Skystar Bio-Pharmaceutical Announces Revenue of $20.9 Million for Third Quarter Fiscal Year 2011

XI’AN, CHINA--(Marketwire - November 14, 2011) - Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI) (“Skystar” or the “Company”), a China-based manufacturer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives, today reported unaudited third quarter fiscal year 2011 earnings, for the period ended September 30, 2011.

Third Quarter 2011 Highlights

• Revenue increases 13% YoY to record $20.9 million
  • Veterinary vaccines totaled $0.9 million, up 14% YoY
  • Veterinary medicines totaled $13.0 million, up 5% YoY
  • Feed additives totaled $1.0 million, up 43% YoY
  • Micro-organism products totaled $6.0 million, up 28% YoY
• Gross margin of 52% for the third quarter of fiscal 2011 as compared to 54% in the year ago period
• GAAP net income up 16% to $7.7 million or $1.08 per fully diluted share, compared with net income of $6.6 million or $0.93 per fully diluted share in the year ago period
• Fiscal 2011 top line revenue guidance range remains at $52.0 million to $55.0 million

Nine Month 2011 Highlights

• Net revenue increases 17% YoY to $37.0 million
• Gross margin of 51% for the nine months of fiscal 2011 as compared to 54% in the year ago period
• GAAP net income up 10% to $11.1 million or $1.56 per fully diluted share, compared with GAAP net income of $10.1 million or $1.42 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 strong third quarter results in its seasonally stronger half of the fiscal year. Skystar anticipates meeting our revised top line revenue guidance of $52 million to $55 million for fiscal 2011.

“China’s inflationary slowdown was helpful to Skystar recording record revenues for the quarter. In addition to the curbing of inflation, China’s government has instituted policies that have benefitted Skystar such as increasing farmers’ subsidies in exchange for keeping the cost of food stable.

“While changing inflationary policies have been both beneficial and detrimental to Skystar from quarter to quarter, the Company maintains a simple and effective business strategy of steadily growing organic revenue while building out the necessary infrastructure for future expansion. In the period the Company continued these efforts by expanding its footprint into remote areas of China as well as increasing the number of products that it is selling.

“As of current, Skystar’s distribution network includes 2,345 independent distribution agents; 1,059 direct customers; and 360 franchised stores selling and marketing 284 products. For the year to date, Skystar has increased its number of distribution agents by 386 and number of direct customers by 315.

“Additionally Skystar’s expansion of its manufacturing facilities is progressing as planned. The updates to the Huxian facility which will increase production capacity of the Skystar’s vaccine lines awaits GMP certification which is expected to be initiated by the end of the calendar year. We continue to also work on the retooling of Skystar’s Kunshan facility which will principally manufacture our pro-biotic microorganism product line which is also expected to be completed by the end of the calendar year. Skystar’s Jingzhou veterinary medicine manufacturing facility is currently in the process of completing its GMP re-certification which is under way and should be finished by the end of the calendar year. The GMP certificate is valid for five years and renewable thereafter. Skystar’s manufacturing facilities are operating at near capacity and we look forward to the additional manufacturing capabilities once our new facilities are approved to come online for the upcoming fiscal 2012 year. In addition Skystar has created a YouTube page to showcase two of our facilities that are currently in operation and can be viewed here at http://www.youtube.com/user/SkystarIR.”

Mr. Lu concluded, “Moving towards the completion of fiscal 2011, our cash position is adequate at $3.8 million to fund operations as of the end of the third quarter and should improve with collection of accounts receivables. We also have lines of credit available as well as incoming accounts receivable payments. As a result, we do not foresee any issues with liquidity through the end of fiscal 2011 and as we plan for the fiscal 2012 year.”

Financial Summary
Gross profit for third quarter 2011 was $10.8 million, up 8% from third quarter 2010. Gross margin for the period was 52%, in line with historical year over year comparables.

Operating expenses for third quarter 2011 were $1.9 million, or 9% of total revenue, compared with $2.2 million or 12% of total revenue in the year ago period.

Research and development costs, which consist of salaries, professional fees, and technical support fees, totaled roughly $91,000 for the period, as compared to roughly $208,000 for the three months ended September 30, 2010, a decrease of 56%. The decrease was mainly due to the majority of the calendar year’s R&D expenses having been incurred in the first half year.

Selling expenses totaled roughly $1.2 million as compared to $709,000 for the comparable year ago period an increase of 66%. This increase was primarily due higher shipping and handling costs related to delivering products to customers as we continue to expand our market to remote areas, in addition to inflationary pressure in China, which resulted in higher unit costs for transportation and delivery services.

G&A expenses totaled roughly $602,000, as compared to $1.3 million for the year ago period, a decrease of 53%. The decrease was mainly due to having no acquisition costs incurred during the quarter while as compared to approximately $635,000 of asset acquisition costs related to the purchase of our Jingzhou facility in the comparable year ago period.

Operating income increased by 14% year over year to $9.0 million in the third quarter of fiscal year 2011, compared with $7.9 million in the same quarter a year ago, and operating margin remained steady at 43% compared to 42% compared from the year ago period.

Net income for the third quarter of 2011 was a record $7.7 million, or $1.08 per fully diluted share. This compares to net income of $6.6 million or $0.93 per fully diluted share in the same quarter of 2010.

As of September 30, 2011, Skystar had approximately $3.8 million in cash, current assets of $56.0 million and current liabilities of $14.1 million.

Conference Call & Webcast Information
Skystar will host a conference call at 7:45 a.m. ET on Tuesday, November 15, 2011 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) 407-8031 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 # 383154. 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.

Financial Tables Follow

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 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.