SKYSTAR BIO-PHARMACEUTICAL CO - FORM 10-Q

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EX-31.2 - SKYSTAR BIO-PHARMACEUTICAL CO	v185379_ex31-2.htm
EX-31.1 - SKYSTAR BIO-PHARMACEUTICAL CO	v185379_ex31-1.htm
EX-32.2 - SKYSTAR BIO-PHARMACEUTICAL CO	v185379_ex32-2.htm
EX-32.1 - SKYSTAR BIO-PHARMACEUTICAL CO	v185379_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONp

WASHINGTON, DC 20549

FORM 10-Q

þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2010

	or

	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
o	For the transition period from ______ to ______.

Commission File Number 001-34394

SKYSTAR BIO-PHARMACEUTICAL COMPANY

(Exact name of small business issuer as specified in its charter)

Nevada	33-0901534
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification number)

Room 10601, Jiezuo Plaza, No.4, Fenghui Road South,

Gaoxin District, Xian Province, P.R. China

(Address of principal executive offices and zip code)

(8629) 8819-3188

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

	Large Accelerated Filer o	Accelerated Filer o
	Non-accelerated filer o	Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of May 12, 2010, the Registrant had 7,106,705 shares of Common Stock outstanding.

SKYSTAR BIO-PHARMACEUTICAL COMPANY

FORM 10-Q

INDEX

		Page Number

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)		F-1

	Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009		F-1

	Consolidated Statements of Income and Other Comprehensive Income for the Three Months Ended March 31, 2010 and 2009		F-2

	Consolidated Statements of Shareholders’ Equity		F-3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009		F-4

	Notes to the Consolidated Financial Statements as of March 31, 2010		F-5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		8

Item 4.	Controls and Procedures		9

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		10

Item 1A.	Risk Factors		10

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		11

Item 3.	Defaults Upon Senior Securities		11

Item 4.	Reserved		11

Item 5.	Other Information		11

Item 6.	Exhibits		11

SIGNATURES			14

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements usually contain the words “estimate,” “anticipate,” “believe,” “expect,” or similar expressions, and are subject to numerous known and unknown risks and uncertainties. In evaluating such statements, prospective investors should carefully review various risks and uncertainties identified in this Report, including the matters set forth under the captions “Risk Factors” and in the Company’s other SEC filings. These risks and uncertainties could cause the Company’s actual results to differ materially from those indicated in the forward-looking statements. The Company undertakes no obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Relating to Our Business” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We file reports with the SEC. You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

PART I. FINANCIAL INFORMATION

Item1. Financial Statements

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2010		2009
	Unaudited

ASSETS

CURRENT ASSETS:
Cash	$	5,911,415	$	11,699,398
Accounts receivable, net of allowance for doubtful accounts of $327,857 and $327,857 as of March 31, 2010 and December 31, 2009, respectively		3,447,078		4,383,187
Inventories		4,996,515		4,074,645
Deposits and prepaid expenses		12,173,047		11,900,314
Other receivables		572,641		490,712
Total current assets		27,100,696		32,548,256

PLANT AND EQUIPMENT, NET		10,415,008		8,829,058

CONSTRUCTION-IN-PROGRESS		9,741,767		9,389,120

OTHER ASSETS:
Long-term prepayments		13,276,071		7,980,307
Intangible assets, net		1,768,771		1,860,172
Total other assets		15,044,842		9,840,479
Total assets	$	62,302,313	$	60,606,913

LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable	$	421,031	$	297,567
Other payable and accrued expenses		694,400		917,284
Short-term loans		-		220,050
Short-term loans from shareholders		110,025		110,025
Deposits from customers		1,850,051		1,275,958
Taxes payable		825,082		722,106
Shares to be issued to related parties		329,397		327,374
Due to related parties		106,743		185,024
Total current liabilities		4,336,729		4,055,388

OTHER LIABILITIES:
Deferred government grant		1,100,250		1,100,250
Warrant liability		510,571		1,538,686
Total other liabilities		1,610,821		2,638,936
Total liabilities		5,947,550		6,694,324

COMMITMENTS AND CONTINGENCIES

SHAREHOLDER'S EQUITY:
Preferred stock, $0.001 par value, Nil Series "A" shares authorized as of March 31, 2010 and December 31, 2009, 48,000,000 Series "B" shares authorized, Nil Series "B" shares issued and outstanding as of March 31, 2010 and December 31, 2009		-
Common stock, $0.001 par value, 40,000,000 shares authorized, 7,097,708 and 6,989,640 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively		7,097		6,989
Paid-in capital		35,966,731		34,580,096
Statutory reserves		3,879,077		3,879,077
Retained earnings		13,671,153		12,574,906
Accumulated other comprehensive income		2,830,705		2,871,521
Total shareholders' equity		56,354,763		53,912,589
Total liabilities and shareholders' equity	$	62,302,313	$	60,606,913

The accompanying notes are an integral part of the consolidated financial statements.

F-1

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

(Unaudited)

	For Three Months Ended March 31,
	2010			2009

REVENUE, NET	$	4,869,243		$	3,823,566

COST OF REVENUE		2,291,219			1,946,358

GROSS PROFIT		2,578,024			1,877,208

OPERATING EXPENSES:
Research and development		43,995			117,352
Selling expenses		171,134			207,395
General and administrative		619,550			314,695
Total operating expenses		834,679			639,442

INCOME FROM OPERATIONS		1,743,345			1,237,766

OTHER INCOME (EXPENSE):
Other income (expense), net		417			(232	)
Interest income (expense), net		(4,816	)		302
Change in fair value of warrant liability		(317,380	)		38,328
Total other expense, net		(321,779	)		38,398

INCOME BEFORE PROVISION FOR INCOME TAXES		1,421,566			1,276,164

PROVISION FOR INCOME TAXES		325,319			211,520

NET INCOME		1,096,247			1,064,644

OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment		(40,816	)		(38,448	)

COMPREHENSIVE INCOME	$	1,055,431		$	1,026,196

EARNINGS PER SHARE:
Basic	$	0.16		$	0.29
Diluted	$	0.15		$	0.29

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic		7,061,530			3,734,602
Diluted		7,140,140			3,734,602

The accompanying notes are an integral part of the consolidated financial statements.

F-2

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

																			Accumulated
														Retained earnings					other
	Preferred stock						Common stock				Paid-in			Statutory					comprehensive
	Shares			Amount			Shares		Amount		capital			reserves		Unrestricted			income			Total
BALANCE, January 1, 2009, as adjusted		2,000,000		$	2,000			3,733,038	$	3,733	$	15,237,267		$	2,952,710	$	4,649,341		$	2,857,607		$	25,702,658

Shares issued for services								2,608		3		15,049											15,052
Foreign currency translation																				(38,448	)		(38,448	)
Net income																	1,064,644						1,064,644
Appropriation to statutory reserves															106,464		(106,464	)					-

BALANCE, March 31, 2009 (unaudited)		2,000,000			2,000			3,735,646		3,736		15,252,316			3,059,174		5,607,521			2,819,159			26,743,906

Shares issued for services								9,830		9		47,953											47,962
Cancellation of preferred stock		(2,000,000	)		(2,000	)						2,000											-
Fractional shares due to the ten-for-one reverse split								1,772		2		(2	)										-
Shares issued for cash								3,220,000		3,220		19,070,461											19,073,681
Cashless exercise of warrants								22,392		22		207,368											207,390
Foreign currency translation																				52,362			52,362
Net income																	7,787,288						7,787,288
Appropriation to statutory reserves															819,903		(819,903	)					-

BALANCE, December 31, 2009		-			-			6,989,640		6,989		34,580,096			3,879,077		12,574,906			2,871,521			53,912,589

Shares issued for services								9,166		9		41,238											41,247
Cashless exercise of warrants								98,902		99		1,345,397											1,345,496
Foreign currency translation																				(40,816	)		(40,816	)
Net income																	1,096,247						1,096,247
Appropriation to statutory reserves															-		-						-

BALANCE, March 31, 2009 (unaudited)		-		$	-			7,097,708	$	7,097	$	35,966,731		$	3,879,077	$	13,671,153		$	2,830,705		$	56,354,763

The accompanying notes are an integral part of the consolidated financial statements.

F-3

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

	Three months ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,096,247		$	1,064,644
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		123,484			112,930
Amortization		91,370			38,519
Common stock issued for services		16,245			15,052
Common stock to be issued to related parties for compensation		27,025			-
Bad debt expense		-			21,743
Change in fair value of warrant liability		317,380			(38,328	)
Change in operating assets and liabilities
Accounts receivable		935,790			(994,017	)
Inventories		(921,558	)		(2,888,742	)
Deposits and prepaid expenses		(272,640	)		2,551,310
Other receivables		(81,901	)		(9,823	)
Accounts payable		123,423			(166,085	)
Accrued expenses		(223,979	)		(382,703	)
Deposits from customers		573,897			(131,448	)
Taxes payable		102,941			900,427
Other payables		1,233			39,916
Net cash provided by operating activities		1,908,957			133,395

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments of long-term prepayments		-			(32,233	)
Prepayment for potential acquisition		(5,499,375	)		-
Loans to third parties		-			(366,275	)
Purchases of plant and equipment		(1,451,016	)		(73,255	)
Payments on construction-in-progress		(404,990	)		(242,507	)
Net cash used in investing activities		(7,355,381	)		(714,270	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in restricted cash					(200	)
Proceeds from short-term loans		-			219,765
Repayment for short-term loans		(219,975	)		-
Repayment to shareholders and directors		-			(175,812	)
Proceeds from shareholders and directors		-			83,124
Due (from) to related parties		(78,269	)		-
Net cash provided by (used in) financing activities		(298,244	)		126,877

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(43,315	)		81,264

INCREASE (DECREASE) IN CASH		(5,787,983	)		(372,734	)

CASH, beginning		11,699,398			576,409

CASH, ending	$	5,911,415		$	203,675

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	5,210		$	19,079
Cash paid for income taxes	$	-		$	-
Non-cash investing and financing activities
Long-term prepayment transferred to construction-in-progress	$	-		$	309,869
Long-term prepayment transferred to property, plant and equipment		439,777			-
Construction-in-progress transferred to property, plant and equipment		52,463			-
Cashless exercise of warrants	$	1,345,496			-

The accompanying notes are an integral part of the consolidated financial statements.

