Skystar Bio-Pharmaceutical Reports Third Quarter 2013 Results

Skystar Bio-Pharmaceutical Reports Third Quarter 2013 Results 
Revenues Increase 79% YoY to $16.0 Million; Net Income of $3.7
Million; $0.49 Diluted EPS 
XI'AN, CHINA -- (Marketwired) -- 11/15/13 --   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 2013 earnings, for the
period ended September 30, 2013.  
Third Quarter 2013 Highlights 


 
--  Revenues increase 79% YoY to $16.0 million
    --  Micro-organism products totaled $4.9 million, up 0.5% YoY
    --  Veterinary medicine totaled $9.8 million, an increase of 451.8%
        YoY
    --  Feed additives totaled $610,082 decreasing 48.7% YoY
    --  Veterinary vaccines totaled $607,208, a decrease of 41.6% YoY
--  Gross margin of 51.4% for the third quarter of fiscal 2013 as compared
    to 58.9% in the year ago period
--  Net income of $3.7 million or $0.49 per fully diluted share, compared
    with net income of $2.7 million or $0.36 per fully diluted share in
    the year ago period
--  Fiscal 2013 guidance reiterated at $40 million to $45 million

  
Third Quarter 2013 Financial Highlights 


 
--  First nine months 2013 revenue increases 27.7% YoY to $32.9 million
--  Gross margin of 51.0% for the first nine months of fiscal 2013 as
    compared to 57.0% in the year ago period
--  Net income of $8.2 million or $1.08 per fully diluted share, compared
    with net income of $6.3 million or $0.85 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 delivered
strong top line and bottom line performance for the period as a
result of Skystar's operational strategy. Adjustments to operations
include redirecting sales and marketing efforts to create awareness
and demand for newly available products as manufacturing capabilities
come online. Additionally, since completing the approval process and
obtaining production permits for Skystar's veterinary medication
lines earlier in 2013, the MOA has granted roughly 45% of Skystar's
submitted permits to manufacture individual veterinary medications.
Skystar is also making significant progress in completing the complex
two stage GMP inspection process that the Ministry of Agriculture
(MOA) requires for to operate the Company's newly completed and
modern Vaccine manufacturing facility." 
"With this in mind, Skystar's current results reflect a significant
ramp up of production and sales of its veterinary medications line
since earning GMP approval for its production facilities in Huxian
and Jingzhou, China. In order to ensure a successful re-launch of
Skystar's high growth veterinary medication business, sales resources
have been shifted away from probiotics, feed additives and vaccines
and onto medications. This operational strategy has played an
important role in Skystar's strong veterinary medication sales as
revenues from this product line increased a dramatic 452% year over
year through Skystar's seasonally strongest quarter. Currently, both
veterinary medication manufacturing facilities are operating at near
or above 50% capacity." 
"With regard to Skystar's veterinary vaccine line, as explained in
the Company's Quarterly Report on Form 10-Q, China's Ministry of
Agriculture is currently in the process of completing Stage 2 of the
GMP inspection of the newly built veterinary vaccine manufacturing
facility in Huxian, China. The Company expects Stage 2 of the GMP
inspection to be completed by the fourth quarter of 2013. The GMP
certification process will be completed shortly thereafter. The newly
built and largely automated vaccine manufacturing facility will allow
the Company to mass produce vaccines without sacrificing quality
control." 
"Moving forward into fiscal 2014, the operational changes occurring
over the next several quarters are expected to increase Skystar's
ability to generate revenues and profits. As more manufacturing
capabilities come online, the Company will initiate the appropriate
sales and marketing efforts to support its growing number of products
and production base." 
"It has always been management's mission to grow revenues without
sacrificing profitability. Since Skystar's listing on NASDAQ, the
Company has been historically profitable to date and plans to
continue that mission in the quarters ahead," concluded Mr. Lu.  
Financial Summary
 For the three months ended September 30, 2013, we
had revenues of $15,992,408 as compared to revenues of $8,933,005 for
the three months ended September 30, 2012, an increase of $7,059,403
or 79.0%. We generated revenue from sales of four product lines:
veterinary medications, micro-organism, feed additives and vaccines.
Third Quarter Fiscal 2013 revenue breakdown by product line is as
follows:  


 
--  Micro-organism: $4,946,687
--  Veterinary medications: $9,828,431
--  Feed Additives: $610,082
--  Vaccines: $607,208

