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

Revenue of $6.8 Million; Net Income $1 Million; $0.13 Fully Diluted EPS; Conference Call to Be Held Friday, May 16, 2014 at 7:45 AM ET

XI'AN, CHINA -- (Marketwired) -- 05/15/14 -- 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 first quarter fiscal year 2014 earnings, for the period ended March 31, 2014.
First Quarter 2014 Summary

  • Revenue increase 23.5% YoY to $6.8 million as follows:
    • Veterinary medicines totaled $4.8 million, up 40.6% YoY
    • Pro-biotic micro-organism products totaled $1.5 million, decreasing 8.8% YoY
    • Feed additives totaled $0.3 million, increasing 15.5% YoY
    • Veterinary vaccines totaled $0.1 million, increasing 4.1% YoY
  • Gross Profit of $2.8 million increased 8.6% for the first three months of fiscal 2014 YoY
  • Gross Margin of 41.3% for the first three months of fiscal 2014, compared to 47% in the prior 2013 period
  • Net Income of $1 million or $0.13 per fully diluted share, as compared with $0.7 million or $0.09 fully diluted share YoY

Management's Comments
Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar, commented, "Skystar is pleased with unaudited first quarter results seeing increases in both year over year top and bottom line profitability. Skystar's revenue growth was driven by Veterinary medicine which grew 40% year over year with solid contributions coming from Skystar's other segments. The increased utilization rates for Skystar's veterinary medication production facility were realized following the receipt of more product permits from the Ministry of Agriculture. Skystar's YoY gross margin compression from 47% to 41% for the current reporting quarter was anticipated due to increased production coming from the lower margin veterinary medications line for which the Company recently received some product permits, and increased manufacturing overhead as we successfully completed our Huxian vaccine plant construction. We expect for manufacturing to continue to scale up throughout the year in preparation for the majority of Skystar's sales coming after the first quarter coinciding with China's celebration of the Lunar New Year holiday. Skystar expects a steady growth trajectory once all of its manufacturing plants can be completed and brought to full utilization rates," concluded Mr. Lu.

Financial Summary

For the year ended March 31, 2014, Skystar's revenues were roughly $6.8 million as compared to revenues of $5.5 million for the three months ended March 31, 2013, an increase of $1.3 million or 23.5%. Overall increase in revenue was due to increase in manufacturing at the Company's Huxian plant in combination with receiving product permits by the Ministry of Agriculture to manufacture select veterinary medications.

A breakdown of the year's revenue by production line is as follows:

- Revenue from sales of our veterinary medications increased by $1.4 million or 40.6%, from $3.4 million for the three months ended March 31, 2013 to $4.8 million for the three months ended March 31, 2014.

- Revenue from probiotic products decreased by $146,000 roughly or 8.8% from $1.7 million for the three months ended March 31, 2013 to $1.5 million for the three months ended March 31, 2014. The decrease was due to weak market demand for probiotics due to a decline in pork prices in the first quarter, which discouraged farmers from increasing their livestock farming.

- Revenue from feed additives increased by $44,000 or 15.5% from $286,000 for the three months ended March 31, 2013 to $330,000 for the three months ended March 31, 2014.

- Vaccine revenues increased by $5,000 or 4.1% from $131,000 for the three months ended March 31, 2013 to $136,000 for the three months ended March 31, 2014. Vaccine production is expected to commence production at Skystar's new facility during the second half of 2014.

Gross profit for the quarter was up $223,000 or 8.6% from $2.6 million for the three months ended March31, 2013 to $2.8 million for the three months ended March 31, 2014. Gross margin was 41.3%, down from 47% in the same year ago period. The decreased gross margin was mainly because the majority of our revenue during the year came from less profitable veterinary medications product lines.

Operating expenses for the quarter increased 8% to $1.6 million or 24% of total revenue, compared with $1.5 million for the same year ago period.

Research and development costs were insignificant for both the first quarter of 2014 and 2013 as there was no significant R&D effort undertaken during the first quarter because of the Chinese New Year. Research and development costs are expected to increase as new projects begin throughout the remainder of fiscal 2014.

Selling expenses totaled $370,000 for the three months ended March 31, 2014 as compared to $317,000 for the three months ended March 31, 2013, an increase of 16.5%.

General and administrative expenses totaled $1.3 million for the three months ended March 31, 2014 as compared to $1.2 million for the three months ended March 31, 2013, an increase 5.4%.

Operating income for March 31, 2014 was $1.2 million up $100,000 or 9.5% from the prior year. Operating margin was 17% versus 19% in the year ago period.

Net income for the quarter was $975,000 million or $0.13 per fully diluted share. This compares to net income of $713,000 or $0.09 per fully diluted share for the year ago period.

As of March 31, 2014, Skystar had approximately $6.9 million in cash, current assets of $88.4 million and total current liabilities of $23.7 million which resulted in net working capital of $64.7 million.

