XI'AN, CHINA--(Marketwire - November 16, 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 third quarter fiscal year 2010 earnings, for the period ended September 30, 2010.
Third Quarter 2010 Highlights
-- Revenue increases 45% YoY to record $18.5 million
-- Veterinary vaccines totaled $0.7 million, up 35% YoY
-- Veterinary medicines totaled $12.4 million, up 45% YoY
-- Feed additives totaled $0.7 million, up 36% YoY
-- Micro-organism products totaled $4.7 million, up 48% YoY
-- Gross margin of 54% for the third quarter of fiscal 2010 as compared to
52% in the year ago period
-- GAAP net income $6.6 million or $0.93 per fully diluted share, compared
with net income of $5.3 million or $0.76 per fully diluted share in the
year ago period
-- Fiscal 2010 top line revenue guidance range remains at $45.5 million to
$47.5 million
-- Inducted in Forbes, "Asia's 200 Best Companies Under a Billion List"
-- Secured low interest $3.0 million USD line of credit and short term
loan facility for $0.7 million in China
Nine Month 2010 Highlights
-- Net revenue increases 39% YoY to $31.7 million
-- Gross margin of 54% for the nine months of fiscal 2010 as compared to
52% in the year ago period
-- GAAP net income $10.1 million or $1.42 per fully diluted share,
compared with GAAP net income of $6.3 million or $1.29 per fully
diluted share in the year ago period
Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar is pleased to report third quarter fiscal 2010 results in our seasonally stronger half of the fiscal year highlighted by record organic revenues. Skystar continues in refining its strategy to remain as one of the leading players in its niche as a manufacturer and distributor of over 250 animal healthcare products.
"Through consistent market research and close contact with our customers both large and small, we have been able to maximize our sales by smartly timing production and distribution of our products in conjunction with the animal farming cycle. We continue to believe that Skystar is servicing market demand for vaccines, medicines, micro-organisms and feed additives in China.
"Skystar experienced double digit organic revenue growth across Skystar's four product lines in the third quarter of fiscal 1010. Driving these positive results was the improved utilization of the Company's primary manufacturing facility in Huxian. Huxian's upgraded vaccine facility in the same location was completed in the second quarter of the fiscal year. Additional tooling, testing and installation of equipment were finalized in the third quarter of fiscal 2010. As of today, we are waiting for the response from the Ministry of Agriculture regarding our application of GMP certification. We invite you to look at some recent pictures of the new vaccine facility in the 'Photos' folder of Skystar's Investor Relations page located at http://www.ir-site.com/skystar/media-gallery.asp.
"With regard to acquisitions, Skystar's 28,000 meter property in Jingzhou, Hubei, purchased out of bankruptcy proceedings continues to be retooled for usage. The Kunshan acquisition is still ongoing and we expect to close the transaction in the fourth quarter. We should see meaningful contributions from the Jingzhou facility in fiscal 2011. The Jingzhou production facility is expected to add an additional 103 products covering aquaculture medicines and veterinary medicines.
"Operationally, Skystar as stated in the second quarter was able to increase collection efforts after significant increases in accounts receivable balances in the second quarter of this year. As a result, the accounts receivable balance declined from $8.3 million as of June 30, 2010, to $6.3 million as of September 30, 2010, even as sales have increased significantly. We expect this trend to continue as we head into Skystar's fiscal year end.
"Pre-payment for raw materials remains high due to Skystar's buy forward strategy and sales expectations in the second half of the fiscal year. The Company believes that its prepayment for raw materials figure should be significantly reduced in the fourth quarter of fiscal 2010 as the Company reduces inventory via sales.
"To improve our cash positions and take advantage of low cost bank financing in China, the Company was also able to secure a low interest $3.0 million USD line of credit recently, and took out a short term loan facility for $0.7 million in China. Skystar is paying annual interest rates of 6.3% and 7.2% on these short term loans respectively.
"The Company is delighted to share its positive results with the market and hopes to continue to maximize shareholder value while expanding its foot print in China. As evidenced by Skystar's record results, we believe that strong demand for our products will remain ever present in China and we hope to capitalize on this demand," concluded Mr. Lu.