  
Cost of revenue, which consists of raw materials, direct labor, and
manufacturing overhead for our four product lines, was $7,778,691 for
the three months ended September 30, 2013, as compared to $3,670,230
for the three months ended in the year ago period, an increase of
111.9% or $4,108,461.  
Gross profit, was $8,213,717 for the three months ended September 30,
2013, a 56.1% year over year increase as compared to $5,262,775 for
the three months ended September 30, 2012. Gross margin for the
period was 51% due to higher costs in manufacturing veterinary
medications.  
Operating Expenses
 Research and development costs totaled $324,353
for the three months ended September 30, 2013as compared to $198,838
for the year ago period; this was an 63% increase in R&D expense due
to increased efforts to develop in demand products.  
Selling expenses totaled $1,266,444 for the three months ended
September 30, 2013 as compared to $692,009 for the three months ended
September 30, 2012, an increase of $574,435 or 83.0%. This increase
was mainly due to the increase of sales commission and shipping and
handling costs as the result of significantly increased veterinary
medication sales during the third quarter.  
General and administrative expenses totaled $1,885,219 for the three
months ended September 30, 2013 as compared to $730,539 for the three
months ended September 30, 2012, an increase of $1,154,680 or 158.1%.
The increased G&A expense was mainly due to the additional allowance
for doubtful accounts of $976,894 accrued during the third quarter
for our increased accounts receivable balance partially because of
our high sales results and the favorable payment terms we have given
customers during the quarter. 
As of September 30, 2013, we had unrestricted cash of $4.5 million.
Our total current assets were $88.6 million, and our total current
liabilities were $28.4 million, which resulted in a net working
capital of $60.2 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 Information
 The Company will host a conference call
Friday, November 15, 2013 to discuss its third quarter financial
results. Skystar's conference call will begin promptly at 7:45 a.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/IC/CEPage.asp?ID=171912. 
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 # 13572867. 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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012   
                                (Unaudited)                                 
                                                                            
                          For Three Months Ended     For Nine Months Ended  
                               September 30,             September 30,      
                         ------------------------  ------------------------ 
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
REVENUE, NET             $15,992,408  $ 8,933,005  $32,858,294  $25,730,190 
                                                                            
COST OF REVENUE            7,778,691    3,670,230   16,087,401   11,060,826 
                         -----------  -----------  -----------  ----------- 
                                                                            
GROSS PROFIT               8,213,717    5,262,775   16,770,893   14,669,364 
                         -----------  -----------  -----------  ----------- 
                                                                            
OPERATING EXPENSES:                                                         
Research and development     324,353      198,838      417,740      533,024 
Selling expenses           1,266,444      692,009    2,213,617    2,068,192 
General and                                                                 
 administrative            1,885,219      730,539    3,785,302    3,670,254 
                         -----------  -----------  -----------  ----------- 
Total operating expenses   3,476,016    1,621,386    6,416,659    6,271,470 
                         -----------  -----------  -----------  ----------- 
                                                                            
INCOME FROM OPERATIONS     4,737,701    3,641,389   10,354,234    8,397,894 
                         -----------  -----------  -----------  ----------- 
                                                                            
OTHER INCOME (EXPENSE):                                                     
Other income (expense),                                                     
 net                          32,757         (734)      28,908       55,264 
Interest (expense), net      (48,526)    (199,238)    (185,155)    (378,779)
Change in fair value of                                                     
 warrant/purchase option                                                    
 liability                  (205,758)       7,000     (200,158)      29,400 
                         -----------  -----------  -----------  ----------- 
Total other (expense),                                                      
 net                        (221,527)    (192,972)    (356,405)    (294,115)
                         -----------  -----------  -----------  ----------- 
                                                                            
INCOME BEFORE PROVISION                                                     
 FOR INCOME TAXES          4,516,174    3,448,417    9,997,829    8,103,779 
                                                                            
PROVISION FOR INCOME                                                        
 TAXES                       781,977      717,163    1,800,018    1,768,905 
                         -----------  -----------  -----------  ----------- 
                                                                            
NET INCOME                 3,734,197    2,731,254    8,197,811    6,334,874 
                                                                            
OTHER COMPREHENSIVE                                                         
 INCOME                                                                     
Foreign currency                                                            
 translation adjustment      513,281     (198,269)   2,576,408      484,203 
                         -----------  -----------  -----------  ----------- 
                                                                            
COMPREHENSIVE INCOME     $ 4,247,478  $ 2,532,985  $10,774,219  $ 6,819,077 
                         ===========  ===========  ===========  =========== 
                                                                            
EARNINGS PER SHARE:                                                         
Basic                    $      0.49  $      0.36  $      1.08  $      0.85 
                         ===========  ===========  ===========  =========== 
Diluted                  $      0.49  $      0.36  $      1.08  $      0.85 
                         ===========  ===========  ===========  =========== 
                                                                            