F-4

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(Unaudited)

Note 1 - ORGANIZATION

Organization and description of business

Skystar Bio-Pharmaceutical Company (“Skystar” or the “Company”), was incorporated in Nevada on September 24, 1998. Since its acquisition on November 7, 2005 of Skystar Bio-Pharmaceutical (Cayman) Holdings Co., Ltd. (“Skystar Cayman”), a Cayman Islands company, the Company has been engaged in research, development, production, marketing and sales of veterinary healthcare and medical care products. All current operations of the Company are in the People’s Republic of China (“China” or the “PRC”).

All of the Company’s operations are carried out by Xian Tianxing Bio-Pharmaceutical Co., Limited (“Xian Tianxing”), a PRC joint stock company that the Company controls through contractual arrangements originally between Skystar Cayman and Xian Tianxing. On March 10, 2008, the Company entered into a series of agreements transferring all of the rights and obligations of Skystar Cayman under the contractual arrangements to Sida Biotechnology (Xian) Co., Ltd. (“Sida”), a PRC company. Sida is the wholly owned subsidiary of Fortunate Time International Limited (“Fortunate Time”), a Hong Kong company and wholly owned subsidiary of Skystar Cayman. Xian Tianxing also has a wholly owned subsidiary, Shanghai Siqiang Biotechnological Co., Ltd. (“Shanghai Siqiang”), a PRC company.

As a result of these contractual arrangements, which obligates Sida to absorb all of the risk of loss from Xian Tianxing’s activities and enable Sida to receive all of its expected residual returns, the Company accounts for Xian Tianxing as a variable interest entity (“VIE”) under Financial Accounting Standards Board’s (“FASB”) interpretation on consolidation of variable interest entities. Accordingly, the Company consolidates Xian Tianxing’s results, assets and liabilities.

Sida was established by Fortunate Time on July 10, 2007, with registered capital of $5,000,000. Fortunate Time invested $2,000,000 into Sida on July 20, 2007, which amount is payable to Skystar Cayman. On July 9, 2009, Fortunate Time invested the remaining $3,000,000 into Sida. Xi’an High Technology District approved Sida’s application to increase its registered capital to $15,000,000 on July 13, 2009. On July 15, 2009, Sida received the $10,000,000 additional registered capital from Fortunate Time. Funds from Fortunate Time for $13,000,000 was from the cash proceeds of the equity offering which is further discussed in Note 13.

On September 18, 2009, Skystar Bio-Pharmaceutical Inc. (“Skystar California”) was incorporated in California and became a wholly-owned subsidiary of Skystar.

Hereinafter, Skystar, Skystar California, Skystar Cayman, Fortunate Time, Sida, Xian Tianxing and Shanghai Siqiang are sometimes collectively referred to as the “Company.”

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries, and its VIEs. All significant inter-company transactions and balances between the Company, its subsidiaries and VIEs have been eliminated in consolidation.

Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K. The results for the three months ended March 31, 2010, are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.

F-5

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. For example, the Company estimates its allowance for doubtful accounts and useful lives of plant and equipment. Because of the use of estimates inherent in the financial reporting process, actual results could materially differ from those estimates upon which the carrying values were based.

Foreign currency translation

The Company uses the United States dollar (“U.S. dollar”) for financial reporting purposes and the Chinese Renminbi (“RMB”) as its functional currency. The Company’s subsidiaries and VIEs maintain their books and records in their functional currency, being the primary currency of the economic environment in which their operations are conducted.

The Company translates the subsidiaries’ and VIEs’ assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet dates, and the statements of operations and cash flows are translated at average exchange rates during the reporting period. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the subsidiaries’ and VIEs’ financial statements are recorded as accumulated other comprehensive income.

The quotation of the exchange rates does not imply free convertibility of RMB to other foreign currencies. All foreign exchange transactions continue to take place either through the People's Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the People's Bank of China. The rates of exchange quoted by the People’s Bank of China on March 31, 2010 and December 31, 2009 were US $1.00 to RMB 6.82. The average translation rates of US $1.00 to RMB 6.82 and RMB 6.83 was applied to the income statement accounts for the three months ended March 31, 2010 and 2009, respectively.

Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application form together with invoices, shipping documents and signed contracts. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Fair values of financial instruments

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires fair value disclosures of those financial instruments. This accounting standard defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. Current assets and current liabilities qualify as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:

•	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

•	Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

F-6

Effective January 1, 2009, the Company adopted the provisions of an accounting standard regarding whether an instrument (or embedded feature) is indexed to an entity’s own stock. This accounting standard specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. It provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception within the standards.

As a result of the foregoing adoption, 309,100 common stock purchase warrants previously treated as equity instruments pursuant to the derivative liability treatment exemption are no longer afforded equity treatment because the strike price of the warrants is denominated in U.S. dollars, a currency other than the Company’s functional currency, the Chinese RMB. As a result, the warrants are not considered indexed to the Company’s own stock, and as such, all future changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised or expired.

As such, effective January 1, 2009, the Company reclassified the fair value of these warrants from equity to liability, as if these warrants were treated as a derivative liability since their issuance in February 2007. On January 1, 2009, the Company reclassified from additional paid-in capital, as a cumulative effect adjustment, $230,877 to beginning retained earnings and $877,631 to warrant liability to recognize the fair value of such warrants. The Company recognized a loss of $317,380 and a gain of $38,328 from the change in fair value of the warrant liability for the three months ended March 31, 2010 and 2009.

These warrants do not trade in an active securities market, and as such, the Company estimates the fair value of these warrants using the Black-Scholes Option Pricing Model (“Black-Scholes Model”) using the following assumptions:

	Warrants – (1)					Warrants – (2)
	March 31,		December31,			March 31,			December31,
	2010		2009			2010			2009
	(Unaudited)					(Unaudited)
Stock price	$	10.10	$	10.10		$	11.61		$	10.10
Exercise price	$	6.00	$	6.00		$	5.00		$	5.00
Annual dividend yield		—		—			—			—
Expected term (years)		—		.17			1.92			2.17
Risk-free interest rate		—		0.04	%		1.02	%		1.14	%
Expected volatility		—		34	%		186	%		178	%

(1)

As of December 31, 2009, 145,000 warrants with an exercise price of $6.00 were outstanding. As of March 31, 2010, all of these warrants were exercised on a “cashless” basis.

(2)

As of December, 31, 2009, 107,254 warrants with an exercise price of $5.00 were outstanding. As of March 31, 2010, 50,204 of these warrants were outstanding.

Expected volatility is based on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the term of the warrants. The Company believes this method produces an estimate that is representative of future volatility over the expected term of these warrants. The Company has no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants. The risk-free interest rate is based on U.S. Treasury securities according to the remaining term of the warrants.

F-7

As required by the FASB’s accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Depending on the product and the terms of the transaction, the fair values warrant liability were modeled using a series of techniques, including closed-form analytic formula, such as the Black-Scholes Model, which does not entail material subjectivity because the methodology employed does not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets.

The fair value of the 50,204 warrants outstanding as of March 31, 2010 was determined using the Black-Scholes Model, defined in the FASB’s accounting standard of fair value measurement as level 2 inputs, and recorded the change in earnings. As a result, the warrant liability is carried on the consolidated balance sheets at fair value.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2010:

	Carrying Value at March 31, 2010		Fair Value Measurement at March 31, 2010
			Level 1		Level 2		Level 3
Warrant liability (unaudited)	$	510,571	$	—	$	510,571	$	—

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record assets and liabilities at fair value on a non-recurring basis. Generally, assets are recorded at fair value on a non-recurring basis as a result of impairment charges. For the three months ended March 31, 2010, there were no impairment charges.

Revenue recognition

Revenue of the Company is primarily from the sales of veterinary healthcare and medical care products in China. Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales are presented net of value added tax (“VAT”). No estimated allowance for sales returns is reflected on these consolidated financial statements as sales returns are de minimis based on historical experience.

There are two types of sales upon which revenue is recognized:

a.	Credit sales: revenue is recognized when the products have been delivered to the customers.

b.	Full payment before delivering: revenue is recognized when the products have been delivered to customers.

Shipping and handling costs related to goods sold are included in selling expenses, which totaled $71,771 and $91,007 for the three months ended March 31, 2010 and 2009, respectively.

The Company’s revenues and cost of revenues by product line were as follows:

	Three Months Ended March 31,
	2010		2009
	(Unaudited)		(Unaudited)
Revenues
Micro-organism	$	1,206,578	$	893,293
Veterinary Medications		3,196,259		2,602,496
Feed Additives		236,040		182,311
Vaccines		230,366		145,466
Total Revenues	$	4,869,243	$	3,823,566

Cost of Revenues
Micro-organism	$	343,018	$	260,537
Veterinary Medications		1,822,258		1,592,809
Feed Additives		100,046		77,439
Vaccines		25,897		15,573
Total Cost of Revenues		2,291,219		1,946,538
Gross Profit	$	2,578,024	$	1,877,208

F-8

Cash

Cash includes cash on hand, demand deposits with banks and liquid investments with an original maturity of three months or less.

Restricted cash

Restricted cash is comprised of amounts received from the PRC government as subsidies and set aside for specific uses (see Note 12). Restricted cash is maintained as bank deposits and reflected as current assets based on the expected period when such funds will be put into their specific uses.

Accounts receivable and other receivables

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The Company uses the aging method to estimate the allowance for anticipated uncollectible receivable balances. Under the aging method, bad debt percentages determined by management based on historical experience, as well as current economic climate, are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. At each reporting period, the allowance balance is adjusted to reflect the amount computed as a result of the aging method. When facts subsequently become available to indicate that the allowance provided requires an adjustment, a corresponding adjustment is made to the allowance account as a change in estimate. The ultimate collection of the Company’s accounts receivable may take one year. Delinquent account balances are reserved after management determines that the likelihood of collection is not probable, and known bad debts are written-off against allowance for doubtful accounts when identified.

Inventories

Inventories are stated at the lower of cost or market, as determined on a moving weighted-average basis. Inventories include purchases and related costs incurred in bringing the inventories to their present location and condition. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value.

