SOURCE: Skystar Bio-Pharmaceutical Company

Skystar Bio-Pharmaceutical Company

November 16, 2009 07:00 ET

Skystar Bio-Pharmaceutical Company Announces Third Quarter 2009 Financial Results

Company Reports Record Quarterly Revenue of $12.78 Million and Adjusted Net Income of $4.25 Million; and Adjusted EPS of $0.61 per Share

XI'AN, CHINA--(Marketwire - November 16, 2009) - Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI) ("Skystar" or the "Company"), a China-based producer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives, today announced its financial results for the third quarter ended September 30, 2009. All per share amounts below reflect the two-for-one forward split effectuated on November 16, 2009.

THIRD QUARTER 2009 HIGHLIGHTS

--  Revenue increased 27.1% period over period to $12.78 million.
--  Gross margin improved to 52.2% from 51.6% in the third quarter of
    2008.
--  Net income(1) improved to $5.35 million which includes a $1.09 million
    unrealized gain from the change in the fair value of the Company's
    warrants, or $0.77 per share, compared with net income of $3.47 million or
    $0.93 per share in the third quarter of 2008.
--  Adjusted net income(2) increased 22.7% to 4.25 million, or $0.61 per
    share, compared with $3.47 million or $0.93 per share, in the third quarter
    of 2008.
--  The basic weighted average shares outstanding increased by 86.6% as a
    result of our recent offering while the adjusted earnings per share only
    decreased by 34.4%.
--  $14.80 million in cash and restricted cash and net current assets of
    $32.40 million as of September 30, 2009.
    

THIRD QUARTER AND RECENT BUSINESS HIGHLIGHTS

--  Awarded High Technology Enterprise Certificate, which has extended our
    15% preferential income tax rate.
--  Introduced "SkyWing" Series of 18 new poultry medicines.
--  Expanded micro-organism product line offering with three new products.
--  Secured local government contracts and expanded distribution of
    Company's industry-leading veterinary medication.
--  Initiated pre-production field trials of drug to boost the immune
    system of and treat viral diseases in livestock.
--  Approved a two-for-one forward split of the Company's outstanding
    common stock and increased the Company's authorized common stock from 20
    million shares to 40 million shares.
    

Mr. Weibing Lu, Chairman and Chief Executive Officer, commented, "Our quarterly revenue and margins in the third quarter reflect improved product sales across our product lines."

"We are on track with our expansion initiatives to increase our vaccine and micro-organism production capacity by the end of the year. With plans to begin production late in the fourth quarter, we expect that in 2010 we will effectively increase our vaccine revenue to $14 million with 60-70% margins and increase our micro-organism revenue by $2.7 million with gross margins of approximately 70%. In line with our anticipated growth, we approved a forward stock split earlier this month, which we believe will increase liquidity and offer an optimal entry point for investors as we continue to grow our business and create additional shareholder value," Mr. Lu concluded.

For the Three Months Ended September 30, 2009 and 2008

Third Quarter Revenue Summary

                                 Three months ending September 30,
Product Line                       2009         2008       % Change
                               ------------ ------------ -----------
Veterinary Medications         $  8,483,233 $  6,785,154        25.0%
Micro-Organism                 $  3,186,453 $  2,411,526        32.1%
Feed Additives                 $    539,856 $    513,980         5.0%
Vaccines                       $    567,553 $    340,599        66.6%
                               ------------ ------------ -----------
Total                          $ 12,777,095 $ 10,051,259        27.1%

Gross profit for the third quarter was $6.67 million, up 28.6% from the third quarter of 2008. Gross margin for the quarter was 52.2%, compared with 51.6% in the comparable 2008 period.

Total operating expenses for the third quarter of 2009 were $1.69 million, or 13.2% of total revenue, compared with $1.07 million, or 10.7% of total revenue for the third quarter of 2008.

Research and development (R&D) costs increased to $0.40 million, or 3.1% of revenue in the third quarter from $0.20 million, or 2.0% of revenue during the same period a year ago. Increase in R&D was primarily attributable to increases in veterinary vaccine development activities. Skystar anticipates that its research and development costs will increase in future periods as it invests in improvements in its existing products and development of new products.

Selling expenses totaled $0.41 million, or 3.2% of revenue, for the third quarter, compared with $0.55 million, or 5.5% of revenue, in the comparable period a year ago. General and administrative expenses increased to $0.88 million, or 6.9% of revenue, in the third quarter of 2009, compared with $0.32 million, or 3.2% of revenue, in the same period of 2008. The increase was due primarily to increased costs associated with being a US public company. Skystar anticipates general and administrative expenses will continue to increase in future periods.

Income from operations increased to $4.98 million, or 39.0% of revenue, from $4.11 million, or 40.9% of revenue in the quarters ended September 30, 2009 and 2008 respectively.

