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(SKBI) Reports Second Quarter 2013 Results

Quarterly Revenue of $11.3 Million; Net Income of $3.7 Million; $0.49 Diluted EPS

Skystar Bio-Pharmaceutical Reports Second Quarter 2013 Results

Quarterly Revenue of $11.3 Million; Net Income of $3.7 Million; $0.49 Diluted EPS

XI’AN, CHINA-  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 second quarter fiscal year 2013 earnings, for the period ended June 30, 2013.

Second Quarter 2013 Highlights

  • Revenue of $11.3 million, up 27.8% YoY
    • Micro-organism products totaled $4.0 million, up 0.7% YoY
    • Veterinary medicines totaled $6.3 million, up 155.9% YoY
    • Feed additives totaled $0.5 million, a decrease of 59.4% YoY
    • Veterinary vaccines totaled $0.5 million, a decrease of 56.5% YoY
  • Gross margin of 52.6% for the second quarter of fiscal 2013 as compared to 57.8% in the year ago period
  • Net income of $3.8 million or $0.49 per fully diluted share, compared with net income of $1.7 million or $0.23 per fully diluted share in the year ago period

First Half 2013 Financial Highlights

  • First half fiscal 2013 revenue increases 0.4% YoY to $16.9 million
  • Gross margin of 50.7% for the first half of fiscal 2013 as compared to 56.0% in the year ago period
  • Net income of $4.5 million or $0.59 per fully diluted share, compared with net income of $3.6 million or $0.48 per fully diluted share in the year ago period

Management Comments
Mr. Weibing Lu, Skystar Bio-Pharmaceutical’s Chairman and Chief Executive Officer, commented, “Skystar is pleased to report its strongest quarterly results in the last six reporting periods. The results for this quarter were driven by a combination of increased market demand and additional sales and marketing efforts. This allowed us to take advantage of the increased manufacturing capacity as a result of the Huxian and Jingzhou veterinary medication facilities resuming operations.”

“Operationally, Skystar continues to receive more product manufacturing permits from the government which has allowed sales of veterinary medications in the current reporting period to grow 156% year over year. Further, we still have additional manufacturing capacity available at the Company’s Huxian and Jingzhou veterinary medication facilities. Lastly, Skystar has applied for and is awaiting governmental approval of more product manufacturing permits and plans to utilize each permit as approval is received.”

“Stage two of the Company’s veterinary vaccine GMP certification is under way and currently on track as planned. Stage two GMP inspection is expected to be completed by the end of third quarter fiscal 2013 and limited production runs will commence shortly thereafter. The vaccine product line is expected to contribute roughly $3-$5 million to Skystar’s top line next year. Sales of the Company’s feed additives and pro-biotics line are also expected to increase as we move forward with the Company’s high selling season. Additionally, Skystar’s Kunshan facility is near completion and it is possible that small scale production will launch by the end of the fiscal year.”

“Management is very excited to move into its strongest half of the fiscal year and to share its results with investors. Skystar continues to successfully implement its operational strategy, improve its financial performance and expand its footprint with profitability in mind. With 40% of Skystar’s forecasted revenues earned in its first half, the Company believes that it is well positioned to make forecasted fiscal guidance for 2013, positioning itself for solid revenue growth and expansion in fiscal 2014,” concluded Mr. Lu.

Financial Summary
Skystar reported second quarter fiscal year 2013 revenues of $11.3 million as compared to revenues of $8.9 million for the comparable year ago period, an increase of $2.4 million or 27.8%. Overall sales volume increased as we begin to ramp up production and make use of the Company’s facilities now that our facilities have resumed partial production.

Cost of revenue, which consists of raw materials, packing material, direct labor, and manufacturing overhead for our four product lines, was $5.4 million for the three months ended June 30, 2013, as compared to $3.7 million for the three months ended June 30, 2012, an increase of $1.6 million or 43.5%, as a result of increased veterinary medication sales.

Gross profit was $6.0 million for the three months ended June 30, 2013, a 16.3% year over year increase as compared to $5.1 million for the three months ended June 30, 2012. Gross margin for the period was 52.6%, compared to 57.8% a year ago due to the majority of revenue during the three months coming from less profitable veterinary medications as we resume the veterinary medication production at Skystar’s Huxian facility.

Operating Expenses

Research and development costs totaled $93,000 for the three months ended June 30, 2013 as compared to $331,000 for the three months ended June 30, 2012, a decrease of $238,000 or 71.9%. The decrease was primarily due to newly launched R&D projects of $481,000 undertaken during the second quarter of 2013 to develop vaccine to prevent common fish skin disease which was offset against a government grant for the research.

