SOURCE: Skystar Bio-Pharmaceutical Company

August 14, 2009 04:00 ET

Skystar Bio-Pharmaceutical Announces Second Quarter 2009 Results

XI'AN, CHINA--(Marketwire - August 14, 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 second quarter ended June 30, 2009.

SECOND QUARTER 2009 & RECENT HIGHLIGHTS

--  Revenues increased 39.4% year-over-year to $6.2 million
--  Gross margin improved to 52.6% from 51.6% in the second quarter of
    2008
--  Income from operations increased by 37.6% year-over-year to $1.7
    million
--  Began trading on the NASDAQ Capital Market on June 26, 2009
--  Completed public offering for 1.61M shares of common stock for gross
    proceeds of approximately $21.0M on July 8, 2009
    

"With our recent listing on the NASDAQ Capital Market, we are pleased to be the only China-based company in our growing industry that trades on a US exchange," commented Mr. Weibing Lu, Chairman and Chief Executive Officer. "As the animal farming industry in China continues to grow, we are expecting to scale our business to meet this increasing demand. We are continuing to execute on our plans to expand our manufacturing capacity and increase our market penetration through an increase in our sales efforts."

"Our revenue increase in the second quarter was largely attributable to the utilization of the veterinary medicine facility expansion completed in 2007 and increased sales efforts," Mr. Lu continued. "We have an established and growing distribution network that services our diverse customer base of more than 1,500 throughout all of the farm producing provinces in China. With more than 350 franchise stores with nationally recognized branding and few direct competitors, we are well positioned as an industry leader."

For the Three Months Ended June 30, 2009 and 2008

Second Quarter Revenue Summary


                                     Three months ending June 30,
Product Line                             2009         2008       % Change
                                      -----------  -----------  ----------
Veterinary Medications                $ 3,913,444  $ 2,934,247        33.4%
Micro-Organism                          1,735,534    1,151,600        50.7%
Feed Additives                            281,461      176,627        59.4%
Vaccines                                  312,999      215,720        45.1%
                                      -----------  -----------
Total                                 $ 6,243,438  $ 4,478,194        39.4%

Gross profit for the second quarter was $3.3 million, up 42% from the second quarter of 2008. Gross margin for the quarter was 52.6%, compared with 51.6% in the comparable 2008 period. The margin expansion in the quarter can be attributed to the faster growth of the higher margin product lines.

Total operating expenses for the second quarter of 2009 were $1.6 million, compared with $1.1 million in the prior period. Research and development costs increased to $367,000, or 5.9% of revenues in the second quarter from 119,000, or 2.7% of revenues during the same period a year ago. The increase is primarily attributable to increased research and development activities involved in developing veterinary vaccines. We anticipate these costs will continue to increase as we continue improving our existing products and develop new products.

Selling expenses totaled $585,000, or 9.4% of revenues, for the second quarter as compared to $302,843, or 6.8% of revenues, in the comparable period a year ago. The increase is a result of increased marketing efforts and increased sales.

General and administrative expenses declined to $625,000, or 10% of revenues, in the second quarter of 2009, compared with $649,000, or 14.5% of revenues, in the same period of 2008. While the Company's general and administrative expenses remained relatively unchanged, we anticipate general and administrative expenses to increase in future periods due to the increased costs associated with being a US public company.

Income from operations increased to $1.7 million, or 27.3% of revenues, from $1.2 million, or 27.7% of revenues in the quarters ended June 30, 2009 and 2008 respectively.

Net loss for the period was $117,000, or $0.06 per share, compared to a net loss of $126,000, or $0.07 per share, in the second quarter of 2008. As a result of adopting EITF 07-5 on January 1, 2009, the Company recognized a loss of $1.5 million for the change in fair value of warrant liability for the three months ended June 30, 2009. The Company was required 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.

Excluding the costs of non-cash charges related to the revaluation of Skystar's aforementioned warrants and costs associated with the completion of its secondary offering, Skystar's net income for the second quarter of 2009 was $1.4 million, or $0.73 per share. (See "About Non-GAAP Financial Measures" toward the end of this release.)

