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Skystar Bio-Pharmaceutical Announces First Quarter 2007 and Full Year 2006 Results

Skystar Bio-Pharmaceutical Co.
2007-05-30 17:32 822

XI'AN, China, May 30 /Xinhua-PRNewswire-FirstCall/ -- Skystar Bio-Pharmaceutical Co., (OTC Bulletin Board: SKBI) ("Skystar"), a leading bio-pharmaceutical company in the People's Republic of China ("PRC"), announced its financial results for quarter ended March 31, 2007 and for the year ended December 31, 2006.

First Quarter 2007 Highlights

-- Revenue increased 37% year-over-year to $1.4 million

-- Gross margin increased to 49% due to increase of internally-sourced

raw materials

-- Completed testing at new production factory, capacity utilization

expected to reach 30% by the end of June

Year End 2006 Highlights

-- Record revenues increased 65% to $9.8 million

-- Net income was $1.2 million compared to $1.5 million in 2005

-- Adjusted net income increased 62% to $2.4 million, excluding the

amortization of non-cash deferred compensation expenses

"We are very pleased to start off the year with strong top line growth, especially since the first quarter tends to be our slowest quarter of the year due to the lower rate of livestock breeding," commented Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar Bio-Pharmaceutical. "We expect strong revenue growth to continue as we enter the two seasonally strongest quarters of the year and increase our production capacity and marketing efforts."

Revenue for the first quarter of 2007 was $1.4 million, up 37.4% from $1.0 million in the first quarter of 2006. The increase in revenue was due to higher sales generated by enhanced marketing and advertising efforts. Veterinary medications and micro-organisms contributed to the majority of first quarter 2007 revenue, representing 27.0% and 53.0%, respectively. Vaccines represented approximately 7.3% of revenue and feed additives represented the remaining 12.7%.

Gross profit for the first quarter of 2007 was $670,775, up 41.3% from $474,748 in the first quarter of 2006. Gross margin in the first quarter of 2007 was 49.0% compared to gross margin of 47.7% in the comparable quarter a year ago. Gross margin for the quarter benefited from the decline in the cost of raw materials for micro-organisms and feed additives. Historically, Skystar has purchased its microbial strains for micro-organisms and feed additives from outside sources. In March 2007, the company began producing these raw materials in-house, resulting in a 90% reduction in raw materials cost. The company expects gross margin to continue to improve as a result of the lower cost of microbial strains.

Research and development costs were $31,655, or 2.3% of revenue, in the first quarter of 2007 compared to $19,339, or 1.9% of revenue, in the same period a year ago. Research and development costs are expected to be approximately $400,000 to $500,000 for the full year 2007, as the company intends to launch several new products.

Selling expenses in the first quarter of 2007 were $109,428, or 8.0% of revenue, compared to $67,908, or 6.8% of revenue. The increase in selling expenses is primarily the result of enhanced marketing and advertising efforts. Skystar expects that selling expenses will remain at 8.0% of revenue for the remainder of 2007.

General and administrative ("G&A") expenses were $316,551, or 23.1% of revenue, in the first quarter of 2007, up from $206,236, or 20.7% of revenue, in the first quarter 2006. The increase in G&A expenses reflects professional and financing fees related to the private placement financing the company completed during the quarter and associated costs of being a U.S. publicly traded company. Skystar expects G&A expenses to return to its historic range of 10% of revenue starting in the third quarter of 2007.

During the quarter, Skystar recognized non-cash expenses related to the amortization of deferred compensation in accordance with the adoption of SFAS 123R totaling $360,899. The company did not incur these expenses in the first quarter of 2006. To date, Skystar has amortized approximately $1.6 million of $1.9 million in deferred compensation expenses recognized in connection with consulting agreements made in 2006. The company expects to recognize the remaining $345,000 of amortization expenses through the first quarter of 2008.