Financial Summary
Gross profit for third quarter 2010 was $10.0 million, up 51% from third quarter 2009. Gross margin for the period was 54%, in line with historical year over year comparables.
Operating expenses for third quarter 2010 were $2.2 million, or 12% of total revenue, compared with $1.7 million or 13% of total revenue in the year ago period.
R&D expenses declined approximately 48% as compared to the same year ago period due to the current period requiring less cash outlays as compared to the year ago period when costly testing and clinical trials took place. Total operating expense increased roughly 30% year over year in proportion to the growth of the Company's business.
Selling expenses totaled $0.7 million, or 4% of revenue, for third quarter 2010, compared with $0.4 million, or 3% of revenue, in the second quarter 2009.
G&A expenses increased from $0.9 million in the third quarter of 2009 to $1.3 million in the third quarter this year, as a result of increased operations and acquisition related costs.
Operating income increased by 58% year over year to $7.8 million in the third quarter of fiscal year 2010, compared with $4.9 million in the same quarter a year ago, and operating margin increased to 42% from 39% in the same period a year ago.
Net income for the third quarter of 2010 was a record $6.6 million, or $0.93 per fully diluted share. This compares to net income of $5.3 million or $0.76 per fully diluted share in the same quarter of 2009. Skystar's adjusted net income for the third quarter of 2010 was $6.5 million or $0.91 per fully diluted share, compared with $4.2 million, or $0.61 per fully diluted share, in the third quarter of 2009 (See "About Non-GAAP Financial Measures" toward the end of this release.)
As of September 30, 2010, Skystar had approximately $2.0 million in cash and restricted cash, current assets of $41.1 million and current liabilities of $9.1 million.
CONFERENCE CALL & WEBCAST INFORMATION
Skystar will host a conference call at 7:45 a.m. ET on Tuesday, November 16, 2010 to review the Company's third quarter and nine months 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 # 360545. 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 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
For the Three For the Three
Months Ending Months Ending
September 30, 2010 September 30, 2009
------------------ ------------------
GAAP Net Income $ 6,647,799 $ 5,347,334
GAAP Basic Earnings Per Share 0.93 0.77
GAAP Diluted Earnings Per Share 0.93 0.76
Additions (Subtractions)
Change in fair value of warrants (141,057) (1,092,824)
------------------ ------------------
Addition (subtraction) (141,057) (1,092,824)
Non GAAP Net Income $ 6,506,742 $ 4,254,510
Non GAAP Basic Earnings Per Share 0.91 0.61
Non GAAP Diluted Earnings Per Share 0.91 0.61
Shares used in computing net income
per basic share 7,119,585 6,960,028
Shares used in computing net income
per diluted share 7,147,124 7,025,343
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For Three Months Ended For Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
REVENUE, NET $ 18,569,747 $ 12,777,095 $ 31,703,531 $ 22,844,099
COST OF REVENUE 8,506,137 6,107,477 14,702,419 11,012,672
------------ ------------ ------------ ------------
GROSS PROFIT 10,063,610 6,669,618 17,001,112 11,831,427
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and
development 208,197 398,685 444,280 882,732
Selling expenses 709,188 412,051 1,312,132 1,204,653
General and
administrative 1,281,731 878,866 2,899,315 1,818,920
------------ ------------ ------------ ------------
Total
operating
expenses 2,199,116 1,689,602 4,655,727 3,906,305
------------ ------------ ------------ ------------
INCOME FROM
OPERATIONS 7,864,494 4,980,016 12,345,385 7,925,122
------------ ------------ ------------ ------------
OTHER INCOME
(EXPENSE):
Other income
(expense), net (28,265) 79,068 8,409 78,526
Interest income
(expense), net 5,356 9,148 (12,436) 8,662
Change in fair
value of
derivative
liability 141,057 1,092,824 (18,269) (349,332)
------------ ------------ ------------ ------------
Total other
income
(expense),
net 118,148 1,181,040 (22,296) (262,144)
------------ ------------ ------------ ------------
INCOME BEFORE
PROVISION FOR
INCOME TAXES 7,982,642 6,161,056 12,323,089 7,662,978