WEIGHTED AVERAGE NUMBER                                                     
 OF COMMON SHARES:                                                          
Basic                      7,617,726    7,604,800    7,615,733    7,426,082 
                         ===========  ===========  ===========  =========== 
Diluted                    7,617,726    7,604,800    7,615,733    7,426,082 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
                    CONDENSED CONSOLIDATED BALANCE SHEETS                   
                                                                            
                                                   30-Sep-13    December 31,
                                                  (Unaudited)       2012    
                     ASSETS                                                 
CURRENT ASSETS:                                                             
  Cash                                           $   4,456,619 $  11,321,848
  Restricted cash                                       60,310             -
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $1,544,175 and $247,269                             
   as of September 30, 2013 (Unaudited) and                                 
   December 31, 2012, respectively                  26,901,414    10,010,796
  Inventories                                       27,407,862    22,962,209
  Deposits, prepaid expenses and other                                      
   receivables                                       1,782,705     2,839,850
  Prepayments to suppliers                          27,671,219    23,438,735
  Loans receivable                                           -     1,078,827
  Deferred tax assets                                  343,922             -
                                                 ------------- -------------
    Total current assets                            88,624,051    71,652,265
                                                 ------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET                  28,572,754    28,867,816
                                                 ------------- -------------
CONSTRUCTION-IN-PROGRESS                             9,106,056     8,691,360
                                                 ------------- -------------
OTHER ASSETS:                                                               
  Long-term prepayments                              4,622,340     1,050,327
  Long-term prepayments for acquisitions               182,560       177,744
  Intangible assets, net                             5,277,138     5,319,831
                                                 ------------- -------------
    Total other assets                              10,082,038     6,547,902
                                                 ------------- -------------
      Total assets                               $ 136,384,899 $ 115,759,343
                                                 ============= =============
                                                                            
      LIABILITIES AND SHAREHOLDERS' EQUITY                                  
CURRENT LIABILITIES:                                                        
  Accounts payable                               $   3,762,362 $   4,017,530
  Other payables and accrued expenses                5,726,029     4,374,047
  Short-term loans                                  10,595,000     4,443,600
  Deposits from customers                            1,589,449     1,621,061
  Taxes payable                                      4,973,402     1,950,757
  Due to related parties                             1,741,820       798,925
                                                 ------------- -------------
    Total current liabilities                       28,388,062    17,205,920
                                                 ------------- -------------
OTHER LIABILITIES:                                                          
  Long-term loan                                             -     1,269,600
  Deferred government grant                            798,700     1,063,290
  Purchase option liability                            205,758         5,600
                                                 ------------- -------------
  Total other liabilities                            1,004,458     2,338,490
                                                 ------------- -------------
    Total liabilities                               29,392,520    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 September 30, 2013                                 
   (Unaudited) and December 31, 2012                     7,605         7,605
  Paid-in capital                                   37,024,312    37,021,085
  Statutory reserves                                 5,897,298     5,897,298
  Retained earnings                                 52,713,107    44,515,296
  Accumulated other comprehensive income            11,350,057     8,773,649
                                                 ------------- -------------
    Total shareholders' equity                     106,992,379    96,214,933
                                                 ------------- -------------
      Total liabilities and shareholders' equity $ 136,384,899 $ 115,759,343
                                                 ============= =============
                                                                            
                                                                            
                                                                            
             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES            
            CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY           
                FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013                
                                 (UNAUDITED)                                
                                                     
                                                     
                           Common Stock              
                        -----------------            
                                            Paid-in  
                          Shares   Amount   capital  
                        --------- ------- -----------
BALANCE, January 1,                                  
 2013                   7,604,800 $ 7,605 $37,021,085
                                                     
  Net income                    -       -           -
  Share-based                                        
   compensation                 -       -       3,227
  Foreign currency                                   
   translation                  -       -           -
                        --------- ------- -----------
                                                     
BALANCE, September 30,                               
 2013                   7,604,800 $ 7,605 $37,024,312
                        ========= ======= ===========
                                                     
                                                     
                                                     
 
                                                                            
                                                                            
                            Retained earnings                               
                        ------------------------                            
                                                   Accumulated              
                                                      other                 
                         Statutory                comprehensive             
                         reserves   Unrestricted      income        Total   
                        ---------- ------------- -------------- ------------
BALANCE, January 1,                                                         
 2013                   $5,897,298 $  44,515,296 $    8,773,649 $ 96,214,933
                                                                            