F-9

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs which do not improve or extend the useful lives of the assets are charged to operations as incurred, while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations. Estimated useful lives of the assets are as follows:

	Estimated Useful Life
Buildings		20-40 years
Machinery and equipment		10 years
Computer, office equipment and furniture		5 years
Vehicles		5-10 years

Management assesses the carrying value of plant and equipment annually, more often when factors indicating impairment are present, and reduces the carrying value of such assets by the amount of the impairment. The Company determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the net asset carrying value. An impairment loss, if it exists, is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Based on its review, management believes that, as of March 31, 2010 and December 31, 2009, there was no impairment for its plant and equipment.

Construction-in-progress

Construction-in-progress includes direct costs of construction of a factory building. Interest incurred during the period of construction, if significant, is capitalized. All other interest is expensed as incurred. Construction-in-progress is not depreciated until such time the assets are completed and put into service.

Intangible assets

Land Use Rights — Land use rights represent the amounts paid to acquire a long-term interest to utilize the land underlying the Company’s facilities. This type of arrangement is common for the use of land in the PRC. Land use rights are amortized on a straight-line basis over its 50-year term.

Technological Know-How — Purchased technological know-how includes confidential formulas, manufacturing processes, technical and procedural manuals, and is amortized using the straight-line method over the weighted average useful life of nine years, which reflects the period over which such confidential formulas, manufacturing processes, and technical and procedural manuals are kept confidential by the Company as agreed between the Company and the selling parties.

Impairment of Intangible Assets — The Company evaluates the carrying value of intangible assets annually, or more often when factors indicating impairment are present. The Company determines the existence of such impairment by measuring the estimated future cash flows (undiscounted) and comparing such amount to the net asset carrying value. If the undiscounted cash flow estimated to be generated by any such intangible asset is less than its carrying amount, a loss is recognized based on the amount by which the carrying amount exceeds the intangible asset’s fair market value. Loss on intangible assets to be disposed of is determined in a similar manner, except that fair market values are reduced by the cost of disposal. Based on its review, the Company believes that, as of March 31, 2010, there was no impairment of its intangible assets.

F-10

Comprehensive income

The FASB’s accounting standard of reporting comprehensive income requires disclosure of all components of comprehensive income and loss on an annual and interim basis. Comprehensive income and loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The accompanying consolidated financial statements include the provisions of GAAP. Accumulated other comprehensive income is comprised of the changes in foreign currency exchange rates.

Research and development costs

Research and development costs are charged to operations as incurred and include salaries, professional fees and technical support fees related to such efforts.

Advertising costs

Advertising costs are charged to operations currently. Advertising costs for the three months ended March 31, 2010 and 2009 were $1,651 and $38,936 respectively.

Income taxes

The Company accounts for income taxes in accordance with the FASB’s accounting standard for income taxes. Under the asset and liability method as required by this accounting standard, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.

Further, in accordance with this accounting standard, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. The adoption had no effect on the Company’s consolidated financial statements.

The Company’s operations are subject to income and transaction taxes in the United States and in the PRC jurisdictions. Significant estimates and judgments are required in determining the Company’s worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.

The Company does not anticipate any events which could cause a change to these uncertainties.

Stock-based compensation

The Company records and reports stock-based compensation by measuring the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which services are received. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

The Company uses the Black-Scholes Model which was developed for use in estimating the fair value of options. This models requires the input of highly complex and subjective variables including the expected life of options granted and the Company’s expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company’s employee stock options, it is management’s opinion that the Black-Scholes Model may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with the standards using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

F-11

Earnings per share

The Company reports earnings per share and present both basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share is based upon the weighted-average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive convertible shares, including convertible preferred shares, and stock options were converted or exercised. Further, the method requires that stock dividends or stock splits be accounted for retroactively if the stock dividends or stock splits occur during the period, or retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial statements, by considering it outstanding of the entirety of each period presented. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

All share and per share amounts used in the Company's consolidated financial statements and notes thereto have been retroactively restated to reflect the 1-for-10 reverse stock split effectuated on May 12, 2009 and the 2-for-1 forward stock split effectuated on November 16, 2009.

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of such principal owners and management, and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net income or cash flows.

Recently issued accounting pronouncements

In October 2009, the FASB issued an ASU regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU is effective beginning in the first interim or annual reporting period ending on or after December 31, 2009. The adoption of this ASU did not have a material impact the Company’s consolidated financial statements.

F-12

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure to include transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. Further, this update clarifies existing disclosures on level of disaggregation and Disclosures about inputs and valuation techniques. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities and should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted in February 2010.

Note 3 - CONCENTRATIONS AND CREDIT RISK

The Company’s operations are all carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Financial instruments, which subject the Company to concentration of credit risk, consist of cash. The Company maintains balances at financial institutions which, from time to time, may exceed federally insured limits for the banks located in the United States. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. As of March 31, 2010 and December 31, 2009, the Company had deposits in excess of federally insured limits (including restricted cash) of $2,436,664 and $11,504,970 respectively. The Company has not experienced any losses in such accounts.

For the three months ended March 31, 2010 and 2009, all of the Company’s sales occurred in the PRC. No major customers accounted for more than 10% of the Company’s total revenues. In addition, all accounts receivable at March 31, 2010 and December 31, 2009 also arose in the PRC.

The Company’s two largest vendors accounted for approximately 32% and 26% of the Company’s total purchases, respectively, for the three months ended March 31, 2010 and 2009.

The Company had one product that accounted for 17% of the Company’s total revenues for the three months ended March 31, 2010, while no products accounted for more than 10% of the Company’s total revenues for the three months ended March 31, 2009.

F-13

Note 4 - ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Account receivable	$	3,774,935	$	4,711,044
Allowance for bad debts		(327,857)		(327,857)
Account receivable, net	$	3,447,078	$	4,383,187

The following table presents the movement of allowance for doubtful accounts:

Allowance for bad debt, January 1, 2009	$	327,857
Addition		—
Recovery		—
Translation adjustment		—
Allowance for bad debt, December 31, 2009		327,857
Addition		—
Recovery		—
Translation adjustment		—
Allowance for bad debt, March 31, 2010 (unaudited)	$	327,857

Note 5 – INVENTORIES

Inventories consist of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Raw materials	$	3,527,883		$	2,997,481
Packing materials		335,904			159,620
Work-in-process		4,676			886
Finished goods		1,307,941			1,096,547
Other		19,571			19,571
Total		5,195,975			4,274,105
Less: Allowance for slow moving raw materials		(199,460	)		(199,460	)
Total	$	4,996,515		$	4,074,645

The Company periodically reviews its reserves for slow-moving and obsolete inventories. As of March 31, 2010 and December 31, 2009, the Company recorded a slow-moving allowance for raw materials of $199,460.

Note 6 - DEPOSITS AND PREPAID EXPENSES

Deposits and prepaid expenses are comprised of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Prepayment for raw materials purchasing	$	11,402,626	$	10,990,913
Prepayment for packaging materials purchasing		511,073		489,392
Other		259,348		420,009
Total	$	12,173,047	$	11,900,314

F-14

Note 7 - PLANT AND EQUIPMENT, NET

Plant and equipment consist of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Building and improvements	$	8,469,768		$	6,798,616
Machinery and equipment		3,070,294			3,035,814
Office equipment and furniture		195,269			191,424
Vehicles		485,156			485,156
Total		12,220,487			10,511,010
Less: accumulated depreciation		(1,805,479	)		(1,681,952	)
Plant and equipment, net	$	10,415,008		$	8,829,058

As of December 31, 2009, the Company made deposits of $439,927 on a new office building. In January 2010, the purchase was completed; the total purchase cost of $1,600,346 was transferred to fixed asset as of March 31, 2010.

Depreciation expense was $123,484 and $112,930 for the three months ended March 31, 2010 and 2009, respectively.

Note 8 - CONSTRUCTION-IN-PROGRESS

Construction-in-progress (“CIP”) is related to a plant being built in accordance with the PRC’s Good Manufacturing Practices (“GMP”) Standard. Construction on this plant commenced in 2005. The veterinary medicine facility and the building that houses quality control, research and development and administration were completed during 2007, and the remaining plant facilities are expected to be completed by June 30, 2010, at an estimated cost of $11,846,479. During the three months ended March 31, 2010, some general facility improvements were completed and placed in service resulting in a transfer from CIP to property, plant and equipment of $72,249. No depreciation is provided for construction-in-progress until such time the assets are completed and placed into service.

The construction projects the Company is in the progress of completing are:

	Total in CIP		Estimate cost to		Estimated		Estimated
Project	as of 3/31/2010		Complete		Total Cost		Completion Date
Vaccine facility		8,247,153		2,099,326		10,346,479	June 2010(1)
Micro-organism facility		1,343,825		156,175		1,500,000	June 2010(2)
Other		150,789
TOTAL CIP Balance		9,741,767		2,104,712		11,846,479

(1)	Note that this date does not include the time to certify the facility.

(2)	The construction of the micro-organism facility was completed in December 2009. Since then the facility has been going thru testing and quality assurance, with expected production to commence in June 2010.

As of March 31, 2010 and December 31, 2009, the Company had construction in progress amounting to $9,741,767 and $9,389,120, respectively. No interest expense had been capitalized for construction in progress for the three months ended March 31, 2010 and 2009, respectively.

F-15

Note 9 - LONG-TERM PREPAYMENTS

Long-term prepayments consist of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Construction deposit	$	733,500	$	733,500
Deposit for building and equipment purchase		234,441		439,927
Deposit for potential acquisitions		12,308,130		6,806,880
Total	$	13,276,071	$	7,980,307

As of March 31, 2010 and December 31, 2009, the Company has determined that these prepayments are noncurrent because: (1) these amounts relate to noncurrent assets, and (2) the Company’s ability to complete any potential acquisitions is contingent upon the Company successfully negotiating with target companies, the ultimate date of which cannot be readily determined. Deposits are refundable if negotiation is not successful.

As of December 31, 2009, deposits for office building purchase of $439,927 (RMB 2,998,820) represented deposits made for new office building. The purchase was completed and the deposit was transferred to fixed asset as of March 31, 2010. The Company is in the process of applying for property certificate and expects to get the certificate by September 2010.

As of March 31, 2010, deposits for building and equipment purchase of $234,441 represented deposits made for equipments.

