Skystar Bio-Pharmaceutical Announces Second Quarter 2007 Results

Skystar Bio-Pharmaceutical Announces Second Quarter 2007 Results

August 16, 2007

    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 second 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
http://phx.corporate-ir.net/playerlink.zhtml?c=197014&s=wm&e=1624298.
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 www.skystarbio-pharmaceutical.com.

    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.

                         - FINANCIAL TABLES FOLLOW -



              SKYSTAR BIO-PHARMACEUTICAL COMPANY AND
SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS
                  AS OF JUNE 30, 2007 AND DECEMBER 31, 2006
                                    ASSETS
                                                      June
30,    December 31,
                                                       
2007         2006
                                                    
Unaudited
    CURRENT ASSETS:
      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
    OTHER ASSETS:
      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

    CURRENT LIABILITIES:
      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

    OTHER LIABILITIES:
      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

    COMMITMENTS AND CONTINGENCIES                          
 -             -

    SHAREHOLDERS' EQUITY:
      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



              SKYSTAR BIO-PHARMACEUTICAL COMPANY AND
SUBSIDIARY

   CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND OTHER
COMPREHENSIVE INCOME
       FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30,
2007 AND 2006

                                 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     191,451

    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
    (LOSS) EARNINGS PER
     SHARE (EPS)
      - 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



              SKYSTAR BIO-PHARMACEUTICAL COMPANY AND
SUBSIDIARY

                RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
               FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2007

    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
    Adjustments
      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



              SKYSTAR BIO-PHARMACEUTICAL COMPANY AND
SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND
2006

                                                       
2007          2006
                                                     
Unaudited     Unaudited
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net (loss) income                              
$(222,409)     $637,235
      Adjustments to reconcile net (loss) income
       to cash provided by (used in) operating
       activities:
        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

    CASH FLOWS FROM INVESTING ACTIVITIES:
      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)

    CASH FLOWS FROM FINANCING ACTIVITIES:
      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)

    EFFECT OF EXCHANGE RATE CHANGES ON CASH            
184,964           374

    INCREASE (DECREASE) IN CASH                      
2,636,283         1,427

    CASH, beginning of period                          
192,016        38,498
    CASH, end of period                             
$2,828,299       $39,925
    SUPPLEMENTAL DISCLOSURE INFORMATION
      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



    Contact

    Crocker Coulson, President
    [e-mail]
    Leslie Richardson, Financial Writer
    Phone: [phone] x 122
    [e-mail]
    CCG Elite Investor Relations

    Skystar Bio-Pharmaceutical Company
    Scott Cramer
    Director - U.S. Representative
    Phone: [phone]
    Email:[e-mail]