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Skystar Bio-Pharmaceutical (CGPN) Reports Record Fiscal Year 2011 Financial Results  
4/2/2012 8:37:44 AM

XI'AN, CHINA--(Marketwire - April 02, 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 announced full financial results for fiscal year ended December 31, 2011.

Fiscal Year 2011 Summary

  • Revenues totaled $52.8 million, up 11% YoY
    • Veterinary vaccines totaled $2.3 million, up 17% YoY
    • Veterinary medicines totaled $33.8 million, up 5% YoY
    • Feed additives totaled $2.6 million, up 31% YoY
    • Micro-organism products totaled $14.1 million, up 23% YoY
  • Gross profit margin was 50% a decrease of 4% YoY
  • Net income decreased 3% year over year to $13.7 million or $1.90 per fully diluted share, as compared to $14.0 million or $1.97 per fully diluted share during the year ended December 31, 2010
  • Improved cash balance to $7.0 million at the end of fiscal 2011

Management Comments
Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "We are pleased to present Skystar's full year financial results. The Company was able to grow top line revenue while maintaining bottom line profitability in the midst of China's changing economic climate and shifting economic policies.

"From 2008 through 2010, China's economic policy had been geared towards insulating itself from the worst of the global recession. By March of 2011, China's 12th Five Year Plan was enacted by the National People's Congress and economic policies were shifted in an effort to systematically reign in growth, stem inflation and drive China's economy via consumer consumption.

"All of these events have impacted Skystar's business, in particular, rising inflation, however Skystar firmly believes that throughout the fiscal year it has made all the necessary adjustments to move forward and execute its operating strategy with continued profitability in mind. China's 12th Five Year Plan includes language that emphasizes the further development and support of the agriculture industry; ramping up of dairy consumption; increased livestock production and the standardization of animal husbandry practices in order to bring consumers a safer product, all of which directly relates to Skystar's business and operations. Skystar has anticipated much of these policies in developing its own road map for growth. The Company has invested heavily, roughly $2.8 million in 2011, on R&D projects in addition to our facilities expansion initiatives. In addition to developing an aquaculture product line, Skystar's R&D projects address our market research as we are developing solutions for the bovine, swine and dairy industries that we believe are immediately appealing to our customers. Above all else, Skystar has been able to drive this expansion and development via cash flow measures that are non-dilutive to shareholders.

"In implementing our 2011 operational strategy, Skystar increased its customer base 42% year over year across all 29 farming regions in China. The Company ended the year with 3,846 customers consisting of independent distributors, franchise distributors and direct customers. Skystar launched 13 new veterinary medications and 6 new feed additives. The Company now has 287 products in its lineup. Skystar remains committed to delivering premium products at reasonable prices supported by in depth customer service to our customers," the Chairman concluded.

The Company currently has four manufacturing facilities:

Plant Name (Town)  Production Line         Status                   Province
------------------ ----------------------- ------------------------ --------
"Sanqiao" Plant    Veterinary Medicine;    Operational              Shaanxi 
                   Probiotics; and Animal                                   
                   Feed                                                     
"Huxian" Plant     Veterinary              *Stopped production      Shaanxi 
                   Medicine/Vaccines       January, 2012                    
"Jingzhou" Plant   Veterinary Medicine     Partial operation after  Hubei   
                                           completing                       
                                           GMP reexamination,               
                                           awaiting some                    
                                           batch control numbers            
                                           from MOA                         
"Kunshan" Plant    Probiotics              Under construction and   Jiangsu 
                                           retooling                        

*GMP recertification to be completed first half of 2012

He continued: "Of note, the GMP certificates granted to bio-pharmaceutical manufacturers in China are granted on a 5 year renewable basis. In fiscal 2011, Skystar's Jingzhou GMP license was up for renewal therefore the facility was not operational for most of the year. As of current the Ministry of Agriculture's (MOA) inspectors have recertified the Jingzhou facility and it has resumed partial operation. We are still waiting for the MOA to issue production permits for some of our products manufactured from that facility before we can announce that it has resumed full operations.

"Skystar's expanded Huxian facility which produces veterinary medicines is expected to complete GMP recertification by first half of 2012. It is our expectation that the newly built vaccine facility will be completed by the second half of 2012," he concluded.

Fiscal Year 2011 Financial Results

In-line with revised guidance, Skystar reported full fiscal 2011 year Revenues of $52.8 million, an 11% increase compared to the $47.6 million in revenues reported for the full fiscal 2010 year. Gross profit for the full fiscal 2010 year was $26.2 million, or 50% of revenues.

