10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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 September 30, 2009

	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 000-28153

Skystar Bio-Pharmaceutical Company

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

Nevada (State or other jurisdiction of incorporation or organization)	33-0901534 (I.R.S. employer 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 November 12, 2009, the Registrant had 6,963,638 shares of Common Stock outstanding. This share amount is adjusted for our two for one forward split which will be effectuated on November 16, 2009.

SKYSTAR BIO-PHARMACEUTICAL COMPANY

FORM 10-Q

INDEX

		Page Number
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	1
	Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2009 and 2008	2
	Consolidated Statements of Shareholders’ Equity	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008	4
	Notes to the Consolidated Financial Statements as of September 30, 2009	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Submission of Matters to a Vote of Security Holders	52
Item 5.	Other Information	52
Item 6.	Exhibits	52
SIGNATURES		55

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

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

	September 30,  2009		December 31,  2008
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	14,796,990	$	576,409
Restricted cash		151		80,885
Short-term investments		-		352,080
Accounts receivable, net of allowance for doubtful accounts of $327,857 and $327,857 as of September 30, 2009 and December 31, 2008, respectively		6,100,064		2,424,102
Inventories		7,623,655		3,086,060
Deposits and prepaid expenses		5,111,345		4,878,851
Loans receivable		2,420,738		295,087
Due from related parties		12,056		-
Other receivables		118,943		85,099
Total current assets		36,183,942		11,778,573
PLANT AND EQUIPMENT, NET		8,772,527		7,413,689
CONSTRUCTION-IN-PROGRESS		9,207,690		6,516,630
OTHER ASSETS:
Long-term prepayments		1,041,570		5,207,117
Intangible assets, net		1,957,421		899,529
Total other assets		2,998,991		6,106,646
Total assets	$	57,163,150	$	31,815,538
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	278,932	$	547,430
Accrued expenses		626,257		1,488,575
Short-term loans		220,050		748,170
Short-term loans from shareholders		110,025		308,070
Deposits from customers		525,904		424,266
Taxes payable		1,696,807		212,661
Other payables		102,150		68,398
Shares to be issued to related parties		220,245		95,204
Due to related parties		-		242,225
Total current liabilities		3,780,370		4,134,999
OTHER LIABILITIES:
Deferred government grant		1,100,250		1,100,250
Warrant liability		1,226,963		-
Total other liabilities		2,327,213		1,100,250
Total liabilities		6,107,583		5,235,249
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000 Series "A" shares authorized and 2,000,000 shares issued and outstanding as of  September 30, 2009 and December 31, 2008, respectively 48,000,000 Series "B" shares authorized, Nil Series "B" shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		2,000		2,000
Common stock, $0.001 par value, 40,000,000 shares authorized, 6,963,638 and 3,733,038 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		6,965		3,735
Paid-in capital		34,354,481		16,345,773
Statutory reserves		3,755,115		2,952,710
Retained earnings		10,142,117		4,418,464
Accumulated other comprehensive income		2,794,889		2,857,607
Total shareholders' equity		51,055,567		26,580,289
Total liabilities and shareholders' equity	$	57,163,150	$	31,815,538

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

1

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 and 2008

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
REVENUE, NET	$	12,777,095		$	10,051,259		$	22,844,099		$	17,215,807
COST OF REVENUE		6,107,477			4,865,122			11,012,672			8,329,025
GROSS PROFIT		6,669,618			5,186,137			11,831,427			8,886,782
OPERATING EXPENSES:
Research and development		398,685			203,242			882,732			369,940
Selling expenses		412,051			549,580			1,204,653			1,042,267
General and administrative		878,866			318,470			1,818,920			1,220,796
Total operating expenses		1,689,602			1,071,292			3,906,305			2,633,003
INCOME FROM OPERATIONS		4,980,016			4,114,845			7,925,122			6,253,779
OTHER INCOME (EXPENSE):
Other income (expense), net		79,068			(166	)		78,526			(493,424	)
Interest income (expense), net		9,148			(6,589	)		8,662			(489,764	)
Inducement cost for debentures converted		-			-			-			(257,775	)
Change in fair value of warrants		1,092,824			-			(349,332	)		-
Total other income (expense), net		1,181,040			(6,755	)		(262,144	)		(1,240,963	)
INCOME BEFORE PROVISION FOR INCOME TAXES		6,161,056			4,108,090			7,662,978			5,012,816
PROVISION FOR INCOME TAXES		813,722			642,066			1,367,797			1,056,506
NET INCOME		5,347,334			3,466,024			6,295,181			3,956,310
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		(8,037	)		110,845			(62,718	)		1,337,825
COMPREHENSIVE INCOME	$	5,339,297		$	3,576,869		$	6,232,463		$	5,294,135
EARNINGS PER SHARE:
Basic	$	0.77		$	0.93		$	1.30		$	1.09
Diluted	$	0.76		$	0.93		$	1.29		$	1.09
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic		6,960,028			3,729,408			4,824,306			3,617,079
Diluted		7,025,343			3,729,408			4,890,712			3,625,271

