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


8/15/2012 8:28:28 AM

XI'AN, CHINA--(Marketwire - August 14, 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 second quarter fiscal year 2011 earnings, for the period ended June 30, 2011.

Second Quarter 2012 Highlights

  • Revenue decrease slightly 2.5% YoY to $8.9 million
    • Micro-organism products totaled $4.0 million, up 102.0% YoY
    • Veterinary medicines totaled $2.5 million, a decrease of 61.2% YoY
    • Feed additives totaled $1.3 million, up 224.2% YoY
  • Veterinary vaccines totaled $1.1 million, up 199.0% YoY
  • Gross margin of 57.8% for the second quarter of fiscal 2011 as compared to 49.0% in the year ago period
  • Net income of $1.7 million or $0.23 per fully diluted share, compared with net income of $1.5 million or $0.21 per fully diluted share in the year ago period

First Half 2012 Financial Highlights

  • First half fiscal 2012 revenue increases 3.8% YoY to $16.8 million
  • Gross margin of 56.0% for the first half of fiscal 2012 as compared to 49.8% in the year ago period
  • Net income of $3.6 million or $0.48 per fully diluted share, compared with net income of $3.4 million or $0.48 per fully diluted share in the year ago period

Management Comments
Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar made significant progress in the second quarter of fiscal 2012 in its evolution to scale up its business. During the period, Skystar has been able to maintain fiscal profitability, control raw materials costs and operating expenses while moving forward with efforts to modernize and automate manufacturing of its veterinary vaccine, medication, probiotic and feed additives lines.

"In order to maintain revenue and profit in a 'GMP certification' year for several of Skystar's production facilities, Management has ramped sales and marketing for other parts of the business and introduced various customer concession and retention programs to compensate for a reduced supply of veterinary medicine products and not have to reduce the price of products to customers.

"As previously announced on June 26, 2012, China's Ministry of Agriculture (MOA) experts' physically inspected the Company's Huxian veterinary medicine manufacturing plant and published its recommendation to renew Skystar's GMP certificate, valid for a period of five years. While the Company awaits post-inspection procedures from the MOA, the veterinary medicine plant in Huxian remains closed. Skystar anticipates the renewed GMP certificate will be physically received in the third quarter of 2012. During this time, the Company successfully shifted its sales strategy temporarily to other product lines, mainly probiotics and feed additives. The goal of this exercise was not only to maintain revenue guidance but to take the opportunity to further inroads in expanding the sales footprint of its probiotics line whose record sales doubled as compared to the same period a year ago.

"Operationally, the Compared pared back research and development activities, primarily moving forward with projects that were paid for already in previous years. As the GMP recertification at Huxian's veterinary medicine facility heads closer towards full production the Company anticipates increasing efforts and investment in research and development at that juncture.

"Management is excited to share its results at the half year mark. Skystar has been able to successfully implement its operational strategy as it moves towards the most profitable half of the fiscal year. We believe that the course management has plotted will position Skystar to make forecasted fiscal guidance for 2012 and to position the Company for revamped growth in fiscal 2013," concluded Mr. Lu.

Financial Summary
Skystar reported second quarter fiscal year 2012 revenues of $8,870,848 as compared to revenues of $9,096,141 for the comparable year ago period, a decrease of $225,293 or 2.5%. This was in line with management's internal forecast due to there being no production at Huxian veterinary medication plant during the quarter for GMP re-examination.

Cost of revenue, which consists of raw materials, direct labor, and manufacturing overhead for our four product lines, was $3,746,938 for the three months ended June 30, 2012, as compared to $4,637,007 for the three months ended June 30, 2011, a decrease of $890,069 or 19.2%, as a result of decreased sales of our veterinary medications product line.

Gross profit was $5,123,910 for the three months ended June 30, 2012, a 15.0% year over year increase as compared to $4,459,134 for the three months ended June 30, 2011. Gross margin for the period was 58% due to selling higher margin products for the period.

Operating Expenses
Research and development costs totaled $330,532 for the three months ended June 30, 2012 as compared to $1,801,551 for the three months ended June 30, 2011, a decrease of $1,471,019 or 81.7%. The decrease was primarily due to less R&D efforts undertaken during the second quarter of 2012 as compared to the same period of 2011.

