XI'AN, China, Aug. 15 /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 the quarter ended June 30, 2007.
Second Quarter 2007 Highlights
-- Revenue increased 22% year-over-year to $3.4 million
-- Gross margin increased to 58.2% from 45.5% in Q2 2006
-- Operating income increased 90% year-over-year to $1.2 million
-- Adjusted non-GAAP net income increased 59.5% to $771,041
-- Gained approval for 49 new veterinary medicines and opened 150 Skystar
franchise stores
"Our commitment this year to enhancing our production, marketing and R&D efforts are validated through our strong financial results in the second quarter," commented Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar Bio-Pharmaceutical. "We have dedicated significant resources this year to broadening our product offering and building a solid distribution network supported by an in-depth customer training and education program. We believe this strategy will support continued revenue and net income growth in the future."
Revenue for the second quarter of 2007 was $3.4 million, up 22% from $2.8 million in the second quarter of 2006. The increase in revenue was due to the launching of ten new veterinary medicines and enhanced marketing and advertising efforts. For the second quarter of 2007, revenue from veterinary medicine grew 34% to $1.5 million from $1.1 million in the same period a year ago. Veterinary medicines and microorganisms represented the majority of revenue accounting for 45% and 39% of total revenue, respectively. Vaccines contributed approximately 5% of revenue and feed additives represented the remaining 11%.
Gross profit for the second quarter of 2007 was $2.0 million, up 56% from $1.3 million in the second quarter of 2006. Gross margin in the second quarter of 2007 was 58.2% compared to gross margin of 45.5% in the comparable quarter a year ago. Gross margin for the quarter benefited from the decline in the cost of raw materials for microorganisms and feed additives as well as the production of higher margin new veterinary medicines. The new veterinary medicines have an average gross margin greater than 50%. Skystar expects gross margin to remain in the range of 55%-60%.
Research and development costs were $75,225, or 2.2% of revenue, in the second quarter of 2007 compared to $85,747, or 3.1% of revenue, in the same period a year ago. Skystar's research and development efforts are dedicated to launching new products and developing new technologies to reduce the cost of raw materials.
Selling expenses in the second quarter of 2007 were $148,139, or 4.4% of revenue, compared to $75,574, or 2.7% of revenue, in the same period a year ago. The increase in selling expenses is primarily the result of enhanced marketing and advertising efforts. Skystar expects that selling expenses will
remain at 5%-8% of revenue for the remainder of 2007 as the Company continues to aggressively market its products.
General and administrative ("G&A") expenses were $405,071, or 12.0% of revenue, in the second quarter of 2007, up from $104,835, or 3.8% of revenue, in the second quarter 2006. The increase in G&A expenses reflects professional fees and associated costs of being a U.S. publicly traded company.
Income from operations for the second quarter of 2007 was $1.2 million up 90.0% from $648,651 in the second quarter of 2006. Operating margin for the quarter was 36.5% compared to operating margin of 23.5% in the second quarter of 2006.
Net income for the second quarter of 2007 was $148,311 compared to net income in the second quarter of 2006 of $483,343. Fully diluted earnings per share for the quarter of ($0.22) reflect the non-cash conversion expense of the convertible debentures. Fully diluted earnings per share were $0.05 in the second quarter of 2006. During the quarter, Skystar recognized non-cash interest expenses related to the debenture interest payment and warrants totaling $622,730. The company did not incur these expenses in the second quarter of 2006.
Adjusting net income to exclude non-cash debt financing and other expenses related to the Company's debenture interest payment and warrants, non-GAAP net income for the second quarter of 2007 was up 59.5% to $771,041 from $483,343 in the second quarter of 2006. Adjusted non-GAAP profit margin was 22.8% compared to 17.5% in the same quarter a year ago. Adjusted non-GAAP fully diluted earnings per share were $0.04 compared to fully diluted earnings per share of $0.05 in the second quarter of 2006.
Six Month Results
Revenues for the first half of 2007 were $4.7 million, up 26% from $3.8 million during the first half of 2006. Gross profit was $2.6 million, or 56% of revenues, up 52% from $1.7 million, or 46% of revenues, in the first half of 2006. Operating income was $1.1 million, or 23% of revenues, up 31% from $829,916, or 22% of sales, in the first half of 2006. Net loss for the first half of 2007 was $222,409, or ($0.26) per diluted share, compared to net income of $637,235, or $0.07 per diluted share, in the same period a year ago. Fully diluted earnings per share for the first six months reflect the one-time non-cash conversion expense of the convertible debentures. Adjusting net income to exclude non-cash debt financing and other expenses related to the Company's convertible debentures and warrants of $755,524, non-GAAP net income was $533,116 million, or $0.03 per fully diluted share, in the first six months of 2007.
