Skystar Bio-Pharmaceutical Reports Record Fiscal Year 2011 Financial Results

XI’AN, CHINA--(Marketwire - April 02, 2012) - 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 announced full financial results for fiscal year ended December 31, 2011.

Fiscal Year 2011 Summary

• Revenues totaled $52.8 million, up 11% YoY
  • Veterinary vaccines totaled $2.3 million, up 17% YoY
  • Veterinary medicines totaled $33.8 million, up 5% YoY
  • Feed additives totaled $2.6 million, up 31% YoY
  • Micro-organism products totaled $14.1 million, up 23% YoY
• Gross profit margin was 50% a decrease of 4% YoY
• Net income decreased 3% year over year to $13.7 million or $1.90 per fully diluted share, as compared to $14.0 million or $1.97 per fully diluted share during the year ended December 31, 2010
• Improved cash balance to $7.0 million at the end of fiscal 2011

Management Comments
Mr. Weibing Lu, Skystar Bio-Pharmaceutical’s chairman and chief executive officer, commented, “We are pleased to present Skystar’s full year financial results. The Company was able to grow top line revenue while maintaining bottom line profitability in the midst of China’s changing economic climate and shifting economic policies.

“From 2008 through 2010, China’s economic policy had been geared towards insulating itself from the worst of the global recession. By March of 2011, China’s 12th Five Year Plan was enacted by the National People’s Congress and economic policies were shifted in an effort to systematically reign in growth, stem inflation and drive China’s economy via consumer consumption.

“All of these events have impacted Skystar’s business, in particular, rising inflation, however Skystar firmly believes that throughout the fiscal year it has made all the necessary adjustments to move forward and execute its operating strategy with continued profitability in mind. China’s 12th Five Year Plan includes language that emphasizes the further development and support of the agriculture industry; ramping up of dairy consumption; increased livestock production and the standardization of animal husbandry practices in order to bring consumers a safer product, all of which directly relates to Skystar’s business and operations. Skystar has anticipated much of these policies in developing its own road map for growth. The Company has invested heavily, roughly $2.8 million in 2011, on R&D projects in addition to our facilities expansion initiatives. In addition to developing an aquaculture product line, Skystar’s R&D projects address our market research as we are developing solutions for the bovine, swine and dairy industries that we believe are immediately appealing to our customers. Above all else, Skystar has been able to drive this expansion and development via cash flow measures that are non-dilutive to shareholders.

“In implementing our 2011 operational strategy, Skystar increased its customer base 42% year over year across all 29 farming regions in China. The Company ended the year with 3,846 customers consisting of independent distributors, franchise distributors and direct customers. Skystar launched 13 new veterinary medications and 6 new feed additives. The Company now has 287 products in its lineup. Skystar remains committed to delivering premium products at reasonable prices supported by in depth customer service to our customers,” the Chairman concluded.

The Company currently has four manufacturing facilities:

Plant Name (Town) Production Line Status Province ------------------ ----------------------- ------------------------ -------- “Sanqiao” Plant Veterinary Medicine; Operational Shaanxi Probiotics; and Animal Feed “Huxian” Plant Veterinary *Stopped production Shaanxi Medicine/Vaccines January, 2012 “Jingzhou” Plant Veterinary Medicine Partial operation after Hubei completing GMP reexamination, awaiting some batch control numbers from MOA “Kunshan” Plant Probiotics Under construction and Jiangsu retooling 

*GMP recertification to be completed first half of 2012

He continued: “Of note, the GMP certificates granted to bio-pharmaceutical manufacturers in China are granted on a 5 year renewable basis. In fiscal 2011, Skystar’s Jingzhou GMP license was up for renewal therefore the facility was not operational for most of the year. As of current the Ministry of Agriculture’s (MOA) inspectors have recertified the Jingzhou facility and it has resumed partial operation. We are still waiting for the MOA to issue production permits for some of our products manufactured from that facility before we can announce that it has resumed full operations.

“Skystar’s expanded Huxian facility which produces veterinary medicines is expected to complete GMP recertification by first half of 2012. It is our expectation that the newly built vaccine facility will be completed by the second half of 2012,” he concluded.

Fiscal Year 2011 Financial Results

In-line with revised guidance, Skystar reported full fiscal 2011 year Revenues of $52.8 million, an 11% increase compared to the $47.6 million in revenues reported for the full fiscal 2010 year. Gross profit for the full fiscal 2010 year was $26.2 million, or 50% of revenues.