Selling expenses totaled $670,567 for the three months ended June 30, 2012 as compared to $609,826 for the three months ended June 30, 2011, an increase of $60,741 or 10.0%. This increase is primarily a result of increased shipping and handling costs related to delivering our products to customers as we continued to expand our market to remote areas, and to increased number of units to be shipped. Shipping and handling costs totaled $463,630 and $350,054 for the three months ended June 30, 2012 and 2011, respectively, an increase of $113,576 or 32.4%.

General and administrative expenses totaled $1,834,280 for the three months ended June 30, 2012 as compared to $515,293 for the three months ended June 30, 2011, an increase of $1,318,987 or 256.0%.

As of June 30, 2012, we had cash of $2,341,981. Our total current assets were $68,680,543, and our total current liabilities were $19,159,602, which resulted in a net working capital of $49,520,941.

Fiscal 2011 Guidance
We currently reiterate our fiscal 2012 guidance to be in the range of $53 million to $57 million for the full year.

Conference Call & Webcast Information
Skystar will host a conference call at 7:45 a.m. ET on Wednesday, August 15, 2012 to review the Company's second quarter 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.investorcalendar.com/IC/CEPage.asp?ID=169508.

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 replay account code # 286 and 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.

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 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.

Financial Tables Follow

                                                                            
                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
                    CONDENSED CONSOLIDATED BALANCE SHEETS                   
                                                                            
                                                  June 30,     December 31, 
                                                    2012           2011     
                                                 (Unaudited)                
                                               -------------- --------------
                    ASSETS                                                  
CURRENT ASSETS:                                                             
  Cash                                         $    2,341,981 $    7,048,968
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $542,888 and $438,678                               
   as of June 30, 2012 and December 31, 2011,                               
   respectively                                    10,687,845      3,391,493
  Inventories                                      13,277,963     14,851,159
  Deposits, prepaid expenses and other                                      
   receivables                                      2,772,002      3,421,487
  Prepayments for raw materials purchasing         36,688,923     29,226,961
  Loans receivable                                  2,911,829        964,088
                                               -------------- --------------
    Total current assets                           68,680,543     58,904,156
                                               -------------- --------------
                                                                            
PROPERTY, PLANT AND EQUIPMENT, NET                 28,070,683     28,376,559
                                                                            
CONSTRUCTION-IN-PROGRESS                            9,553,513      8,839,055
                                                                            
OTHER ASSETS:                                                               
  Long-term prepayments                             1,207,154      1,512,817
  Long-term prepayments for acquisitions              177,520        569,788
  Intangible assets, net                            5,513,494      5,674,206
                                               -------------- --------------
    Total other assets                              6,898,168      7,756,811
                                               -------------- --------------
      Total assets                             $  113,202,907 $  103,876,581
                                               ============== ==============
                                                                            
     LIABILITIES AND SHAREHOLDERS' EQUITY                                   
                                                                            
CURRENT LIABILITIES:                                                        
  Accounts payable                             $    2,626,855 $    1,047,067
  Other payables and accrued expenses               5,039,774      5,274,598
  Short-term loans                                  6,815,500      7,366,320
  Deposits from customers                           1,404,409      1,432,529
  Taxes payable                                     2,936,992        160,081
  Due to related parties                              336,072         56,273
                                               -------------- --------------
    Total current liabilities                      19,159,602     15,336,868
                                               -------------- --------------
                                                                            
OTHER LIABILITIES:                                                          
  Deferred government grant                           396,250        393,500
  Warrant/purchase option liability                    21,000         43,400
                                               -------------- --------------
    Total other liabilities                           417,250        436,900
                                               -------------- --------------
      Total liabilities                            19,576,852     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 June                                 
   30, 2012 (Unaudited) and December 31, 2011           7,605          7,162
  Paid-in capital                                  37,021,085     35,784,378
  Statutory reserves                                5,708,135      5,708,135
  Retained earnings                                42,095,651     38,492,031
  Accumulated other comprehensive income            8,793,579      8,111,107
                                               -------------- --------------
    Total shareholders' equity                     93,626,055     88,102,813
                                               -------------- --------------
      Total liabilities and shareholders'                                   
       equity                                  $  113,202,907 $  103,876,581
                                               ============== ==============
                                                                            
