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Skystar Bio-Pharmaceutical Announces Second Quarter 2007 Results

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 s,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



- 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




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


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




2007 2006

Unaudited Unaudited


Net (loss) income $(222,409) $637,235

Adjustments to reconcile net (loss) income

to cash provided by (used in) operating


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


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)


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)



CASH, beginning of period 192,016 38,498

CASH, end of period $2,828,299 $39,925


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


Crocker Coulson, President

Leslie Richardson, Financial Writer

Phone: 310-231-8600 x 122

CCG Elite Investor Relations

Skystar Bio-Pharmaceutical Company

Scott Cramer

Director - U.S. Representative

Phone: 407-645-4433

econd 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 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

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.




AS OF JUNE 30, 2007 AND DECEMBER 31, 2006


June 30, December 31,

2007 2006



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


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


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


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



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



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

SOURCE Skystar Bio-Pharmaceutical Co.

Copyright©2007 PR Newswire.

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