Net income decreased 3% year over year to $13.7 million or $1.90 per fully diluted share, as compared to $14.0 million or $1.97 per fully diluted share in the year ago period.

Skystar’s Cost of Sales which consists of raw materials, direct labor, and manufacturing overhead for our four product lines, was $26.6 million for fiscal 2011 as compared to $22.0 million for the year ago period, this was an increase of $4.6 million as a result of increased sales and higher raw material costs due to continuing general inflation in China during 2011. In addition, write-downs of inventories of $0.7 million predominantly due to expired raw material and outdated packing material during 2011 also contributed to the increase of cost of sales.

Research and Development costs totaled $2.8 million for the fiscal 2011 as compared to $0.7 million for the year ago period, an increase of $2.1 million or 311%. The increase was due to a significant increase in R&D efforts during 2011. In addition to continuing to fund existing joint R&D projects with various research institutions, we launched several new in-house R&D projects to develop new veterinary medications.

Selling expenses totaled $4.0 million for fiscal 2011 as compared to $2.1 million in the year ago period, an increase of $1.9 million or 91%. This increase is primarily a result of significantly increased shipping and handling costs related to delivering our products to customers as we continued to expand our market to remote areas, and to inflationary pressure in China, which resulted in higher unit costs for transportation and delivery services. Shipping and handling costs totaled $1.9 million versus $0.9 million during fiscal 2011 and 2010, respectively, an increase of $1.0 million or 106%. In addition, the increase in selling commission due to implementing new sales incentive programs also contributed to the increase in selling costs. Selling commission totaled $1.6 million and $0.8 million during in fiscal 2011 and 2010 respectively, an increase of $0.8 million or 96%.

General and Administrative expenses totaled $4.1 million in fiscal 2011, as compared to $4.6 million in the year ago period, a decrease of $0.5 million or 11%. The decrease was mainly due to no acquisition related costs being incurred in the 2011 fiscal year.

Financial Position: as of December 31, 2011, Skystar had approximately $7.0 million in cash, current assets of $58.9 million and total liabilities of $15.4 million, which resulted in a net working capital of $43.6 million.

Business Outlook
Presently, Skystar anticipates delivering top line revenue in the range of $53 million to $57 million with gross margins of roughly 50% for 2012. This is a conservative view that does not take into consideration the introduction of revenues from our new facilities to come online, although we do expect that there should be some partial revenue recognition to come from the new vaccine facility. Additionally once our facility’s GMP certificate is renewed we expect to be able to have full production capacity once again.

In fiscal 2011, Skystar experienced significant inflationary pressure in addition to some gross profit margin erosion. Without the buy forward strategy in place with our suppliers to help control costs of our raw materials both our gross profit margin and bottom line would have been impacted more. Skystar will continue this strategy in fiscal 2012.

“As one of the top 25 Companies in China’s exciting animal healthcare space we believe that favorable consumption trends in addition to government mandates will help Skystar build the necessary infrastructure for consistent revenue growth and profitability utilizing measures that are non-dilutive to shareholders. We fully anticipate our current acquisitions and expanded manufacturing facilities to ramp up, bear fruit and further improve Skystar’s profitability. We believe that Skystar’s operational and growth strategies are in the best interest of our shareholders and hope to continue delivering success in the New Year,” concluded Mr. Lu.

Conference Call Information
The Company will host a conference call on Monday, April 2, 2012 to discuss its financial results for the year ended December 31, 2011. Skystar’s conference call will begin promptly at 7:45 a.m. EDT to review fiscal year 2011 financial and operational performance. Mr. Weibing Lu, Skystar’s chairman and chief executive officer, will host the call, which will be webcast live.

Webcast
The webcast will be made available on the investor relations section of the Skystar corporate website at http://www.skystarbio-pharmaceutical.com or http://www.investorcalendar.com/IC/CEPage.asp?ID=167900.

Phone dial-in
Telephone access to the conference call will be available in North America by dialing +1 (877) 407-8031 or internationally by dialing +1 (201) 689-8031.

An audio replay of the conference call will be available approximately two hours following the conclusion of the call and for the following 30 day period. To access the replay in North America, dial +1 (877) 660-6853 or, when calling internationally, dial +1 (201) 612-7415, using replay account code # 286 and conference ID # 391620. An archived replay of the conference webcast will also be available on investor relations section of the Skystar corporate website at http://www.skystarbio-pharmaceutical.com.

