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Skystar Bio-Pharmaceutical (CGPN) Reports 27% Growth in Revenue From Continuing Operations in First Quarter Fiscal Year 2010


5/18/2010 12:10:59 PM

XI'AN, CHINA--(Marketwire - May 18, 2010) - Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI) ("Skystar" or the "Company"), a China-based manufacturer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives, today reported unaudited first quarter fiscal year 2010 earnings, for the period ended March 31, 2010.

First Quarter 2009 Highlights

  • Revenue increases 27% YoY to $4.9 million
    • Veterinary vaccines totaled $0.2 million, up 58% YoY
    • Veterinary medicines totaled $3.2 million, up 23% YoY
    • Feed additives totaled $0.2 million, up 29% YoY
    • Micro-organism products totaled $1.2 million, up 35% YoY
  • Gross margin of 53% for the first three months of fiscal 2010 and compared to 49% for the three months ended March 31, 2009
  • GAAP net income $1.1 million or $0.15 per fully diluted, compared with $1.1 million or $0.29 per fully diluted share in the year ago period
  • Fiscal 2010 top line revenue guidance range increased to $45.5 million to $47.5 million from $44.0 million to $46.0 million

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "We are pleased to have delivered such a strong start to the fiscal 2010 year with a 27% increase in revenue as compared to the year ago period. Additionally, the Company continues to improve top line growth while generating 53% gross margins in line with the Company's historical gross margins. We hope to continue with management's growth strategy in expanding our footprint in China's animal husbandry space.

"Across Skystar's product lines we are seeing material revenue growth as a result of increased sales efforts, demand for our products and increased utilization of the Company's veterinary medicine facility. Additionally, we are pleased to have Michael H. Lan join Skystar as our full time chief financial officer. We expect that Michael's internal financial control and operational experience will further aid in strengthening Skystar's financial accountability to the public.

"On the R&D front, we are proceeding with research & development efforts to expand the Company's product lines as evidenced by the recently announced product testing of two additional product dosage forms: oral solution and injectable soluble powder specifically formulated for Skystar's veterinary line of medicines. It is Skystar's goal to launch a comparable number of products in fiscal 2010 as compared to the year prior.

"With regard to Skystar's construction projects, we expect to complete the construction phase of the new vaccine manufacturing plant in the second fiscal quarter of 2010, whereby GMP testing and certification will commence. Since completing the micro-organism facility in December 2009, we have moved forward in the period with tooling the facility and quality assurance. The Company expects to begin micro-organism production in the new facility at the end of June 2010.

"On the acquisition front, as of March 31, 2010, refundable long term prepayments of $12,308,130 represent refundable deposits made to potential acquisition targets, the completion of which are contingent upon the Company successfully negotiating with the target companies," concluded Mr. Lu.

Financial Summary
Gross profit for first quarter 2010 was $2.6 million, up 37% from first quarter 2009. Gross margin for the period was 53%, in line with historical year over year comparables.

Operating expenses for first quarter 2009 were $0.8 million, or 17% of total revenue, compared with $0.6 million or 17% of total revenue in the year ago period.

Research and development (R&D) costs were $0.04 million, or less than 1% of revenue in first quarter 2010, down from $0.1 million, or 3% of revenue during first quarter 2009. Most of the current research projects are in the later phases of development focusing on applications and documentation without the significant outlays related to the earlier phases of the projects when large scale testing was required.

Selling expenses totaled $0.2 million, or 3% of revenue, for first quarter 2010, compared with $0.2 million, or 6% of revenue, in first quarter 2009. General and administrative expenses were $0.6 million, or 13% of revenue, in first quarter 2010, compared with $0.3 million, or 8% of revenue, in first quarter 2009.

Operating income increased by 41% year over year to $1.7 million in the first quarter of fiscal year 2010, compared with $1.2 million in the same quarter a year ago, and operating margin increased to 36% from 32% in the same period a year ago.

Net income for the first quarter of 2010 was $1.1 million, or $0.15 per fully diluted share. This compares to a net income of $1.1 million, or $0.29 per fully diluted share in the same quarter of 2009. Skystar's adjusted net income for the first quarter of 2010 was $1.4 million, or $0.20 per fully diluted share, compared with $1.0 million, or $0.27 per fully diluted share, in the first quarter of 2009 (See "About Non-GAAP Financial Measures" toward the end of this release).

As of March 31, 2010, Skystar had approximately $5.9 million in cash and restricted cash, current assets of $27.1 million and current liabilities of $4.3 million.

Fiscal Year 2010 Guidance Revised
Fiscal year 2010 revenue ranges have been revised to $45.5 million to $47.5 million for the full year reflecting partial revenue contribution from two new product dosage forms coming to market. We anticipate the estimated $5 million in total additional revenue to be fully recognized in fiscal 2011.