                                                                            
                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME    
      FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011      
                                 (Unaudited)                                
                                                                            
                              For Three Months Ended   For Six Months Ended 
                                     June 30,                June 30,       
                             ----------------------- -----------------------
                                 2012        2011        2012        2011   
                             ----------- ----------- ----------- -----------
                                                                            
REVENUE, NET                 $ 8,870,848 $ 9,096,141 $16,797,185 $16,183,095
                                                                            
COST OF REVENUE                3,746,938   4,637,007   7,390,596   8,128,353
                             ----------- ----------- ----------- -----------
                                                                            
GROSS PROFIT                   5,123,910   4,459,134   9,406,589   8,054,742
                             ----------- ----------- ----------- -----------
                                                                            
OPERATING EXPENSES:                                                         
Research and development         330,532   1,801,551     334,186   2,089,023
Selling expenses                 670,567     609,826   1,376,183     979,230
General and administrative     1,834,280     515,293   2,939,715   1,810,091
                             ----------- ----------- ----------- -----------
Total operating expenses       2,835,379   2,926,670   4,650,084   4,878,344
                             ----------- ----------- ----------- -----------
                                                                            
INCOME FROM OPERATIONS         2,288,531   1,532,464   4,756,505   3,176,398
                             ----------- ----------- ----------- -----------
                                                                            
OTHER INCOME (EXPENSE):                                                     
Other income (expense), net        2,238     (4,549)      55,998     (4,367)
Interest income (expense),                                                  
 net                            (25,929)    (98,973)   (179,541)    (69,301)
Change in fair value of                                                     
 warrant/purchase option                                                    
 liability                        16,800     360,153      22,400   1,095,647
                             ----------- ----------- ----------- -----------
Total other income                                                          
 (expense), net                  (6,891)     256,631   (101,143)   1,021,979
                             ----------- ----------- ----------- -----------
                                                                            
INCOME BEFORE PROVISION FOR                                                 
 INCOME TAXES                  2,281,640   1,789,095   4,655,362   4,198,377
                                                                            
PROVISION FOR INCOME TAXES       582,774     281,705   1,051,742     759,155
                             ----------- ----------- ----------- -----------
                                                                            
NET INCOME                     1,698,866   1,507,390   3,603,620   3,439,222
                                                                            
OTHER COMPREHENSIVE INCOME                                                  
Foreign currency translation                                                
 adjustment                      123,715   1,130,579     682,472   1,596,172
                             ----------- ----------- ----------- -----------
                                                                            
COMPREHENSIVE INCOME         $ 1,822,581 $ 2,637,969 $ 4,286,092 $ 5,035,394
                             =========== =========== =========== ===========
                                                                            
EARNINGS PER SHARE:                                                         
Basic                        $      0.23 $      0.21 $      0.48 $      0.48
                             =========== =========== =========== ===========
Diluted                      $      0.23 $      0.21 $      0.48 $      0.48
                             =========== =========== =========== ===========
                                                                            
WEIGHTED AVERAGE NUMBER OF                                                  
 COMMON SHARES:                                                             
Basic                          7,461,227   7,169,419   7,454,837   7,168,176
                             =========== =========== =========== ===========
Diluted                        7,461,227   7,169,419   7,454,837   7,174,888
                             =========== =========== =========== ===========
                                                                            
                                                                            
                                                                            
            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES             
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
              FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011               
                                (Unaudited)                                 
                                                                            
