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

Revenue of $14.2 Million; Net Income $2.8 Million; $0.37 Fully Diluted EPS; Conference Call to Be Held Friday, August 15, 2014 at 7:45 AM ET

XI'AN, CHINA -- (Marketwired) -- 08/14/14 -- 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 second quarter fiscal year 2014 earnings, for the period ended June 30, 2014.

Second Quarter 2014 Summary

  • Revenue increase 25.6% YoY to $14.2 million as follows:
    • Veterinary medicines totaled $8.6 million, up 36.7% YoY
    • Pro-biotic micro-organism products totaled $4.9 million, increasing 20.4% YoY
    • Feed additives totaled $0.8 million, increasing 50.9% YoY
    • Veterinary vaccines totaled $5,142, decreasing 99.0% YoY, primarily due to our transition from small scale lab production to large scale factory manufacturing
  • Gross Profit of $6.4 million increased 6.7% for the second quarter of fiscal 2014 YoY
  • Gross Margin of 44.7% for the second quarter, compared to 52.6% in the corresponding period in 2013
  • Net Income of $2.8 million or $0.37 per fully diluted share, as compared with $3.8 million or $0.49 fully diluted share YoY

Management's Comments
Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar, commented, "Skystar is pleased to report strong financial results and our operational highlights for the second quarter. Revenues were driven by our veterinary medications line, up 37% year over year, whose average selling price increased 60% due to increased sales in premium priced products. Additionally, Skystar added 48 production permits to its medications line since the year ago period. Demand for Skystar's veterinary medications product line remains promising and continues to grow as we ramp our production line to full capacity now that Skystar has received GMP approval for the Huxian plant and production permits in application are being received on an ongoing basis. As of current, we have production permits for 97 products, including our strongest seller, praziquantel in our veterinary medication category and 50 in the application process. We also have production permits for 5 vaccines in application. Production permits in application for our vaccine line are expected to be received on an ongoing basis as well."

Mr. Lu continued, "Additionally, Skystar ceased manufacturing its veterinary vaccine line manually within a small lab environment and transitioned production to the modern GMP certified plant in Huxian capable of large scale batch production. For this reason our revenues from our vaccine line decreased; however, Skystar was able to offset this drop in revenues through sales across its other product lines. The transition of our vaccine line to a modernized facility is a crucial step in executing our core mission to grow Skystar's organic business profitably. The need to modernize and standardize our manufacturing processes in accordance with the Ministry of Agriculture's strict GMP standards, ensures that Skystar remains competitively positioned to assist in China's campaign for improving the safety, health and quality standards of its food supply.

"The ability to adapt to the Ministry of Agriculture's regulatory changes and thrive positions Skystar well as a leader in the animal husbandry space in China allowing for predictable rates of future growth. In moving forward with the Company's growth initiatives, we continue to build infrastructure and make improvements to our other production lines including probiotic and feed additive which ultimately provide a complete suite of animal healthcare products that can be sold and marketed across our proprietary franchised based sales channel, and distribution network that spans all 29 farming provinces in China."

Financial Summary

For the quarter ended June 30, 2014, Skystar's revenues were roughly $14.2 million as compared to revenues of $11.3 million for the three months ended June 30, 2013, an increase of $2.9 million or 25.6%. Overall increase in revenue was primarily due to an increase in our veterinary medications sales.

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

- Revenue from sales of our veterinary medications increased by $2.3 million or 36.7%, from $6.3 million for the three months ended June 30, 2013 to $8.6 million for the three months ended June 30, 2014.

- Revenue from probiotic products increased by $824,000 roughly or 20.4% from $4.0 million for the three months ended June 30, 2013 to $4.9 million for the three months ended June 30, 2014. The increase was due to improved efficacy of our products resulting in increased demand from our customers.

- Revenue from feed additives increased by $262,000 or 50.9% from $514,000 for the three months ended June 30, 2013 to $776,000 for the three months ended June 30, 2014.

- Vaccine revenues decreased by $492,000 or 99.0% from $497,000 for the three months ended June 30, 2013 to $5,000 for the three months ended June 30, 2014, primarily due to the result of our transition from small scale lab production to large scale factory manufacturing. Our new state-of-the-art vaccine facility has been completed and certified by the Chinese GMP standard, and we expect to receive the vaccine production permit from the government in the third quarter, commencing production shortly thereafter.