CONFERENCE CALL & WEBCAST INFORMATION
Skystar will host a conference call at 8:00 a.m. ET on Tuesday, May 18, 2010 to review the Company's first quarter 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. Telephone access to the conference call will also 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 # 350967. 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 four product lines (veterinary medicines, micro-organisms, vaccines and feed additives) and over 170 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures for the change in the fair value of the Company's warrants. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of Skystar. Accordingly, management excludes the change in the fair value of the Company's warrants when making operational decisions. The Company believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.

Financial Tables Follow

The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure.

SKBI- Adjusted Net Income


                                            March 31, 2010  March 31, 2009
                                            --------------  --------------

GAAP Net Income                                  1,096,247       1,064,644

GAAP Basic Earnings Per Share                         0.16            0.29

GAAP Diluted Earnings Per Share                       0.15            0.29

Additions

Change in fair value of warrants                   317,380         (38,328)
                                            --------------  --------------

Total additions                                    317,380         (38,328)

Non GAAP Net Income                              1,413,627       1,026,316

Non GAAP Basic Earnings Per Share                     0.20            0.27

Non GAAP Diluted Earnings Per Share                   0.20            0.27

Shares used in computing net income per
 basic share                                     7,061,530       3,734,602

Shares used in computing net income per
 diluted share                                   7,140,140       3,734,602





       Consolidated Statements of Income and Other Comprehensive Income
                                   (Unaudited)

                                                   For Three Months Ended
                                                          March 31,
                                                  ------------------------
                                                      2010         2009
                                                  -----------  -----------
REVENUE, NET                                      $ 4,869,243  $ 3,823,566

COST OF REVENUE                                     2,291,219    1,946,358
                                                  -----------  -----------

GROSS PROFIT                                        2,578,024    1,877,208
                                                  -----------  -----------

OPERATING EXPENSES:
  Research and development                             43,995      117,352
  Selling expenses                                    171,134      207,395
  General and administrative                          619,550      314,695
                                                  -----------  -----------
    Total operating expenses                          834,679      639,442
                                                  -----------  -----------

INCOME FROM OPERATIONS                              1,743,345    1,237,766
                                                  -----------  -----------

OTHER INCOME (EXPENSE):
  Other income (expense), net                             417         (232)
  Interest income (expense), net                       (4,816)         302
  Change in fair value of warrant liability          (317,380)      38,328
                                                  -----------  -----------
    Total other income (expense), net                (321,779)      38,398
                                                  -----------  -----------

INCOME BEFORE PROVISION FOR INCOME TAXES            1,421,566    1,276,164

PROVISION FOR INCOME TAXES                            325,319      211,520
                                                  -----------  -----------

NET INCOME                                          1,096,247    1,064,644

OTHER COMPREHENSIVE LOSS:

  Foreign currency translation adjustment             (40,816)     (38,448)
                                                  -----------  -----------

COMPREHENSIVE INCOME                              $ 1,055,431  $ 1,026,196
                                                  ===========  ===========

EARNINGS PER SHARE:

  Basic                                           $      0.16  $      0.29
                                                  ===========  ===========
  Diluted                                         $      0.15  $      0.29
                                                  ===========  ===========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

  Basic                                             7,061,530    3,734,602
                                                  ===========  ===========
  Diluted                                           7,140,140    3,734,602
                                                  ===========  ===========





                        Consolidated Balance Sheets

                                  ASSETS

                                                   March 31,   December 31,
                                                      2010         2009
                                                  ------------ ------------
                                                   Unaudited
                                                  ------------
CURRENT ASSETS:
  Cash                                            $  5,911,415 $ 11,699,398
  Accounts receivable, net of allowance for
   doubtful accounts of $327,857 and $327,857
   as of March 31, 2010 and December 31, 2009,
   respectively                                      3,447,078    4,383,187
  Inventories                                        4,996,515    4,074,645
  Deposits and prepaid expenses                     12,173,047   11,900,314
  Other receivables                                    572,641      490,712
                                                  ------------ ------------
    Total current assets                            27,100,696   32,548,256
                                                  ------------ ------------

PLANT AND EQUIPMENT, NET                            10,415,008    8,829,058

CONSTRUCTION-IN-PROGRESS                             9,741,767    9,389,120

OTHER ASSETS:
  Long-term prepayments                             13,276,071    7,980,307
  Intangible assets, net                             1,768,771    1,860,172
                                                  ------------ ------------
    Total other assets                              15,044,842    9,840,479
                                                  ------------ ------------
      Total assets                                $ 62,302,313 $ 60,606,913
                                                  ============ ============

                    LIABILITIES AND CHANGES IN EQUITY

CURRENT LIABILITIES:
  Accounts payable                                $    421,031 $    297,567
  Other payable and accrued expenses                   694,400      917,284

