SOURCE: Skystar Bio-Pharmaceuticals

Skystar Bio-Pharmaceuticals

November 14, 2014 17:00 ET

Skystar Bio-Pharmaceutical Reports Third Quarter Fiscal Year 2014 Financial Results

Revenue of $18.4 Million; Net Income $4.9 Million; $0.57 Fully Diluted EPS; Conference Call to Be Held Today Friday, November 14, 2014 at 5:30 PM ET

XI'AN, CHINA--(Marketwired - Nov 14, 2014) - Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI) ("Skystar" or the "Company"), a China-based manufacturer and distributor of veterinary medicine, vaccines, micro-organisms and feed additives, today reported unaudited third quarter fiscal year 2014 earnings, for the period ended September 30, 2014.

Third Quarter 2014 Highlights vs the Comparable Year Ago Period

  • Revenues roughly totaled $18.4 million up 14.8%
    • Micro-organism products roughly totaled $7.1 million, up 42.9%
    • Veterinary medicine roughly totaled $10.3 million, an increase of 5.1%
    • Feed additives totaled $1.0 increasing 56.7%
    • Veterinary vaccines totaled $1,114, a decrease of 99.8%
  • Gross margin of 47.7% for the third quarter of fiscal 2014 as compared to 51.4%
  • Net income of $4.9 million or $0.57 per fully diluted share, compared with net income of $3.7 million or $0.49 per fully diluted share in the year ago period
  • Fiscal 2014 guidance reiterated at $46 million to $50 million

Nine Months 2014 Financial Highlights vs the Comparable Year Ago Period

  • First nine months 2014 revenue totaled $39.4 million up 20.0% from $32.9 million
  • Gross margin of 45.5% for the first nine months of fiscal 2014 as compared to 51%
  • Net income of $8.7 million or $1.08 per fully diluted share, compared with net income of $8.2 million or $1.08 per fully diluted share

Management Comments

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's Chairman and Chief Executive Officer, commented, "Skystar continues to deliver strong quarterly performance while proceeding with operational changes that strengthen the Company's position in the long term. Currently, Skystar is in mid-transition to large scale manufacturing of the Company's animal vaccine and medicine products at one of Skystar's modern GMP production facilities. The transition to modern manufacturing is happening in lock step with production permit application and licensing with China's Ministry of Agriculture as a procedural requirement for GMP certified manufacturers. Skystar's long term goals are to improve key performance metrics including top line growth, blended gross margins and historical bottom line profitability. Skystar believes it is uniquely positioned to participate in the industrialization, standardization and modernization of China's evolving animal husbandry space.

"Skystar's successful efforts to GMP certify its animal vaccine and medicine facilities based in Huxian and Jingzhou under the Ministry of Agriculture's (MOA) stricter regulatory oversight of food and drug manufacturers paves way for a new wave of the Company's growth. This step change was part of China's movement to better regulate food and drug manufacturers by enforcing higher safety and manufacturing standards as outlined in China's 2011-2015 'Twelfth Five Year Plan.' As one of the leading operators in China's animal biopharmaceutical manufacturing space, we believe the stricter regulations have improved Skystar's positioning over the coming quarters as more products are added to the manufacturing line. Skystar also moves forward with its business strategy continuing to onboard more distribution agents and direct customers, increasing revenues generated throughout Skystar's extensive sales network across the 29 farming provinces in China.

"Operationally, we continue making adjustments in order to maximize sales, taking advantage of current production capabilities with each subsequent product launch. We also continue to shift resources, redirecting sales and marketing efforts and creating awareness and demand for both existing products and new products while adjusting marketing strategy such as the bundling of products to customers.

"In terms of Skystar's production facilities, as of this reporting period we have stopped producing our vaccine line by hand and have moved vaccine production to our new and modern GMP vaccine facility in Huxian. We consider the upgraded Huxian vaccine facility to be officially launched now that we are in receipt of three vaccine production permits from the MOA. As of current there are also 5 vaccine production permits in application with the MOA. Additionally, we have already been granted 100 permits to manufacture individual veterinary medications whose production has transitioned to our large scale process automated manufacturing facility. Additionally, Skystar has an additional 56 veterinary medication production permits under review with the MOA. 

"Skystar's Kunshan probiotics production facility continues to make good progress in its build out and we are pleased to announce the purchase and installation of equipment there. Equipping the Kunshan probiotics facility is expected to be completed in 2015. Meanwhile, Skystar's probiotics and animal feed production lines at the Company's Sanqiao plant continue to deliver solid output and sales, helping to boost revenues at the group level.