Gross profit for the quarter was up $0.4 million or 6.7% from $6.0 million for the three months ended June 30, 2013 to $6.4 million for the three months ended June 30, 2014. Gross margin was 44.7%, down from 52.6% in the same period a year ago. The decreased gross margin was due to the fact that revenue for the period mainly came from the less profitable veterinary medications product line.

Operating expenses for the quarter increased 112.0% to $3.0 million or 21% of total revenue, compared with $1.4 million for the same period a year ago.

Research and development costs for the quarter increased significantly as there was no significant R&D effort undertaken during the second quarter 2013, thus costs increased by 759.8% to $0.8 million for the period.

Selling expenses totaled $0.8 million for the three months ended June 30, 2014 up by $o.2 million, as compared to $0.6 million for the three months ended March 31, 2013, an increase of 32.6%.

General and administrative expenses totaled $1.4 million for the three months ended June 30, 2014 as compared to $0.7 million for the three months ended June 30, 2013, an increase of 97.1%.

Operating income for the period was $3.4 million, down $1.2 million or 25.9% year-on-year. Operating margin was 23.7% versus 40.2% in the corresponding period one year ago.

Net income for the quarter was $2.8 million or $0.37 per fully diluted share. This compares to net income of $3.8 million or $0.49 per fully diluted share for the year ago period.

As of June 30, 2014, Skystar had approximately $16.4 million in cash, current assets of $107.1 million and total current liabilities of $42.3 million which resulted in net working capital of $64.8 million.

Operational Highlights Update

  • Vaccine facility at the Xi'an Manufacturing facility expected to be operational by third quarter 2014. At normalized capacity the facility is capable of generating up to $12 million - $15 million in vaccine revenues.
  • Following revisions to the Jingzhou veterinary medicine production facility in order to be compliant with GMP requirements, the Company expects upgrades to the facility to be completed by the end of the fiscal year.
  • The Kunshan probiotic facility continues to move forward with its build out, currently the construction and installation of these facilities were completed. The Company expects equipment installation to be completed by the end of 2014. The Kunshan facility does not require GMP certification by the Ministry of Agriculture and therefore we expect production at this facility to begin by the end of the year.
  • In September 2013, a third party consulting firm completed initial field work at our main administrative offices in China, helping to develop a draft of a new accounting policies and procedures manual in accordance to U.S. GAAP. Skystar intend to complete this project by no later than the end of 2014 and will conduct quarterly assessments of the state of the Company's financial reporting measures and systems, as a whole.
  • Continued awareness campaign including, direct mailings to major customers, sent sales teams to various rural seminars, symposiums and other promotional events.

"We reiterate our excitement in having a strong production launch of Skystar's veterinary medications line for the fiscal year to date. We also believe that our veterinary vaccine line which is due to begin sales and distribution of products beginning in the second half of the fiscal year will have a similar positive reception. At full capacity Skystar's new veterinary medications and vaccine production facilities represent a revenue opportunity of $45 million in organic growth over the next three to five years. Also, our recent capital raising transaction with a strategic healthcare investor in the U.S. strengthened our balance sheet. The additional capital allows us to expand our product pipeline through the purchase of new product IP in addition to facilities expansion of our Kunshan probiotics plant. These near term goals positions us in our peer group and will sustain our leadership in our space. In moving forward with Skystar's business model, having past the regulatory tailwinds of the past two years we are now on track to maintaining a stable path to profitable growth through the near and medium term," 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, August 15, 2014 to discuss its financial results for the quarter ended June 30, 2014. Skystar's conference call will begin promptly at 7:45 a.m. EDT to review second 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=173097.

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 # 13589170.

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.