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

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, December 31, 2007		2,000,000	$	2,000		3,422,240	$	3,422	$	14,692,209		$	1,652,720	$	122,271		$	1,442,602		$	17,915,224
Stock-based compensation										62,758											62,758
Shares issued for services						20,608		21		115,139											115,160
Shares issued for debt settlement						42,080		42		220,878											220,920
Debentures converted to common stock						245,500		247		1,239,532											1,239,779
Foreign currency translation																		1,337,825			1,337,825
Net income															3,956,310						3,956,310
Appropriation to statutory reserve													617,970		(617,970	)					-
BALANCE, September 30, 2008, (Unaudited)		2,000,000		2,000		3,730,428		3,732		16,330,516			2,270,690		3,460,611			2,780,427			24,847,976
Shares issued for services						2,610		3		15,257											15,260
Foreign currency translation																		77,180			77,180
Net income															1,639,873						1,639,873
Appropriation to statutory reserves													682,020		(682,020	)					-
BALANCE, December 31, 2008, as previously reported		2,000,000		2,000		3,733,038		3,735		16,345,773			2,952,710		4,418,464			2,857,607			26,580,289
Cumulative effect of reclassification of warrants										(1,108,508	)				230,877						(877,631	)
BALANCE, January 1, 2009, as adjusted, (Unaudited)		2,000,000		2,000		3,733,038		3,735		15,237,265			2,952,710		4,649,341			2,857,607			25,702,658
Shares issued for services						8,828		8		46,757											46,765
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
Foreign currency translation																		(62,718	)		(62,718	)
Net income															6,295,181						6,295,181
Appropriation to statutory reserves													802,405		(802,405	)					-
BALANCE, September 30, 2009, (Unaudited)		2,000,000	$	2,000		6,963,638	$	6,965	$	34,354,481		$	3,755,115	$	10,142,117		$	2,794,889		$	51,055,567

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

3

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Unaudited)