Financial Condition
As of June 30, 2007, Skystar Bio-Pharmaceutical had $2.9 million in cash and restricted cash, total liabilities of $2.8 million and working capital of $3.9 million. Shareholders' equity increased to $15.0 million from $9.7 million as of December 31, 2006.
Business Outlook
Skystar Bio-Pharmaceutical has received approval for 49 new veterinary medicines to date in 2007, and expects to receive approval for 51 additional veterinary medicines by year end. Skystar has also opened over 150 new Skystar franchise stores to date and intends to have 300 operating franchise stores by the end of 2007. The Company has recently begun the construction of the second phase of its new facilities which includes a Good Manufacturing Practice compliant biopharmaceutical workshop for the production of microorganisms and vaccines. Capital expenditures for the new facility are estimated at $2.5 million. Skystar reaffirms its outlook for full year 2007 for revenue to be in the range of $12.0 million to $14.0 million and expects non-GAAP net income to be in the range of $2.5 to $3.0 million.
"We have done a tremendous job laying the foundation for our growth strategy in the first half of 2007. We obtained approval for 49 new veterinary medicines and successfully launched 10 of them in the market. Our research and development efforts have contributed to several new high demand products to address the blue ear disease epidemic. We have also successfully expanded our distribution network and opened over 150 Skystar franchise stores," commented Mr. Lu. "We intend to continue focusing our efforts to aggressively expand our market share throughout the rest of 2007. We will continue launching new products, expanding our distribution network and opening new Skystar franchises stores as we build a high quality national brand committed to improving animal health."
Use of Non-GAAP Financial Measures
GAAP results for the fourth quarter and full years ended December 31, 2006 and December 31, 2005 include certain non-cash debt financing and other expenses related to the Company's convertible notes and warrants. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of adjustments to GAAP results appears below. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
Conference Call
Skystar will host a conference call at 10:00 a.m. EDT on Wednesday, August 15, 2007, to discuss the second quarter 2007 financial results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 866-202-3048. International callers should dial 617-213-8843. When prompted by the operator, mention Conference Passcode 60925366. If you are unable to participate in the call at this time, a replay will be available for seven days starting on Wednesday, August 15 at 12:00 p.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 14701349. International callers should dial 617-801-6888 and enter the same passcode 14701349. This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://phx.corporate-ir.net/playerlink.zhtml?c=197014&s=wm&e=1624298. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90 day replay will be available shortly after the call by accessing the same link.
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 80 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 www.skystarbio-pharmaceutical.com.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:
Certain statements in this press release and oral statements made by Skystar on its conference call in relation to this release, constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. 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, the Company's 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.
- FINANCIAL TABLES FOLLOW -
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2007 AND DECEMBER 31, 2006
ASSETS
June 30, December 31,
2007 2006
Unaudited
CURRENT ASSETS:
Cash $2,828,299 $192,016
Restricted cash 71,764 69,610
Accounts receivable, trade, net of allowance
for doubtful accounts of $11,870 and
$14,426 as of June 30, 2006 and December
31, 2006, respectively 312,380 131,599
Inventories 974,404 528,566
Deposits and prepaid expenses 549,544 29,944
Loans receivable 403,278 8,558
Other receivables 21,959 38,881
Other receivables- related party 64,594 -
Total current assets 5,226,222 999,174
PLANT AND EQUIPMENT, net 11,426,613 10,910,948
OTHER ASSETS:
Deferred debenture expense 817,524 -
Prepaid land use right, net 315,827 311,212
Intangible, net 15,342 25,640
Total other assets 1,148,693 336,852
Total assets $17,801,528 $12,246,974
CURRENT LIABILITIES:
Interest-bearing short-term loan $39,451 $38,460
Non-interest bearing loan from third party - 62,818
Accounts payable 292,504 71,223
Accrued expenses 308,396 523,892
Taxes payable 614,972 218,231
Other payables 11,033 607,595
Other payables - related parties 20,963 16,025
Total current liabilities 1,287,319 1,538,244
OTHER LIABILITIES:
Deferred government grant 986,250 961,500
Liquidated damages 141,267 -
Convertible debenture, net of $3,482,980
discount 397,642 -
Total other liabilities 1,525,159 961,500
Total liabilities 2,812,478 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 June 30, 2007 and December 31, 2006,
