest accounting firm in the US and also one of the ten accounting firms in the US that is subject to the PCAOB inspection every year. Crowe Horwath, LLP is a leading member of Crowe Horwath International which is the ninth largest accounting network in the world.

Business Outlook

Presently, Skystar anticipates delivering top line revenue in the range of $60.0 to $63.0 million with a gross margin of 50% to 55% for 2011.

Skystar in 2010 saw significant inflation pressures building in China. However, the Company had been able to secure favorable pricing by prepaying for raw materials to major suppliers. The Company anticipates that inflationary pressures will continue in 2011. As a result, the Company is continuing with its buy-forward strategy to suppliers in order to have better control of costs for raw materials.

Mr. Lu concluded, "We are excited with the momentum that Skystar has built as a leader in China's animal healthcare space and as the only U.S. listed pureplay animal healthcare stock. We fully anticipate our current acquisitions and expanded manufacturing facilities to ramp up, bear fruit and further improve Skystar's profitability."

CONFERENCE CALL & WEBCAST INFORMATION

Skystar will host a conference call on Tuesday, April 12th at 8:00 a.m. ET to review the Company's fourth quarter and full fiscal year financial and operational performance. Mr. Weibing Lu, Skystar Bio-Pharmaceutical chairman and chief executive officer, will host the call, which will be webcast live.

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. Telephone access to the conference call will be available in North America by dialing +1 (877) 407-9210 or internationally by dialing +1 (201) 689-8049.

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 # 369346. An archived replay of the conference webcast will also be available on the 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 five product lines (veterinary medicines, pro-biotic micro-organisms, vaccines, feed additives and aquaculture) and over 256 products with more in development. Skystar has formed strategic sales distribution networks covering all 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.


Financial tables follow

            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


                                                 Years ended December 31,
                                               ---------------------------
                                                   2010           2009
                                               ------------   ------------

REVENUE, NET                                   $ 47,556,383   $ 33,778,305

COST OF REVENUE                                  22,011,588     16,520,989
                                               ------------   ------------

GROSS PROFIT                                     25,544,795     17,257,316
                                               ------------   ------------

OPERATING EXPENSES:
  Research and development                          684,778      1,167,937
  Selling expenses                                2,124,952      1,928,441
  General and administrative                      4,625,092      2,466,470
                                               ------------   ------------
    Total operating expenses                      7,434,822      5,562,848
                                               ------------   ------------

INCOME FROM OPERATIONS                           18,109,973     11,694,468
                                               ------------   ------------

OTHER INCOME (EXPENSE):
  Other income (expense), net                       (49,202)       117,873
  Interest income (expense), net                    (58,846)       (62,590)
  Change in fair value of warrants                 (612,883)      (868,445)
                                               ------------   ------------
    Total other expense, net                       (720,931)      (813,162)
                                               ------------   ------------

INCOME BEFORE PROVISION FOR INCOME TAXES         17,389,042     10,881,306

PROVISION FOR INCOME TAXES                        3,297,758      2,029,374
                                               ------------   ------------

NET INCOME                                       14,091,284      8,851,932

OTHER COMPREHENSIVE (LOSS) INCOME :
  Foreign currency translation adjustment         2,281,504         13,914
                                               ------------   ------------

COMPREHENSIVE INCOME                           $ 16,372,788   $  8,865,846
                                               ============   ============

EARNINGS PER SHARE:
  Basic                                        $       1.98   $       1.65
                                               ============   ============
  Diluted                                      $       1.97   $       1.62
                                               ============   ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
  Basic                                           7,105,789      5,374,452
                                               ============   ============
  Diluted                                         7,138,279      5,459,528
                                               ============   ============



           SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS

                                  ASSETS

                                                 December 31,  December 31,
                                                     2010          2009
                                                 ------------  ------------

CURRENT ASSETS:
  Cash                                           $  5,887,831  $ 11,699,398
  Accounts receivable, net of allowance for
   doubtful accounts of $339,031 and $327,857
   respectively                                     4,977,850     4,383,187
  Inventories                                       7,202,223     4,074,645
  Deposits and prepaid expenses                    17,074,000    11,900,314
  Loans receivable                                  8,040,100             -
  Other receivables                                 1,558,775       490,712
                                                 ------------  ------------
    Total current assets                           44,740,779    32,548,256
                                                 ------------  ------------