As of March 31, 2010 and December 31, 2009, deposits for potential acquisitions of $12,308,130 and $6,806,880 represented deposits made to potential acquisition targets. The potential acquisitions are contingent upon the Company successfully negotiating with target companies, the ultimate date of which cannot be readily determined. Deposits are refundable if negotiation is not successful.

Note 10 – INTANGIBLE ASSETS

Intangible assets consisted of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Land use rights	$	378,853		$	378,853
Technological know-how		2,053,800			2,053,800
Total		2,432,653			2,432,653
Less: accumulated amortization		(663,882	)		(572,481	)
Intangible assets, net	$	1,768,771		$	1,860,172

In 2009, the Company paid $1,172,880 (RMB 8,000,000) for fish disease vaccine technology transfer for an eleven-year term from September 2009 through September 2020.

For the three months ended March 31, 2010 and 2009, the amortization expense for intangibles amounted to $91,370 and $38,519, respectively.

Amortization expense for the future five years and thereafter is as follows:

F-16

Years ending December 31,	Amount
	(Unauidted)
2010	$	291,747
2011		388,996
2012		364,546
2013		242,296
2014		242,296
Thereafter		658,681
Total	$	2,188,562

Note 11 – SHORT-TERM LOANS

On January 14, 2009, the Company signed a one year short-term loan contract with Shaanxi Agricultural Yanta Credit Union for $220,050 (RMB 1.5 million) at an annual interest rate of 8.66% for operating purposes secured by the personal property of Weibing Lu, the Company’s Chief Executive Officer. This amount was paid off on January 15, 2010.

Interest expense incurred and associated with the short-term loans amounted to $5,210 for the three months ended March 31, 2010, none of which has been capitalized as part of construction-in-progress in 2010. Interest expense incurred and associated with the short term loan amounted to $4,035 for the three months ended March 31, 2009, which has been capitalized as part of construction-in-progress.

Note 12 - DEFERRED GOVERNMENT GRANT

Deferred government grant represents subsidies for GMP projects granted by the PRC government. To date, the Company received government subsidies totaling $1,100,250.

According to PRC government regulations, the funds granted may be treated as capital contributed by a company appointed by the PRC government or as a loan from such company, which the Company will be required to repay. As of March 31, 2010, the Company has not reached a final agreement with the PRC government regarding the treatment of these three subsidies as either a loan or capital contribution, and the Company does not expect that the final agreement will be completed within the current year. Therefore, these amounts are reflected as non-current liabilities in the accompanying consolidated financial statements.

Note 13 - CAPITAL TRANSACTIONS

On May 12, 2009, the Company effectuated a 1-for-10 reverse stock split of its issued and outstanding shares of common stock and a proportional reduction of its authorized shares of common stock. Number of common stock, warrants, options disclosed in the footnotes has been retroactively restated to reflect the 1-for-10 reverse stock split. On November 16, 2009, the Company effectuated a 2-for-1 forward split of its issued and outstanding common stock and a proportional increase of its authorized shares of common stock. Number of common stock, warrants, options disclosed in the footnotes has been retroactively restated to reflect the 2-for-1 forward stock split.

F-17

Preferred stock

On June 25, 2009, the Company’s board of directors concluded that 2,000,000 shares of series “A” preferred stock issued in 2001 were not valid because no certificate of designation was filed prior to their issuance as required under Nevada corporate law. On December 21, 2009, the Company instructed its transfer agent to remove these preferred shares officially from its shareholder records. As of March 31, 2010 and December 31, 2009, no share of series “A” preferred stock is authorized or outstanding, respectively.

Stock-based compensation

The trading value of the Company's common stock on February 12, 2008, was $5.55 per share and a corresponding amount of $99,900 was charged to general and administrative expenses. On March 30, 2010, the Company agreed to issue 2,500 shares of common stock to a non-executive director in exchange for services unrelated to directorship. The trading value of the Company’s common stock on March 30, 2010 was $10.61 per share and a corresponding amount of $27,000 was charged to general and administrative expenses. The Company also had a $329,397 and $302,372 balance under shares to be issued as of March 31, 2010 and December 31, 2009, which represented 49,834 and 47,334 common shares to be issued to the non-executive director for his service provided for the period from May 2008 to March 2010, and for the period from May 2008 to December 2009, respectively. The amounts were included in general and administrative expenses based on the weighted-average trading price of the Company’s common stock for the said period. As of March 31, 2010, these shares have not been issued.

On May 5, 2008, the Company agreed to issue 10,434 shares of common stock to its former chief financial officer (“CFO”) during the term of a one-year agreement, which would vest in four equal installments of 2,608 shares each quarter. The trading value of the common stock on May 5, 2008 was $5.85 per share for a total value of $61,042. These shares were fully vested. On May 26, 2009, the Company renewed the one-year service agreement with the CFO and agreed to issue 14,440 shares of common stock, which would vest in four equal installments of 3,610 shares every quarter starting August 5, 2009. Compensation expense is recognized on a straight-line basis over the vesting period. Total compensation expense of $16,245 and $15,052 were charged to general and administrative expenses for the three months ended March 31, 2010 and 2009. In February 2010, 10,830 shares were issued. Effective April 16, 2010, the CFO resigned from his position and the last installment of 3,610 shares was prorated to 2,880 shares, which shares have not been issued.

On May 26, 2009, the Company agreed to issue 5,556 shares of common stock to a director at the beginning of each term of his directorship. The trading value of the common stock on May 26, 2009 was $4.50 per share for the total value of $25,002, and the amount was charged to general and administrative expenses for the year ended December 31, 2009. As of December 31, 2009, the balance included shares to be issued. As of March 31, 2010, 5,556 shares were issued and there was no balance under shares to be issued.

Warrants

On February 28, 2007, the Company issued 195,000 warrants to four investors with an exercisable price of $6.00 per share for a term of three years. On the same date, the Company also issued warrants to the private placement agent, exercisable for 114,100 shares of the Company’s common stock at a price of $5.00 per share for a five-year term. For the three months ended March 31, 2010, 202,050 warrants were exercised. The Company valued the conversion on exercise date and recorded $317,380 losses from changes in fair value of warrants. Following is a summary of the status of warrants outstanding at March 31, 2010:

	Average Remaining
Number of Warrants	Contractual Life	Average Exercise Price
50,204	1.92 years	$	5.00

Following is an activity summary of the Company’s outstanding warrants:

F-18

Outstanding as of December 31, 2008			309,100
Granted			—
Forfeited			—
Exercised			—
Outstanding as of March 31, 2009 (unaudited)			309,100
Granted			—
Forfeited			—
Exercised			56,846
Outstanding as of December 31, 2009			252,254
Granted			—
Forfeited			—
Exercised			202,050
Outstanding as of March 31, 2010 (unaudited)			50,204

Equity offering

On June 30, 2009, the Company and Rodman & Renshaw, LLC, as representative of underwriters (the "Underwriters") entered into an Underwriting Agreement. Pursuant to the Underwriting Agreement, the Company agreed to issue and sell an aggregate of 3,220,000 shares (including 420,000 over-allotment shares) of its common stock, at a price of $6.49 per share, in a public offering. The closing date of this offering was on the third business day following the effective date of the registration statement registering the shares offered, or July 3, 2009.

In connection with this offering, the Company agreed to grant 140,000 common stock purchase options to five designees of the Underwriters. The options are exercisable from June 30, 2010 to June 30, 2014, and each option is exercisable for one share of the Company’s common stock, with exercise price at $8.11 per share. The Company used the Black-Scholes Model to value the options granted, which amounted to $1,065,842. The value of options granted to these individuals was included as part of the offering costs, and had no net effect on the Company’s equity.

The following are the assumptions used by the Company in the Black-Scholes Model:

Number of options		Stock price				Exercise price			Expected term		Dividend yield				Volatility				Risk-free interest rate
140,000		$	8.97			$	8.11		3.0 years			—				161	%			1.67	%

The following is a summary of the status of options outstanding:

Outstanding Options					Exercisable Options
	Average Remaining						Average Remaining
Number of Options	Contractual Life		Average Exercise Price		Number of Options		Contractual Life		Average Exercise Price
140,000		4.75	$	8.11		—		—	$	—

Following is an activity summary of the Company’s outstanding options:

	Number of Options Outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding as of December 31, 2008		—		—		—
Granted		140,000	$	8.11		—
Forfeited		—		—		—
Exercised		—		—		—
Outstanding as of December 31, 2009		140,000	$	8.11	$	—
Forfeited		—		—		—
Exercised		—		—		—
Outstanding as of March 31, 2010 (unaudited)		140,000	$	8.11	$	—

F-19

Incremental costs incurred of this offering, including underwriting commission, legal fees, and printing costs were $1,730,477, and were directly deducted from the proceeds. The gross proceeds of this offering were $20,897,800. The Company received cash proceeds of $18,411,496 on July 6, 2009.

Equity Compensation Plan

On December 8, 2009, the Company’s board of directors approved a stock incentive plan for officers, directors, employees and consultants entitled the “Skystar Bio-Pharmaceutical Company 2010 Stock Incentive Plan” (the “2010 Plan”). The maximum number of shares that may be issued under the 2010 Plan is 700,000 shares of the Company’s common stock. The 2010 Plan was approved by the Company’s stockholders on December 31, 2009, and awards may be granted thereunder until December 7, 2019. As of March 31, 2010, there are 700,000 shares of the Company’s common stock remaining available for future issuance under the 2010 Plan.

Note 14 - STATUTORY RESERVES

Statutory reserves represent restricted retained earnings. Based on the legal formation of the entities, all PRC entities are required to set aside 10% of its net income as reported in its statutory accounts on an annual basis to the statutory surplus reserve fund. Once the total statutory surplus reserve reaches 50% of the entity’s registered capital, further appropriations are discretionary. The statutory surplus reserve can be used to increase the entity’s registered capital (upon approval by relevant government authorities) and eliminate its future losses under PRC GAAP (upon a resolution by the board of directors). The statutory surplus reserve is not distributable to shareholders except in the event of liquidation. As of March 31, 2010, Xian Tianxing has met the statutory surplus reserve requirement, and approximately $7,534,275 still needs to be transferred to the respective statutory surplus reserve of Shanghai Siqiang and Sida.

