Skystar Bio-Pharma (NASDAQ:SKBI)

Full Year 2011 Results

• 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

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 12^th 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 12^th 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.

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.

XI'AN, CHINA--(Marketwire - Mar 27, 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 that on March 26, 2012 it received a letter from the NASDAQ Listing Qualifications Panel ("the Panel") informing the Company that the Panel has determined to grant the request of Skystar to remain listed on The NASDAQ Stock Market ("NASDAQ"), subject to the condition that by April 28, 2012, Skystar provides evidence that it has held its 2011 annual shareholder meeting. In the event the Company is unable to hold such meeting or hold the meeting within the said timeframe, its securities may be delisted from NASDAQ, in which event the Company would seek to cause them be quoted in over the counter markets, which may result in a substantially less liquid market for the securities.

As previously disclosed, the Panel's decision follows a hearing held on March 1, 2012 at which time the Panel was presented with the Company's plan to regain compliance with NASDAQ's Listing Rule 5620(a) and (b) relating to the time frame of and proxy solicitation in connection with annual shareholder meetings.

XI'AN, CHINA--(Marketwire - Jan 20, 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 that it has been notified by the Nasdaq Listing Qualifications staff that its request for an oral hearing to appeal the staff's delisting determination has been granted and the staff set a hearing date for such oral hearing before the Panel, at which hearing Skystar will present to the Panel its plan and timeline to regain compliance with Nasdaq listing standards. Accordingly, the staff's delisting action has been stayed, pending a final written decision by the Nasdaq Hearings Panel. The hearing will be held on Thursday, March 1, 2012.

There can be no assurance that the Panel will grant the Company's request for continued listing. If the Panel does not grant the relief sought by the Company, its securities will be delisted from the Exchange in which event the Company would seek to cause them be quoted in over the counter markets, which may result in a substantially less liquid market for the securities.

Second Quarter 2011 Highlights

• Revenue increases 10% YoY to $9.1 million
  • Veterinary vaccines totaled $0.4 million, up 1.2% YoY
  • Veterinary medicines totaled $6.3 million, up 15% YoY
  • Feed additives totaled $0.4 million, up 6% YoY
  • Micro-organism products totaled $2.0 million, flat YoY
• Gross margin of 49% for the second quarter of fiscal 2011 as compared to 53% in the year ago period
• Net income of $1.5 million or $0.21 per fully diluted share, compared with net income of $2.4 million or $0.33 per fully diluted share in the year ago period
• 6% increase in the number of distribution agents and direct customers from 1,026 in Q1 to 2,253 in Q2

GeoTeam® Note: Second Quarter 2011 vs. 2010 Adjusted EPS wsa $0.15 vs. $0.31

First Half 2011 Financial Highlights

• First half fiscal 2011 revenue increases 23% YoY to $16.2 million
• Gross margin of 50% for the first half of fiscal 2011 as compared to 53% in the year ago period
• Net income of $3.4 million or $0.48 per fully diluted share, compared with net income of $3.5 million or $0.49 per fully diluted share in the year ago period

Management Comments
Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar is pleased with its second quarter performance in light of adverse market conditions. The Company has successfully funded product development internally and expanded its distribution footprint while still achieving revenue growth for the quarter as compared to the same period a year ago.

"The increase in research and development costs is necessary to remain competitive as the Company believes that it can no longer rely on making significant pre-payments for raw materials to protect its gross margins in the long term. We maintain a long term strategy for achieving sustained growth and profitability by periodically developing new high gross margin products according to demand and expanding manufacturing capability and distribution. In order to preserve market share and expand into new territories, we have not raised our sales prices as we believe our customers would not be able to absorb pricing increases in this environment and such an increase would erode our market share.