PLANT AND EQUIPMENT, NET                           22,613,113     8,829,058

CONSTRUCTION-IN-PROGRESS                            1,590,720     9,389,120

OTHER ASSETS:
  Long-term prepayments                             1,454,226     1,173,427
  Long-term prepayments for asset acquisitions      4,806,352     6,806,880
  Intangible assets, net                            6,043,941     1,860,172
                                                 ------------  ------------
    Total other assets                             12,304,519     9,840,479
                                                 ------------  ------------
      Total assets                               $ 81,249,131  $ 60,606,913
                                                 ============  ============


        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                               $    201,850  $    297,567
  Other payable and accrued expenses                1,845,051       917,284
  Short-term loans                                  3,025,884       220,050
  Short-term loans from shareholders                        -       110,025
  Deposits from customers                           1,260,030     1,275,958
  Taxes payable                                       749,836       722,106
  Shares to be issued to related parties               53,050       327,374
  Due to related parties                              217,912       185,024
                                                 ------------  ------------
    Total current liabilities                       7,353,613     4,055,388
                                                 ------------  ------------

OTHER LIABILITIES:
  Deferred government grant                           986,050     1,100,250
  Warrant liability                                 1,419,639     1,538,686
                                                 ------------  ------------
    Total other liabilities                         2,405,689     2,638,936
                                                 ------------  ------------
      Total liabilities                             9,759,302     6,694,324
                                                 ------------  ------------

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 and 6,989,640
   shares issued and outstanding respectively           7,162         6,989
  Paid-in capital                                  35,784,376    34,580,096
  Statutory reserves                                5,695,236     3,879,077
  Retained earnings                                24,847,289    12,574,906
  Accumulated other comprehensive income            5,155,766     2,871,521
                                                 ------------  ------------
    Total shareholders' equity                     71,489,829    53,912,589
                                                 ------------  ------------
      Total liabilities and shareholders'
       equity                                    $ 81,249,131  $ 60,606,913
                                                 ============  ============



            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                          Preferred stock     Common stock
                        ------------------  -----------------   Paid-in
                          Shares    Amount   Shares   Amount    capital
                        ----------  ------  --------- ------- ------------
BALANCE, January 1,
 2009, as adjusted       2,000,000   2,000  3,733,038   3,733   15,237,267

  Shares issued for
   services                                    12,438      12       63,002
  Cancellation of
   preferred stock      (2,000,000) (2,000)                          2,000
  Fractional shares due
   to the ten-for-one
   reverse split                                1,772       2           (2)
  Shares issued for
   cash                                     3,220,000   3,220   19,070,461
  Cashless exercise of
   warrants                                    22,392      22      207,368
  Foreign currency
   translation
  Net income
  Appropriation to
   statutory reserves

                        ----------  ------  --------- ------- ------------
BALANCE, December 31,
 2009                            -  $    -  6,989,640 $ 6,989 $ 34,580,096
                        ==========  ======  ========= ======= ============

  Cumulative effect of
   reclassification of
   warrants
  Shares issued for
   services                                    64,380      66      472,459
  Cashless exercise of
   warrants                                   107,899     107    1,511,496
  Reclassification of
   purchase option to
   derivative liability                                           (779,674)
  Foreign currency
   translation
  Net income
  Appropriation to
   statutory reserves

                        ----------  ------  --------- ------- ------------
BALANCE, December 31,
 2010                            -  $    -  7,161,919 $ 7,162 $ 35,784,377
                        ==========  ======  ========= ======= ============



                            Retained earnings     Accumulated
                        ------------------------     other
                        Statutory                comprehensive
                         reserves   Unrestricted    income        Total
                        ----------- ------------  ----------- ------------
BALANCE, January 1,
 2009, as adjusted        2,952,710    4,649,341    2,857,607   25,702,658

  Shares issued for
   services                                                         63,014
  Cancellation of
   preferred stock                                                       -
  Fractional shares due
   to the ten-for-one
   reverse split                                                         -
  Shares issued for
   cash                                                         19,073,681
  Cashless exercise of
   warrants                                                        207,390
  Foreign currency
   translation                                         13,914       13,914
  Net income                           8,851,932                 8,851,932
  Appropriation to
   statutory reserves       926,367     (926,367)                        -

                        ----------- ------------  ----------- ------------
BALANCE, December 31,
 2009                   $ 3,879,077 $ 12,574,906  $ 2,871,521 $ 53,912,589
                        =========== ============  =========== ============