Selling expenses totaled $629,000 for the three months ended June 30, 2013 as compared to $670,000 for the three months ended June 30, 2012, a decrease of $41,000 or 6.2%. This decrease is mainly due to the drop of sales commission costs as the result of the new commission structure to our sales personnel after the Huxian facility resumed operation.

General and administrative expenses totaled $689,000 for the three months ended June 30, 2013 as compared to $1.8 million for the three months ended June 30, 2012, a decrease of $1.1 million or 62.5%. The higher G&A expense in 2012 was mainly due to the stock based compensation expense of $1 million for the stock grants on May 4, 2012 to the Company’s employees and members of the Board of Directors.

Income from operations increased 98.7% or $2.2 million to $4.5 million for second quarter fiscal 2013 as compared to $2.3 million in the comparable fiscal 2012 period.

Net income increased 120.8% year over year to $3.8 million or $0.49 per fully diluted share, as compared to $1.7 million or $0.23 per fully diluted share in the year ago period.

As of June 30, 2013, we had cash of $6.3 million. Our total current assets were $80 million and Skystar’s total current liabilities were $21 million which resulted in a net working capital of $59 million.

Fiscal 2013 Guidance

We currently reiterate our fiscal 2013 guidance to be in the range of $40 million to $45 million for the full year.

Conference Call & Webcast Information

The Company will host a conference call on Wednesday August 14, 2013 to discuss its financial results for the fiscal quarter ended June 30, 2013. Skystar’s conference call will begin promptly at 6:00 p.m. ET to review fiscal second quarter 2013 financial and operational performance. 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/IC/CEPage.asp?ID=171457.

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 # 419303. 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.