"During the second quarter, we made significant investments in R&D, staging initiatives to develop four new specialty high margin veterinary medication projects. We also successfully launched nine new veterinary medicines and six new feed additives and increased direct distribution channels by six percent as compared to the previous quarter. While this action has increased operating expenses for the quarter and reduced net income, we deemed the move necessary for expanding Skystar's diverse high margin product lines. Given current market conditions, we acknowledge that advanced purchases of raw materials has helped offset significantly higher raw material costs. However, in order to preserve our historical gross margins in the long term, we must continue to expand our distribution footprint and remain focused on developing and marketing our higher margin products.

"China has imposed policies to combat the effects of inflation and upwardly spiraling prices of the nation's food supply. As a result, wholesale market prices of meat became flat, negatively affecting the profits of some animal farmers. The diminished profitability has resulted in a reduction of animal farming and subsequently reduced some demand for our products. Wholesale meat prices have recently begun to increase to previous levels, and we expect farming to resume and demand for our products to return.

"Additionally, an ongoing drought in some regions of China has affected animal farming and aquaculture cultivation. The decreased supply of fresh water available for farming has adversely affected net sales of some of Skystar's products lines including pro-biotics and aquaculture.

"China's government has also started to put pressure on the animal husbandry industry to reduce its reliance on veterinary pharmaceuticals used in bringing animals to term for sale. These efforts are a commitment by China's government to increase the relative food safety for its citizens in addition to standardizing protocols of the animal husbandry industry itself.

"Due to several epidemics and concerns over food safety for China's food supply, the Ministry of Agriculture is delaying further inspections of veterinary pharmaceutical facilities. With this in mind, we believe that GMP certification of Skystar's new vaccine facility should be completed by the end of 2011.

"The fundamental challenge for Skystar is to utilize our industry expertise in staying on top of customer needs while maintaining profitability for our shareholders. China's overall market demand for animal based protein and the evolving commercial animal husbandry industry has not diminished and will drive the long term demand for our products, our growth, and our profitability for years to come.

"With this in mind, we believe that Skystar has taken the necessary measures to maintain our position as a market leader while weathering negative near term events. We value our shareholders and believe that we have positioned Skystar for long term growth in spite of a challenging operating environment and look forward to presenting our results and answering any investor questions concerning our operating environment during tomorrow's conference call," concluded Mr. Lu.

Fiscal 2011 Guidance
In light of the current economic environment, we are taking a conservative approach to financial guidance for fiscal year 2011. The Company confidently expects to generate full fiscal revenue in the range of $52.0 million to $55.0 million.

XI'AN, CHINA--(Marketwire - Aug 1, 2011) - 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 the appointment of Mr. Bing Mei to become the Company's permanent chief financial officer, effective as of July 29, 2011.

Mr. Mei is a seasoned chief financial officer fluent in both English and Mandarin with over 20 years of diverse industry experience including technology services and industrial manufacturing businesses and a successful track record of CFO/Controller roles with a variety of publicly traded Fortune 500 companies, fast-growing middle-market multinationals and international joint ventures. Prior to his engagement with Skystar Mr. Mei was chief financial officer of Avineon, a multinational technology company specializing in providing IT solutions to Federal and commercial industry with subsidiaries and joint ventures in Asia, Europe and North America and over 1,500 technical professionals located across the globe.

Mr. Mei is well acquainted with US and China GAAP, IFRS, SEC reporting standards and tax regulations, as well as SOX 404 compliance and in-depth knowledge of industry best practices, U.S. capital market and multinational financial operations. Mr. Mei is a certified public accountant (CPA), certified management accountant (CMA), and certified valuation analyst (CVA). He is a graduate of Zhejiang University with highest honors, Bowie State University and has a MBA from Duke University's Fuqua School of Business, where he was named a Fuqua Scholar graduating at the top ten percent of his class.

Mr. Weibing Lu, Skystar's chairman and CEO, commented, "We are pleased to have Bing Mei join Skystar as chief financial officer. Mr. Mei's experience in accounting and the international markets will assist the Company's growth initiatives as well as reporting and accountability to shareholders. Regrettably, Skystar accepted Michael Lan's resignation, concurrent to Bing Mei's appointment. Michael's resignation was due to personal reasons and there are no disputes between himself and the Company. Subsequently, we would like to thank Michael for his diligence and expertise in assisting Skystar grow record revenues and net income during his time with Skystar. We wish Michael all the best in his future endeavors."

