Skystar Bio-Pharmaceutical Announces Record Third Quarter 2007 Results

XI’AN, China, Nov. 15 /Xinhua-PRNewswire-FirstCall/ -- Skystar Bio- Pharmaceutical Co., (''Skystar’’), a leading bio- pharmaceutical company in the People’s Republic of China (''PRC’’), announced its financial results for the third quarter ended September 30, 2007.

''Based on our extensive effort in new product introduction, R&D and marketing campaigns, we are truly excited to report record results in the third quarter,’' commented Mr. Weibing Lu, Chairman and Chief Executive Officer of Skystar Bio-Pharmaceutical. ''The strong results in both the top and bottom lines demonstrate our ability to effectively produce and market high quality veterinary products as we build one of the premier brands in China. We believe our product development strategy and plan to expand distribution will continue to support our long-term growth.”

Revenue for the third quarter of 2007 was a record $5.4 million, up 53% from $3.6 million in the third quarter of 2006. The increase in revenue was due to increased sales as a result of new products launched, an aggressive marketing campaign and stronger brand name awareness. For the third quarter of 2007, veterinary medicines generated 51% of revenue, doubling to $2.8 million from $1.4 million in the same period a year ago. Microorganisms accounted for 34% of total revenue with vaccines contributing approximately 6% of revenue and feed additives representing the remaining 9%.

Gross profit for the third quarter of 2007 was a record $3.2 million, up 95% from $1.6 million in the third quarter of 2006. Gross margin in the third quarter of 2007 was a record 58.4% compared to gross margin of 45.8% in the comparable quarter a year ago. Gross margin for the quarter benefited from the large-scale production of new higher margin veterinary medicines as well as the decline in the cost of raw materials. Skystar’s new veterinary medicines launched during the third quarter have an average gross margin greater than 50%.

Research and development costs were $117,604, or 2.2% of revenue, in the third quarter of 2007 compared to $19,372, or 0.5% of revenue, in the same period a year ago. The increase in research and development expense is primarily attributed to research for antiparasitic and small molecule peptide medicines. In addition, the Company incurred costs related to the development of new feed additives.

Selling expenses in the third quarter of 2007 were $176,437, or 3.2% of revenue, compared to $125,793, or 3.5% of revenue, in the same period a year ago. The decrease in selling expenses as a percentage of sales reflects economies of scale from Skystar’s expanded product portfolio. Given a stable sales force and resources, the increase in sales effectively lowered selling expenses per unit. As a result, the Company expects a stable or even decreasing selling expense as a percent of revenue for the remainder of 2007 as it continues to launch new products.

Income from operations for the third quarter of 2007 was $2.5 million up 150% from $1.0 million in the third quarter of 2006. Operating margin for the quarter was 45.9% compared to operating margin of 28.1% in the third quarter of 2006. The substantial increase in operating margin is a result of an increase in internal operating efficiencies and decrease in amortization of deferred compensation expense.

Net income for the third quarter of 2007 was $1.1 million, up 34.0% from net income in the third quarter of 2006 of $0.8 million. Fully diluted earnings per share for the quarter of ($0.17) reflect non-cash conversion expenses related to the Company’s convertible debentures. Fully diluted earnings per share were $0.06 in the third quarter of 2006.

During the quarter, Skystar recognized non-cash interest expenses related to the debenture interest payment and warrants totaling $707,226. The company did not incur these expenses in the third quarter of 2006. Adjusting net income to exclude the non-cash interest expenses, non-GAAP net income for the third quarter of 2007 was $1.8 million, up 122.5% from $0.8 million in the third quarter of 2006. Adjusted non-GAAP fully diluted earnings per share were $0.10 compared to fully diluted earnings per share of $0.06 in the third quarter of 2006.

Nine Month Results

Revenues for the first nine months of 2007 were $10.2 million, up 39% from $7.3 million during the first nine months of 2006. Gross profit was $5.8 million, or 57.0% of revenues, up 73% from $3.4 million, or 45.9% of revenues, in the first nine months of 2006. Operating income was $3.6 million, or 35.2% of revenue, up 96% from $1.8 million, or 25.0% of revenue, in the first nine months of 2006. Net income for the first nine months of 2007 was $849,513, or ($0.19) per diluted share, compared to net income of $1.4 million, or $0.14 per diluted share, in the same period a year ago. Fully diluted earnings per share for the first nine months reflect the non-cash conversion expense of the Company’s convertible debentures. Adjusting net income to exclude non-cash debt financing and other expenses related to the Company’s convertible debentures and warrants of $1.5 million, non-GAAP net income was $2.3 million, or $0.13 per fully diluted share, in the first nine months of 2007.