Net income decreased 3% year over year to $13.7 million or $1.90 per fully diluted share, as compared to $14.0 million or $1.97 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 $26.6 million for fiscal 2011 as compared to $22.0 million for the year ago period, this was an increase of $4.6 million as a result of increased sales and higher raw material costs due to continuing general inflation in China during 2011. In addition, write-downs of inventories of $0.7 million predominantly due to expired raw material and outdated packing material during 2011 also contributed to the increase of cost of sales.

Research and Development costs totaled $2.8 million for the fiscal 2011 as compared to $0.7 million for the year ago period, an increase of $2.1 million or 311%. The increase was due to a significant increase in R&D efforts during 2011. In addition to continuing to fund existing joint R&D projects with various research institutions, we launched several new in-house R&D projects to develop new veterinary medications.

Selling expenses totaled $4.0 million for fiscal 2011 as compared to $2.1 million in the year ago period, an increase of $1.9 million or 91%. 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 inflationary pressure in China, which resulted in higher unit costs for transportation and delivery services. Shipping and handling costs totaled $1.9 million versus $0.9 million during fiscal 2011 and 2010, respectively, an increase of $1.0 million or 106%. In addition, the increase in selling commission due to implementing new sales incentive programs also contributed to the increase in selling costs. Selling commission totaled $1.6 million and $0.8 million during in fiscal 2011 and 2010 respectively, an increase of $0.8 million or 96%.

General and Administrative expenses totaled $4.1 million in fiscal 2011, as compared to $4.6 million in the year ago period, a decrease of $0.5 million or 11%. The decrease was mainly due to no acquisition related costs being incurred in the 2011 fiscal year.

Financial Position: as of December 31, 2011, Skystar had approximately $7.0 million in cash, current assets of $58.9 million and total liabilities of $15.4 million, which resulted in a net working capital of $43.6 million.

Business Outlook
Presently, Skystar anticipates delivering top line revenue in the range of $53 million to $57 million with gross margins of roughly 50% for 2012. This is a conservative view that does not take into consideration the introduction of revenues from our new facilities to come online, although we do expect that there should be some partial revenue recognition to come from the new vaccine facility. Additionally once our facility's GMP certificate is renewed we expect to be able to have full production capacity once again.

In fiscal 2011, Skystar experienced significant inflationary pressure in addition to some gross profit margin erosion. Without the buy forward strategy in place with our suppliers to help control costs of our raw materials both our gross profit margin and bottom line would have been impacted more. Skystar will continue this strategy in fiscal 2012.

"As one of the top 25 Companies in China's exciting animal healthcare space we believe that favorable consumption trends in addition to government mandates will help Skystar build the necessary infrastructure for consistent revenue growth and profitability utilizing measures that are non-dilutive to shareholders. We fully anticipate our current acquisitions and expanded manufacturing facilities to ramp up, bear fruit and further improve Skystar's profitability. We believe that Skystar's operational and growth strategies are in the best interest of our shareholders and hope to continue delivering success in the New Year," concluded Mr. Lu.

Conference Call Information
The Company will host a conference call on Monday, April 2, 2012 to discuss its financial results for the year ended December 31, 2011. Skystar's conference call will begin promptly at 7:45 a.m. EDT to review fiscal year 2011 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=167900.

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 # 391620. 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 287 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

                                                                            
            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES             
                                                                            
         CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME         
                                                                            
                                                                            
                                                 Year Ended December 31,    
                                             ------------------------------ 
                                                   2011            2010     
                                             ---------------  ------------- 
                                                                            
REVENUE, NET                                 $    52,788,279 $   47,556,383 
                                                                            
COST OF REVENUE                                   26,562,748     22,011,588 
                                             --------------- -------------- 
                                                                            
GROSS PROFIT                                      26,225,531     25,544,795 
                                             --------------- -------------- 
                                                                            
OPERATING EXPENSES:                                                         
  Research and development                         2,814,328        684,778 
  Selling expenses                                 4,062,126      2,124,952 
  General and administrative                       4,099,153      4,625,092 
                                             --------------- -------------- 
    Total operating expenses                      10,975,607      7,434,822 
                                             --------------- -------------- 
                                                                            
INCOME FROM OPERATIONS                            15,249,924     18,109,973 
                                             --------------- -------------- 
                                                                            