As of June 30, 2009, Skystar had approximately $411,000 in cash and restricted cash, current assets of $17.6 million and total liabilities of $9.8 million. On July 8, 2009, the company completed an equity offering resulting in gross proceeds of approximately $21.0 million.

Business Outlook

"We are in the process of completing our vaccine manufacturing facility and expanding our existing micro-organism facilities, which are expected to be completed later this year," stated Mr. Lu. "Once completed, the vaccine facility is expected to increase our vaccine production capacity by 2,300%, from 250 million units to 6 billion units, with a will have a projected increase in revenue of $14 million and related gross margins of 60-70% in 2010. Our micro-organism facility expansion is anticipated to increase our micro-organism and feed additives production capacity by 48.7% and add $2.7 million in revenue with a gross margin of 70% in 2010."

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    Six months
                                                  ended          ended
                                              June 30, 2009  June 30, 2009
GAAP Net Income (Loss)                        $    (116,797) $     947,847
GAAP Basic Earnings (Loss) Per Share          $       (0.06) $        0.51

Addition:
Change in fair value of warrants              $   1,480,484      1,442,156


Non GAAP Net Income                           $   1,363,687      2,390,003
Non GAAP Basic Earnings Per Share             $        0.73           1.28

Shares used in computing net income per
 basic share                                      1,869,512      1,868,854

Conference Call

Skystar will host a conference call to discuss these results today, August 14, 2009, at 8:00 a.m. Eastern time. To participate in the conference call, please dial 877-941-2321 or 480-629-9714 from the US. Participants dialing in from China can access the call toll free by dialing 10800-152-1142. 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 Friday, August 28, 2009. The audio replay can be accessed by dialing 800-406-7325 or 303-590-3030 and entering passcode 4138197# from the US. For toll free access to the replay from China please dial 852-2287-4304 and enter reservation number 109110#.

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.

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.

(Tables Follow)

           SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

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


                                  ASSETS

                                                    June 30,   December 31,
                                                      2009         2008
                                                  ------------ ------------
                                                  (Unaudited)
                                                  ------------
CURRENT ASSETS:
   Cash                                           $    410,554 $    576,409
   Restricted cash                                         151       80,885
   Short-term investments                              307,650      352,080
   Accounts receivable, net of allowance for
    doubtful accounts of $327,410
    and $327,857 as of June 30, 2009 and
    December 31, 2008, respectively                  3,832,627    2,424,102
   Inventories                                       8,244,383    3,086,060
   Deposits and prepaid expenses                     2,714,259    4,878,851
   Loans receivable                                  1,979,435      295,087
   Other receivables                                   127,102       85,099
                                                  ------------ ------------
      Total current assets                          17,616,161   11,778,573
                                                  ------------ ------------

PLANT AND EQUIPMENT, NET                             7,177,736    7,413,689
CONSTRUCTION-IN-PROGRESS                             9,324,597    6,516,630

OTHER ASSETS:
   Long-term prepayments                             1,465,000    5,207,117
   Intangible assets, net                              821,270      899,529
                                                  ------------ ------------
      Total other assets                             2,286,270    6,106,646
                                                  ------------ ------------
         Total assets                             $ 36,404,764 $ 31,815,538
                                                  ============ ============

             LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                               $    349,706 $    547,430
   Accrued expenses                                  1,280,547    1,488,575
   Short-term loans                                    952,250      748,170
   Short-term loans from shareholders                  109,875      308,070
   Deposits from customers                             258,970      424,266
   Taxes payable                                     2,597,886      212,661
   Other payables                                       86,525       68,398
   Shares to be issued to related parties              173,228       95,204
   Due to related parties                              550,895      242,225
                                                  ------------ ------------
      Total current liabilities                      6,359,882    4,134,999
                                                  ------------ ------------