Termination of Coverage 

Effective immediately, we are terminating coverage on Skystar Bio-Pharmaceuticals Co. (SKBI) to better allocate resources within our coverage universe. Our last rating on Skystar was Market Outperform/Speculative Risk with a Target Price of $15.00. Investors should not rely on our previously published financial projections.

INVESTMENT THESIS 

Skystar Bio-Pharmaceutical Company (SKBI) is a leading private Chinese company developing and selling veterinary medicine products. The company currently offers a complete suite of products to meet the needs of farmers from the birth of the animal through slaughter. SKBI’s products include vaccines, food-additives, and micro-organisms. The company currently markets approximately 200 products throughout China. 

In our view, SKBI’s distribution network is one of its primary competitive advantages. In China’s highly segmented animal farming industry, where an estimated 70% of pork products come from small farms with less than 15 pigs, SKBI has developed a network of company-owned or company promoted stores which educate farmers on the latest farming innovations and animal health. The company hires local farming experts at these facilities, and includes instructions on how to best use the company’s products to achieve desired results. The primary competitors for SKBI are government-owned enterprises that produce just several products, which are often under-promoted and are not competitively priced to SKBI’s product portfolio. SKBI has positioned itself as a leading and innovative manufacturer of animal husbandry health products, and we believe that the company’s regional stores and local expert endorsement may further strengthen the corporate brand.

We believe that the demand for animal husbandry products will continue to be strong in China in the foreseeable future. The economic growth over the last decade has significantly increased the consumption of protein by the Chinese. The gross production of farm animals is estimated at $200-250B in 2007, and growing at a CAGR of 9%. The current demand for animal husbandry products exceeds the current production capacity.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on SKBI                                  5/24/2011

SKBI: Strong Quarter, Anticipating Regulatory Milestone

Key Points

• For 1Q11, Skystar Bio-Pharmaceutical reported $7.1MM in revenues and $1.9MM in net income, slightly higher than our estimates of $6.7MM and $1.6MM, respectively.
• The company reported a cash balance of $7.4MM at the end of 1Q11, an increase of $1.5MM from 4Q10.
• Future growth could be largely driven by the expansion of the vaccine production line as well as the improved capacity of the micro-organism facility in 2011.
• The company reassured 2011 guidance of $60-63MM in revenues.
• We reiterate our Market Outperform rating with a $15/share target price in 12 months.

Investing to Prepare for Inflation

Given the increased costs of raw materials, gross margins decreased to 51% in 1Q11 from 54% in 2010. In addressing ongoing inflation, the company has taken a proactive approach to control raw material costs by securing favorable pricing through prepayments. In 1Q11, the company stocked $12MM in raw materials in comparison to $5.5MM in 4Q10. As a result, the company incurred an operating loss of ($6MM). The prepayment schedule could reduce the impact of price increases. However, continued inflation may cause further erosion in the gross margins. Given these competing trends, we slightly decrease our gross profit projection from 53% to 50% for 2011.

Anticipating GMP Approval in 3Q11

Skystar is estimated to obtain GMP approval from the Ministry of Agriculture in 3Q11 for the vaccine production line, representing a 2600% increase in capacity. We project a conservative material contribution of $3MM in 2011 from vaccine products. Going forward, the vaccine production line is estimated to generate $8-15MM in revenues in 3-5 years.

New Acquisition Expected to Have Material Contribution in 2H11

Skystar recently invested $8MM in the Kunshan acquisition to expand the micro-organism production line. The company has obtained the title for the land usage and is expected to complete the acquisition in 2Q11. With an estimated $5MM in capital expenditure, the facility is expected to have a small material contribution in 2011 and reach $30MM in annual sales in five years.