Appropriations to the above statutory reserves are accounted for as a transfer from unrestricted earnings to statutory reserves. There are no legal requirements in the PRC to fund these statutory reserves by the transfer of cash to any restricted accounts, and as such, the Company has not transferred any cash to these accounts. These reserves are not distributable as cash dividends.

Note 15 – TAXES

Skystar and Skystar California are subject to the United States federal income tax provision. Skystar Cayman is a tax-exempt company incorporated in the Cayman Islands and conducts all of its business through its subsidiaries, Fortunate Time and Sida, and Sida’s PRC VIEs, Xian Tianxing and Shanghai Siqiang.

Sida, Xian Tianxing, and Shanghai Siqiang are subject to PRC’s Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Tax is generally imposed at a statutory rate of 25% beginning on January 1, 2008. Xian Tianxing has been approved as a new technology enterprise, and under PRC Income Tax Laws is entitled to a preferential tax rate of 15%.

For the years ended March 31, 2010 and 2009, the provisions for income tax were as follows:

	2010		2009
Current PRC income tax expense
Enterprise income tax	$	325,319	$	211,520

The following table reconciles the U.S. statutory rates to the Company's effective tax rate as of December 31:

F-20

	2010			2009
U.S. Statutory rate		34.0	%		34.0	%
Foreign income not recognized in the U.S.		(34.0	)		(34.0	)
China income tax rate		25.0			25.0
China income tax exemption		(10.0	)		(10.0	)
Other item (1)		7.9			1.6
Total provision for income taxes		22.9	%		16.6	%

(1)	The other item is operating expenses incurred by Skystar that are not deductible in the PRC which resulted in an increase in effective tax rate of 7.9% and 1.6% for the three months ended March 31, 2010 and 2009, respectively.

Taxes payable consisted of the following:

	March 31, 2010		December 31, 2009

Income taxes payable	$	429,691	$	104,261
Value added tax		359,730		561,646
Other taxes		35,661		56,199
Total	$	825,082	$	722,106

The estimated tax savings due to the reduced tax rate for the three months ended March 31, 2010 and 2009 amounted to $216,880 and $144,244, respectively. If the statutory income tax had been applied, the Company would have decreased basic earnings per share and diluted per shares from $0.16 to $0.12 and from $0.15 to $0.12 for the three months ended March 31, 2010, respectively. For the three months ended March 31 2009, the basic and diluted earnings per share would have decreased from $0.29 to $0.24 if the statutory income tax had been applied.

Skystar is incorporated in the U.S. and has incurred a net operating loss for income tax purposes for the three months ended March 31, 2010. As of March 31, 2010, the estimated net operating loss carryforwards for U.S. income tax purposes amounted to $4,943,295 which may be available to reduce future years’ taxable income. These carryforwards will expire, if not utilized, beginning in 2026 and continue through 2010. Management believes that the realization of the benefits arising from this loss appears to be uncertain due to the Company’s limited operating history and continuing losses for U.S. income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at March 31, 2010 and December 31, 2009. The valuation allowance at March 31, 2010 and December 31, 2009 was $1,680,720 and $1,553,677, respectively. The Company’s management reviews this valuation allowance periodically and makes adjustments as necessary.

The Company has cumulative undistributed earnings of foreign subsidiaries of approximately $27,303,297 as of March 31, 2010, which are included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

Note 16 - EARNINGS PER SHARE

The following is the calculation of earnings per share:

F-21

	For the three months ended March 31,
	2010 (Unaudited)		2009 (Unaudited)
Net income	$	1,096,247	$	1,064,644

Weighted average shares used in basic computation		7,061,530		3,734,602
Diluted effect of stock warrants		78,610		-
Weighted average shares used in diluted computation		7,140,140		3,734,602

Earnings per share:

Basic	$	0.16	$	0.29
Diluted	$	0.15	$	0.29

For the three months ended March 31, 2010, the average stock price was greater than the exercise prices of warrants which resulted in additional weighted-average common stock equivalents of 51,699. For the three months ended March 31, 2009, the outstanding warrants were excluded from the diluted earnings per share calculation as they are anti-dilutive as the average stock price was less than the exercise prices of the warrants.

For the three months ended March 31, 2010, the average stock price was greater than the exercise prices of 140,000 outstanding options which resulted in additional weighted-average common stock equivalents of 26,911.

Note 17 - RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Amounts receivable from and payable to related parties are summarized as follows:

	March 31, 2010		December 31, 2009
	(Unaudited)
Short-term loans from shareholders
Mr. Weibing Lu – officer and shareholder (1)	$	36,675	$	36,675
Mr. Wei Wen – officer and shareholder (1)		36,675		36,675
Ms. Aixia Wang – shareholder (1)		36,675		36,675
Total	$	110,025	$	110,025

Shares to be issued to related party
Scott Cramer – non-executive director (2)	$	329,397	$	302,372
Mark D Chen – non-executive director(2)		-		25,002
Total	$	329,397	$	327,374

Amounts due (from) to related parties
Scott Cramer – non-executive director and shareholder (3)		101,056		143,556
Shaanxi Xingji Electronics Co. - owned by a director's wife (3)		5,687		-
Officer and shareholder (3)		-		41,468
Total	$	106,743	$	185,024

(1) On May 29, 2008, Weibing Lu, Wei Wen and Aixia Wang obtained personal loans from Yanta Credit Union and advanced cash to Xian Tianxing in the total amount of $132,030 to facilitate operations. These loans, which were due on May 29, 2009 with 8.436% interest per annum and guaranteed by Xian Tianxing, were paid in full on May 29, 2009. On June 2, 2009, Mr. Lu, Mr. Wen and Ms. Wang again obtained loans from the same bank and advanced cash to Xian Tianxing in the total amount of $110,025. These loans are due on June 1, 2010, with 10.11% interest per annum and are also guaranteed by Xian Tianxing. For the three months ended March 31, 2010 and 2009, Xian Tianxing paid interest of $3,845 and $2,882, respectively, for these loans.

F-22

(2) As of March 31, 2010 and December 31, 2009, the Company had $329,397 (representing 49,834 common shares) and $302,372 (representing 47,334 common shares), respectively, under agreement to issue shares to Scott Cramer, as compensation for being a representative of the Company in the United States for the periods from May 2008 to March 31, 2010, and December 31, 2009, respectively. In addition, as of March 31, 2010 and December 31, 2009, the Company had $0 and $25,002 balance (representing 5,556 common shares) under agreement to issue shares to Mark D Chen as compensation at the beginning of each term of his directorship.

(3) Shaanxi Xinji Electronics Co., Ltd. is owned by the wife of Weibing Lu. The amounts due to Shaanxi Xinji Electronics as of March 31, 2010 and December 31, 2009 were short-term cash transfers for business operations, non-interest bearing, unsecured, and payable upon demand. As of March 31, 2010 and December 31, 2009, the Company also had amounts due to Scott Cramer for bonus and the expenses paid by him on behalf of the Company. The Company has paid Bennet Tchaikovsky all of the outstanding compensation and expenses as of March 31, 2010.

Note 18 - COMMITMENTS AND CONTINGENCIES

(a) Lease commitments

The Company recognizes lease expense on a straight-line basis over the term of the lease in accordance to the FASB’s accounting standard of accounting for leases. The Company entered into a tenancy agreement for the lease of factory premises for a period of ten years from October 1, 2004 to December 31, 2014, with annual rent of $13,563 (or RMB 94,600), which is subject to a 10% increase every four subsequent years.

The Company leases office space from Weibing Lu, the Company’s chief executive officer, for a period of five years from January 1, 2007 to December 31, 2011, with annual rent of approximately $24,000 (or RMB 165,600). The Company also entered into a tenancy agreement with Weibing Lu for the lease of Shanghai Siqiang’s office for a period of ten years from August 1, 2007 to August 1, 2017, with annual rent of approximately $21,000 (or RMB 144,000).

The Company entered into a tenancy agreement for the lease of an office space in California for a period of three years from July 1, 2009 to July 1, 2012 with monthly rent of $1,100.

The minimum future lease payments for the next five years and thereafter are as follows:

Period	Amount
	(Unaudited)
Nine months ending December 31, 2010	$	65,728
Year ending December 31, 2011		72,496
Year ending December 31, 2012		41,603
Year ending December 31, 2013		35,003
Year ending December 31, 2014		35,003
Year ending December 31, 2015 and thereafter		63,374
Total	$	313,207

Rental expense for the three months ended March 31, 2010 and 2009 amounted to $6,768 and $14,804, respectively.

F-23

(b) Legal proceedings

From time to time, the Company is involved in legal matters arising in the ordinary course of business. Management currently is not aware of any legal matters or pending litigation which would have a significant effect on the Company’s consolidated financial statements as of March 31, 2010.

In May 2007, Andrew Chien filed suit against the Company, Scott Cramer, Steve Lowe, David Wassung and Weibing Lu in United States District Court for the District of Connecticut, alleging causes of action for violation of Sections 10(b) and 20(a) of the Exchange Act. On July 17, 2008, in a decision that is now published, the Court granted defendants' motion to dismiss and subsequently dismissed the lawsuit, entering judgment on behalf of the defendants. Mr. Chien filed a notice of appeal of the Court's dismissal of his lawsuit, opposed by the defendants, which remains pending. Additionally, on February 5, 2009, the Court issued a ruling on defendants' motion for sanctions, finding the action filed by Mr. Chien to have been entirely frivolous, and to have constituted a "substantial" violation of Federal Rule of Civil Procedure Rule 11, and imposed significant monetary sanctions on both Mr. Chien and his former attorney. As part of the basis for imposing sanctions on Mr. Chien personally, the Court specifically found that Mr. Chien had knowledge of facts directly contradicting the allegations of his complaint, as evident in internet postings he made on online message boards. Mr. Chien subsequently filed motions seeking to "re-open" this case, and to recuse the judge, but both motions were denied. A Notice of Appeal concerning the ruling awarding sanctions against him was also filed by Mr. Chien. All appeals, including the one referenced below concerning Mr. Chien's second lawsuit, were subsequently consolidated and remain pending, although briefing has been completed.