"As we move into the last reporting quarter of fiscal 2014, it is imperative that we continue our operational strategy, such as the shifting of resources towards the sale, marketing and distribution of our high growth, high margin veterinary medications line which is now being manufactured in large scale process automated batches. In line with our operating protocols, as production from Skystar's vaccine line scales up we will review and adjust our sales and marketing strategies to ensure the successful re-launch of one of our most promising product lines. 

"The operational changes that are happening now will continue to transform Skystar, allowing us to maintain a leading position in China's animal bio-pharmaceutical space. Skystar to date, continues to be historically profitable, raising the bar with solid quarterly revenue growth and expect to continue this growth trajectory in the upcoming quarters," concluded Mr. Lu.

Financial Summary
For the three months ended September 30, 2014, we had revenues of $18.4 million as compared to revenues of $16.0 million for the three months ended September 30, 2013, an increase of $2.4 million or 14.8%. We generated revenue from sales of four product lines: veterinary medications, micro-organism, feed additives and vaccines. Third Quarter Fiscal 2014 revenue breakdown by product line is as follows:

  • Veterinary medications: $10.3 million
  • Micro-organism: $7.1 million
  • Feed Additives: $1.0 million
  • Vaccines: $1,114

Cost of revenue, which consists of raw materials, direct labor, and manufacturing overhead for our four product lines, was $9.6 million for the three months ended September 30, 2014, as compared to $7.8 million for the three months ended in the year ago period, an increase of 23.3% or $1.8 million.

Gross profit, was $8.8 million for the three months ended September 30, 2014, a 6.7% year over year increase as compared to $8.2 million for the three months ended September 30, 2013. Gross margin for the period decreased to 48% due to increase sale of Skystar's less profitable veterinary medications products.

Operating Expenses, research and development costs totaled $378,487 for the three months ended September 30, 2014 as compared to $324,353 for the year ago period; this 17% increase in R&D expense was primarily due to expenditures of $325,440 on existing R&D projects during the third quarter of 2014 to develop two veterinary medications.

Selling expenses totaled $1.1 million for the three months ended September 30, 2014 as compared to $1.3 for the three months ended September 30, 2013, a decrease of $0.2 million or 14.6%, mainly due to a decrease in sales commissions and shipping and handling as we made efforts to control these expenses.

General and administrative expenses totaled $1.9 million for the three months ended September 30, 2014 as compared to $1.9 million for the three months ended September 30, 2013, an increase of $0.02 million or 1.0%, mainly due to an additional allowance on doubtful accounts during the quarter.

Operating income for the period was $5.4 million, up $0.7 million or 14% year-on-year. Operating margin was 29.4% roughly the same in the year ago period.

Net income for the quarter was $4.9 million or $0.57 per fully diluted share. This compares to net income of $3.7 million or $0.49 per fully diluted share for the year ago period.

As of September 30, 2014, we had unrestricted cash of $14.6 million. Our total current assets were $120.9 million, and our total current liabilities were $48.3 million, which resulted in a net working capital of $72.6 million.

Fiscal 2014 Guidance: We currently reiterate our fiscal 2014 guidance to be in the range of $46 million to $50 million for the full year.

Conference Call Information
The Company will host a conference call Friday, November 14, 2014 to discuss its third quarter financial results. Skystar's conference call will begin promptly at 5:30 p.m. ET. Mr. Weibing Lu, Skystar's Chairman and Chief Executive Officer, will host the call, which will be webcast live.

Webcast: The webcast will be made available at: http://www.investorcalendar.com/event/173426.

Phone dial-in: 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, referencing conference ID # 13595815. Alternatively you can listen to the replay online at http://www.investorcalendar.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.

 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 include, without limitation, the Company's financial projections, and revenue guidance, expectations relating to scaling up of the production and the plant production capabilities, statements relating to the timing of various regulatory certifications, 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 Company's ability to achieve the expected rates of growth and sales at its existing and new facilities, its ability to successfully commercialize and maintain sales leadership position, 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. These forward-looking statements are based upon our current expectations and projections about future events and generally relate to our plans, objectives and expectations for the development of our business. Although management believes that the plans and objectives reflected in or suggested by these forward-looking statements are reasonable, all forward-looking statements involve risks and uncertainties and actual future results may be materially different from the plans, objectives and expectations expressed in this press release. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results.