Maintaining Our Market Outperform Rating and $15 Target Price

Utilizing a 2011 P/E multiple of 7.5, we derive a 12-month price target of $15/share. By way of comparison, other profitable and growing Chinese companies yield average P/E ratio of 16 for 2011. In our opinion a target price of $15 is easily justified by Skystar’s full product suite offering, significant growth opportunities in the domestic veterinary medications/vaccines market and the incremental growth potential stemming from entering the underserved aquaculture vaccines market.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

GeoTeam® Note:

• 2011 vs. 2010 First Quarter Adjusted EPS was $0.17 vs. $0.20.
• Cash flow from operations turned negative

Further disclosures in 2011 first quarter fling could increase the risk of a need for capital.

We have a future registered capital commitment related to our newly created subsidiary Skystar Kunshan, located in Kunshan, Jiangsu province, China. The Skystar Kunshan subsidiary has a registered capital of $15,000,000, of which we invested $2,250,000 in cash. The remaining $12,750,000 of capital must be invested prior to May 7, 2012. We have also been making prepayments in an effort to acquire assets in a micro-organism manufacturing facility in Kunshan. Upon completion of such an acquisition, the assets purchased will be transferred to Skystar Kunshan to satisfy some of our registered capital commitment. If such an acquisition does not close, we may request a reduction or cancellation of the registered capital requirement. As of the date of this report, we have not completed the acquisition.

"In 2010, Skystar continued to utilize working capital to prepay for raw materials. This buy-forward strategy helped Skystar manage fluctuations in raw material costs. Skystar as of current has adequate working capital to fund its operations and prepayment of raw materials but will continue to seek ways to improve its working capital position.

Fourth Quarter 2010 Highlights

• Revenue increases 45% YoY to $15.8 million
• Gross margin increased from 50% for the three months ending December 31, 2009 to 54% for the three months ended December 31, 2010
• Net income increased 26% to $3.9 million or $0.55 per fully diluted share, compared with $3.1 million or $0.44 per basic share in the fourth quarter of 2009

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "We are pleased to announce strong financial results for the fourth quarter and full fiscal 2010 year. The Company was able to grow top line revenue by over 40% year-over-year to $47.5 million and net income by over 20% year-over-year to $14.0 million. Additionally, Skystar improved net cash from operating activities significantly to $7.7 million as compared $1.3 million in the year ago period.

Presently, Skystar anticipates delivering top line revenue in the range of $60.0 to $63.0 million with a gross margin of 50% to 55% for 2011.

Skystar in 2010 saw significant inflation pressures building in China. However, the Company had been able to secure favorable pricing by prepaying for raw materials to major suppliers. The Company anticipates that inflationary pressures will continue in 2011. As a result, the Company is continuing with its buy-forward strategy to suppliers in order to have better control of costs for raw materials.

Mr. Lu concluded, "We are excited with the momentum that Skystar has built as a leader in China's animal healthcare space and as the only U.S. listed pureplay animal healthcare stock. We fully anticipate our current acquisitions and expanded manufacturing facilities to ramp up, bear fruit and further improve Skystar's profitability.

Rodman and Renshaw on SKBI             4/12/2011

SKBI: Solid 2010, Expansion in 2011 and Beyond

Key Points

• Skystar Bio-Pharmaceutical reported 2010 revenue of $47.6MM, slightly higher than our estimate of $46.6MM, and fell into the higher end of the 2010 guidance ($45.5-47.5MM). The company earned $14MM in net income, or $1.98 per diluted share, in line with our estimate of $1.97/share.
• Future growth could be largely driven by the expansion of the vaccine production line as well as the improved capacity of the micro-organism facility in 2011.
• The company reported a cash balance of $6MM at the end of 4Q10, an increase of $4MM from 3Q10.
• Management provided 2011 guidance of $60-63MM in revenue with an estimated gross margin of 50-55%.
• We maintain our top line assumption of $62.6MM in revenues and the bottom line estimates of $2.25 in diluted EPS in 2011.
• We reiterate our Market Outperform rating with a $15/share target price.