  Cumulative effect of
   reclassification of
   warrants
  Shares issued for
   services                                                        472,525
  Cashless exercise of
   warrants                                                      1,511,603
  Reclassification of
   purchase option to
   derivative liability                                           (779,674)
  Foreign currency
   translation                                      2,281,504    2,281,504
  Net income                          14,091,284                14,091,284
  Appropriation to
   statutory reserves     1,816,159   (1,818,900)       2,741            -

                        ----------- ------------  ----------- ------------
BALANCE, December 31,
 2010                   $ 5,695,236 $ 24,847,290  $ 5,155,766 $ 71,489,831
                        =========== ============  =========== ============



            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                                                           
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 Years ended December 31,
                                               ---------------------------
                                                   2010           2009
                                               ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income available to shareholders         $ 14,091,284   $  8,851,932
  Adjustments to reconcile net income to net
   cash used in operating activities:
    Depreciation                                    847,662        566,230
    Amortization                                    423,195        212,826
    Common stock issued for services                472,525         63,014
    Common stock to be issued to related
     parties for compensation                             -        232,170
    Change in fair value of warrant liability
     and equity accounts                            612,883        868,445
   Change in operating assets and
    liabilities
    Accounts receivable                            (434,233)    (1,957,883)
    Inventories                                  (2,914,627)      (987,977)
    Deposits and prepaid expenses                (4,654,016)    (7,310,495)
    Other receivables                              (725,280)      (705,365)
    Accounts payable                               (103,235)      (249,709)
    Accrued expenses                                 83,014         55,140
    Deposits from customers                         (57,945)       851,170
    Taxes payable                                     3,041        509,132
    Other payables                                   75,408        267,097
                                               ------------   ------------
     Net cash provided by operating
      activities                                  7,719,676      1,265,727
                                               ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Proceeds from short-term investment                     -        351,864
  Refund of long-term prepayments                         -      2,713,950
  Prepayment for assets acquisition              (4,451,544)    (6,802,704)
  Loans to third parties                         (7,840,820)    (2,580,336)
  Proceeds from loans receivable                          -      2,875,242
  Purchases of intangible assets                          -     (1,172,880)
  Purchases of plant and equipment               (4,126,954)      (529,470)
  Payments on construction-in-progress                    -     (2,709,105)
                                               ------------   ------------
     Net cash used in investing activities      (16,419,318)    (7,853,439)
                                               ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Decrease in restricted cash                           153         80,684
  Proceeds from short-term loans                  2,728,975        219,915
  Repayment for short-term loans                   (110,955)      (747,711)
  Proceeds from equity offering                           -     18,411,496
  Repayment to shareholders and directors                 -       (307,881)
  Proceeds from shareholders and directors                -        109,958
  Due (from) to related parties                      31,374        (57,223)
                                               ------------   ------------
     Net cash provided by financing
      activities                                  2,649,547     17,709,238
                                               ------------   ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH             238,528          1,463
                                               ------------   ------------

(DECREASE) INCREASE IN CASH                      (5,811,567)    11,122,989

CASH, beginning of year                          11,699,398        576,409
                                               ------------   ------------

CASH, end of year                              $  5,887,831   $ 11,699,398
                                               ============   ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
  Cash paid for interest                       $     55,439   $     73,085
                                               ============   ============
  Cash paid for income taxes                   $  3,130,855   $  2,095,704
                                               ============   ============
  Non-cash investing and financing activities
    Long-term prepayment transferred to
     construction-in-progress                  $    915,130   $    190,458
                                               ============   ============
    Construction-in-progress transferred to
     property, plant and equipment             $ 10,838,131   $  1,818,403
                                               ============   ============
    Cashless exercise of warrants              $  1,511,604   $    207,390
                                               ============   ============
    Expense paid thorugh contribution
     receivable                                $          -   $    662,185
                                               ============   ============
    Reclassification from equity to warrant
     liability                                 $    779,674   $          -
                                               ============   ============
    Long term prepayment transferred to Land
     Use Rights                                $  4,441,437   $          -
                                               ============   ============
    Long term prepayment transferred to
     property, plant and equipment             $  1,952,463   $          -
                                               ============   ============

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


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

Grayling

Investor Relations
Christopher Chu
(646) 284-9426
christopher.chu@grayling.com


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