XI'AN, China, Nov. 15 Skystar Bio-Pharmaceutical Co., (OTC Bulletin Board: SKBI) (''Skystar''), a leading bio-pharmaceutical company in the People's Republic of China (''PRC''), announcedits financial results for the third quarter ended September 30, 2007.
''Based on our extensive effort in new product introduction, R&D andmarketing campaigns, we are truly excited to report record results in thethird quarter,'' commented Mr. Weibing Lu, Chairman and Chief ExecutiveOfficer of Skystar Bio-Pharmaceutical. ''The strong results in both the topand bottom lines demonstrate our ability to effectively produce and markethigh quality veterinary products as we build one of the premier brands inChina. We believe our product development strategy and plan to expanddistribution will continue to support our long-term growth."
Revenue for the third quarter of 2007 was a record $5.4 million, up 53%from $3.6 million in the third quarter of 2006. The increase in revenue wasdue to increased sales as a result of new products launched, an aggressivemarketing campaign and stronger brand name awareness. For the third quarterof 2007, veterinary medicines generated 51% of revenue, doubling to $2.8million from $1.4 million in the same period a year ago. Microorganismsaccounted for 34% of total revenue with vaccines contributing approximately 6%of revenue and feed additives representing the remaining 9%.
Gross profit for the third quarter of 2007 was a record $3.2 million, up95% from $1.6 million in the third quarter of 2006. Gross margin in the thirdquarter of 2007 was a record 58.4% compared to gross margin of 45.8% in thecomparable quarter a year ago. Gross margin for the quarter benefited fromthe large-scale production of new higher margin veterinary medicines as wellas the decline in the cost of raw materials. Skystar's new veterinarymedicines launched during the third quarter have an average gross margingreater than 50%.
Research and development costs were $117,604, or 2.2% of revenue, in thethird quarter of 2007 compared to $19,372, or 0.5% of revenue, in the sameperiod a year ago. The increase in research and development expense isprimarily attributed to research for antiparasitic and small molecule peptidemedicines. In addition, the Company incurred costs related to the developmentof new feed additives.
Selling expenses in the third quarter of 2007 were $176,437, or 3.2% ofrevenue, compared to $125,793, or 3.5% of revenue, in the same period a yearago. The decrease in selling expenses as a percentage of sales reflectseconomies of scale from Skystar's expanded product portfolio. Given a stablesales force and resources, the increase in sales effectively lowered sellingexpenses per unit. As a result, the Company expects a stable or evendecreasing selling expense as a percent of revenue for the remainder of 2007as it continues to launch new products.
Income from operations for the third quarter of 2007 was $2.5 million up150% from $1.0 million in the third quarter of 2006. Operating margin for thequarter was 45.9% compared to operating margin of 28.1% in the third quarterof 2006. The substantial increase in operating margin is a result of anincrease in internal operating efficiencies and decrease in amortization ofdeferred compensation expense.
Net income for the third quarter of 2007 was $1.1 million, up 34.0% fromnet income in the third quarter of 2006 of $0.8 million. Fully dilutedearnings per share for the quarter of ($0.17) reflect non-cash conversionexpenses related to the Company's convertible debentures. Fully dilutedearnings per share were $0.06 in the third quarter of 2006.
During the quarter, Skystar recognized non-cash interest expenses relatedto the debenture interest payment and warrants totaling $707,226. The companydid not incur these expenses in the third quarter of 2006. Adjusting netinco