Solid Growth in 2010, Prepared for Inflation in the Near Term

In 2010, the company achieved $47.6MM in revenues, a 41% growth over 2009. Gross margins were improved to 54% in 2010 in comparison with 49% in 2009. On the bottom line the company reported $14MM in net income, representing a 30% growth over 2009. The company has taken a proactive approach to control costs of the raw materials by securing favorable pricing through prepayments. We project a 53% in the gross profit in 2011. However, we expect an erosion in the gross margin in 2012 if the inflation remains high in China.

GMP Approval to Enhance Vaccine Contribution

Skystar is estimated to obtain the GMP approval in 3Q11 on the vaccine production line, representing a 2600% increase in capacity. We projected a conservative material contribution of $2.6MM in 2011 from the new facility, resulting in total revenue of $4.6MM in 2011 from the vaccine products. Going forward, the vaccine production line is estimated to generate $8-15MM in revenues in 3-5 years.

New Acquisition to Contribute to the Future

Skystar recently invested $8MM in the Kunshan acquisition to expand micro-organism production line. The company has obtained the title for the land usage and is expected to complete the acquisition in 1H11. With an estimated $2-3MM in additional capital expenditure, the facility is expected to have small material contribution in 2011 and reach $30MM in annual sales in five years.

Maintaining Our Market Outperform Rating and $15 Target Price

Utilizing a 2011 P/E multiple of 8.5, we derive a 12-month price target of $15/share. By way of comparison, other profitable and growing Chinese companies yield average P/E ratios of 15.8 for 2010 and 15.6 for 2011. In our opinion a target price of $15 is easily justified by Skystar’s impressive margins, full product suite offering, significant growth opportunities in the domestic veterinary medications/vaccines market and the incremental growth potential stemming from entering the underserved aquaculture vaccines market.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

GeoTeam Note:  Adjusted 2010 vs 2009 EPS for the

• Full Year: $2.11 vs. $1.83
• Fourth Quarter:  $0.67 vs. $0.43

Rodman & Renshaw on SKBI

Key Points 

• Skystar Bio-Pharmaceutical reported 3Q10 revenue of $18.6MM, higher than our estimate of $17MM. The company earned $6.6MM net income, or $0.93 per diluted share, beating our estimate of $0.50/share. 

• The stellar quarter is due to 1) increased production capacity, 2) improved gross margins, 3) reduced SG&A expenses and 4) lower tax expenses. 

• Management reiterated 2010 guidance of $45.5 – $47.5MM in revenue, representing a 35–41% growth over 2009. 

• Future growth could be largely driven by the expansion of vaccine production, as well as potential acquisitions. 

• The company reported a cash balance of $2MM at the end of 3Q10, a decrease of $1.5MM from 2Q10. 

• We maintain our growth assumptions and increase revenue and EPS estimates for 2010 and 2011 to reflect better than expected 3Q10 results. 

• We reiterate our Market Outperform rating with a $15/share target price.   

Solid Top and Bottom Line Growth 

During 3Q10, the company achieved a 45% revenue growth YoY. Gross margins were slightly improved (54%) in 3Q10 in comparison with 53% in 2Q10. SG&A expenses decreased from 17% of total revenue in 2Q10 down to 11% of total revenue in 3Q10. On the bottom line the company reported a 36% net income growth in 3Q10 YoY. We maintain our top line growth assumption for both 2010 and 2011. But to reflect the strong 3Q10 results, we increase our revenue projections to $47MM from $45MM in 2010, and to $61MM from $59MM in 2011. We also adjust our gross margin and SG&A assumption to reflect improved performance. As a result, EPS projections are increased from $1.43 to $1.98 in 2010, $1.75 to $2.25 in 2011.

