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Skystar Bio-Pharmaceutical Announces Second Quarter 2007 Results

Thursday, August 16, 2007 General News J E 4
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XI'AN, China, Aug. 15 Skystar Bio-Pharmaceutical Co., (OTC Bulletin Board: SKBI) ("Skystar"), a leading bio-pharmaceutical company in the People's Republic of China ("PRC"), announcedits financial results for the quarter ended June 30, 2007.

"Our commitment this year to enhancing our production, marketing and R&Defforts are validated through our strong financial results in the secondquarter," commented Mr. Weibing Lu, Chairman and Chief Executive Officer ofSkystar Bio-Pharmaceutical. "We have dedicated significant resources this yearto broadening our product offering and building a solid distribution networksupported by an in-depth customer training and education program. We believethis strategy will support continued revenue and net income growth in thefuture."

Revenue for the second quarter of 2007 was $3.4 million, up 22% from $2.8million in the second quarter of 2006. The increase in revenue was due to thelaunching of ten new veterinary medicines and enhanced marketing andadvertising efforts. For the second quarter of 2007, revenue from veterinarymedicine grew 34% to $1.5 million from $1.1 million in the same period a yearago. Veterinary medicines and microorganisms represented the majority ofrevenue accounting for 45% and 39% of total revenue, respectively. Vaccinescontributed approximately 5% of revenue and feed additives represented theremaining 11%.

Gross profit for the second quarter of 2007 was $2.0 million, up 56% from$1.3 million in the second quarter of 2006. Gross margin in the second quarterof 2007 was 58.2% compared to gross margin of 45.5% in the comparable quartera year ago. Gross margin for the quarter benefited from the decline in thecost of raw materials for microorganisms and feed additives as well as theproduction of higher margin new veterinary medicines. The new veterinarymedicines have an average gross margin greater than 50%. Skystar expects grossmargin to remain in the range of 55%-60%.

Research and development costs were $75,225, or 2.2% of revenue, in thesecond quarter of 2007 compared to $85,747, or 3.1% of revenue, in the sameperiod a year ago. Skystar's research and development efforts are dedicatedto launching new products and developing new technologies to reduce the costof raw materials.

Selling expenses in the second quarter of 2007 were $148,139, or 4.4% ofrevenue, compared to $75,574, or 2.7% of revenue, in the same period a yearago. The increase in selling expenses is primarily the result of enhancedmarketing and advertising efforts. Skystar expects that selling expenses will

remain at 5%-8% of revenue for the remainder of 2007 as the Company continuesto aggressively market its products.

General and administrative ("G&A") expenses were $405,071, or 12.0% ofrevenue, in the second quarter of 2007, up from $104,835, or 3.8% of revenue,in the second quarter 2006. The increase in G&A expenses reflectsprofessional fees and associated costs of being a U.S. publicly tradedcompany.

Income from operations for the second quarter of 2007 was $1.2 million up90.0% from $648,651 in the second quarter of 2006. Operating margin for thequarter was 36.5% compared to operating margin of 23.5% in the second quarterof 2006.

Net income for the second quarter of 2007 was $148,311 compared to netincome in the second quarter of 2006 of $483,343. Fully diluted earnings pershare for the quarter of ($0.22) reflect the non-cash conversion expense ofthe convertible debentures. Fully diluted earnings per share were $0.05 inthe second quarter of 2006. During the quarter, Skystar recognized non-cashinterest expenses related to the debenture interest payment and warrantstotaling $622,730. The company did not incur these expenses in the secondquarter of 2006.

Adjusting net income to exclude non-cash debt financing and other expensesrelated to the Company's debentu
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