respectively; Nil series "B" shares issued
and outstanding as of June 30, 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 June 30,
2007 and December 31, 2006, respectively 12,795 12,795
Paid-in-capital 10,964,602 6,246,325
Deferred compensation (243,603) (705,877)
Statutory reserves 955,555 779,624
Retained earnings 2,554,004 2,952,343
Accumulated other comprehensive income 743,696 460,020
Total shareholders' equity 14,989,049 9,747,230
Total liabilities and shareholders'
equity $17,801,527 $12,246,974
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
Unaudited Unaudited Unaudited Unaudited
Revenue $3,374,459 $2,762,247 $4,742,269 $3,757,435
Cost Of Sales 1,411,291 1,506,295 2,108,326 2,026,734
Gross Profit 1,963,168 1,255,952 2,633,943 1,730,701
Research And
Development Costs 75,225 85,747 106,881 105,086
Amortization Of Deferred
Compensation 101,375 341,145 462,274 341,145
Selling Expenses 148,139 75,574 257,567 143,482
General And Administrative
Expenses 405,071 104,835 721,622 311,072
Income From Operations 1,233,358 648,651 1,085,599 829,916
Other Income (Expenses)
Other income(expense) (148,385) (1,014) (141,226) (1,230)
Interest expense (703,019) - (866,515) -
Income Before Provision
For Income Taxes 381,954 647,637 77,859 828,686
Provision For Income Taxes 233,643 164,294 300,267 191,451
Net Income (Loss) 148,311 483,343 (222,409) 637,235
Other Comprehensive Income
Foreign currency
translation adjustment 180,517 26,719 283,676 72,980
COMPREHENSIVE INCOME $328,826 $510,062 $61,267 $710,215
(LOSS) EARNINGS PER
SHARE (EPS)
- Basic $0.01 $0.05 $(0.02) $0.07
- Diluted $(0.22) $0.05 $(0.26) $0.07
Weighted average number
of common shares used
to compute EPS
- Basic 12,795,549 9,606,115 12,795,549 9,606,115
- Diluted 17,471,234 9,606,115 16,132,513 9,606,115
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
Adjusted Net income Q2 2007 Six Months 2007
Net Income (Loss) Net Diluted Net Diluted
Diluted EPS Income EPS Income EPS
Adjusted Amount 771,041 0.04 533,116 0.03
Adjustments
Deferred Debenture Expense (1) 122,628 0.007 163,504 0.01
Discount on Debenture (2) 500,102 0.029 592,020 0.04
Discount on convertible debenture
net of interest expense (3) 0.23 0.23
Amount per consolidated statement
of operations 141,311 (0.22) (222,409) (0.26)
(1) Non cash expense related to debt issue costs
(2) Non cash expense related to costs of amortization of convertible
debenture and warrants
(3) Adds back the write down of the remaining discount on convertible
debentures of $4,075,000 net of interest expense of $81,108 which is
used to calculate fully diluted earnings per share
SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
2007 2006
Unaudited Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(222,409) $637,235
Adjustments to reconcile net (loss) income
to cash provided by (used in) operating
activities:
Depreciation and amortization 90,407 53,541
Amortization of deferred debenture expenses 163,504 -
Amortization of discount on debentures 592,020 -
Amortization of deferred compensation 462,274 341,145
(Increase) decrease in assets:
Accounts receivable, trade (174,979) (256,661)
Inventories (426,349) (1,066,392)
Deposits and prepaid expenses (511,768) (2,868)
Other receivables 26,339 (6,686)
Increase (decrease) in liabilities:
Accounts payable (216,460) 4,750
Accrued expenses and other payables 198,368 37,146
Taxes payables (385,801) 567,416
Liquidated damage payable 141,267 -
Net cash (used in) provided by operating
activities (263,586) 308,626
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in amount of interest - bearing loans
to third parties (389,130)
Payment of interest bearing loans received
from third parties 259,210
Increase in restricted cash (357) -
Purchase of property, plant and equipment (311,207) (980,603)
Increase in amount due from shareholders (63,715)
Payment received from shareholders 92,251
Decrease in amounts due from a related company - 446,189
Net cash used in investing activities (764,409) (182,953)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from government subsidies - 124,620
Proceeds from convertible debentures, net of
debenture expenses 3,737,250 -
Principle payment on convertible debenture (194,378) -
Repayments of non-interest bearing loan from
third parties (63,558) (249,240)
Net cash provided by financing activities 3,479,314 (124,620)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 184,964 374
INCREASE (DECREASE) IN CASH 2,636,283 1,427
CASH, beginning of period 192,016 38,498
CASH, end of period $2,828,299 $39,925
SUPPLEMENTAL DISCLOSURE INFORMATION
Interest expense paid $83,027 $1,608
Income taxes paid $210,628 $-
Non-cash transactions
Warrants issued for services $643,277 $-
Stock issued for services - 1,572,000
Completed construction in progress 5,857,290
$6,500,567 $1,572,000
Contact
Crocker Coulson, President
crocker.coulson@ccgir.com
Leslie Richardson, Financial Writer
Phone: 310-231-8600 x 122
leslie.richardson@ccgir.com
CCG Elite Investor Relations
Skystar Bio-Pharmaceutical Company
Scott Cramer
Director - U.S. Representative
Phone: 407-645-4433
Email:scramer@skystarbio-pharmaceutical.com