Invest in The Future 

Skystar reported negative net operating cash flow of ($3.1MM) in 3Q10. The decrease is mainly due to an increase in deposits and prepaid expenses ($11.4MM), which is composed of mostly prepayment for raw materials purchasing. Management stated that inventory would be drawn down during the next quarter or two. Accounts receivables were improved by $2MM, a great achievement in light of growing revenues. The company secured low interest $3.0MM line of credit and short term loan facility for $0.7MM in China.

All Four Product Lines Maintain Robust Growth 

The company’s 3Q10 revenues were attributable to 248 products from four product lines: veterinary medications, micro-organism, feed additives, and vaccines. Veterinary medications generated $12.4MM in revenues in 3Q10, or 67% of total revenues and a 46% growth YoY. Micro-organism products generated revenues of $4.7MM in 3Q10, or 25% of total revenues and a 48% growth YoY. Feed additives contributed 4% of total revenues, representing a 37% growth in comparison to sales in 3Q09. Vaccine products accounted for 4% of 3Q10 revenues, a 35% growth YoY. 

Increasing Capacity and Novel Products to Contribute to the Future 

Skystar recently completed the expansion of the vaccines and microorganisms production facility and is expected to receive GMP production approval by YE10 or early 2011. The company expects to significantly increase its production capacity of these product lines, which could contribute to revenue in 2011. The new vaccine plant is estimated to contribute $8-15MM in annual revenue within 3 – 5 years of market introduction.

Maintaining Our Market Outperform Rating and $15 Target Price 

Utilizing a 2010 P/E multiple of 11 and 2011 P/E multiple of 8.5, we derive a 12-month price target of $15/share. By way of comparison, other profitable and growing Chinese companies yield average P/E ratios of 15.8 for 2010 and 15.6 for 2011. In our opinion a target price of $15 is easily justified by Skystar’s impressive margins, full product suite offering, significant growth opportunities in the domestic veterinary medications/vaccines market and the incremental growth potential stemming from entering the underserved aquaculture vaccines market.

Notice Regarding Privacy and Confidentiality:   

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Third Quarter 2010 Highlights

• Revenue increases 45% YoY to record $18.5 million. 

• Net income for the third quarter of 2010 was a record $6.6 million, or $0.93 per fully diluted share. This compares to net income of $5.3 million or $0.76 per fully diluted share in the same quarter of 2009.

• Skystar's adjusted net income for the third quarter of 2010 was $6.5 million or $0.91 per fully diluted share, compared with $4.2 million, or $0.61 per fully diluted share, in the third quarter of 2009.

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar is pleased to report third quarter fiscal 2010 results in our seasonally stronger half of the fiscal year highlighted by record organic revenues. Skystar continues in refining its strategy to remain as one of the leading players in its niche as a manufacturer and distributor of over 250 animal healthcare products.

"Through consistent market research and close contact with our customers both large and small, we have been able to maximize our sales by smartly timing production and distribution of our products in conjunction with the animal farming cycle. We continue to believe that Skystar is servicing market demand for vaccines, medicines, micro-organisms and feed additives in China.

"Skystar experienced double digit organic revenue growth across Skystar's four product lines in the third quarter of fiscal 1010. Driving these positive results was the improved utilization of the Company's primary manufacturing facility in Huxian. Huxian's upgraded vaccine facility in the same location was completed in the second quarter of the fiscal year. Additional tooling, testing and installation of equipment were finalized in the third quarter of fiscal 2010. As of today, we are waiting for the response from the Ministry of Agriculture regarding our application of GMP certification.

We have sufficient capital to support our ongoing operations. However, if we are to acquire another business or further expand our operations, we may need additional capital.

Second Quarter 2010 Highlights

• Revenue increases 33% YoY to $8.3 million
  
  
  • Veterinary vaccines totaled $0.4 million, up 21% YoY
  • Veterinary medicines totaled $5.5 million, up 41% YoY
  • Feed additives totaled $0.4 million, up 31% YoY
  • Micro-organism products totaled $2.0 million, up 14% YoY
    
• Gross margin of 53% for the second quarter of fiscal 2010 as compared to 53% in the year ago period.
  