Net income for the third quarter of 2009 was $5.35 million, or $0.77 per share and $0.76 on 7.0 million weighted average shares outstanding on a basic and fully diluted basis, respectively. This compares to net income of $3.47 million, or $0.93 per share and $0.93 per share on 3.7 million weighted average shares outstanding on a basic and fully diluted basis, in the third quarter of 2008. Net income for the third quarter of 2009 includes a non-cash gain of $1.09 million for the change in fair value of warrants related to Skystar's classification of warrants and the adoption of EITF 07-5, which requires the Company to record its warrants as a liability primarily because the Company's functional currency is the Chinese Renminbi while the Company's reporting currency is the US Dollar.

Skystar's adjusted net income for the third quarter of 2009 was $4.25 million, or $0.61 per share, compared with $3.47 million, or $0.93 per share, in the third quarter of 2008 (See "About Non-GAAP Financial Measures" toward the end of this release.)

As of September 30, 2009, Skystar had approximately $14.80 million in cash and restricted cash, current assets of $36.18 million and current liabilities of $3.78 million. On July 8, 2009, the company completed an equity offering resulting in net proceeds of approximately $18.41 million.

On November 5, 2009, Skystar's Board of Directors approved a two-for-one forward split of the Company's outstanding common stock together with a proportional increase of the Company's authorized common stock from 20 million shares to 40 million shares. The split will increase the number of shares of common stock outstanding from approximately 3.48 million shares to approximately 6.96 million shares. Trading will begin on a split-adjusted basis on November 17, 2009.

Conference Call

Skystar will host a conference call to discuss these results today, November 16, 2009, at 8:00 a.m. Eastern time. To participate in the conference call, please dial 1-888-549-7735 from the US or Canada, or 1-480-629-9858 from outside the US. Investors may also access a live audio webcast of this conference call under "Events/Presentation" on the Investors Relations section of the Company's website at http://www.ir-site.com/skystar/events.asp.

A replay of the webcast will be available approximately two hours after the conclusion of the call. The webcast replay will remain available for 90 days. An audio replay will also be available approximately two hours after the conclusion of the call and will be made available until Monday, November 30, 2009. The audio replay can be accessed by dialing 1-800-406-7325 from the US or Canada, or 1 303 590 3030 from outside the US and access code: 4184438#.

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, with over 40 additional products in the developmental stage. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

To be added to the Company's email distribution for future news releases, please send your request to skystar@tpg-ir.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 under EITF 07-5. 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 under EITF 07-5 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.

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.

                         Adjusted Net Income

                                     Three months ended   Nine months ended
                                        Sept. 30, 2009      Sept. 30, 2009

GAAP Net Income                       $     5,347,334     $     6,295,181
GAAP Basic Earnings  Per Share                   0.77                1.30

Addition (deduction):
Change in fair value of warrants           (1,092,824)            349,332


Non GAAP Net Income                         4,254,510           6,644,513
Non GAAP Basic Earnings Per Share                0.61                1.38

Shares used in computing
 net income per basic share                 6,960,028           4,824,306

Forward-Looking Statements

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.


            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS
              AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

                  ASSETS

                                                September 30, December 31,
                                                    2009          2008
                                                ------------- -------------
                                                (Unaudited)
                                                -------------
CURRENT ASSETS:
  Cash                                          $  14,796,990 $     576,409
  Restricted cash                                         151        80,885
  Short-term investments                                    -       352,080
  Accounts receivable, net of allowance for
   doubtful accounts of $327,857 and $327,857
   as of September 30, 2009 and December 31,
   2008, respectively                               6,100,064     2,424,102
  Inventories                                       7,623,655     3,086,060
  Deposits and prepaid expenses                     5,111,345     4,878,851
  Loans receivable                                  2,420,738       295,087
  Due from related parties                             12,056             -
  Other receivables                                   118,943        85,099
    Total current assets                           36,183,942    11,778,573
                                                ------------- -------------

PLANT AND EQUIPMENT, NET                            8,772,527     7,413,689
CONSTRUCTION-IN-PROGRESS                            9,207,690     6,516,630

OTHER ASSETS:
  Long-term prepayments                             1,041,570     5,207,117
  Intangible assets, net                            1,957,421       899,529
                                                ------------- -------------
    Total other assets                              2,998,991     6,106,646
                                                ------------- -------------
      Total assets                              $  57,163,150 $  31,815,538
                                                ============= =============

    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                              $     278,932 $     547,430
  Accrued expenses                                    626,257     1,488,575
  Short-term loans                                    220,050       748,170
  Short-term loans from shareholders                  110,025       308,070
  Deposits from customers                             525,904       424,266
  Taxes payable                                     1,696,807       212,661
  Other payables                                      102,150        68,398
  Shares to be issued to related parties              220,245        95,204
  Due to related parties                                    -       242,225
                                                ------------- -------------
    Total current liabilities                       3,780,370     4,134,999
                                                ------------- -------------