Operating loss for the first quarter of 2007 was $147,758 compared to operating income of $181,265 in the first quarter of 2006. Excluding the amortization of deferred compensation, non-GAAP operating income was $213,141 for an operating margin of 15.6%. Skystar expects operating margins to improve to about 30% by the third quarter of 2007 as a result of improving gross margins and increased operating efficiencies.

Net loss for the first quarter of 2007 was $370,718, or $0.03 per fully diluted share, compared to net income in the first quarter of 2006 of $153,892, or $0.02 per fully diluted share. Adjusting net income to exclude the amortization of deferred compensation, non-GAAP net loss was $9,819.

Full Year 2006 Financial Results

For the full year 2006, revenue was $9.8 million, up 64.9% from revenue of $6.0 million in 2005. Gross profit was $4.4 million, up 49.6% from gross profit of $2.9 million in 2005. Operating income was $1.7 million, down 21.7% from operating income of $2.2 million in fiscal 2005. Operating income for the full year 2006 includes $1.2 million in non-cash expenses related to the amortization of deferred compensation in accordance with SFAS 123R. Adjusting operating income to exclude these expenses, non-GAAP operating income was $2.9 million. Net income for the full year 2006 was $1.2 million, compared to net income of $1.5 million in 2005. Fully diluted earnings per share for fiscal 2006 were $0.09 compared to fully diluted earnings per share of $0.13 for fiscal 2005. Excluding non-cash expenses, non-GAAP net income was $2.4 million, or $0.19 per fully diluted share, up 62.0% from 2005.

Financial Condition

As of March 31, 2007, Skystar Bio-Pharmaceutical had $3.6 million in cash and restricted cash, total liabilities of $2.3 million and working capital of $3.1 million. Shareholders' equity increased to $14.6 million from $9.7 million as of December 31, 2006.

On February 28, 2007, Skystar Bio-Pharmaceutical completed a private placement of 8% convertible debentures, convertible into shares of Skystar Bio-Pharmaceutical common stock at an initial conversion price of $1.00 per share, and warrants to purchase 4,075,000 shares of Skystar Bio-Pharmaceutical common stock with an initial exercise price of $1.20 per share. The transaction generated approximately $3.7 million in net proceeds which the company plans to use to expand its current production lines and fund its working capital requirements.

Business Outlook

Skystar Bio-Pharmaceutical expects the majority of growth in 2007 to be derived from its veterinary medications and micro-organisms segments. In December 2006, the company added a new Good Manufacturing Certified (GMP) production facility, which increased capacity by 200%. The new factory has capacity to produce 6,250 metric tons of microecologics/ probiotics feed additives, 50 million doses of medicines in liquid form, 200 million veterinary tablets and 3,000 metric tons of powder and other forms of veterinary medicines.

Skystar completed the testing phase of this new facility in the first quarter and began full production in April 2007. The company expects capacity utilization to reach 30% by the end of the second quarter of 2007 and 50% by year end. Skystar's outlook for full year 2007 is for revenue to be in the range of $12 million to $14 million and GAAP net income in the range of $2.5 to $3.0 million for fully diluted earnings per share of $0.20 - 0.23.

"We are very optimistic about our performance for the rest of 2007. By expanding our production capacity by 200%, we have positioned ourselves to achieve substantial growth in an industry where demand far outpaces supply," commented Mr. Lu. "Given the successful completion of our private placement financing, we are equipped with the capital needed to execute our business plan. We are focused on increasing our product offerings, expanding our distribution network and increasing our marketing and sales efforts. The overall result should be increased market penetration, greater brand recognition and growth in revenues and net income."

Use of Non-GAAP Financial Measures

To supplement Skystar Bio-Pharmaceutical's condensed consolidated financial statements presented on a GAAP basis, Skystar Bio-Pharmaceutical is providing certain income statement information that is not calculated according to GAAP. Skystar Bio-Pharmaceutical believes that its non-GAAP disclosures are useful in evaluating its operating results as this information supplies the user with another view of the matching of costs and expenses. A reconciliation of the adjustments to GAAP results for the three month period ended March 31, 2007 and the 12 month period ended December 31, 2006 is included below. The non-GAAP information presented is supplemental and is not purported to be a substitute for information prepared in accordance with GAAP.