Financial Tables Follow

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(Unaudited)
For Three Months Ended June 30, For Six Months Ended June 30,
2013 2012 2013 2012
REVENUE, NET $ 11,335,145 $ 8,870,848 $ 16,865,886 $ 16,797,185
COST OF REVENUE 5,377,824 3,746,938 8,308,710 7,390,596
GROSS PROFIT 5,957,321 5,123,910 8,557,176 9,406,589
OPERATING EXPENSES:
Research and development 92,926 330,532 93,387 334,186
Selling expenses 629,337 670,567 947,173 1,376,183
General and administrative 688,810 1,834,280 1,900,083 2,939,715
Total operating expenses 1,411,073 2,835,379 2,940,643 4,650,084
INCOME FROM OPERATIONS 4,546,248 2,288,531 5,616,533 4,756,505
OTHER INCOME (EXPENSE):
Other income (expense), net (3,662 ) 2,238 (3,849 55,998
Interest (expense), net (96,082 ) (25,929 ) (136,629 (179,541 )
Change in fair value of warrant/purchase option liability 1,134 16,800 5,600 22,400
Total other (expense), net (98,610 ) (6,891 ) (134,878 (101,143 )
INCOME BEFORE PROVISION FOR INCOME TAXES 4,447,638 2,281,640 5,481,655 4,655,362
PROVISION FOR INCOME TAXES 696,757 582,774 1,018,041 1,051,742
NET INCOME 3,750,881 1,698,866 4,463,614 3,603,620
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment 1,512,244 123,715 2,063,127 682,472
COMPREHENSIVE INCOME $ 5,263,125 $ 1,822,581 $ 6, 526,741 $ 4,286,092
EARNINGS PER SHARE:
Basic $ 0.49 $ 0.23 $ 0.59 $ 0.48
Diluted $ 0.49 $ 0.23 $ 0.59 $ 0.48
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 7,615,719 7,461,227 7,614,721 7,454,837
Diluted 7,615,719 7,461,227 7,614,721 7,454,837
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
30-Jun-13
(Unaudited)		 December 31,
2012
ASSETS
CURRENT ASSETS:
Cash $ 6,312,367 $ 11,321,848
Restricted cash 81,000 –
Accounts receivable, net of allowance for doubtful accounts of $552,764 and $247,269 as of June 30, 2013 (Unaudited) and December 31, 2012, respectively 11,932,235 10,010,796
Inventories 26,500,125 22,962,209
Deposits, prepaid expenses and other receivables 2,543,351 2,839,850
Prepayments to suppliers 32,360,468 23,438,735
Loans receivable 194,400 1,078,827
Total current assets 79,923,946 71,652,265
PROPERTY, PLANT AND EQUIPMENT, NET 28,848,808 28,867,816
CONSTRUCTION-IN-PROGRESS 9,038,656 8,691,360
OTHER ASSETS:
Long-term prepayments 1,072,167 1,050,327
Long-term prepayments for acquisitions 181,440 177,744
Intangible assets, net 5,306,659 5,319,831
Total other assets 6,560,266 6,547,902
Total assets $ 124,371,676 $ 115,759,343
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,551,941 $ 4,017,530
Other payables and accrued expenses 4,448,667 4,374,047
Short-term loans 10,530,000 4,443,600
Deposits from customers 2,012,453 1,621,061
Taxes payable 1,379,353 1,950,757
Due to related parties 1,108,188 798,925
Total current liabilities 21,030,602 17,205,920
OTHER LIABILITIES:
Long-term loan – 1,269,600
Deferred government grant 599,400 1,063,290
Purchase option liability – 5,600
Total other liabilities 599,400 2,338,490
Total liabilities 21,630,002 19,544,410
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” shares authorized. No Series “B” shares issued and outstanding – –
Common stock, $0.001 par value, 40,000,000 shares authorized, 7,604,800 shares issued and outstanding as of June 30, 2013 (Unaudited) and December 31, 2012 7,605 7,605
Paid-in capital 37,021,085 37,021,085
Statutory reserves 5,897,298 5,897,298
Retained earnings 48,978,910 44,515,296
Accumulated other comprehensive income 10,836,776 8,773,649
Total shareholders’ equity 102,741,674 96,214,933
Total liabilities and shareholders’ equity $ 124,371,676 $ 115,759,343
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(UNAUDITED)
Common stock Retained earnings
Shares Amount Paid-in
capital		 Statutory
reserves		 Unrestricted Accumulated other comprehensive income Total
BALANCE, January 1, 2013 7,604,800 $ 7,605 $ 37,021,085 $ 5,897,298 $ 44,515,296 $ 8,773,649 $ 96,214,933
Foreign currency translation – – – – – 2,063,127 2,063,127
Net income – – – – 4,463,614 – 4,463,614
BALANCE, June 30, 2013 7,604,800 $ 7,605 $ 37,021,085 $ 5,897,298 $ 48,978,910 $ 10,836,776 $ 102,741,674
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(Unaudited)
Six months ended June 30,
2013 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,463,614 $ 3,603,620
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 630,522 635,856
Amortization 122,478 200,570
Provision for doubtful accounts 297,164 101,246
Change in fair value of warrant/purchase option liability (5,600 ) (22,400 )
Loss on sale of office equipment 1,740 –
Common stock to be issued to related parties for compensation 8,680 56,817
Common stock issued under 2010 stock incentive plan – 981,094
Change in operating assets and liabilities
Accounts receivable (1,992,249 ) (7,381,238 )
Inventories (3,027,946 ) 1,678,678
Deposits, prepaid expenses and other receivables 332,707 649,485
Prepayments to supppliers (8,344,799 ) (7,121,001 )
Accounts payable (2,675,933 ) 1614377
Other payables and accrued expenses 144,475 99,033
Deposits from customers 353,886 (38,170 )
Taxes payable (605,471 ) 2,778,594
Deferred government grants (641,120 ) (317,320 )
Net cash used in operating activities (10,937,852 ) (2,480,759 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments of long-term prepayments – (349,464 )
Refund of long-term prepayments – 475,980
Loan to third parties – (1,942,963 )
Repayment of loans from third parties 897,232 –
Placement of restricted cash (80,140 ) –
Purchases of property, plant and equipment (4,008 ) (127,531 )
Proceeds from sale of plant and equipment 160 –
Payments on construction-in-progress (10,931 ) (79,806 )
Net cash (used in) provided by investing activities 802,313 (2,023,784 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loans 8,815,400 63,464
Repayment of short-term loans (2,885,040 ) (666,372 )
Repayment of long-term loan (1,282,240 ) –
Due to related parties 303,328 280,901
Net cash (used in) provided by financing activities 4,951,448 (322,007 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH 174,610 119,563
DECREASE IN CASH (5,009,481 ) (4,706,987 )
CASH, beginning of period 11,321,848 7,048,968
CASH, end of period $ 6,312,367 $ 2,341,981
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 304,766 $ 309,010
Cash paid for income taxes $ 328,574 $ 88,054
Non-cash investing and financing activities
Long-term prepayment transferred to construction-in-progress $ – $ 666,372
Construction-in-progress transferred to property, plant and equipment $ – $ 3,630
Shares issued to settle payables to related parties $ – $ 199,239

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, including, among others, the Company’s ability to realize the expected sales, to add planned manufacturing capacities, to commercialize on the business and opportunities resulting from additional government permits, 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 Company’s ability to receive timely certification and related government approvals, 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.

Contacts:

Skystar Bio-Pharmaceutical Company
Scott Cramer
Director – Corporate Development and U.S. Representative
(407) 645-4433

Grayling

Investor Relations
Christopher Chu
(646) 284-9426
Email Contact

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