Subsequently, Mr. Chien, proceeding pro se, filed another lawsuit against the Company, Scott Cramer, Steve Lowe, David Wassung and Weibing Lu in Connecticut Superior Court, alleging causes of action similar to those alleged in his federal complaint described above as well as state law causes of action. The case was removed to the U.S. District Court, District of Connecticut, and assigned to the same Judge who dismissed Mr. Chien’s related federal action. On June 8, 2009, the Court granted defendants’ motion to dismiss this action in its entirety, and denied Mr. Chien’s motion to further amend his complaint. Mr. Chien filed a Notice of Appeal concerning the ruling dismissing this lawsuit, which has been consolidated with Mr. Chien’s appeal of his other lawsuit.

Other than the above described legal proceedings, the Company is not aware of any other legal matters in which purchasers, any director, officer, or any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company, or any affiliate of purchaser, or of any such director, officer, affiliate of the Company, or security holder, is a party adverse to the Company or has a material adverse interest to the Company. No provision has been made in the consolidated financial statements for the above contingencies.

In 2005, a shareholder contributed a leasehold office building as additional capital of Xian Tianxing. However, the title of the leasehold property has not passed to the Company. The Company does not believe there are any legal barriers for the shareholder to transfer the ownership to the Company. However, in the event that the Company fails to obtain the ownership certificate for the leasehold property, there is a risk that the building will need to be vacated due to unofficial ownership. Management believes that this possibility is remote, and as such, no provision has been made in the consolidated financial statements for this potential occurrence.

(d) R&D Project

During the first quarter of 2008, Xian Tianxing contracted with Northwestern Agricultural Technology University to jointly work on an R&D project concerning the application of nano-technology in the prevention of major milk cow disease. The total projected budget for this project is approximately $574,000 (RMB 4 million) which is to be paid according to the completed stages of the project. The Company expects this project to be completed in 2010. As of March 31, 2010 and 2009, the Company incurred approximately $0 and $117,352 (RMB 800,986) of expenses relating to this project. The project reached trial stage in June 2009 and the Company expects to obtain veterinary permit for the new product from government on 2010.

F-24

During 2008, Xian Tianxing contracted with Shanxi Shenzhou Bio-pharmaceuticals Technology Company to jointly work on a R&D project with a contracted amount of approximately $308,000. As of December 31, 2009, the Company incurred approximately $102,627 (RMB 700,000) expenses relating to this project. This project was completed by December 31, 2009.

During the year ended December 31, 2009, Xian Tianxing contracted with the Fourth Military Medical University to jointly work on a R&D project with a contracted amount of approximated $880,200(RMB 6,000,000). As of March 31, 2010 and 2009, the Company incurred approximately $43,995 (RMB 300,000) and $0 expenses relating to this project.

F-25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2010 should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this item. In addition to historical information, the following discussion contains certain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “may”, “will”, “could”, “expect”, “anticipate”, “intend”, “believe”, “estimate”, “plan”, “predict”, and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of this Quarterly Report on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

Our financial statements are prepared in U.S. dollars and in accordance with accounting principles generally accepted in the United States of America. See “Exchange Rates” below for information concerning the exchanges rates at which Renminbi were translated into U.S. dollars at various pertinent dates and for pertinent periods.

Overview

Skystar Bio-Pharmaceutical Company (“Skystar” or the “Company”), formerly known as The Cyber Group Network Corporation, was incorporated in Nevada on September 24, 1998. The Company is a holding company that, through its variable interest entity (“VIE”) Xian Tianxing Bio-Pharmaceutical Co., Ltd. (“Xian Tianxing”), researches, develops, manufactures and distributes veterinary health care and medical care products in the People’s Republic of China (“PRC”).

All of the Company’s operations are carried out by Xian Tianxing, a PRC company, which the Company controls through contractual arrangements originally between Xian Tianxing and Skystar Bio-Pharmaceutical (Cayman) Holdings Co., Ltd. (“Skystar Cayman”), a Cayman Islands company that became the Company’s wholly owned subsidiary subsequent to a share exchange transaction on November 7, 2005. On March 10, 2008, all of the rights and obligations of Skystar Cayman under the contractual arrangements were transferred to Sida Biotechnology (Xian) Co., Ltd. (“Sida”), a PRC company and wholly owned subsidiary of Fortunate Time International Limited, a Hong Kong company and wholly owned subsidiary of Skystar Cayman. Xian Tianxing also has a wholly owned subsidiary, Shanghai Siqiang Biotechnological Co., Ltd., a PRC company.

Such contractual arrangements are necessary to comply with Chinese laws limiting foreign ownership of certain companies. Through these contractual arrangements, we have the ability to substantially influence Xian Tianxing’s daily operations and financial affairs, appoint its senior executives and approve all matters requiring shareholder approval. As a result of these contractual arrangements, which enable us to control Xian Tianxing, we are considered the primary beneficiary of Xian Tianxing. Please see Note 1 to our consolidated financial statements for the three months ended March 31, 2010, for the impact of the contractual arrangements on our consolidated financial statements.

Currently, we have four major product lines:

Our bio-pharmaceutical veterinary vaccine line currently includes over 10 products;

Our veterinary medicine line for poultry and livestock currently includes over 159 products;

Our feed additives line currently includes over 10 products; and

Our micro-organism products line currently includes over 16 products.

All of our revenue is derived from the sale of veterinary healthcare and medical care products in China, which are distributed through a distribution channel covering 29 provinces. As of March 31, 2010, we had over 1,539 distributors and 529 direct customers.

Critical Accounting Policies and Estimates

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, we make estimates and assumptions about the effect of matters that are inherently uncertain and may change in subsequent periods. The resulting accounting estimates will, by definition, vary from the related actual results. We consider the following to be the most critical accounting policies:

•

Revenue recognition: Revenues of the Company include sales of bio-pharmaceutical and veterinary products in China. Sales are recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales are recorded net of value added tax (“VAT”). No return allowance is made as product returns are insignificant based on historical experience.

(a)

Credit sales: Revenue is recognized when the products have been delivered to the customers.

(b)

Full payment before delivering: Revenue is recognized when the products have been delivered to customers.

•

Accounts receivable: We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customers’ current credit worthiness, as determined by a review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that have been experienced in the past.

Our accounts receivable aging was as follows for the periods below:

From Date of Invoice to Customer:	March 31, 2010			December 31, 2009
0-30 days	$	2,345,780		$	4,401,071
31 – 60 days		280,791			177,416
61 – 90 days		347,676			21,868
91 – 120 days		190,318			23,865
121days and above		610,370			86,824
Allowance for bad debts		(327,857	)		(327,857	)
Total	$	3,447,078		$	4,383,187

On average, we collect our receivables within 90 days. Historically, we have collected all of our accounts receivable and have had no write offs. This is attributed to the steps that we take prior to extending credit to our customers as discussed above. If we are having difficulty collecting from a customer, we take the following steps: cease existing shipments to the customer, our sales force actively calls and goes to the customer’s site reminding the customer of their past due invoice and requesting payment, and if those methods are unsuccessful we use our outside legal counsel. If, in the future, those steps are unsuccessful, management would determine whether or not the receivable should be written off.

Warrants: We have adopted the accounting standards of accounting for stock purchase warrants and other related derivative accounting standards for valuation and accounting treatment of our outstanding warrants.

Recent Issued Accounting Pronouncements

In October 2009, the FASB issued an ASU regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an of f set to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-pe r -share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Results of Operations – Three Months Period ended March 31, 2010 and 2009

The following table summarizes our results of operations for the three months ended March 31, 2010 and 2009.

	Three Months Ended March 31,
	2010					2009
	Amount		Percentage of total revenue			Amount		Percentage of total revenue
Revenues	$	4,869,243		100	%	$	3,823,566		100	%
Gross Profit	$	2,578,024		53	%	$	1,877,208		49	%
Operating Expense	$	834,679		17	%	$	639,442		17	%
Income from Operations	$	1,743,345		36	%	$	1,237,766		32	%
Other (Expenses)/ gains	$	(321,779)		6	%	$	38,398		1	%
Income Tax Expenses	$	325,319		7	%	$	211,520		5	%
Net Income	$	1,096,247		23	%	$	1,064,644		28	%

Revenues. All of our revenues are derived from the sale of veterinary healthcare and medical care products in the PRC. For the three months ended March 31, 2010, we had revenues of $4,869,243 as compared to $3,823,566 for the three months ended March 31, 2009, an increase of approximately 27%. Our revenues consist of four product lines: veterinary medications, micro-organism, feed additives, and vaccines. Our revenues tend to be seasonal whereby the third quarter, fourth quarter, second quarter and first quarter have historically trended to represent our largest to smallest revenue quarters, respectively.

Revenues — Veterinary Medications. Revenues from sales of our veterinary medications product line increased from $2,602,496 for the three months ended March 31, 2009 to $3,196,259 for the three months ended March 31, 2010, for an increase of $593,763 or 23%. The increase in veterinary medication sales was primarily due to our increased utilization of our veterinary medicine facility and increased sales efforts. Of total revenues from veterinary medications during the three months March 31, 2010, approximately $830,600, or 17% of total revenues, resulted from the sale of Praziquantel tablets which treats schistosomiasis.

Revenues — Micro-Organism. Revenues from sales of our micro-organism product line increased from $893,293 for the three months ended March 31, 2009 to $1,206,578 for the three months ended March 31, 2010 for an increase of $313,285 or 35%. The increase was a result of increased sales efforts of our probiotics micro-organism products during the three months ended March 31, 2010.

Revenues — Feed Additives. Revenues from sales of our feed additives product line increased from $182,311 for the three months ended March 31, 2009 to $236,040 for the three months ended March 31, 2010 for an increase of $53,729 or 29%. The increase was the result of increased sales efforts of our feed additives products during the three months ended March 31, 2010.

Revenues — Vaccines. Revenues from sales of our vaccines product line increased from $145,466 for the three months ended March 31, 2009 to $230,366 for the three months ended March 31, 2010 for an increase of $84,900 or 58%. This increase was a result of increased demand for our vaccine products during the three months ended March 31, 2010. We are presently operating at full production capacity for our vaccine product line and therefore cannot significantly increase sales until we expand our production capabilities, which we presently have underway and anticipate completion in the first half of 2010 and commencement of production in the second half of 2010.

Cost of Sales

Cost of revenue. For the three months ended March 31, 2010, our cost of revenues, which consists of raw materials, direct labor, and manufacturing overhead, was $2,291,219 as compared to $1,946,358 for the three months ended March 31, 2009, an increase of approximately 18%. Our cost of sales consists of four product lines: veterinary medications, micro-organism, feed additives, and vaccines. The increase was primarily due to increased product sales.