Non-GAAP financial results for the three month period ended March 31, 2007 and the 12 month period ended December 31, 2006 discussed in this release reflect operating results excluding the impact of the amortization of deferred compensation payments of $360,899 in the first quarter of 2007 and $1.2 million in the full year 2006 by Skystar Bio-Pharmaceutical recorded in accordance with SFAS 123R in connection with consulting agreements made in 2006.

About Skystar Bio-Pharmaceutical

Skystar Bio-Pharmaceutical Company is a China-based producer and distributor of veterinary medication, vaccines, micro-organisms and 100% organic herbal feed additives to cure and prevent disease in poultry, livestock, birds and pets. The company's product line consists of more than 70 state-of-the-art products with over 50 additional products in the developmental stage. Skystar has formed strategic sales distribution networks throughout China. Skystar recently completed construction of new

state-of-the-art bio-pharmaceutical facilities covering an area of almost eight acres. The new facilities meet or exceed all Good Manufacturing Practice (GMP) Certification Standards and have received GMP Certification from the Chinese government. For additional information, please visit

http://www.skystarbio-pharmaceutical.com .

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This press release contains certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to uncertainties in product demand, the impact of competitive products and pricing, our ability to obtain regulatory approvals, changing economic conditions around the world, release and sales of new products and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

2007 2006

Unaudited Unaudited

REVENUE $ 1,367,810 $ 995,188

COST OF SALES 697,035 520,440

GROSS PROFIT 670,775 474,748

RESEARCH AND DEVELOPMENT COSTS 31,655 19,339

AMORTIZATION OF DEFERRED COMPENSATION 360,899

SELLING EXPENSES 109,428 67,908

GENERAL AND ADMINISTRATIVE EXPENSES 316,551 206,236

(LOSS) INCOME FROM OPERATIONS (147,758) 181,265

OTHER INCOME (EXPENSES)

Interest income 7,160 --

Other income -- 623

Interest expense (163,496) (839)

(LOSS) INCOME BEFORE PROVISION FOR INCOME

TAXES (304,094) 181,049

PROVISION FOR INCOME TAXES 66,624 27,157

NET (LOSS) INCOME (370,718) 153,892

OTHER COMPREHENSIVE INCOME

Foreign currency translation adjustment 103,159 46,261

COMPREHENSIVE (LOSS) INCOME $ (267,559) $ 200,153

(LOSS) EARNINGS PER SHARE (EPS)

-- Basic $ (0.03) $ 0.02

-- Diluted $ (0.03) $ 0.02

Weighted average number of common shares

used to compute EPS:

-- Basic 12,795,549 6,570,030

-- Diluted 12,795,549 6,570,030

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY

NON-GAAP CONSOLIDATED STATEMENTS OF INCOME AND

OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

2007 2006

Unaudited Unaudited

REVENUE $ 1,367,810 $ 995,188

COST OF SALES 697,035 520,440

GROSS PROFIT 670,775 474,748

RESEARCH AND DEVELOPMENT COSTS 31,655 19,339

SELLING EXPENSES 109,428 67,908

GENERAL AND ADMINISTRATIVE EXPENSES 316,551 206,236

(LOSS) INCOME FROM OPERATIONS 213,141 181,265

OTHER INCOME (EXPENSES)

Interest income 7,160 --

Other income -- 623

Interest expense (163,496) (839)

(LOSS) INCOME BEFORE PROVISION FOR INCOME

TAXES 56,805 181,049

PROVISION FOR INCOME TAXES 66,624 27,157

NET (LOSS) INCOME (9,819) 153,892

OTHER COMPREHENSIVE INCOME

Foreign currency translation adjustment 103,159 46,261

COMPREHENSIVE (LOSS) INCOME $ 93,340 $ 200,153

(LOSS) EARNINGS PER SHARE (EPS)

-- Basic $ (0.00) $ 0.02

-- Diluted $ (0.00) $ 0.02

Weighted average number of common shares

used to compute EPS:

-- Basic 12,795,549 6,570,030

-- Diluted 12,795,549 6,570,030

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005

REVENUE $ 9,796,324 $ 5,939,416

COST OF SALES 5,420,652 3,014,430

GROSS PROFIT 4,375,672 2,924,986

RESEARCH AND DEVELOPMENT COST 131,371 56,489

SELLING EXPENSES 475,504 374,473

GENERAL AND ADMINISTRATIVE EXPENSES 881,223 341,081

AMORTIZATION OF DEFERRED COMPENSATION 1,202,235 --

INCOME FROM OPERATIONS 1,685,339 2,152,943

MERGER TRANSACTION EXPENSE -- 513,414

OTHER EXPENSE (INCOME), net 15,246 (66,047)

INCOME BEFORE PROVISION FOR INCOME

TAXES 1,670,093 1,705,576

PROVISION FOR INCOME TAXES 494,951 238,058

NET INCOME 1,175,142 1,467,518

OTHER COMPREHENSIVE INCOME:

Foreign currency translation adjustment 298,675 161,345

COMPREHENSIVE INCOME $ 1,473,817 $ 1,628,863

EARNINGS PER SHARE:

-- Basic $ 0.11 $ 1.16

-- Diluted $ 0.09 $ 0.13

WEIGHTED AVERAGE NUMBER OF COMMON

SHARES:

-- Basic 11,144,153 1,260,651

-- Diluted 12,498,386 10,935,509

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY

NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005

Unaudited

REVENUE $ 9,796,324 $ 5,939,416

COST OF SALES 5,420,652 3,014,430

GROSS PROFIT 4,375,672 2,924,986

RESEARCH AND DEVELOPMENT COST 131,371 56,489

SELLING EXPENSES 475,504 374,473

GENERAL AND ADMINISTRATIVE EXPENSES 881,223 341,081

INCOME FROM OPERATIONS 2,887,574 2,152,943

MERGER TRANSACTION EXPENSE -- 513,414

OTHER EXPENSE (INCOME), net 15,246 (66,047)

INCOME BEFORE PROVISION FOR INCOME TAXES 2,872,328 1,705,576

PROVISION FOR INCOME TAXES 494,951 238,058

NET INCOME 2,377,377 1,467,518

OTHER COMPREHENSIVE INCOME:

Foreign currency translation adjustment 298,675 161,345

COMPREHENSIVE INCOME $ 2,676,052 $ 1,628,863

EARNINGS PER SHARE:

-- Basic $ 0.21 $ 1.16

-- Diluted $ 0.19 $ 0.13

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:

-- Basic 11,144,153 1,260,651

-- Diluted 12,498,386 10,935,509

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2007 AND DECEMBER 31, 2006

March 31, December 31,

2007 2006

Unaudited

ASSETS

CURRENT ASSETS:

Cash $ 3,490,448 $ 192,016

Restricted cash 70,442 69,610

Accounts receivable, trade, net of

allowance for doubtful accounts of

$11,572 and $14,426 as of March 31,

2007 and December 31, 2006, respectively 271,348 131,599

Inventories 407,183 528,566

Deposits and prepaid expenses 31,658 29,944

Loans receivable 8,645 8,558

Other receivables 46,441 38,881

Total current assets 4,326,165 999,174

PLANT AND EQUIPMENT, net 11,244,626 10,910,948

OTHER ASSETS:

Deferred debenture expense 940,152 --

Prepaid land use right, net 314,368 311,212

Intangible, net 19,425 25,640

Total other assets 1,273,945 336,852

Total assets $ 16,844,736 $ 12,246,974

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Interest-bearing short-term loan $ 38,850 $ 38,460

Non-interest bearing loan from third

party 63,455 62,818

Accounts payable 65,502 71,223

Accrued expenses 258,410 523,892

Taxes payable 174,769 218,231

Other payables 568,708 607,595

Amount due to related companies 53,027 16,025

Total current liabilities 1,222,721 1,538,244

OTHER LIABILITIES:

Deferred government grant 971,250 961,500

Convertible debenture, net

of $3,983,082 discount 91,918 --

Total other liabilities 1,063,168 961,500

TOTAL LIABILITIES 2,285,889 2,499,744

COMMITMENTS AND CONTINGENCIES -- --

SHAREHOLDERS' EQUITY:

Preferred stock, $0.001 par value,

50,000,000 shares authorized,

2,000,000 series "A" shares issued and

outstanding as of March 31, 2007 and

December 31, 2006, respectively;

Nil series "B" shares issued and

outstanding as of March 31, 2007 and

December 31, 2006, respectively 2,000 2,000

Common stock, $0.001 par value,

50,000,000 shares authorized;

12,795,549 and 12,795,549 shares

issued and outstanding as of

March 31, 2007 and December 31, 2006,

respectively 12,795 12,795

Paid-in-capital 10,964,602 6,246,325

Deferred compensation (344,978) (705,877)

Statutory reserves 816,145 779,624

Retained earnings 2,545,104 2,952,343

Accumulated other comprehensive

income 563,179 460,020

Total shareholders' equity 14,558,847 9,747,230

Total liabilities and

shareholders' equity $ 16,844,736 $ 12,246,974

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

2007 2006

Unaudited Unaudited

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income $ (370,718) $ 153,892

Adjustments to reconcile net (loss)

income to cash provided by

(used in) operating activities:

Depreciation and amortization 33,519 26,060

Amortization of deferred

debenture expenses 40,876 --

Amortization of discount on

debentures 91,918 --

Amortization of deferred

compensation 360,899 --

(Increase) decrease in assets:

Accounts receivable, trade (137,891) (2,122)

Inventories 126,263 (199,663)

Deposits and prepaid expenses (1,406) (21,935)

Other receivables (7,138) (539)

Increase (decrease) in liabilities:

Accounts payable (6,419) 933

Accrued expenses and other

payables (343,669) 192,790

Taxes payables (45,502) 112,655

Net cash (used in) provided by

operating activities (259,268) 262,071

CASH FLOWS FROM INVESTING

ACTIVITIES:

Increase in restricted cash (125) --

Purchase of property, plant and

equipment (249,261) (467,311)

Decrease in amounts due from

shareholders -- 23,090

Net cash used in investing

activities (249,386) (444,221)

CASH FLOWS FROM FINANCING

ACTIVITIES:

Increase in amount due to

shareholders 36,700 8,637

Increase in amount due to related

companies -- 6,214

Increase in non-interest bearing

loan from third party -- 251,667

Proceeds from government subsidies -- 124,280

Proceeds from convertible

debentures, net 3,737,250 --

Increase (decrease) in non-interest

bearing loan to third parties -- (211,276)

Net cash provided by financing

activities 3,773,950 179,522

EFFECT OF EXCHANGE RATE CHANGES ON

CASH 33,136 234

INCREASE (DECREASE) IN CASH 3,298,432 (2,394)

CASH, beginning of period 192,016 38,498

CASH, end of period $ 3,490,448 $ 36,104

SUPPLEMENTAL DISCLOSURE INFORMATION

Interest expense paid $ 819 $ 835

Income taxes paid $ 140,548 $ --

Non-cash transactions

Warrants issued for services $ 643,277 $ --

Stock issued for services -- 1,572,000

$ 643,277 $ 1,572,000

For more information, please contact:

Crocker Coulson, President

CCG Elite Investor Relations

Email: crocker.coulson@ccgir.com

Leslie Richardson, Financial Writer

CCG Elite Investor Relations

Tel: +1-310-231-8600 x122

Email: leslie.richardson@ccgir.com

Scott Cramer

Skystar Bio-Pharmaceutical Company

Director -- U.S. Representative

Tel: +1-407-645-4433

Email: scramer@skystarbio-pharmaceutical.com

Source: Skystar Bio-Pharmaceutical Co.
Keywords: Food/Beverages
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