PROVISION FOR
INCOME TAXES 1,334,843 813,722 2,200,648 1,367,797
------------ ------------ ------------ ------------
NET INCOME 6,647,799 5,347,334 10,122,441 6,295,181
OTHER COMPREHENSIVE
INCOME (LOSS):
Foreign currency
translation
adjustment 1,015,911 (8,037) 1,256,093 (62,718)
------------ ------------ ------------ ------------
COMPREHENSIVE
INCOME $ 7,663,710 $ 5,339,297 $ 11,378,534 $ 6,232,463
============ ============ ============ ============
EARNINGS PER SHARE:
Basic $ 0.93 $ 0.77 $ 1.43 $ 1.30
============ ============ ============ ============
Diluted $ 0.93 $ 0.76 $ 1.42 $ 1.29
============ ============ ============ ============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES:
Basic 7,119,585 6,960,028 7,103,365 4,824,306
============ ============ ============ ============
Diluted 7,147,124 7,025,343 7,116,520 4,890,712
============ ============ ============ ============
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2010 2009
------------- -------------
Unaudited
-------------
CURRENT ASSETS:
Cash $ 2,032,484 $ 11,699,398
Accounts receivable, net of allowance for
doubtful accounts of $334,562 and $327,857
as of September 30, 2010 and December 31,
2009, respectively 5,943,592 4,383,187
Inventories, net of allowance of $267,833 and -
$199,460 as of September 30, 2010 and
December 31, 2009, respectively 14,982,786 4,074,645
Deposits and prepaid expenses 16,022,324 11,900,314
Other receivables 2,143,236 490,712
------------- -------------
Total current assets 41,124,422 32,548,256
------------- -------------
PLANT AND EQUIPMENT, NET 13,381,951 8,829,058
CONSTRUCTION-IN-PROGRESS 10,631,246 9,389,120
OTHER ASSETS:
Long-term prepayments 851,135 1,173,427
Long-term prepayments for acquistions 7,944,579 6,806,880
Intangible assets, net 3,317,821 1,860,172
------------- -------------
Total other assets 12,113,535 9,840,479
------------- -------------
Total assets $ 77,251,154 $ 60,606,913
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 531,241 $ 297,567
Other payables and accrued expenses 2,274,163 917,284
Short-term loans 1,719,155 220,050
Short-term loans from shareholders - 110,025
Deposits from customers 925,216 1,275,958
Taxes payable 3,238,326 722,106
Shares to be issued to related parties 302,372 327,374
Due to related parties 151,715 185,024
------------- -------------
Total current liabilities 9,142,188 4,055,388
------------- -------------
OTHER LIABILITIES:
Deferred government grant 1,122,750 1,100,250
Derivative liability 825,025 1,538,686
------------- -------------
Total other liabilities 1,947,775 2,638,936
------------- -------------
Total liabilities 11,089,963 6,694,324
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000
shares authorized, Nil Series "A" shares
authorized as of September 30, 2010 and
December 31, 2009 48,000,000 Series "B"
shares authorized, Nil Series "B" shares
issued and outstanding as of September 30,
2010 and December 31, 2009, respectively - -
Common stock, $0.001 par value, 40,000,000
shares authorized, 7,106,705 and 6,989,640
shares issued and outstanding as of
September 30, 2010 and December 31, 2009,
respectively 7,105 6,989
Paid-in capital 35,450,048 34,580,096
Statutory reserves 3,879,077 3,879,077
Retained earnings 22,697,347 12,574,906
Accumulated other comprehensive income 4,127,614 2,871,521
------------- -------------
Total shareholders' equity 66,161,191 53,912,589
------------- -------------
Total liabilities and shareholders'
equity $ 77,251,154 $ 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 8,828 8 46,757
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
Foreign currency
translation
Net income
Appropriation to
statutory reserves
---------- ------- --------- ------- ------------
BALANCE, September 30,
2009 (unaudited) 2,000,000 2,000 6,963,638 6,963 34,354,483
Shares issued for
services 3,610 4 16,245
Cancellation of
preferred stock (2,000,000) (2,000) 2,000
Cash receipts of
shares issued - -
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
Shares issued for
services 9,166 9 41,238
Cashless exercise
of warrants 107,899 107 1,511,496
Reclassification of
purchase option to
derivative
liability (779,674)
Stock compensation 96,892
Foreign currency
translation
Net income
Appropriation to
statutory reserves
---------- ------- --------- ------- ------------