 
 
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
         
ASSETS
    September 30,   December 31,
    2014   2013
    (Unaudited)    
         
CURRENT ASSETS:            
  Cash   $ 14,634,703   $ 8,142,296
  Restricted cash     7,150,000     -
  Accounts receivable, net of allowance for doubtful accounts of $2,523,199 and $602,243 as of September 30, 2014 (Unaudited) and December 31, 2013, respectively     35,346,521     11,009,498
  Inventories     23,107,891     25,903,586
  Deposits, prepaid expenses and other receivables     1,706,896     2,134,163
  Prepayments to suppliers     28,482,798     41,061,144
  Advance to a supplier     9,750,000     -
  Deferred income tax asset     683,010     364,425
    Total current assets     120,861,819     88,615,112
             
PROPERTY, PLANT AND EQUIPMENT, NET     29,613,684     28,269,155
             
CONSTRUCTION-IN-PROGRESS     10,739,898     9,284,947
             
OTHER ASSETS:            
  Long-term prepayments     2,130,458     4,633,614
  Long-term prepayments for acquisitions     3,250,000     183,344
  Intangible assets, net     5,012,602     5,237,255
    Total other assets     10,393,060     10,054,213
      Total assets   $ 171,608,461   $ 136,223,427
             
LIABILITIES AND SHAREHOLDERS' EQUITY
             
CURRENT LIABILITIES:            
  Accounts payable   $ 9,400,410   $ 3,303,531
  Other payables and accrued expenses     6,956,227     6,467,605
  Short-term loans     19,175,000     10,640,500
  Deposits from customers     1,656,175     1,877,211
  Taxes payable     7,966,573     1,315,486
  Due to related parties     2,959,619     1,361,548
  Warrant liability     193,517     -
  Purchase option liability     -     62,440
    Total current liabilities     48,307,521     25,028,321
             
OTHER LIABILITIES:            
  Deferred government grants     796,250     802,130
    Total other liabilities     796,250     802,130
      Total liabilities     49,103,771     25,830,451
             
COMMITMENTS AND CONTINGENCIES            
             
SHAREHOLDERS' EQUITY            
  Preferred stock, $0.001 par value, 50,000,000 shares authorized, No Series "A" shares authorized. 48,000,000 Series "B" convertible preferred stock authorized. No Series "B" convertible preferred stock issued and outstanding. 1,000 Series "C" convertible preferred stock authorized, issued and outstanding as of September 30, 2014 (Unaudited) and all nil as of December 31, 2013     1     -
  Common stock, $0.001 par value, 40,000,000 shares authorized, 8,499,314 and 7,604,800 shares issued and outstanding as of September 30, 2014 (Unaudited) and December 31, 2013, respectively     8,499     7,605
  Paid-in capital     41,883,258     37,631,142
  Statutory reserves     5,952,692     5,952,692
  Retained earnings     63,685,817     54,990,154
  Accumulated other comprehensive income     10,974,423     11,811,383
    Total shareholders' equity     122,504,690     110,392,976
      Total liabilities and shareholders' equity   $ 171,608,461   $ 136,223,427
                   
                   
   
   
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013  
(Unaudited)  
                         
    For the Three Months Ended September 30,     For the Nine Months Ended September 30,  
    2014     2013     2014     2013  
                         
REVENUE, net   $ 18,352,693     $ 15,992,408     $ 39,424,886     $ 32,858,294  
                                 
COST OF REVENUE     9,589,925       7,778,691       21,480,313       16,087,401  
                                 
GROSS PROFIT     8,762,768       8,213,717       17,944,573       16,770,893  
                                 
OPERATING EXPENSES:                                
Research and development     378,487       324,353       1,181,680       417,740  
Selling expenses     1,081,403       1,266,444       2,286,217       2,213,617  
General and administrative     1,903,304       1,885,219       4,537,024       3,785,302  
Total operating expenses     3,363,194       3,476,016       8,004,921       6,416,659  
                                 
INCOME FROM OPERATIONS     5,399,574       4,737,701       9,939,652       10,354,234  
                                 
OTHER INCOME (EXPENSE):                                
Other income (expense), net     4,807       32,757       178,755       28,908  
Interest income     155,510       106,266       490,451       380,097  
Interest expense     (252,161 )     (154,792 )     (464,942 )     (565,252 )
Change in fair value of derivative liabilities     314,657       (205,758 )     377,097       (200,158 )
Total other income (expense), net     222,813       (221,527 )     581,361       (356,405 )
                                 
INCOME BEFORE PROVISION FOR INCOME TAXES     5,622,387       4,516,174       10,521,013       9,997,829  
                                 
PROVISION FOR INCOME TAXES     712,934       781,977       1,825,350       1,800,018  
                                 
NET INCOME     4,909,453       3,734,197       8,695,663       8,197,811  
                                 
OTHER COMPREHENSIVE INCOME :                                
Foreign currency translation adjustment     (4,936 )     513,281       (836,960 )     2,576,408  
                                 
COMPREHENSIVE INCOME   $ 4,904,517     $ 4,247,478     $ 7,858,703     $ 10,774,219  
                                 
EARNINGS PER SHARE:                                
Basic   $ 0.58     $ 0.49     $ 1.09     $ 1.08  
Diluted   $ 0.57     $ 0.49     $ 1.08     $ 1.08  
                                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:                                
Basic     8,487,425       7,617,726       7,959,506       7,615,733  
Diluted     8,574,462       7,617,726       8,050,359       7,615,733  
                                 