Mr. Lu concluded, "Skystar has reported a strong start to the fiscal 2014 reporting cycle. The Company believes that it has built a strong framework as the only U.S. listed animal pharmaceutical play in China. The completed and newly GMP certified manufacturing facility in Huxian gives Skystar the ability to produce veterinary medicines and vaccines utilizing modern batch processes, increasing production efficiencies and volume of product produced. More importantly, the Company has been able to launch and expand infrastructure within the tougher regulatory framework of China's new requirements for GMP production facilities. These modern manufacturing standards and rules help to ensure the safety of China's food supply as agriculture and animal husbandry standards in China move towards modern standards and industrialization," concluded Mr. Lu.

Business Outlook
Skystar currently maintains business outlook and anticipates delivering an 8% to 18% year over year increase in top line revenue for fiscal 2014 as compared to the prior year. The expected revenue range is $46 million to $50 million with gross margin of roughly 50% for fiscal 2014.

Conference Call Information
The Company will host a conference call on Friday, May 16, 2014 to discuss its financial results for the year ended March 31, 2014. Skystar's conference call will begin promptly at 7:45 a.m. EST to review first quarter fiscal 2014 financial and operational performance. Mr. Weibing Lu, Skystar's chairman and chief executive officer, will host the call, which will be webcast live.

Webcast will be made available on the investor relations section of the Skystar corporate website at http://www.investorcalendar.com/IC/CEPage.asp?ID=172772.

Phone dial-in 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 # 13582730.

To be added to the Company's email distribution for future news releases, please send your request to [email protected].

About Skystar Bio-Pharmaceutical Company

Skystar is a China-based developer, manufacturer and distributor of veterinary healthcare and medical care products. Skystar has four product lines: veterinary medicines, probiotics, vaccines and feed additives formulated and packaged in house across several modern manufacturing and distributions facilities. Skystar's distribution network includes almost 3,000 distribution agents of which 360 are franchised stores with exclusivity agreements covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

Financial Statements

             FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

                                                     Three Months Ended
                                                         March 31,
                                                    2014           2013
                                                ------------   ------------

REVENUE, net                                   $   6,832,588  $   5,530,741

COST OF REVENUE                                    4,009,403      2,930,886
                                                ------------   ------------

GROSS PROFIT                                       2,823,185      2,599,855
                                                ------------   ------------

  Research and development costs                       4,213            461
  Selling expenses                                   370,208        317,836
  General and administrative expenses              1,276,417      1,211,273
                                                ------------   ------------
    Total operating expenses                       1,650,838      1,529,570
                                                ------------   ------------

INCOME FROM OPERATIONS                             1,172,347      1,070,285
                                                ------------   ------------

  Other income (expense), net                        154,919           (187)
  Interest income                                    170,665        148,845
  Interest expense                                   (75,934)      (189,392)
  Change in fair value of purchase option
   liability                                         (16,520)         4,466
                                                ------------   ------------
    Total other income (expense), net                233,130        (36,268)
                                                ------------   ------------

INCOME BEFORE PROVISION FOR INCOME TAXES           1,405,477      1,034,017

PROVISION FOR INCOME TAXES                           430,027        321,284
                                                ------------   ------------

NET INCOME                                           975,450        712,733

  Foreign currency translation adjustment           (966,949)       550,883
                                                ------------   ------------

COMPREHENSIVE INCOME                           $       8,501  $   1,263,616
                                                ============   ============

  Basic                                        $        0.13  $        0.09
                                                ============   ============
  Diluted                                      $        0.13  $        0.09
                                                ============   ============

  Basic                                            7,676,268      7,613,712
                                                ============   ============
  Diluted                                          7,700,734      7,613,712
                                                ============   ============


                                                    March 31,   December 31,
                                                      2014          2013
                                                  ------------  ------------

  Cash                                           $   6,848,905 $   8,142,296
  Accounts receivable, net of allowance for
   doubtful accounts of $960,578 (Unaudited) and
   $602,243 as of March 31, 2014 and December
   31, 2013, respectively                           12,663,549    11,009,498
  Inventories                                       25,265,783    25,903,586
  Deposits, prepaid expenses and other
   receivables                                       1,608,405     2,134,163
  Prepayments to suppliers                          40,541,475    41,061,144
  Loans receivable                                   1,046,835             -
  Deferred tax assets                                  403,372       364,425
                                                  ------------  ------------
    Total current assets                            88,378,324    88,615,112
                                                  ------------  ------------

PROPERTY, PLANT AND EQUIPMENT, NET                  30,417,653    28,269,155

CONSTRUCTION-IN-PROGRESS                             6,470,772     9,284,947

  Long-term prepayments                              4,592,751     4,633,614
  Long-term prepayments for acquisitions                     -       183,344
  Intangible assets, net                             5,130,454     5,237,255
                                                  ------------  ------------
    Total other assets                               9,723,205    10,054,213
                                                  ------------  ------------
      Total assets                               $ 134,989,954 $ 136,223,427
                                                  ============  ============