                                                     Six months ended       
                                                         June 30,           
                                               ---------------------------- 
                                                    2012           2011     
                                               -------------  ------------- 
CASH FLOWS FROM OPERATING ACTIVITIES:                                       
  Net income                                   $   3,603,620  $   3,439,222 
  Adjustments to reconcile net income to net                                
   cash provided by (used in) operating                                     
   activities:                                                              
  Depreciation                                       635,856        498,760 
  Amortization                                       200,570        385,722 
  Provision for doubtful accounts                    101,246              - 
  Change in fair value of warrant/purchase                                  
   option liability                                  (22,400)    (1,095,647)
  Common stock to be issued to related parties                              
   for compensation                                        -         26,525 
  Common stock issued under 2010 stock                                      
   incentive plan                                  1,037,911              - 
  Change in operating assets and liabilities                                
  Accounts receivable                             (7,381,238)     1,085,951 
  Inventories                                      1,678,678     (8,711,510)
  Deposits, prepaid expenses and other                                      
   receivables                                       649,485       (919,717)
  Prepayments for raw materials purchasing        (7,121,001)     1,654,995 
  Accounts payable                                 1,614,377        577,915 
  Other payables and accrued expenses                 99,033       (449,155)
  Deposits from customers                            (38,170)       286,977 
  Taxes payable                                    2,778,594       (702,883)
                                               -------------  ------------- 
  Net cash used in operating activities           (2,163,439)    (3,922,845)
                                               -------------  ------------- 
                                                                            
CASH FLOWS FROM INVESTING ACTIVITIES:                                       
  Payments of long-term prepayments                 (349,464)      (307,642)
  Refund of long-term prepayments                    475,980              - 
  Loan to third parties                           (1,942,963)    (2,847,846)
  Collection of loan to third parties                      -      8,871,193 
  Purchases of property, plant and equipment        (127,531)       (46,186)
  Purchases of intangible assets                           -        (51,222)
  Payments on construction-in-progress               (79,806)    (4,013,980)
                                               -------------  ------------- 
  Net cash (used in) provided by investing                                  
   activities                                     (2,023,784)     1,604,317 
                                               -------------  ------------- 
                                                                            
CASH FLOWS FROM FINANCING ACTIVITIES:                                       
  Proceeds from short-term loans                      63,464      1,724,019 
  Repayment of short-term loans                     (666,372)      (612,440)
  Repayment of government grants                    (317,320)             - 
  Due to related parties                             280,901        190,630 
                                               -------------  ------------- 
  Net cash (used in) provided by financing                                  
   activities                                       (639,327)     1,302,209 
                                               -------------  ------------- 
                                                                            
EFFECT OF EXCHANGE RATE CHANGES ON CASH              119,563        174,990 
                                               -------------  ------------- 
                                                                            
DECREASE IN CASH                                  (4,706,987)      (841,329)
                                                                            
CASH, beginning of period                          7,048,968      5,887,831 
                                               -------------  ------------- 
                                                                            
CASH, end of period                            $   2,341,981  $   5,046,502 
                                               =============  ============= 
                                                                            
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                        
 INFORMATION:                                                               
  Cash paid for interest                       $     309,010  $     119,128 
                                               =============  ============= 
  Cash paid for income taxes                   $      88,054  $   1,262,699 
                                               =============  ============= 
  Non-cash investing and financing activities                               
  Long-term prepayment transferred to                                       
   construction-in-progress                    $     666,372  $     571,692 
                                               =============  ============= 
  Construction-in-progress transferred to                                   
   property, plant and equipment               $       3,630  $           - 
                                               =============  ============= 
  Share issued to settle payables to related                                
   parties                                     $     199,239  $           - 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
          CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY          
                                 (UNAUDITED)                                
                                                         
                                                         
                                                         
                              Common stock               
                           -----------------             
                                                Paid-in  
                             Shares   Amount    capital  
                           --------- ------- ------------
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                       -       -            -
                           --------- ------- ------------
                                                         
BALANCE, June 30, 2012     7,604,800 $ 7,605 $ 37,021,085
                           ========= ======= ============

                                                                            
                              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
                                                                            
  Share issued under 2010                                                   
   stock incentive plan             -            -             -   1,237,150
  Foreign currency                                                          
   translation                      -            -       682,472     682,472
  Net income                        -    3,603,620             -   3,603,620
                           ---------- ------------ ------------- -----------
                                                                            
BALANCE, June 30, 2012     $5,708,135 $ 42,095,651 $   8,793,579 $93,626,055
                           ========== ==

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