	Nine months ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,295,181		$	3,956,310
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation		384,465			330,155
Amortization		115,621			113,081
Amortization of deferred financing costs		-			101,815
Amortization of discount on debentures		-			406,538
Amortization of deferred compensation		-			62,758
Inducement cost for debentures converted		-			257,775
Default premium on debentures		-			490,713
Common stock issued for services		46,765			115,160
Common stock to be issued to related parties for compensation		125,041			-
Inducement cost for debt settlement		-			42,081
Change in fair value of warrant liability		349,332			-
Change in operating assets and liabilities
Accounts receivable		(3,673,207	)		(2,191,545	)
Inventories		(4,534,194	)		(3,504,274	)
Deposits and prepaid expenses		(232,333	)		(2,901,353	)
Other receivables		(33,819	)		(102,306	)
Accounts payable		(268,295	)		109,968
Accrued expenses		(200,078	)		273,498
Deposits from customers		101,562			179,479
Taxes payable		1,483,034			1,966,092
Other payables		33,727			(2,079	)
Net cash used in operating activities		(7,198	)		(296,134	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Refund of long-term prepayments		2,711,182			559,143
Repay for potential acquisition		-			(430,110	)
Loans to third parties		(1,832,563	)		(109,930	)
Proceeds from loans receivable		2,288,490			688,176
Addition to loan receivable		(2,579,984	)		-
Purchases of intangible assets		(1,172,720	)		-
Purchases of plant and equipment		(1,742,284	)		(1,622,813	)
Payments on construction-in-progress		(1,237,802	)		-
Net cash used in investing activities		(3,565,681	)		(915,534	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in restricted cash		80,673			(506	)
Proceeds from short-term loans		219,885			-
Repayment for short-term loans		(747,609	)		-
Proceeds from equity offering		18,411,496			-
Proceeds from short term investment		351,816			-
Repayment to shareholders and directors		(307,839	)		(492,687	)
Proceeds from shareholders and directors		109,943			601,686
Due from( to) related parties		(254,236	)		(47,965	)
Proceeds from shareholders loans		-			301,077
Proceeds from short-term loans		-			716,850
Net cash provided by financing activities		17,864,129			1,078,455
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(70,669	)		47,547
INCREASE (DECREASE) IN CASH		14,220,581			(85,666	)
CASH, beginning of period		576,409			771,492
CASH, end of period	$	14,796,990		$	685,826
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	51,993		$	12,728
Cash paid for income taxes	$	794,660		$	740,899
Non-cash investing and financing activities
Long-term prepayment transferred to construction-in-progress	$	2,492,030		$	-
Issuance of common stock for debt settlement	$	-		$	178,839
Debentures converted to common stock	$	-		$	982,003
Interest expense capitalized as construction-in-progress	$	51,596		$	-
Expense paid through contribution receivable	$	662,185		$	-

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

4

SKYSTAR BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

(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 (“FASB”) Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” 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 14.

Hereinafter, Skystar, 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

The unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.  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 nine months ended September 30, 2009, are not necessarily indicative of the results to be expected for the full year ending December 31, 2009.

5

Principles of consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and have been consistently applied.

The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, Skystar Cayman, Fortunate Time, and Sida, and its VIEs, Xian Tianxing and Shanghai Siqiang. All significant inter-company transactions and balances among the Company, its subsidiaries and VIEs have been eliminated in consolidation.

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 their function 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 September 30, 2009 and December 31, 2008 were US $1.00 to RMB 6.84 and RMB 6.82, respectively. The average translation rates of US $1.00 to RMB 6.84 and RMB 6.98 was applied to the income statement accounts for the nine-month periods ended September 30, 2009 and 2008, respectively. For the three-month period ended September 30, 2009 and 2008, the average translation rates were $1.00 to RMB 6.84 and RMB 6.85, 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

On January 1, 2008, the Company adopted 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 qualified 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 rate is equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:

6

• 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.

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 adopting, 309,100 warrants previously treated as equity pursuant to the derivative 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 Renminbi. 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 will be 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 gain of $1,092,824 from the change in fair value of the warrant liability for the three months ended September 30, 2009 and a loss of $349,332 for the nine months ended September 30, 2009.

These common stock purchase 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 – 195,000						Warrants – 114,100
	September 30, 2009			January 1, 2009			September 30, 2009			January 1, 2009
	(Unaudited)						(Unaudited)
Stock price	$	7.80		$	4.750		$	7.80		$	4.75
Exercise price	$	6.00		$	6.00		$	5.00		$	5.00
Annual dividend yield		—			—			—			—
Expected term (years)		.42			1.20			2.42			3.20
Risk-free interest rate		0.160	%		0.875	%		1.200	%		1.125	%
Expected volatility		74	%		140	%		170	%		130	%

7

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.

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 309,100 warrants 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 September 30, 2009:

	Carrying Value at September 30, 2009		Fair Value Measurement at September 30, 2009
			Level 1		Level 2		Level 3
Warrant liability	$	1,226,963	$	—	$	1,226,963	$	—

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 and nine months ended September 30, 2009, 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 allowance for sales returns is made 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 costs of goods sold are included in selling expenses, which totaled $296,170 and $182,274 for the three months ended September 30, 2009 and 2008, respectively and $605,911 and $306,162 for the nine months ended September 30, 2009 and 2008, respectively.