  Net income                     -     8,197,811              -    8,197,811
  Share-based                                                               
   compensation                  -             -              -        3,227
  Foreign currency                                                          
   translation                   -             -      2,576,408    2,576,408
                        ---------- ------------- -------------- ------------
                                                                            
BALANCE, September 30,                                                      
 2013                   $5,897,298 $  52,713,107 $   11,350,057 $106,992,379
                        ========== ============= ============== ============
                                                                            
                                                                            
                                                                            
            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES             
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS               
           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012            
                                (Unaudited)                                 
                                                                            
                                            Nine months ended September 30, 
                                           -------------------------------- 
                                                 2013             2012      
                                           ---------------  --------------- 
CASH FLOWS FROM OPERATING ACTIVITIES:                                       
  Net income                               $     8,197,811  $     6,334,874 
  Adjustments to reconcile net income to                                    
   net cash provided by (used in)                                           
   operating activities:                                                    
    Depreciation                                 1,086,914          920,444 
    Amortization                                   184,496          300,589 
    Provision for doubtful accounts              1,274,058           31,340 
    Change in fair value of                                                 
     warrant/purchase option liability             200,158          (29,400)
    Loss on disposal of office equipment             1,748                - 
    Common stock to be issued to related                                    
     parties for compensation                        3,227                - 
    Common stock issued under 2010 stock                                    
     incentive plan                                      -        1,037,911 
    Deferred tax assets                           (339,618)               - 
  Change in operating assets and                                            
   liabilities                                                              
    Accounts receivable                        (17,685,435)     (12,094,949)
    Inventories                                 (3,775,636)        (336,902)
    Deposits, prepaid expenses and other                                    
     receivables                                 1,099,950          404,130 
    Prepayments to suppliers                    (3,552,385)      (5,426,601)
    Accounts payable                              (513,989)       3,112,002 
    Other payables and accrued expenses          1,391,003       (1,361,439)
    Deposits from customers                        (74,589)         (92,856)
    Taxes payable                                2,932,621        1,078,604 
    Deferred government grants                    (450,688)        (317,040)
                                           ---------------  --------------- 
      Net cash used in operating                                            
       activities                              (10,020,354)      (6,439,293)
                                           ---------------  --------------- 
                                                                            
CASH FLOWS FROM INVESTING ACTIVITIES:                                       
  Payments of long-term prepayments             (3,510,666)        (343,960)
  Refund of long-term prepayments                        -          475,560 
  Loan to third parties                                  -       (1,941,248)
  Repayment of loans from third parties          1,094,190          802,270 
  Placement of restricted cash                     (59,555)               - 
  Purchases of property, plant and                                          
   equipment                                        (9,290)        (157,782)
  Proceeds from sale of plant and                                           
   equipment                                           161                - 
  Payments on construction-in-progress             (10,977)        (182,774)
                                           ---------------  --------------- 
    Net cash used in investing activities       (2,496,137)      (1,347,934)
                                           ---------------  --------------- 
                                                                            
CASH FLOWS FROM FINANCING ACTIVITIES:                                       
  Proceeds from short-term loans                10,462,400        4,503,728 
  Repayment of short-term loans                 (4,506,880)      (2,726,544)
  Proceeds from long-term loan                           -        1,266,400 
  Repayment of long-term loan                   (1,287,680)               - 
  Due to related parties                           928,312          331,158 
                                           ---------------  --------------- 
    Net cash provided by financing                                          
     activities                                  5,596,152        3,374,742 
                                           ---------------  --------------- 
                                                                            
EFFECT OF EXCHANGE RATE CHANGES ON CASH             55,110           32,049 
                                           ---------------  --------------- 
                                                                            
DECREASE IN CASH                                (6,865,229)      (4,380,436)
CASH, beginning of period                       11,321,848        7,048,968 
                                           ---------------  --------------- 
                                                                            
CASH, end of period                        $     4,456,619  $     2,668,532 
                                           ===============  =============== 
                                                                            
SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                        
 INFORMATION:                                                               
  Cash paid for interest                   $       454,336  $       508,667 
                                           ===============  =============== 
  Cash paid for income taxes               $       329,968  $       971,784 
                                           ===============  =============== 
  Non-cash investing and financing                                          
   activities                                                               
  Long-term prepayment transferred to                                       
   construction-in-progress                $        22,438  $       832,230 
                                           ===============  =============== 
  Construction-in-progress transferred to                                   
   property, plant and equipment           $             -  $     1,128,662 
                                           ===============  =============== 
  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 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, the Company's
expectations relating to completion of the GMP process, adding and
launching additional facilities, and ramping up sales efforts, 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
christopher.chu@grayling.com 
 
 
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