• GAAP net income of $2.4 million or $0.33 per fully diluted share, compared with a loss of $0.1 million or ($0.03) per fully diluted share in the year ago period.
  
• Adjusted net income of $2.2 million or $0.31 per fully diluted share, compared with a loss of $1.4 million or $0.36 per fully diluted share in the year ago period.

• Fiscal 2010 top line revenue guidance range remains at $45.5 million to $47.5 million.

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar's performance in the second quarter of fiscal 2010 positions the Company well for the second half of the fiscal year which is seasonally our strongest half. The second quarter's performance can be attributed to improved sales effort and increased utilization of production capacity at our Huxian plant, including the expanded micro-organism facility completed in 2009 and came online in June of this year, as well as increased product variety. We currently produce over 248 products as compared to over 195 products in the first quarter of 2010.

"Overall outlook for the industry remains promising despite severe flood damage in many of the agricultural regions of China. The Company anticipates meeting its financial goals and metrics for the year. During the quarter, the Company filed an S-1 registration which was subsequently withdrawn. The intention was not to raise capital at any price or level of dilution to shareholders but in preparation of strengthening our balance sheet should an opportunistic moment arise. The Company does not intend to raise capital at current price levels and is looking into alternative sources of funding such as low interest debt at the local level. Our current income from operations and cash on hand are at adequate levels to maintain daily operations. 

"We expect our sales and growth trajectory to continue through the remainder of the year as we reiterate fiscal guidance for the full year. The Company is positioning itself to be able to meet anticipated market demand for its products, and have sufficient cash resources on hand to maintain on-going operations. We hope to continue to maximize the Company's performance for our shareholders," concluded Mr. Lu. 

China Floods

On July 21, 2010, Xinhua news agency, reported China's worst flood in over a decade, displacing over 110 million people and affecting over 17 million acres of farmland. Additionally, as reported by Xinhua news agency on August 6, 2010, China's Ministry of Agriculture urged local authorities to resume agricultural production as soon as possible and create favorable conditions for the fall harvest.

To date Skystar's business lines have not been affected by the acts of nature; however, the Company will closely monitor the situation and react accordingly.

Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "We are pleased to have delivered such a strong start to the fiscal 2010 year with a 27% increase in revenue as compared to the year ago period. Additionally, the Company continues to improve top line growth while generating 53% gross margins in line with the Company's historical gross margins. We hope to continue with management's growth strategy in expanding our footprint in China's animal husbandry space. "Across Skystar's product lines we are seeing material revenue growth as a result of increased sales efforts, demand for our products and increased utilization of the Company's veterinary medicine facility. Additionally, we are pleased to have Michael H. Lan join Skystar as our full time chief financial officer. We expect that Michael's internal financial control and operational experience will further aid in strengthening Skystar's financial accountability to the public.

Fiscal year 2010 revenue ranges have been revised to $45.5 million to $47.5 million for the full year reflecting partial revenue contribution from two new product dosage forms coming to market. We anticipate the estimated $5 million in total additional revenue to be fully recognized in fiscal 2011.

We have received inquires from GeoReaders regarding yesterday’s decision to remove SKBI from the GeoSpecial list. Due to market sentiment, the GeoTeam is taking a more stringent look at stocks on the whole.

We still believe SKBI offers great long-term value, however the most important factor fueling our decision lies with short-term EPS growth forecasts

Notes
-All EPS numbers in above table are Non-GAAP. Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items contained in the company's filings. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information. The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures.
-2009 Annual estimates do not match the cumulative quarters due to varying share counts throughout the year. Rodman used a weighted average share count of 5.4 million for its 2009 annual estimate.

While sales will be up in each of these quarters going forward, dilution from its recent capital raise and a delay in its expansion plans are forecast to lead to unimpressive EPS growth for the next three quarters. Now, the company has been handily exceeding analyst estimates, but ultimately the GeoTeam requires EPS growth to justify inclusion in our GeoSpecial/Bargain List.   Part of our decision is also based on the fact that the stock had increased over 100% from our initial mention. 