BALANCE, September 30,
2010 (unaudited) - $ - 7,106,705 $ 7,105 $ 35,450,048
========== ======= ========= ======= ============
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 46,765
Fractional shares
due to the
ten-for-one
reverse split -
Shares issued for
cash 19,073,681
Foreign currency
translation (62,718) (62,718)
Net income 6,295,181 6,295,181
Appropriation to
statutory reserves 802,405 (802,405) -
----------- ------------ ----------- ------------
BALANCE, September 30,
2009 (unaudited) 3,755,115 10,142,117 2,794,889 51,055,567
Shares issued for
services 16,249
Cancellation of
preferred stock -
Cash receipts of
shares issued -
Cashless exercise
of warrants 207,390
Foreign currency
translation 76,632 76,632
Net income 2,556,751 2,556,751
Appropriation to
statutory reserves 123,962 (123,962) -
-
----------- ------------ ----------- ------------
BALANCE, December 31,
2009 3,879,077 12,574,906 2,871,521 53,912,589
Shares issued for
services 41,247
Cashless exercise
of warrants 1,511,603
Reclassification of
purchase option to
derivative
liability (779,674)
Stock compensation 96,892
Foreign currency
translation 1,256,093 1,256,093
Net income 10,122,441 10,122,441
Appropriation to
statutory reserves -
----------- ------------ ----------- ------------
BALANCE, September 30,
2010 (unaudited) $ 3,879,077 $ 22,697,347 $ 4,127,614 $ 66,161,191
=========== ============ =========== ============
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
Nine months ended September 30,
------------------------------
2010 2009
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,122,441 $ 6,295,181
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 515,178 384,465
Amortization 125,591 115,621
Allowance for slow moving inventories 63,177 -
Common stock issued for services 16,245 46,765
Common stock to be issued to related
parties for compensation 96,892 125,041
Change in fair value of derivative
liability 18,269 349,332
Change in operating assets and
liabilities
Accounts receivable (1,445,225) (3,673,207)
Inventories (10,699,989) (4,534,194)
Deposits and prepaid expenses (3,674,364) (232,333)
Other receivables (583,082) (33,819)
Accounts payable 69,181 (268,295)
Other payables and accrued expenses 726,855 (166,351)
Deposits from customers (370,290) 101,562
Taxes payable 2,458,008 1,483,034
-------------- --------------
Net cash used in operating
activities (2,561,113) (7,198)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Refunds of prepayments for potential
acquisitions - 2,711,182
Proceeds from loan receivable - 2,288,490
Addition to loan receivable - (2,579,984)
Prepayment for acquisitions (4,673,367) -
Loans to third parties (441,300) (1,832,563)
Purchases of plant and equipment (2,527,188) (1,742,284)
Purchases of intangible assets (1,883) (1,172,720)
Payments on construction-in-progress (788,797) (1,237,802)
-------------- --------------
Net cash used in investing
activities (8,432,535) (3,565,681)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash - 80,673
Proceeds from short-term loans 1,799,621 219,885
Repayment of short-term loans (330,975) (747,609)
Proceeds from equity offering - 18,411,496
Proceeds from short term investment - 351,816
Repayment of shareholder and directors (110,325) (307,839)
Proceeds from shareholder and directors - 109,943
Due (from) to related parties (34,859) (254,236)
-------------- --------------
Net cash provided by financing
activities 1,323,462 17,864,129
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,272 (70,669)
-------------- --------------
DECREASE IN CASH (9,666,914) 14,220,581
CASH, beginning of period 11,699,398 576,409
-------------- --------------
CASH, end of period $ 2,032,484 $ 14,796,990
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 11,368 $ 51,993
============== ==============
Cash paid for income taxes $ 579,670 $ 794,660
============== ==============
Non-cash investing and financing
activities
Long-term prepayment transferred to
construction-in-progress $ - $ 2,492,030
============== ==============
Long-term prepayment transferred to
intangible assets $ 1,518,660 $ -
============== ==============
Long-term prepayment transferred to
plant and equipment $ 1,931,720 $ -
============== ==============
Construction-in-progress transferred to
plant and equipment 