Financial Condition

As of September 30, 2007, Skystar Bio-Pharmaceutical had $335,158 in cash and restricted cash, loans receivable and other receivables of $2.2 million, total liabilities of $3.8 million and working capital of $5.7 million. Shareholders’ equity increased to $16.5 million from $9.7 million as of December 31, 2006.

Business Outlook

In 2007, Skystar Bio-Pharmaceutical has received approval for 69 new veterinary medicines from the Ministry of Agriculture. The Company expects to receive approval for 40 additional veterinary medicines by year end. Skystar has also opened 240 new Skystar franchise stores to date and intends to have 300 operating franchise stores by the end of 2007. The Company recently began the construction of the second phase of its new facilities which includes a Good Manufacturing Practice compliant biopharmaceutical workshop for the production of microorganisms and vaccines. The facility is expected to begin operations in April. Capital expenditures for the new facility are estimated at $1.35 million. Skystar reaffirms its outlook for full year 2007 for revenue to be in the range of $12.0 million to $14.0 million and non-GAAP net income to be in the range of $2.5 to $3.0 million.

''We intend to continue building on our tremendous accomplishments made this quarter in terms of products launched, marketing efforts and building brand awareness. We have obtained approval for 69 new veterinary medicines to date and successfully launched 59 of them in the market,’' commented Mr. Lu. ''Our marketing efforts for the rest of 2007 include a new sales incentive campaign in recognition of our 10th year anniversary and promotional cash prizes in our new Cure King products.’'

Use of Non-GAAP Financial Measures

GAAP results for the third quarter and nine months ended September 30, 2007 include certain non-cash debt financing and other expenses related to the Company’s convertible notes and warrants. To supplement the Company’s condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release. The Company’s management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company’s historical performance. A reconciliation of adjustments to GAAP results appears below. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

Conference Call

Skystar will host a conference call at 10:30 am EST on Friday, November 16, 2007, to discuss the third quarter 2007 financial results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial 617-614-2702. When prompted by the operator, mention conference passcode 629 683 64. If you are unable to participate in the call at this time, a replay will be available for seven days starting on Friday, November 16, 2007 at 12:30 p.m. Eastern Time. To access the replay, dial 888- 286-8010 and enter the passcode 899 525 43. International callers should dial 617-801-6888 and enter the same passcode. This conference call will be broadcast live over the Internet and can be accessed by all interested parties at the Company’s corporate website at http://www.skystarbio- pharmaceutical.com/ . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

About Skystar Bio-Pharmaceutical

Skystar Bio-Pharmaceutical Company is a China-based producer and distributor of veterinary medication, vaccines, micro-organisms and 100% organic herbal feed additives to cure and prevent disease in poultry, livestock, birds and pets. The company’s product line consists of more than 80 state-of-the-art products with over 50 additional products in the developmental stage. Skystar has formed strategic sales distribution networks throughout China. Skystar recently completed construction of new state-of- the-art bio-pharmaceutical facilities covering an area of almost eight acres. The new facilities meet or exceed all Good Manufacturing Practice (GMP) Certification Standards and have received GMP Certification from the Chinese government. For additional information, please visit http://www.skystarbio- pharmaceutical.com .

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by Skystar on its conference call in relation to this release, constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management’s current expectations. Such factors include, but are not limited to uncertainties in product demand, the impact of competitive products and pricing, the Company’s ability to obtain regulatory approvals, changing economic conditions around the world, release and sales of new products and other factors detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission and other regulatory authorities. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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crocker.coulson@ccgir.comleslie.richardson@ccgir.comscramer@skystarbio-pharmaceutical.com

CONTACT: CCG Elite Investor Relations - Crocker Coulson, President,
crocker.coulson@ccgir.com; or Leslie Richardson, Financial Writer,
+1-310-231- 8600 x122, or leslie.richardson@ccgir.com, both for Skystar
Bio-Pharmaceutical Co.; or Skystar Bio-Pharmaceutical Company - Scott
Cramer, Director - U.S. Representative, +1-407-645-4433, or
scramer@skystarbio-pharmaceutical.com

Web site: http://www.skystarbio-pharmaceutical.com/

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