Cost of Sales — Veterinary Medications. Cost of sales of our veterinary medications product line increased from $1,592,809 for the three months ended March 31, 2009 to $1,822,258 for the three months ended March 31, 2010, for an increase of $229,449 or approximately 14%. This increase was mainly due to the corresponding increase in veterinary medication sales.

Cost of Sales — Micro-Organism. Cost of sales of our micro-organism product line increased from $260,537 for the three months ended March 31, 2009 to $343,018 for the three months ended March 31, 2010 for an increase of $82,481 or approximately 32%. This increase was mainly due to the corresponding increase in micro-organism sales.

Cost of Sales — Feed Additives. Cost of sales of our feed additives product line increased from $77,439 for the three months ended March 31, 2009 to $100,046 for the three months ended March 31, 2010 for an increase of $22,607 or 29%. This increase was mainly due to a corresponding increase in feed additives products sales.

Cost of Sales — Vaccines. Cost of sales of our vaccines product line increased from $15,573 for the three months ended March 31, 2009 to $25,897 for the three months ended March 31, 2010, for an increase of $10,324 or 66%. This increase was the result of an increase of vaccine product sales during the three months ended March 31, 2010. We are presently operating at full production capacity for our vaccine product line and therefore cannot significantly increase sales until we expand our production capabilities which we presently have underway and anticipate completion in the second half of the year.

Operating Expenses

	The Three Months Ended March,
	2010					2009
	Amount		Percentage of total revenue			Amount		Percentage of total revenue
Gross Profit	$	2,578,024		53	%	$	1,877,208		49	%
Operating Expenses	$	834,679		17	%	$	639,442		17	%
Selling Expenses	$	171,134		3	%	$	207,395		6	%
General and Administrative Expenses	$	619,550		13	%	$	314,695		8	%
Research and Development Costs	$	43,995		1	%	$	117,352		3	%
Income from Operations	$	1,743,345		36	%	$	1,237,766		32	%

Selling Expenses. Selling expenses, which consist of commissions, advertising and promotion expenses, freight charges, and salaries, totaled $171,134 for the three months ended March 31, 2010 as compared to $207,395 for the three months ended March 31, 2009, a decrease of approximately $36,261 or 17%. This decrease is the result of reduced travel expenses from hiring local sales people, and reduced trade show expenses for the first three months of 2010 compared to the same period in 2009.

General and Administrative Expenses. General and administrative expenses totaled $619,550 for the three months ended March 31, 2010, as compared to $314,695 for the three months ended March 31, 2009, an increase of approximately 97%. General and administrative expenses for our Chinese operating entity have held steady relative to revenue. This increase was mainly incurred in the United States, including stock compensation expenses for officers and directors, and fees related to auditing, legal, investor relations, and other professional services.

Research and Development Costs. Research and development costs, which consist of salaries, professional fees, and technical support fees, totaled $43,995 for the three months ended March 31, 2010, as compared to $117,352 for the three months ended March 31, 2009, a decrease of approximately 63%. Most of the current research projects are in the later phases of development focusing on applications and documentation without the significant outlays related to the earlier phases of the projects when large scale testing was required.

Liquidity

For the three months ended March 31, 2010, cash provided by operating activities was $1,908,957 compared to cash provided by operating activities of $133,395 for the same period in 2009. This increase is primarily attributable to improved accounts receivable collections and increased deposits received from customers, after adjusting for the non-cash charge of warrant revaluation, and offset by increase in inventory that reduced some of the positive cash flow. As of March 31, 2010, we had approximately 38 suppliers that we have made advances to in order to secure our raw materials and obtain favorable pricing.

We used $7,355,381 in investing activities for the three months ended March 31, 2010, as compared to $714,270 used in investing activities for the three months ended March 31, 2009. Net cash used in investing increased as a result of refundable deposits made in connection with potential acquisitions.

Cash used by financing activities was $298,244 for the three months ended March 31, 2010 as compared to $126,877 generated for the three months ended March 31, 2009. Cash used by financing activities for the three months ended March 31, 2010 was mainly for repayment of short-term loans. Cash provided by financing activities for the three months ended March 31, 2009 was mainly the result of proceeds from short-term loans.

As of March 31, 2010, we had cash of $5,911,415. Our total current assets were $27,100,696, and our total current liabilities were $4,336,729, which resulted in a net working capital of $22,763,967.

Capital Resources

During the three months ended March 31, 2010, we made additional deposits of $5,499,375 for potential acquisitions. The deposits are refundable in the event the acquisitions cannot be completed. We also repaid $219,975 in short-term loans. The Company has sufficient capital for its operations. However, if we are to acquire another business or further expand our operations, we may need additional capital.

Plan of Operations

Over the next 12 months, we plan to continue to market and sell our current products and to develop new products.

In 2003, we received approval from the State Council of China to expand our production facilities and construct a new GMP standard plant. We have invested $10,501,000 (RMB 82,000,000) into this project, which is our Huxian plant, including approximately $9,700,000 for the facilities and $800,000 for working capital. The construction work commenced in 2005, and we completed the veterinary medicine facility and the building that houses quality control, research and development and administration during 2007, both of which are fully operational. Construction of the micro-organism facility was completed in December 2009. The remaining facilities of the Huxian plant are expected to be completed in the second quarter of 2010, rather than the fourth quarter of 2009 as previously anticipated. After the completion of the construction phase, it typically takes 3 months for the Chinese Agriculture Ministry to issue the GMP certification. We anticipate that the new factory will generate sufficient cash flows; thus, management has concluded that there is no impairment loss on the construction in progress.

We believe that Xian Tianxing will be developing new products including animal immunization products, non-pathogenic micro-organisms for the cure and prevention of livestock disease, complex enzyme preparations as animal feed additives, and several new veterinary medicine products within the next 12 months.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
R&D Project Obligation	$	908,396	$	908,396	$	-	$	-	$	-
Operating Lease Obligations		313,207		65,728		149,102		56,128		42,249
Total	$	1,221,603	$	974,124	$	149,102	$	56,128	$	42,249

Off-Balance Sheet Arrangements

We do not have any outstanding financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Exchange Rate

Xian Tianxing maintains its books and records in Renminbi (“RMB”), the lawful currency of China. In general, for consolidation purposes, we translate Xian Tianxing’s assets and liabilities into US$ using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Adjustments resulting from the translation of Xian Tianxing’s financial statements are recorded as accumulated other comprehensive income.

The exchange rates used to translate amounts in RMB into US$ for the purposes of preparing the consolidated financial statements or otherwise stated in this MD&A were as follows:

	March 31, 2010	December 31, 2009	March 31, 2009

Assets and liabilities	USD0.14665:RMB1	USD0.14670:RMB1	USD0.14650:RMB1

Statements of operations and cash flows for the period/year ended	USD0.14670:RMB1	USD0.14661:RMB1	USD0.14651:RMB1

No representation is made that RMB amounts have been, or would be, converted into US$ at the above rates.

Inflation

We believe that inflation has not had a material effect on our operations to date.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2010, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective.

In September of 2009, we engaged Union Strength Business Consulting Co. (“Union Strength”) to analyze the Company’s business processes and develop internal control procedures to improve the Company’s internal control. Union Strength provided detailed recommendations and prescribed operational procedures to enhance the Company’s control procedures. The Company has implemented some of the recommended control procedures especially surrounding the area of cash transactions. As a result, there has been significant improvement in reducing cash transactions both in sales and purchases. The Company is continuing its work with Union Strength to further improve internal controls in other areas of operations.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following discusses all known or anticipated material legal proceedings commenced by or against us. Occasionally we may be named as a party in claims and legal proceedings arising out of the normal course of our business. These claims and legal proceedings may relate to contractual rights and obligations, employment matters, or to other matters relating to our business and operations. In the opinion of management, the ultimate outcome of claims and litigation of which management is aware will not have a material adverse effect on our consolidated financial position or results of operation.

Other than the matter discussed below, we are not aware of any material pending legal proceedings involving us.

Andrew Chien v. Skystar Bio-Pharmaceutical Company, et. al. (US. District Court, District of Connecticut, Case No. 3:2007cv00781). Andrew Chien filed suit against the Company, R. Scott Cramer, Steve Lowe, David Wassung and Weibing Lu in United States District Court for the District of Connecticut, alleging causes of action for violation of Sections 10(b) and 20(a) of the Exchange Act. In or around November 2007, the defendants filed motions to dismiss the complaint for failure to state a claim and for lack of personal jurisdiction. Mr. Chien agreed to voluntarily amend the complaint after the motions were filed, and an amended complaint was subsequently filed on or around January 4, 2008. The amended complaint dropped Weibing Lu (who is a resident of China and was never served) as a defendant. The remaining defendants contended that the amended complaint failed to correct the deficiencies of the original complaint, and filed a renewed motion to dismiss for failure to state a claim, also preserving their challenge to personal jurisdiction. The defendants denied all claims and moved the Court to dismiss the amended complaint in its entirety in their motion to dismiss. The motion to dismiss also requested that the Court award sanctions against Mr. Chien under Federal Rule of Civil Procedure Rule 11 ("Rule 11") and the Private Securities Litigation Reform Act ("PSLRA"). On July 17, 2008, in a decision that is now published, the Court granted defendants' motion and subsequently dismissed the lawsuit, entering judgment on behalf of the defendants. Chien filed a Notice of Appeal of the Court's dismissal of his lawsuit, opposed by the defendants, which remains pending. Defendants were invited by Judge Kravitz to bring a post-judgment motion for sanctions pursuant to Rule 11 and the PSLRA, which they did. On February 5, 2009, Judge Kravitz issued a ruling on defendants' Motion for Sanctions. He found the action filed by Chien to have been entirely frivolous, and to have constituted a "substantial" violation of Rule 11, and imposed significant monetary sanctions on both Chien and his former attorney. As part of the basis for imposing sanctions on Mr. Chien personally, the Court specifically found that Chien had knowledge of facts directly contradicting the allegations of his complaint, as evident in internet postings he made on online message boards. Chien subsequently filed motions seeking to "re-open" this case and to recuse Judge Kravitz, but both motions were denied. A Notice of Appeal concerning the ruling awarding sanctions against him was also filed by Chien. All appeals, including the one referenced below concerning Chien's second lawsuit, were subsequently consolidated and remain pending.

