Skystar Bio-Pharmaceutical Reports First Quarter 2013

XI'AN, CHINA--(Marketwired - May 16, 2013) - Skystar Bio-Pharmaceutical Company ( NASDAQ : SKBI ) ("Skystar" or the "Company"), a China-based manufacturer and distributor of veterinary medicine, vaccines, micro-organisms and feed additives, today reported unaudited first quarter fiscal year 2013 earnings, for the fiscal period ended March 31, 2013.

First Quarter 2013 Summary

• Revenue decrease 30% YoY to $5.5 million as follows:
  • Veterinary medicines totaled $3.4 million, up 15% YoY
  • Pro-biotic micro-organism products totaled $1.7 million, decreasing 47% YoY
  • Feed additives totaled $0.3 million, decreasing 72% YoY
  • Veterinary vaccines totaled $0.1 million, decreasing 82% YoY
• Gross Profit of $2.6 million decreased 39% for the first three months of fiscal 2013 YoY
• Gross Margin of 47% for the first three months of fiscal 2013, compared to 54% in the prior 2012 period
• Net Income $0.7 million or $0.09 per fully diluted share, as compared with $1.9 million or $0.26 per fully diluted share YoY
• Company reiterates Fiscal 2013 revenue guidance range of $40 million to $45 million

Management's Comments Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar, commented, "The Company has achieved significant milestones in preparing two of its manufacturing facilities to become fully operational. The first facility based in Huxian is expected to launch animal vaccine production once the Ministry of Agriculture concludes its stage two GMP certification process in the third quarter of fiscal year 2013. The second manufacturing facility in Kunshan, which will manufacture probiotics is currently being renovated. Probiotics production at this facility is expected to begin in the fourth quarter of the fiscal year.

"The first calendar quarter is normally the slowest for Skystar's product sales mainly due to the celebrating of China's Lunar calendar holidays in that period. Sales of Skystar's range of products in the current first quarter have slowed beyond seasonal levels however; this has been due to a variety of factors including the widely publicized Swine Flu and Avian Flu outbreak in China. In addition, while Skystar currently possesses over half of the required production permits following GMP certification, the Company is still awaiting approval for the remainder of such permits in order to make full use of the newly GMP certified Huxian facility. As of current, Skystar's remaining production permit applications are in various stages of the approval process.

"While the Government has effectively contained the Swine and Avian Flu outbreaks, subsidies are already being distributed to farmers in order to boost China's animal husbandry industry. These subsidies will assist farmers in the replacement and rearing of animals lost during the containment of the respective Swine and Avian Flu outbreaks. In timing the needs of its customers, Skystar anticipates that normal demand for its products is expected to come back later in the year as public fear over protein consumption in China diminishes and dissipates. By that time, Skystar expects to have the regulatory approvals and manufacturing capability for increasing production capacity of its products. The Company has already received several product production permits associated with the Huxian animal medication facility and expects more to be approved by the Ministry of Agriculture in the near future. The Kunshan probiotics plant is also scheduled to come online later in the year and will provide additional incremental revenue. Skystar expects fiscal 2014 to be the first normalized fiscal year for Skystar since 2011 when the Company generated record revenues and had full production capacity of its existing facilities," concluded Mr. Lu.

Financial Summary For the three months ended March 31, 2013, the Company had Revenues of roughly $5.5 million as compared to revenues of $7.9 million for the three months ended March 31, 2012, a decrease of $2.4 million or 30.2%.

Cost of sales was $2.9 million for the three months ended March 31, 2013, as compared to $3.6 million for the three months ended March 31, 2012, a decrease of $0.7 million or 19.6%, as a result of decreased sales of other Company's product lines except veterinary medications.

Gross profit was $2.6 million for the three months ended March 31, 2013, as compared to $4.3 million for the three months ended March 31, 2012, with gross margin of 47% as compared to 54% in the comparable 2012 period.

The decreased gross margins for the three months ended March 31, 2013 were mainly because the majority of the Company's revenue during the three months came from less profitable veterinary medications product line, while the relatively high profitable micro-organism and vaccine product lines significantly reduced their production, and therefore sales.

Operating Expenses, Skystar's Research and Development were close to nil for the three months ended March 31, 2013 primarily due to no significant new R&D efforts being undertaken during the first quarter of 2013.

Selling expenses totaled $0.3 million for the three months ended March 31, 2013 as compared to $0.7 million for the three months ended March 31, 2012, a decrease of $0.4 million or 55.0%. This decrease is mainly due to the drop of shipping and handling costs as the result of reduced sales in the first quarter.