OTHER INCOME (EXPENSE):                                                     
  Other income (expense), net                         43,696        (49,202)
  Interest expense, net                             (140,920)       (58,846)
  Change in fair value of warrant/purchase                                  
   option liability                                1,376,239       (612,883)
                                             --------------- -------------- 
    Total other income (expense), net              1,279,015       (720,931)
                                             --------------- -------------- 
                                                                            
INCOME BEFORE PROVISION FOR INCOME TAXES          16,528,939     17,389,042 
                                                                            
PROVISION FOR INCOME TAXES                         2,871,299      3,297,758 
                                             --------------- -------------- 
                                                                            
NET INCOME                                        13,657,640     14,091,284 
                                                                            
OTHER COMPREHENSIVE INCOME :                                                
  Foreign currency translation adjustment          2,955,344      2,281,501 
                                             ---------------  ------------- 
                                                                            
COMPREHENSIVE INCOME                         $    16,612,984 $   16,372,785 
                                             =============== ============== 
                                                                            
EARNINGS PER SHARE:                                                         
  Basic                                      $          1.90 $         1.98 
                                             =============== ============== 
  Diluted                                    $          1.90 $         1.97 
                                             =============== ============== 
                                                                            
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                   
  Basic                                            7,182,969      7,105,789 
                                             =============== ============== 
  Diluted                                          7,184,484      7,138,279 
                                             =============== ============== 
                                                                            
   
                                                                         
           SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES              
                                                                            
                       CONSOLIDATED BALANCE SHEETS                          
                                                                            
                                  ASSETS                                    
                                             December 31,     December 31,  
                                                 2011             2010      
                                           ---------------- ----------------
                                                                            
CURRENT ASSETS:                                                             
  Cash                                     $      7,048,968 $      5,887,831
  Accounts receivable, net of allowance                                     
   for doubtful accounts of $438,678 and                                    
   $339,031, respectively                         3,391,493        4,977,850
  Inventories                                    14,851,159        7,202,223
  Deposits and prepaid expenses                  32,140,056       17,074,000
  Loans receivable                                  964,088        8,040,100
  Other receivables                                 508,392        1,558,775
                                           ---------------- ----------------
    Total current assets                         58,904,156       44,740,779
                                           ---------------- ----------------
                                                                            
PLANT AND EQUIPMENT, NET                         28,376,559       22,613,113
                                                                            
CONSTRUCTION-IN-PROGRESS                          8,839,055        1,590,720
                                                                            
OTHER ASSETS:                                                               
  Long-term prepayments                           1,512,817        1,454,226
  Long-term prepayments for asset                                           
   acquisitions                                     569,788        4,806,352
  Intangible assets, net                          5,674,206        6,043,941
                                           ---------------- ----------------
    Total other assets                            7,756,811       12,304,519
                                           ---------------- ----------------
      Total assets                         $    103,876,581 $     81,249,131
                                           ================ ================
                                                                            
                  LIABILITIES AND SHAREHOLDERS' EQUITY                      
                                                                            
CURRENT LIABILITIES:                                                        
  Accounts payable                         $      1,047,067 $        201,850
  Other payable and accrued expenses              5,274,598        1,898,101
  Short-term loans                                7,366,320        3,025,884
  Deposits from customers                         1,432,529        1,260,030
  Taxes payable                                     160,081          749,836
  Due to related parties                             56,273          217,912
                                           ---------------- ----------------
    Total current liabilities                    15,336,868        7,353,613
                                           ---------------- ----------------
                                                                            
OTHER LIABILITIES:                                                          
  Deferred government grant                         393,500          986,050
  Warrant/purchase option liability                  43,400        1,419,639
                                           ---------------- ----------------
    Total other liabilities                         436,900        2,405,689
                                           ---------------- ----------------
      Total liabilities                          15,773,768        9,759,302
                                           ---------------- ----------------
                                                                            
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                      7,162            7,162
  Paid-in capital                                35,784,378       35,784,378
  Statutory reserves                              5,708,135        5,695,236
  Retained earnings                              38,492,031       24,847,290
  Accumulated other comprehensive income          8,111,107        5,155,763
                                           ---------------- ----------------
    Total shareholders' equity                   88,102,813       71,489,829
                                           ---------------- ----------------
      Total liabilities and shareholders'                                   
       equity                              $    103,876,581 $     81,249,131
                                           ================ ================
                                                                            
                                                                            

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 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.


Contacts:

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

Grayling

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


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