                                 
   
   
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013  
(Unaudited)  
             
    For the Nine months ended September 30,  
    2014     2013  
CASH FLOWS FROM OPERATING ACTIVITIES:                
  Net income   $ 8,695,663     $ 8,197,811  
  Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
      Depreciation     1,249,569       1,086,914  
      Amortization     186,513       184,496  
      Provision for doubtful accounts     1,927,978       1,274,058  
      Change in fair value of purchase option liability     (377,097 )     200,158  
      Loss on sale of office equipment     -       1,748  
      Common stock to be issued to related parties for compensation     209,523       3,227  
      Deferred income tax asset     (363,865 )     (339,618 )
      Warrant issue expenses     49,793       -  
    Change in operating assets and liabilities                
      Accounts receivable     (26,378,763 )     (17,685,435 )
      Inventories     2,609,336       (3,775,636 )
      Deposits, prepaid expenses and other receivables     413,365       1,099,950  
      Prepayments to suppliers     12,293,970       (3,552,385 )
      Accounts payable     6,129,382       (513,989 )
      Other payables and accrued expenses     532,753       1,391,003  
      Deposits from customers     (207,556 )     (74,589 )
      Taxes payable     6,669,747       2,932,621  
      Government grants     -       (450,688 )
      Due to related parties     1,604,154       928,312  
        Net cash provided by (used in) operating activities     15,244,465       (9,092,042 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
  Refund of long-term prepayments for acquisitions     183,507       -  
  Payment of long-term prepayments for acquisitions     (3,254,400 )     (3,510,666 )
  Payments of long-term prepayments     (1,020,700 )     -  
  Loans to third parties     (1,049,544 )     -  
  Repayment of loans from third parties     1,049,544       1,094,190  
  Advance to a supplier     (9,763,200 )     -  
  Placement of restricted cash     (7,159,680 )     (59,555 )
  Purchases of property, plant and equipment     (8,645 )     (9,290 )
  Proceeds from sale of plant and equipment     -       161  
  Payments on construction-in-progress     (827,884 )     (10,977 )
    Net cash used in investing activities     (21,851,002 )     (2,496,137 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from sales of common stock, preferred stock and warrants, net of cash issuance expenses of $498,130     4,501,870       -  
  Proceeds from short-term loans     19,200,960       10,462,400  
  Repayment of short-term loans     (10,576,800 )     (4,506,880 )
  Repayment of long-term loans     -       (1,287,680 )
    Net cash provided by financing activities     13,126,030       4,667,840  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (27,086 )     55,110  
                 
INCREASE (DECREASE) IN CASH     6,492,407       (6,865,229 )
                 
CASH, beginning of year   $ 8,142,296     $ 11,321,848  
                 
CASH, end of period   $ 14,634,703     $ 4,456,619  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
  Cash paid for interest   $ 392,028     $ 454,336  
  Cash paid for income taxes   $ 1,350,576     $ 329,968  
  Non-cash investing and financing activities                
  Long-term prepayments transferred to construction-in-progress   $ 3,491,971     $ 22,438  
  Construction-in-progress transferred to property, plant and equipment   $ 2,794,780     $ -  
                 
                 
   
   
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY  
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014  
(Unaudited)  
   
                          Retained earnings   Accumulated        
    Preferred stock   Common stock   Paid-in     Statutory       other comprehensive        
    Shares   Amount   Shares   Amount   capital     reserves   Unrestricted   income     Total  
BALANCE, January 1, 2014   -   $ -   7,604,800   $ 7,605   $ 37,631,142     $ 5,952,692   $ 54,990,154   $ 11,811,383     $ 110,392,976  
                                                         
  Foreign currency translation   -     -   -     -     -       -     -     (836,960 )     (836,960 )
  Share based compensation   -     -   -     -     209,523       -     -     -       209,523  
  Common and preferred stock                                                        
  issued   1,000     1   790,514     790     4,042,697       -     -     -       4,043,488  
  Common stock issued             104,000     104     (104 )     -     -     -       -  
  Net income   -     -   -     -     -       -     8,695,663     -       8,695,663  
                                                         
BALANCE, September 30, 2014   1,000   $ 1   8,499,314   $ 8,499   $ 41,883,258     $ 5,952,692   $ 63,685,817   $ 10,974,423     $ 122,504,690  
                                                         

Contact Information

  • Contacts:
    Skystar Bio-Pharmaceutical Company
    Scott Cramer
    Director - Corporate Development & U.S. Representative
    (407) 645-4433

    Grayling
    Investor Relations
    Christopher Chu
    (908) 251-9869
    Email Contact