            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
      FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
                                (Unaudited)

                           For the Three Months
                                  Ended            For the Six Months Ended
                                 June 30,                  June 30,
                         ------------------------  ------------------------
                             2014         2013         2014         2013
                         -----------  -----------  -----------  -----------
REVENUE, NET             $14,239,605  $11,335,145  $21,072,193  $16,865,886

COST OF REVENUE            7,880,985    5,377,824   11,890,388    8,308,710
                         -----------  -----------  -----------  -----------

GROSS PROFIT               6,358,620    5,957,321    9,181,805    8,557,176
                         -----------  -----------  -----------  -----------

OPERATING EXPENSES:
Research and development     798,980       92,926      803,193       93,387
Selling expenses             834,606      629,337    1,204,814      947,173
General and
 administrative            1,357,303      688,810    2,633,720    1,900,083
                         -----------  -----------  -----------  -----------
Total operating expenses   2,990,889    1,411,073    4,641,727    2,940,643
                         -----------  -----------  -----------  -----------

INCOME FROM OPERATIONS     3,367,731    4,546,248    4,540,078    5,616,533
                         -----------  -----------  -----------  -----------

OTHER INCOME (EXPENSE):
Other income (expense),
 net                          19,029       (3,662)     173,948       (3,849)
Interest income              164,276      124,986      334,941      273,831
Interest (expense)          (136,847)    (221,068)    (212,781)    (410,460)
Change in fair value of
 purchase option
 liability                    78,960        1,134       62,440        5,600
                         -----------  -----------  -----------  -----------
Total other (expense),
 net                         125,418      (98,610)     358,548     (134,878)
                         -----------  -----------  -----------  -----------

INCOME BEFORE PROVISION
 FOR INCOME TAXES          3,493,149    4,447,638    4,898,626    5,481,655

PROVISION FOR INCOME
 TAXES                       682,389      696,757    1,112,416    1,018,041
                         -----------  -----------  -----------  -----------

NET INCOME                 2,810,760    3,750,881    3,786,210    4,463,614

OTHER COMPREHENSIVE
 INCOME
Foreign currency
 translation adjustment      134,925    1,512,244     (832,024)   2,063,127
                         -----------  -----------  -----------  -----------

COMPREHENSIVE INCOME     $ 2,945,685  $ 5,263,125  $ 2,954,186  $ 6,526,741
                         ===========  ===========  ===========  ===========

EARNINGS PER SHARE:
Basic                    $      0.37  $      0.49  $      0.49  $      0.59
                         ===========  ===========  ===========  ===========
Diluted                  $      0.36  $      0.49  $      0.49  $      0.59
                         ===========  ===========  ===========  ===========

WEIGHTED AVERAGE NUMBER
 OF COMMON SHARES:
Basic                      7,699,912    7,615,719    7,688,155    7,614,721
                         ===========  ===========  ===========  ===========
Diluted                    7,799,902    7,615,719    7,783,979    7,614,721
                         ===========  ===========  ===========  ===========



             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 June 30, 2014  December 31,
                                                  (Unaudited)       2013
                                                 ------------- -------------
                     ASSETS
CURRENT ASSETS:
  Cash                                           $  16,420,742 $   8,142,296
  Restricted cash                                    7,150,000             -
  Accounts receivable, net of allowance for
   doubtful accounts of $1,389,622 and $602,243
   as of June 30, 2014 (Unaudited) and December
   31, 2013, respectively                           18,952,862    11,009,498
  Inventories                                       23,825,698    25,903,586
  Deposits, prepaid expenses and other
   receivables                                       2,009,639     2,134,163
  Prepayments to suppliers                          38,408,346    41,061,144
  Deferred income tax asset                            374,804       364,425
                                                 ------------- -------------
    Total current assets                           107,142,091    88,615,112
                                                 ------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET                  29,983,910    28,269,155
CONSTRUCTION-IN-PROGRESS                             6,516,179     9,284,947
OTHER ASSETS:
  Long-term prepayments                              4,598,411     4,633,614
  Long-term prepayments for acquisitions             3,250,000       183,344
  Intangible assets, net                             5,074,690     5,237,255
                                                 ------------- -------------
    Total other assets                              12,923,101    10,054,213
                                                 ------------- -------------
      Total assets                               $ 156,565,281 $ 136,223,427
                                                 ============= =============