OTHER LIABILITIES:
  Deferred government grant                         1,100,250     1,100,250
  Warrant liability                                 1,226,963             -
                                                ------------- -------------
    Total other liabilities                         2,327,213     1,100,250
                                                ------------- -------------
     Total liabilities                              6,107,583     5,235,249
                                                ------------- -------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, $0.001 par value, 50,000,000
   Series "A" shares authorized and 2,000,000
   shares issued and outstanding as of
   September 30, 2009 and December 31, 2008
48,000,000 Series "B" shares authorized, Nil
 Series "B" shares issued and outstanding as
 of September 30, 2009 and December 31, 2008            2,000         2,000
Common stock, $0.001 par value, 40,000,000
 shares authorized, 6,963,638 and 3,733,038
 shares issued and outstanding as of
 September 30, 2009 and December 31, 2008,
 respectively                                           6,965         3,735
  Paid-in capital                                  34,354,481    16,345,773
  Statutory reserves                                3,755,115     2,952,710
  Retained earnings                                10,142,117     4,418,464
  Accumulated other comprehensive income            2,794,889     2,857,607
                                                ------------- -------------
    Total shareholders' equity                     51,055,567    26,580,289
                                                ------------- -------------
      Total liabilities and shareholders'
       equity                                   $  57,163,150 $  31,815,538
                                                ============= =============



            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

   CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
  FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 and 2008
                                (Unaudited)


                        Three months ended          Nine months ended
                          September 30,               September 30,
                    --------------------------  --------------------------
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------

REVENUE, NET        $ 12,777,095  $ 10,051,259  $ 22,844,099  $ 17,215,807

COST OF REVENUE        6,107,477     4,865,122    11,012,672     8,329,025
                    ------------  ------------  ------------  ------------

GROSS PROFIT           6,669,618     5,186,137    11,831,427     8,886,782
                    ------------  ------------  ------------  ------------

OPERATING EXPENSES:
  Research and
   development           398,685       203,242       882,732       369,940
  Selling expenses       412,051       549,580     1,204,653     1,042,267
  General and
   administrative        878,866       318,470     1,818,920     1,220,796
                    ------------  ------------  ------------  ------------
    Total operating
     expenses          1,689,602     1,071,292     3,906,305     2,633,003
                    ------------  ------------  ------------  ------------

INCOME FROM
 OPERATIONS            4,980,016     4,114,845     7,925,122     6,253,779
                    ------------  ------------  ------------  ------------

OTHER INCOME
 (EXPENSE):
  Other income
   (expense), net         79,068          (166)       78,526      (493,424)
  Interest income
   (expense), net          9,148        (6,589)        8,662      (489,764)
  Inducement cost for
   debentures
   converted                   -             -             -      (257,775)
  Change in fair
   value of warrants   1,092,824             -      (349,332)            -
                    ------------  ------------  ------------  ------------
    Total other
     expense, net      1,181,040        (6,755)     (262,144)   (1,240,963)
                    ------------  ------------  ------------  ------------

INCOME BEFORE
 PROVISION FOR
 INCOME TAXES          6,161,056     4,108,090     7,662,978     5,012,816

PROVISION FOR
 INCOME TAXES            813,722       642,066     1,367,797     1,056,506
                    ------------  ------------  ------------  ------------

NET INCOME             5,347,334     3,466,024     6,295,181     3,956,310

OTHER COMPREHENSIVE
 (LOSS) INCOME:
  Foreign currency
   translation
   adjustment             (8,037)      110,845       (62,718)    1,337,825
                    ------------  ------------  ------------  ------------

COMPREHENSIVE
 INCOME             $  5,339,297  $  3,576,869  $  6,232,463  $  5,294,135
                    ============  ============  ============  ============

EARNINGS PER SHARE:
  Basic             $       0.77  $       0.93  $       1.30  $       1.09
                    ============  ============  ============  ============
  Diluted           $       0.76  $       0.93  $       1.29  $       1.09
                    ============  ============  ============  ============

WEIGHTED AVERAGE
 NUMBER OF COMMON
 SHARES:
  Basic                6,960,028     3,729,408     4,824,306     3,617,079
                    ============  ============  ============  ============
  Diluted              7,025,343     3,729,408     4,890,712     3,625,271
                    ============  ============  ============  ============

(1) Net income applicable to common shares for the third quarter of 2009 and 2008 has been restated to reflect the two-for-one forward split of the Company's outstanding common stock, approved by the Company’s Board of Directors to be effectuated on November 16, 2009. Reflective of the forward spit, total basic shares outstanding were 6.96 million for the third quarter of 2009 and 3.79 million for the third quarter of 2009.

(2) Adjusted net income is a non-GAAP measurement that the Company uses as a metric to provide information about its operating trends and is an important metric in evaluating its business. Skystar defines adjusted net income as net income before non-cash charges or benefits incurred the change in the fair value of the Company’s warrants under EITF 07-5.

Contact Information

  • Investor Relations Contacts:

    The Piacente Group, Inc. (Investor Relations Counsel)
    Brandi Floberg
    (212) 481-2050
    Email Contact

    Skystar Bio-Pharmaceutical Co., Ltd.
    Scott Cramer
    Director - U.S. Representative
    (407) 645-4433
    Email Contact