To be added to the Company’s email distribution for future news releases, please send your request to skystar@grayling.com.

About Skystar Bio-Pharmaceutical Company

Skystar is a China-based developer and distributor of veterinary healthcare and medical care products. Skystar has four product lines (veterinary medicines, micro-organisms, vaccines and feed additives) and over 287 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com.

 SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year Ended December 31, ------------------------------ 2011 2010 --------------- ------------- REVENUE, NET $ 52,788,279 $ 47,556,383 COST OF REVENUE 26,562,748 22,011,588 --------------- -------------- GROSS PROFIT 26,225,531 25,544,795 --------------- -------------- OPERATING EXPENSES: Research and development 2,814,328 684,778 Selling expenses 4,062,126 2,124,952 General and administrative 4,099,153 4,625,092 --------------- -------------- Total operating expenses 10,975,607 7,434,822 --------------- -------------- INCOME FROM OPERATIONS 15,249,924 18,109,973 --------------- -------------- OTHER INCOME (EXPENSE): Other income (expense), net 43,696 (49,202) Interest expense, net (140,920) (58,846) Change in fair value of warrant/purchase option liability 1,376,239 (612,883) --------------- -------------- Total other income (expense), net 1,279,015 (720,931) --------------- -------------- INCOME BEFORE PROVISION FOR INCOME TAXES 16,528,939 17,389,042 PROVISION FOR INCOME TAXES 2,871,299 3,297,758 --------------- -------------- NET INCOME 13,657,640 14,091,284 OTHER COMPREHENSIVE INCOME : Foreign currency translation adjustment 2,955,344 2,281,501 --------------- ------------- COMPREHENSIVE INCOME $ 16,612,984 $ 16,372,785 =============== ============== EARNINGS PER SHARE: Basic $ 1.90 $ 1.98 =============== ============== Diluted $ 1.90 $ 1.97 =============== ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES: Basic 7,182,969 7,105,789 =============== ============== Diluted 7,184,484 7,138,279 =============== ============== SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS December 31, December 31, 2011 2010 ---------------- ---------------- CURRENT ASSETS: Cash $ 7,048,968 $ 5,887,831 Accounts receivable, net of allowance for doubtful accounts of $438,678 and $339,031, respectively 3,391,493 4,977,850 Inventories 14,851,159 7,202,223 Deposits and prepaid expenses 32,140,056 17,074,000 Loans receivable 964,088 8,040,100 Other receivables 508,392 1,558,775 ---------------- ---------------- Total current assets 58,904,156 44,740,779 ---------------- ---------------- PLANT AND EQUIPMENT, NET 28,376,559 22,613,113 CONSTRUCTION-IN-PROGRESS 8,839,055 1,590,720 OTHER ASSETS: Long-term prepayments 1,512,817 1,454,226 Long-term prepayments for asset acquisitions 569,788 4,806,352 Intangible assets, net 5,674,206 6,043,941 ---------------- ---------------- Total other assets 7,756,811 12,304,519 ---------------- ---------------- Total assets $ 103,876,581 $ 81,249,131 ================ ================ LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 1,047,067 $ 201,850 Other payable and accrued expenses 5,274,598 1,898,101 Short-term loans 7,366,320 3,025,884 Deposits from customers 1,432,529 1,260,030 Taxes payable 160,081 749,836 Due to related parties 56,273 217,912 ---------------- ---------------- Total current liabilities 15,336,868 7,353,613 ---------------- ---------------- OTHER LIABILITIES: Deferred government grant 393,500 986,050 Warrant/purchase option liability 43,400 1,419,639 ---------------- ---------------- Total other liabilities 436,900 2,405,689 ---------------- ---------------- Total liabilities 15,773,768 9,759,302 ---------------- ---------------- 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, 7,161,919 shares issued and outstanding 7,162 7,162 Paid-in capital 35,784,378 35,784,378 Statutory reserves 5,708,135 5,695,236 Retained earnings 38,492,031 24,847,290 Accumulated other comprehensive income 8,111,107 5,155,763 ---------------- ---------------- Total shareholders’ equity 88,102,813 71,489,829 ---------------- ---------------- Total liabilities and shareholders’ equity $ 103,876,581 $ 81,249,131 ================ ================ 

 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 may include financial projections or information regarding the progress of new product development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the 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.