OTHER LIABILITIES:
   Deferred government grant                         1,098,750    1,100,250
   Warrant liability                                 2,319,787            -
                                                  ------------ ------------
      Total other liabilities                        3,418,537    1,100,250
                                                  ------------ ------------
         Total liabilities                           9,778,419    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 June 30, 2009 and December 31, 2008
    48,000,000 Series "B" shares authorized,
    Nil Series "B" shares issued and
    outstanding as of June 30, 2009 and
    December 31, 2008                                    2,000        2,000
   Common stock, $0.001 par value, 20,000,000
    shares authorized, 3,480,014 and 1,866,519
    shares issued and outstanding as of June 30,
    2009 and December 31, 2008, respectively             3,480        1,867
   Paid-in capital                                  34,435,364   16,347,641
   Contribution receivable                         (19,167,323)           -
   Statutory reserves                                3,311,013    2,952,710
   Retained earnings                                 5,238,885    4,418,464
   Accumulated other comprehensive income            2,802,926    2,857,607
                                                  ------------ ------------
      Total shareholders' equity                    26,626,345   26,580,289
                                                  ------------ ------------
         Total liabilities and shareholders'
          equity                                  $ 36,404,764 $ 31,815,538
                                                  ============ ============




           SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

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


                       Three months ended            Six months ended
                             June 30,                    June 30,
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------

REVENUE, NET        $  6,243,438  $  4,478,194  $ 10,067,004  $  7,164,548

COST OF REVENUE        2,958,837     2,166,484     4,905,195     3,463,903
                    ------------  ------------  ------------  ------------

GROSS PROFIT           3,284,601     2,311,710     5,161,809     3,700,645
                    ------------  ------------  ------------  ------------

OPERATING EXPENSES:
  Research and
   development           366,695       119,399       484,047       166,698
  Selling expenses       585,207       302,843       792,602       492,687
  General and
   administrative        625,359       648,591       940,054       902,326
                    ------------  ------------  ------------  ------------
     Total
      operating
      expenses         1,577,261     1,070,833     2,216,703     1,561,711
                    ------------  ------------  ------------  ------------

INCOME FROM
 OPERATIONS            1,707,340     1,240,877     2,945,106     2,138,934
                    ------------  ------------  ------------  ------------

OTHER EXPENSE:
  Other expense,
   net                      (310)     (492,895)         (542)     (493,258)
  Interest expense,
   net                      (788)     (355,039)         (486)     (483,175)
  Inducement cost
   for debentures
   converted                   -      (257,775)            -      (257,775)
  Change in fair
   value of
   warrants           (1,480,484)            -    (1,442,156)            -
                    ------------  ------------  ------------  ------------
     Total other
      expense, net    (1,481,582)   (1,105,709)   (1,443,184)   (1,234,208)
                    ------------  ------------  ------------  ------------

INCOME BEFORE
 PROVISION FOR
 INCOME TAXES            225,758       135,168     1,501,922       904,726

PROVISION FOR
 INCOME TAXES            342,555       261,233       554,075       414,440
                    ------------  ------------  ------------  ------------

NET INCOME (LOSS)       (116,797)     (126,065)      947,847       490,286

OTHER COMPREHENSIVE
 (LOSS) INCOME:
  Foreign currency
   translation
   adjustment            (16,233)      456,967       (54,681)    1,226,980
                    ------------  ------------  ------------  ------------

COMPREHENSIVE
 INCOME             $   (133,030) $    330,902  $    893,166  $  1,717,266
                    ============  ============  ============  ============

EARNINGS (LOSS) PER
 SHARE:
  Basic             $      (0.06) $      (0.07) $       0.51  $       0.28
                    ============  ============  ============  ============
  Diluted           $      (0.06) $      (0.07) $       0.50  $       0.27
                    ============  ============  ============  ============

WEIGHTED AVERAGE
 NUMBER OF COMMON
 SHARES:
  Basic                1,869,512     1,836,932     1,868,854     1,780,149
                    ============  ============  ============  ============
  Diluted              1,869,512     1,836,932     1,912,216     1,787,032
                    ============  ============  ============  ============

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