General and administrative expenses totaled $1.2 million for the three months ended March 31, 2013 as compared to $1.1 million for the three months ended March 31, 2012, an increase of $0.1 million or 9.6%.

Income from operations decreased 56.6% or $1.4 million to $1.1 million for first quarter fiscal 2013 as compared to $2.5 million in the comparable fiscal 2013 period.

Net income decreased 62.6% year over year to $0.7 million or $0.09 per fully diluted share, as compared to $1.9 million or $0.26 per fully diluted share in the year ago period.

Financial position as of March 31, 2013 Skystar had $4.0 million in cash, current assets of $76.0 million and current liabilities of $20.2 million, which resulted in approximately a net working capital of $55.8 million.

Mr. Lu concluded, "We expect that Fiscal 2013 will be an exciting year for Skystar. Following the successful application of GMP certifications for our various manufacturing plants, we anticipate positioning ourselves to maximize the revenue generating potential of the newly certified production facilities. We maintain full fiscal year 2013 guidance which was previously announced to be in the range of $40 to $45 million and expect to generate the majority of these revenues in the second half of the year. We also expect that revenue generation will be bolstered by the addition of several product permits that have been submitted to the Ministry of Agriculture. The product permits will allow Skystar to generate incremental revenue that was not possible in previous quarters due to the GMP recertification process of its manufacturing facilities. This view also takes into consideration revenues from facilities that are in the process of coming online following the GMP certification process," concluded Mr. Lu.

Conference Call Information The Company will host a conference call on Thursday, May 16, 2013 to discuss its financial results for the fiscal quarter ended March 31, 2013. Skystar's conference call will begin promptly at 7:45 a.m. EDT to review fiscal first quarter 2013 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.investorcalendar.com/IC/CEPage.asp?ID=170974 .

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, referencing conference ID # 414186. Alternatively you can listen to the replay online at http://www.investorcalendar.com/IC/index.asp .

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 275 products. Skystar has formed strategic sales distribution networks covering 29 provinces throughout China. For additional information, please visit http://www.skystarbio-pharmaceutical.com .

Financial Tables Follow

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(Unaudited)
				Three Months Ended
				March 31,
				2013				2012
REVENUE, net				$	5,530,741			$	7,926,337
COST OF REVENUE					2,930,886				3,643,658
GROSS PROFIT					2,599,855				4,282,679
OPERATING EXPENSES:
	Research and development costs				461				3,654
	Selling expenses				317,836				705,616
	General and administrative expenses				1,211,273				1,105,435
		Total operating expenses			1,529,570				1,814,705
INCOME FROM OPERATIONS					1,070,285				2,467,974
OTHER INCOME (EXPENSE):
	Other income (expense), net				(187	)			53,760
	Interest (expense), net				(40,547	)			(153,612	)
	Change in fair value of warrant/purchase option liability				4,466				5,600
		Total other (expense), net			(36,268	)			(94,252	)
INCOME BEFORE PROVISION FOR INCOME TAXES					1,034,017				2,373,722
PROVISION FOR INCOME TAXES					321,284				468,968
NET INCOME					712,733				1,904,754
OTHER COMPREHENSIVE INCOME:
	Foreign currency translation adjustment				550,883				558,757
COMPREHENSIVE INCOME				$	1,263,616			$	2,463,511
EARNINGS PER SHARE:
	Basic			$	0.09			$	0.26
	Diluted			$	0.09			$	0.26
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
	Basic				7,613,712				7,210,256
	Diluted				7,613,712				7,210,256