  Accounts payable                               $   4,615,614 $   3,303,531
  Other payables and accrued expenses                6,551,419     6,467,605
  Short-term loans                                   5,680,500    10,640,500
  Deposits from customers                            1,991,907     1,877,211
  Taxes payable                                      2,852,844     1,315,486
  Due to related parties                             1,962,238     1,361,548
                                                  ------------  ------------
    Total current liabilities                       23,654,522    24,965,881
                                                  ------------  ------------

  Deferred government grant                            795,270       802,130
  Purchase option liability                             78,960        62,440
                                                  ------------  ------------
    Total other liabilities                            874,230       864,570
                                                  ------------  ------------
      Total liabilities                             24,528,752    25,830,451
                                                  ------------  ------------


  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 March 31,2014
   (Unaudited) and December 31, 2013                     7,605         7,605
  Paid-in capital                                   37,690,867    37,631,142
  Statutory reserves                                 5,952,692     5,952,692
  Retained earnings                                 55,965,604    54,990,154
  Accumulated other comprehensive income            10,844,434    11,811,383
                                                  ------------  ------------
      Total shareholders' equity                   110,461,202   110,392,976
                                                  ------------  ------------
        Total liabilities and shareholders'
         equity                                  $ 134,989,954 $ 136,223,427
                                                  ============  ============

             FOR THE THREE MONTHS ENDED MARCH 31,2014 AND 2013

                                                     Three Months Ended
                                                         March 31,
                                                    2014           2013
                                                ------------   ------------
  Net income                                   $     975,450  $     712,733
  Adjustments to reconcile net income to net
   cash (used in) provided by operating
      Depreciation                                   400,291        313,561
      Amortization                                    62,477         60,872
      Provision for doubtful accounts                366,218        351,534
      Share based compensation                        59,725          4,340
      Change in fair value of purchase option
       liability                                      16,520         (4,466)
      Deferred tax assets                            (42,380)             -
    Change in operating assets and liabilities
      Accounts receivable                         (2,127,566)    (1,725,889)
      Inventories                                    419,398       (557,269)
      Deposits, prepaid expenses and other
       receivables                                   513,005        292,476
      Prepayments to suppliers                       169,771     (9,696,136)
      Accounts payable                             1,350,410      1,023,288
      Other payables and accrued expenses            135,167       (339,030)
      Deferred government grants                           -       (159,320)
      Deposits from customers                        131,733         28,061
      Taxes payable                                1,560,250       (288,655)
      Due to related parties                         606,813        201,325
                                                ------------   ------------
        Net cash provided by (used in)
         operating activities                      4,597,282     (9,782,575)
                                                ------------   ------------

  Refund of long-term prepayments                    184,387              -
  Loans to third parties                          (1,054,704)             -
  Payments on construction-in-progress               (53,195)             -
                                                ------------   ------------
Net cash used in investing activities               (923,512)             -
                                                ------------   ------------

  Proceeds from short-term loans                           -      4,779,600
  Repayment of short-term loans                   (4,905,600)    (2,389,800)
                                                ------------   ------------
  Net cash (used in) provided by financing
   activities                                     (4,905,600)     2,389,800
                                                ------------   ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH              (61,561)        50,421
                                                ------------   ------------

DECREASE IN CASH                                  (1,293,391)    (7,342,354)

CASH, beginning of period                          8,142,296     11,321,848
                                                ------------   ------------

CASH, end of period                            $   6,848,905  $   3,979,494
                                                ============   ============

  Cash paid for income tax                     $           -  $           -
                                                ============   ============
  Cash paid for interest                       $     129,129  $     181,426
                                                ============   ============
  Non-cash investing activities
  Construction-in-progress transferred to
   property, plant and equipment               $   2,787,566  $           -
                                                ============   ============

                  FOR THE THREE MONTHS ENDED MARCH 31,2014

                          Common stock
                       ------------------    Paid-in
                         Shares    Amount    capital
                       ----------  ------  ----------
BALANCE,January 1,
 2014                   7,604,800 $ 7,605 $37,631,142

Foreign currency
 translation                    -       -           -
 compensation                   -       -      59,725
Net income                      -       -           -
                       ----------  ------  ----------

BALANCE, March 31,
 2014                   7,604,800 $ 7,605 $37,690,867
                       ==========  ======  ==========

                            Retained earnings     Accumulated
                        ------------------------     other
                         Statutory                comprehensive
                         reserves   Unrestricted     income        Total
                        ----------  ------------  -----------   -----------
BALANCE,January 1,
 2014                  $ 5,952,692 $  54,990,154 $ 11,811,383  $110,392,976

Foreign currency
 translation                     -             -     (966,949)     (966,949)
 compensation                    -             -            -        59,725
Net income                               975,450            -       975,450
                        ----------  ------------  -----------   -----------

BALANCE, March 31,
 2014                  $ 5,952,692 $  55,965,604 $ 10,844,434  $110,461,202
                        ==========  ============  ===========   ===========

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 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
Scott Cramer
Director - Corporate Development & U.S. Representative
(407) 645-4433

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

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