It’s likely at some point that if the stock continues its retreat and/or begins showing progress on the EPS growth front, we will recode the stock as a GeoSpecial or GeoBargain. Also, value investors may still find SKBI’s low absolute P/E attractive. Rodman & Renshaw still has a price target of $16.00.

Skystar Bio-Pharmaceuticals shares opened sharply lower today in reaction to news that it has purchased an exclusive aquaculture vaccine technology.

The Good News:  New Vaccine Technology will address a Company-estimated $150 Million market opportunity.

The Bad News: The Company's highly anticipated Veterinary Vaccine Facility Launch will now occur in its 2010 first quarter rather than the 2009 fourth quarter. Thus, the company reduced its revenue guidance to $44.0 to $46.0 million vs. analyst estimates of $52 million.

The GeoTeam® believes, that overtime, some investors may view the drop in shares as a buying opportunity:

• The company has been beating estimates, which gives some hope that guidance may be conservative. 
• The company's guidance is based on organic growth.  Skystar Bio-Pharmaceuticals has previously stressed that acquisitions are part of its growth strategy, providing another reason that its guidance may be conservative.
• The acquired technology significantly improves long-term growth profile.

Source: Marketwire (December 9, 2009)

Skystar Bio-Pharma third quarter results easily surpassed analyst expectations as well was ours.

Although EPS growth was down for the quarter SKBI still crushed analyst split adjusted estimates of $0.42.  The company is working through dilution of a recent offering being used to accelerate growth gong into 2010.  Analysts estimates of $2.18 for 2009 and $4.22 for 2010 may be conservative.

^aNon-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items contained in the company's filings. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures.

Valuation Scenarios

Added to Geo Bargain on the radar list on May 20, 2009.  ($9.00).

Added to Geo Bargain list on June 1, 2009.  ($10.00)

Stock has now been re-coded to a Geo Special due to its low PEG ratio and remains on the Geo Bargain On The Radar list. ($15.97)

Data Inputs:

Fiscal Year Ends in December

^a Skystar Bio-Pharma  is not paying a full U.S. tax rate.  The GeoTeam ® prefers to use U.S. fully-taxed EPS figures when calculating potential valuation scenarios. Therefore, all EPS numbers have been adjusted by the GeoTeam ® to reflect a standard U.S. tax rate of 36%.

^b Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam ® non-GAAP figures may, from time to time, differ from company supplied figures.

^c The GeoTeam ® Generally applies P/E's of 20 and 25 on trailing EPS when portraying potential short-term valuation scenarios.  However, since the Company's 2008 non-GAAP EPS growth rate is below the GeoTeam ® preferred 30% minimum P/E's of 10 and 15 were utilized.

These scenarios are not investment advice, but are scenarios based on some commonly used investment guidelines.  They are provided to aid investors in making their own investment decisions.

^a Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items contained in the company's filings. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam® non-GAAP figures may, from time to time, differ from company supplied figures. 

^b The GeoTeam ® tax rate calculations may deviate from the company's reported tax rate, arising from the different treatment, in China vs. the U.S.A, with regards to the deductibility of certain expenses as well as the tax liabilities associated with certain gains.  These differences  typically arise from non-cash items.  For an example on how Skystar Bio-Pharma calculates its tax rate please refer to its SEC 10Q filing (page 24, note 18).  Skystar Bio-Pharma  is not paying a full U.S. tax rate.  The GeoTeam ® prefers to use U.S. fully-taxed EPS figures when calculating potential valuation scenarios. Therefore, EPS numbers have been adjusted by the GeoTeam ® to reflect a standard U.S. tax rate of 36%. 

^c For an explanation on how Skystar Bio-Pharma calculated diluted EPS for its 2008 first quarter please refer to its SEC 10Q filing (page 25, note 19).  The GeoTeam ® followed the same logic when calculating 2008 first quarter tax-adjusted and non-GAAP EPS figures.