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
					March 31,
					2013			December 31,
					(Unaudited)			2012
ASSETS
CURRENT ASSETS:
	Cash				$	3,979,494		$	11,321,848
	Accounts receivable, net of allowance for doubtful accounts of $600,823 (Unaudited) and $247,269 as of March 31, 2013 and December 31, 2012, respectively					11,444,339			10,010,796
	Inventories					23,650,679			22,962,209
	Deposits, prepaid expenses and other receivables					2,546,256			2,839,850
	Prepayments to suppliers					33,284,834			23,438,735
	Loans receivable					1,084,945			1,078,827
		Total current assets				75,990,547			71,652,265
PROPERTY, PLANT AND EQUIPMENT, NET						28,733,056			28,867,816
CONSTRUCTION-IN-PROGRESS						8,740,649			8,691,360
OTHER ASSETS:
	Long-term prepayments					1,056,283			1,050,327
	Long-term prepayments for acquisitions					178,752			177,744
	Intangible assets, net					5,289,021			5,319,831
	Total other assets					6,524,056			6,547,902
		Total assets			$	119,988,308		$	115,759,343
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable				$	5,065,400		$	4,017,530
	Other payable and accrued expenses					3,901,488			4,374,047
	Short-term loans					6,862,800			4,443,600
	Deposits from customers					1,658,365			1,621,061
	Taxes payable					1,672,657			1,950,757
	Due to related parties					1,001,795			798,925
		Total current liabilities				20,162,505			17,205,920
OTHER LIABILITIES:
	Long-term loan					1,276,800			1,269,600
	Deferred government grant					1,069,320			1,063,290
	Purchase option liability					1,134			5,600
	Total other liabilities					2,347,254			2,338,490
		Total liabilities				22,509,759			19,544,410
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 March 31, 2013 (Unaudited) and December 31, 2012					7,605			7,605
	Paid-in capital					37,021,085			37,021,085
	Statutory reserves					5,897,298			5,897,298
	Retained earnings					45,228,029			44,515,296
	Accumulated other comprehensive income					9,324,532			8,773,649
		Total shareholders' equity				97,478,549			96,214,933
			Total liabilities and shareholders' equity		$	119,988,308		$	115,759,343

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(Unaudited)
					Three months ended
					March 31,
					2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	712,733			$	1,904,754
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
			Depreciation			313,561				343,129
			Amortization			60,872				100,373
			Provision for doubtful accounts			351,534				38,869
			Common stock to be issued to related parties for compensation			4,340				40,020
			Change in fair value of warrant/purchase option liability			(4,466	)			(5,600	)
		Change in operating assets and liabilities
			Accounts receivable			(1,725,889	)			(2,415,647	)
			Inventories			(557,269	)			985,908
			Deposits, prepaid expenses and other receivables			292,476				335,498
			Prepayments to suppliers			(9,696,136	)			(2,479,854	)
			Accounts payable			1,023,288				980,926
			Other payables and accrued expenses			(339,030	)			566,311
			Repayment of government grants			(159,320	)			-
			Deposits from customers			28,061				199,329
			Taxes payable			(288,655	)			1,427,655
	Net cash (used in) provided by operating activities					(9,983,900	)			2,021,671
CASH FLOWS FROM INVESTING ACTIVITIES:
		Loans receivables				-				(11,515	)
		Purchases of plant and equipment				-				(54,965	)
		Payments on construction-in-progress				-				(44,940	)
	Net cash used in investing activities					-				(111,420	)
CASH FLOWS FROM FINANCING ACTIVITIES:
		Proceeds from short-term loan				4,779,600				63,520
		Repayment of short-term loan				(2,389,800	)			-
		Due to related parties				201,325				326,061
	Net cash provided by financing activities					2,591,125				389,581
EFFECT OF EXCHANGE RATE CHANGES ON CASH						50,421				37,784
(DECREASE) INCREASE IN CASH						(7,342,354	)			2,337,616
CASH, beginning of period						11,321,848				7,048,968
CASH, end of period					$	3,979,494			$	9,386,584
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid for interest				$	181,426			$	152,583
	Cash paid for income taxes				$	-			$	-
	Non-cash investing and financing activities
		Construction-in-progress transferred to property, plant and equipment			$	-			$	3,633
		Long-term prepayments transferred to construction-in-progress			$	-			$	333,480

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

			Common stock										Retained earnings
			Shares		Amount			Paid-in capital					Statutory reserves			Unrestricted			Accumulated other comprehensive income			Total
BALANCE, January 1, 2013			7,604,800		$	7,605		$	37,021,085				$	5,897,298		$	44,515,296		$	8,773,649		$	96,214,933
	Foreign currency translation		-			-			-					-			-			550,883			550,883
	Net income		-			-			-					-			712,733			-			712,733
BALANCE, March 31, 2013			7,604,800		$	7,605		$	37,021,085				$	5,897,298		$	45,228,029		$	9,324,532		$	97,478,549

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 Company's ability to pass the final stages of the GMP inspection for its Huxian Vaccine Facility, to complete renovations at the Kunshan plant, timing of such expectations and renovations, the Company's ability to ramp up its production to the anticipated levels, the potential risks and public and/or governmental response to variety of risks, including the Avian Influenza, 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 unless expressly required under the law, the Company is under no obligation to revise any forward looking statements for any reason.