      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                               $   6,446,936 $   3,303,531
  Other payables and accrued expenses                7,180,530     6,467,605
  Short-term loans                                  19,175,000    10,640,500
  Deposits from customers                            1,894,466     1,877,211
  Taxes payable                                      4,241,143     1,315,486
  Due to related parties                             3,328,564     1,361,548
                                                 ------------- -------------
    Total current liabilities                       42,266,639    24,965,881
                                                 ------------- -------------
OTHER LIABILITIES:
  Deferred government grant                            796,250       802,130
  Purchase option liability                                  -        62,440
                                                 ------------- -------------
    Total other liabilities                            796,250       864,570
                                                 ------------- -------------
      Total liabilities                             43,062,889    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" 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, 2014
   (Unaudited) and December 31, 2013                     7,605         7,605
  Paid-in capital                                   37,786,372    37,631,142
  Statutory reserves                                 5,952,692     5,952,692
  Retained earnings                                 58,776,364    54,990,154
  Accumulated other comprehensive income            10,979,359    11,811,383
                                                 ------------- -------------
  Total shareholders' equity                       113,502,392   110,392,976
                                                 ------------- -------------
    Total liabilities and shareholders' equity   $ 156,565,281 $ 136,223,427
                                                 ============= =============



            SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
                                (Unaudited)

                                                  For the six months ended
                                                          June 30,
                                                 --------------------------
                                                     2014          2013
                                                 ------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                     $  3,786,210  $  4,463,614
  Adjustments to reconcile net income to net
   cash provided by (used in) operating
   activities:
    Depreciation                                      871,051       630,522
    Amortization                                      124,464       122,478
    Provision for doubtful accounts                   793,645       297,164
    Change in fair value of purchase option
     liability                                        (62,440)       (5,600)
    Loss on sale of office equipment                        -         1,740
    Common stock to be issued to related parties
     for compensation                                 155,230         8,680
    Deferred income tax asset                        (149,101)            -
  Change in operating assets and liabilities
    Accounts receivable                            (8,836,478)   (1,992,249)
    Inventories                                     1,892,416    (3,027,946)
    Deposits, prepaid expenses and other
     receivables                                      110,410       332,707
    Prepayments to suppliers                        2,357,300    (8,344,799)
    Accounts payable                                3,175,028    (2,675,933)
    Other payables and accrued expenses               757,960       144,475
    Deposits from customers                            31,088       353,886
    Taxes payable                                   3,035,971      (605,471)
    Government grants                                       -      (641,120)
    Due to related parties                          1,974,147       303,328
                                                 ------------  ------------
      Net cash provided by (used in) operating
       activities                                  10,016,900   (10,634,524)
                                                 ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Refund of long-term prepayments                     183,687             -
  Payments of long-term prepayments                (3,257,622)            -
  Loan to third parties                            (1,050,576)            -
  Repayment of loans from third parties             1,050,576       897,232
  Placement of restricted cash                     (7,166,720)      (80,140)
  Purchases of property, plant and equipment                -        (4,008)
  Proceeds from sale of plant and equipment                 -           160
  Payments on construction-in-progress                (90,507)      (10,931)
                                                 ------------  ------------
      Net cash (used in) provided by investing
       activities                                 (10,331,162)      802,313
                                                 ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term loans                   17,591,040     8,815,400
  Repayment of short-term loans                    (8,958,400)   (2,885,040)
  Repayment of long-term loans                              -    (1,282,240)
                                                 ------------  ------------
      Net cash provided by (used in) financing
       activities                                   8,632,640     4,648,120
                                                 ------------  ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH               (39,932)      174,610
                                                 ------------  ------------

INCREASE IN CASH                                    8,278,446    (5,009,481)

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

CASH, end of period                              $ 16,420,742  $  6,312,367
                                                 ============  ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
  Cash paid for interest                         $    303,288  $    304,766
                                                 ============  ============
  Cash paid for income taxes                     $    618,944  $    328,574
                                                 ============  ============
  Non-cash investing and financing activities
  Construction-in-progress transferred to
   property, plant and equipment                 $  2,797,528  $          -
                                                 ============  ============



             SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                   FOR THE SIX MONTHS ENDED JUNE 30, 2014
                                 (UNAUDITED)

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

  Foreign currency
   translation                 -         -             -
  Share based
   compensation                                  155,230
  Net income                   -         -             -
                       --------- --------- -------------

BALANCE, June 30, 2014 7,604,800 $   7,605 $  37,786,372
                       ========= ========= =============

                           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                   -            -      (832,024)     (832,024)
  Share based
   compensation                                                     155,230
  Net income                     -    3,786,210             -     3,786,210
                       ----------- ------------ -------------  ------------

BALANCE, June 30, 2014 $ 5,952,692 $ 58,776,364 $  10,979,359  $113,502,392
                       =========== ============ =============  ============

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.

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

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