  Short-term loans                                           -      220,050
  Short-term loans from shareholders                   110,025      110,025
  Deposits from customers                            1,850,051    1,275,958
  Taxes payable                                        825,082      722,106
  Shares to be issued to related parties               329,397      327,374
  Due to related parties                               106,743      185,024
                                                  ------------ ------------
    Total current liabilities                        4,336,729    4,055,388
                                                  ------------ ------------

OTHER LIABILITIES:
  Deferred government grant                          1,100,250    1,100,250

  Warrant liability                                    510,571    1,538,686
                                                  ------------ ------------
    Total other liabilities                          1,610,821    2,638,936
                                                  ------------ ------------
      Total liabilities                              5,947,550    6,694,324
                                                  ------------ ------------

COMMITMENTS AND CONTINGENCIES

CHANGES IN EQUITY:
  Preferred stock, $0.001 par value, Nil Series
   "A" shares authorized as of March 31, 2010
   and December 31, 2009, 48,000,000 Series "B"
   shares authorized, Nil Series "B" shares issued
   and outstanding as of March 31, 2010 and
   December 31, 2009
  Common stock, $0.001 par value, 40,000,000 shares
   authorized, 7,097,708 and 6,989,640 shares issued
   and outstanding as of March 31, 2010 and
   December 31, 2009, respectively                       7,097        6,989
  Paid-in capital                                   35,966,731   34,580,096
  Statutory reserves                                 3,879,077    3,879,077
  Retained earnings                                 13,671,153   12,574,906
  Accumulated other comprehensive income             2,830,705    2,871,521
                                                  ------------ ------------
      Total shareholders' equity                    56,354,763   53,912,589
                                                  ------------ ------------
        Total liabilities and shareholders'
         equity                                   $ 62,302,313 $ 60,606,913
                                                  ============ ============





                      Consolidated Statement of Cash Flows

                                    Unaudited

                                              Three months ended March 31,
                                              ----------------------------
                                                  2010           2009
                                              -------------  -------------
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income                                  $   1,096,247  $   1,064,644
  Adjustments to reconcile net income to net
   cash provided by operating activities:

      Depreciation                                  123,484        112,930

      Amortization                                   91,370         38,519

      Common stock issued for services               16,245         15,052

      Common stock to be issued to related
       parties for compensation                      27,025              -

      Bad debt expense                                    -         21,743

      Change in fair value of warrant
       liability                                    317,380        (38,328)
    Change in operating assets and
     liabilities

      Accounts receivable                           935,790       (994,017)

      Inventories                                  (921,558)    (2,888,742)

      Deposits and prepaid expenses                (272,640)     2,551,310

      Other receivables                             (81,901)        (9,823)

      Accounts payable                              123,423       (166,085)

      Accrued expenses                             (223,979)      (382,703)

      Deposits from customers                       573,897       (131,448)

      Taxes payable                                 102,941        900,427

      Other payables                                  1,233         39,916
                                              -------------  -------------
        Net cash provided by operating
         activities                               1,908,957        133,395
                                              -------------  -------------


CASH FLOWS FROM INVESTING ACTIVITIES:

  Payments of long-term prepayments                       -        (32,233)

  Prepayment for potential acquisition           (5,499,375)             -

  Loans to third parties                                  -       (366,275)

  Purchases of plant and equipment               (1,451,016)       (73,255)

  Payments on construction-in-progress             (404,990)      (242,507)
                                              -------------  -------------
        Net cash used in investing
         activities                              (7,355,381)      (714,270)
                                              -------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Decrease (increase) in restricted cash                              (200)

  Proceeds from short-term loans                          -        219,765

  Repayment for short-term loans                   (219,975)             -

  Repayment to shareholders and directors                 -       (175,812)

  Proceeds from shareholders and directors                -         83,124

  Due (from) to related parties                     (78,269)             -
                                              -------------  -------------
        Net cash provided by financing
         activities                                (298,244)       126,877
                                              -------------  -------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH             (43,315)        81,264
                                              -------------  -------------

INCREASE (DECREASE) IN CASH                      (5,787,983)      (372,734)

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

CASH, ending                                  $   5,911,415  $     203,675
                                              =============  =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:

  Cash paid for interest                      $       5,210  $      19,079
                                              =============  =============
  Cash paid for income taxes                  $           -  $           -
                                              =============  =============
  Non-cash investing and financing
   activities

    Long-term prepayment transferred to
     construction-in-progress                 $           -  $     309,869
                                              =============  =============

    Long-term prepayment transferred to
     property, plant and equipment                  439,777              -
                                              =============  =============
    Construction-in-progress transferred to
     property, plant and equipment                   52,463              -
                                              =============  =============
    Cashless exercise of warrants             $   1,345,496              -
                                              =============  =============

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 -- Director Corporate Development and U.S. Representative
(407) 645-4433

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


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