Andrew Chien v. Skystar Bio-Pharmaceutical Company, et. al. (formerly Superior Court, State of Connecticut, Case No. NNH-CV-09-5025938-S, now U.S. District Court, District of Connecticut, Case No. 3:09-CV-00149 (MRK)). Andrew Chien, proceeding pro se, filed another lawsuit against the Company, Scott Cramer, Steve Lowe, David Wassung and Weibing Lu in Connecticut Superior Court, alleging causes of action similar to those alleged in his federal complaint described above as well as state law causes of action. The Company argued in response that the new complaint was just as frivolous as Mr. Chien's earlier federal action, which the new complaint substantially duplicated. The earlier federal action, described above, was found to be completely frivolous and dismissed in its entirety, with substantial monetary sanctions awarded against both Chien and his former attorney. A Notice of Removal to the U.S. District Court, District of Connecticut was filed in the state case on January 27, 2009, and the case was assigned to Judge Kravitz, the federal judge in the related federal case previously dismissed. The Company filed a Motion to Dismiss Chien's new action. In their motion to dismiss, defendants argued that all the claims asserted by Chien were frivolous, including among other grounds that they were time-barred and otherwise substantively meritless, and that sanctions against Mr. Chien under Federal Rule of Civil Procedure Rule 11 ("Rule 11") and the Private Securities Litigation Reform Act ("PSLRA") were again warranted. Rather than file an opposition to Defendants' motion to dismiss, Chien filed a motion seeking to amend his complaint along with a proposed First Amended Complaint ("FAC"), which the Court ultimately granted. The FAC purported to drop all eleven claims for securities fraud asserted by Chien, all of which defendants had contended were frivolous and meritless. The Court ruled that these claims, abandoned in the wake of Defendants' motion to dismiss, were all deemed dismissed with prejudice, and that no further briefing on defendants' pending Motion to Dismiss the action was required. Subsequently, the Court granted the defendants' Motion to Dismiss, dismissing the action and all claims asserted in their entirety. In the ruling, the Court held that all claims asserted against the defendants were barred and failed to state a claim on a multiplicity of grounds, including on the basis of res judicata as well as other substantive defects. Defendants filed a second Motion for Sanctions under Rule 11 and the PSLRA. The Motion was subsequently granted by Judge Kravitz, and Chien was again ordered to pay additional monetary sanctions to the Company. Chien filed a Notice of Appeal concerning the ruling dismissing his second lawsuit. In it's filings with the Court of Appeal, the Company has argued that the appeals are groundless and the earlier rulings by Judge Kravitz should be upheld, including the two awards of sanctions against Mr. Chien. The Court of Appeals for the Second Circuit has consolidated all of Chien's appeals from both of his lawsuits. Briefing has been completed in these consolidated appeals and a final appellate decision is awaited by the Company.

ITEM 1A. RISK FACTORS

Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control. We have identified a number of these risk factors in our annual report on Form 10-K for the year ended December 31, 2009, which factors should be taken into consideration when reviewing the information contained in this report. There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our annual report on Form 10-K as of and for the year ended December 31, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 26, 2010, we issued 10,830 shares of our restricted common stock to Bennet P. Tchaikovsky as compensation, pursuant to the terms of his services agreement as our chief financial officer, which position he resigned from on April 16, 2010.

On February 26, 2010, we issued 5,556 shares of our restricted common stock to Mark D. Chen as compensation, pursuant to the terms of his directorship agreement. On March 15, 2010, 2,778 shares of our restricted common stock were issued to Mr. Chen in error. These shares were subsequently cancelled after March 31, 2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

EXHIBIT INDEX

Exhibit Number		Description
2.1		Share Purchase Agreement by and between The Cyber Group Network, Inc. and Howard L. Allen and Donald G. Jackson (shareholders of Hollywood Entertainment Network, Inc.) dated May 12, 2000 (1)

2.2		Plan of Merger Agreement between The Cyber Group Network Corporation and CGN Acquisitions Corporation dated December 7, 2000 (2)

2.3		Share Exchange Agreement between The Cyber Group Network Corporation, R. Scott Cramer, Steve Lowe, David Wassung and Skystar Bio-Pharmaceutical, and the Skystar Shareholders dated September 20, 2005 (3)

3.1		Articles of Incorporation (4)

3.2		Certificate of Amendment and Certificate of Change filed with the Nevada Secretary of State on February 13, 2006 (5)

3.3		Certificate of Amendment to Increase Number of Authorized Shares of Common Stock filed with the Nevada Secretary of State on July 11, 2008 (11)

3.4		Amended and Restated Bylaws (12)

3.5		Certificate of Change Pursuant to NRS 78.209 filed with the Nevada Secretary of State on May 7, 2009 and effective on May 12, 2009 (14)

3.6		Certificate of Change Pursuant to NRS 78.209 as filed with the Nevada Secretary of State on November 12, 2009 and effective on November 16, 2009 (18)

4.1		Certificate of Designation of Series B Convertible Preferred Stock (4)

4.2		Form of Class A Convertible Debenture (6)

4.3		Form of Class B Convertible Debenture (6)

4.4		Form of Class A Warrant (6)

4.5		Form of Class B Warrant (6)

4.6		Form of Common Stock Certificate (17)

4.7		Form of Common Stock Purchase Option granted to the representative of the underwriters (17)

10.1		Consulting Services Agreement between Skystar Bio-Pharmaceutical (Cayman) Holdings Co., Ltd. (“Skystar Cayman”) and Xian Tianxing Bio-Pharmaceutical Co., Ltd. (“Xian Tianxing”) dated October 28, 2005 (4)

10.2		Operating Agreement among Skystar Cayman, Xian Tianxing and the majority stockholders of Xian Tianxing (“Xian Tianxing Majority Stockholders”) dated October 28, 2005 (4)

10.3		Equity Pledge Agreement among Skystar Cayman, Xian Tianxing and the Xian Tianxing Majority Stockholders dated October 28, 2005 (4)

10.4		Proxy Agreement Skystar Cayman, Xian Tianxing and the Xian Tianxing Majority Stockholders dated October 28, 2005 (4)

10.5		Option Agreement Skystar Cayman, Xian Tianxing and the Xian Tianxing Majority Stockholders dated October 28, 2005 (4)

10.6		Amendment to Consulting Services Agreement among Skystar Cayman, Xian Tianxing and Sida Biotechnology (Xian) Co., Ltd. (“Sida”) dated March 10, 2008 (7)

10.7		Agreement to Transfer of Operating Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, Weibing Lu and Sida dated March 10, 2008 (7)

10.8		Amendment to Equity Pledge Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, and Sida dated March 10, 2008 (7)

10.9		Designation Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, Weibing Lu and Sida dated March 10, 2008 (7)

10.10		Agreement to Transfer of Option Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing Majority Stockholders, Weibing Lu and Sida dated March 10, 2008 (7)

10.11		Employment Agreement with Weibing Lu dated May 5, 2008 (9)

10.12		Loanout Agreement with Worldwide Officers, Inc. with respect to the services of Bennet Tchaikovsky, our Chief Financial Officer, dated May 5, 2008 (9)

10.13		Form of Director Offer Letter with Mr. Qiang Fan and Mr. Winston Yen (11)

10.14		Form of Director Offer Letter with Chengtun Qu and Shouguo Zhao (12)

10.15		Form of Amendment to Loanout Agreement with Worldwide Officers, Inc. (15)

10.16		Form of Director Offer Letter with Mark D. Chen (15)

10.17		Agreement with R. Scott Cramer dated March 30, 2010 (20)

10.18		Employment Agreement with Michael Hongjie Lan dated April 16, 2010 (21)

10.19		Services Agreement with R. Scott Cramer dated April 16, 2010 (21)

10.20		Restricted Stock Award Agreement with R. Scott Cramer dated April 16, 2010 (21)

31.1		Section 302 Certification by the Corporation’s Chief Executive Officer *

31.2		Section 302 Certification by the Corporation’s Chief Financial Officer *

32.1		Section 906 Certification by the Corporation's Chief Executive Officer *

32.2		Section 906 Certification by the Corporation's Chief Financial Officer *

99.1		Lease Agreement between Xian Tianxing and Weibing Lu dated June 1, 2007 (9)

99.2		Lease Agreement between Shanghai Siqiang Biotechnological Co., Ltd. and Weibing Lu dated June 17, 2007 (10)

99.3		Summary of Research Arrangement between Shanghai Poultry Verminosis Institute and Xian Tianxing (10)

99.4		Cooperation Agreement between Shaanxi Microbial Institute and Xian Tianxing (10)

99.5		Technology Cooperation Agreement with Fourth Military Medical University (20)

* Filed herewith.

(1)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on June 1, 2000.

(2)	Incorporated by reference from the Registrant’s Current Report on Form 8-K/A filed on January 12, 2001.

(3)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on September 26, 2005.

(4)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on November 14, 2005.

(5)	Incorporated by reference from the Registrant’s Annual Report on Form 10-KSB filed on April 17, 2006.

(6)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on March 5, 2007.

(7)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on March 11, 2008.

(8)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed on April 2, 2008.

(9)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on May 5, 2008.

(10)	Incorporated by reference from the Registrant’s Registration Statement on Form S-1/A filed on June 26, 2008.

(11)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on July 14, 2008.

(12)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on July 15, 2008.

(13)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K filed on April 15, 2009.

(14)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on May 18, 2009.

(15)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on May 27, 2009.

(16)	Incorporated by reference from the Registrant’s Amendment to Registration Statement on Form S-1/A filed on June 2, 2009.

(17)	Incorporated by reference from the Registrant’s Amendment to Registration Statement on Form S-1/A filed on June 26, 2009.

(18)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on November 17, 2009.

(19)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on January 7, 2010.

(20)	Incorporate by reference from the Registrant’s Annual Report on Form 10-K filed on March 31, 2010.

(21)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on April 19, 2010.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

May 17, 2010	SKYSTAR BIO-PHARMACEUTICAL COMPANY

	By:	/s/ Weibing Lu
		Weibing Lu Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Michael H. Lan
		Michael H. Lan Chief Financial Officer (Principal Financial and Accounting Officer)

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SKYSTAR BIO-PHARMACEUTICAL CO Reports

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