8

The Company’s revenues and cost of revenues by product line were as follows for the three and nine months ended September 30, 2009 and 2008:

	Three months ended September 30,				Nine months ended September 30,
	2009		2008		2009		2008
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenues
Micro-organism	$	3,186,453	$	2,411,526	$	5,815,280	$	4,352,781
Veterinary Medications		8,483,233		6,785,154		14,999,173		11,389,155
Feed Additives		539,856		513,980		1,003,628		784,161
Vaccines		567,553		340,599		1,026,018		689,710
Total Revenues		12,777,095		10,051,259		22,844,099		17,215,807
Cost of Revenues
Micro-organism		786,741		720,667		1,560,588		1,305,793
Veterinary Medications		5,069,745		3,894,925		8,938,770		6,607,869
Feed Additives		205,543		212,938		404,349		339,578
Vaccines		45,448		36,592		108,965		75,785
Total Cost of Revenues		6,107,477		4,865,122		11,012,672		8,329,025
Gross Profit	$	6,669,618	$	5,186,137	$	11,831,427	$	8,886,782

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 13).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.

Short-term investments

Short-term investments are comprised of securities classified as available-for-sale, held by a private investment trust company for investing activities with a fixed rate of return on investment. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in other comprehensive income, net of tax. Realized gains or losses are included in the results of operations. There was no unrealized gain or loss relating to short-term investments for the three and nine months ended September 30, 2009 and 2008, and as such, no such amounts were included in other comprehensive income for such periods.

The Company entered into an investment agreement with an unrelated party in 2007 to invest certain funds in the Chinese stock market. The nature of the investment is available-for-sale with certain guaranteed returns such as 7.2% interest through August 1, 2008 and 5.0% interest after August 1, 2008 for one year. There are no restrictions or penalties for early withdrawals prior to maturity. The investment matured on July 31, 2009 and the investment principal of $307,650 and accrued interest of $22,660 was received by the Company on August 3, 2009.

9

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.

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 September 30, 2009 and December 31, 2008, 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.

10

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 expected useful life of five 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 September 30, 2009, there was no impairment of its intangible assets.

Comprehensive income

The FASB’s accounting standard of reporting comprehensive income require 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 totaled to $28,583 and $151,798 for the three months ended September 30, 2009 and 2008, respectively, and $104,450 and $176,866 for the nine months ended September 30, 2009 and 2008, 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. There was no deferred tax amount as of September 30, 2009 and December 31, 2008.

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.

11

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.

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 10-for-1 reverse stock split effectuated on May 12, 2009 and 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.

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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 June 2008, the FASB issued an accounting standard determining whether instruments granted in share-based payment transactions are participating securities. The standard addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in the FASB’s accounting standard of “Earnings per Share.” The standard requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The accounting standard is effective for fiscal years beginning after December 15, 2008; earlier application is not permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In January 2009, the FASB issued an accounting standard amending the Impairment Guidance of recognition of interest income and impairment on purchased and retained beneficial interests in securitized financial assets. The newly issued accounting standard changes the impairment model included to be more consistent with the impairment model of another accounting standard for accounting for securities.  The new accounting standard remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of this FASB Staff Positions did not have a material impact the Company’s consolidated financial statements.

In April 2009, the FASB issued three related FASB Staff Positions: (i) Recognition of Presentation of Other-Than-Temporary Impairments, (ii) Interim Disclosures about Fair Value of Financial Instruments, and (iii) Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which are effective for interim and annual reporting periods ending after June 15, 2009. The first Staff Position modifies the requirement for recognizing other-than-temporary impairments, changes the existing impairment model, and modifies the presentation and frequency of related disclosures. The second Staff Position requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements.  The third Staff Position requires new disclosures regarding the categories of fair value instruments, as well as the inputs and valuation techniques utilized to determine fair value and any changes to the inputs and valuation techniques during the period.  The adoption of these FASB Staff Positions did not have a material impact the Company’s consolidated financial statements.

In May 2009, the FASB an accounting standard which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. The standard is effective for interim and annual periods ending after June 15, 2009, and accordingly, the Company adopted this Standard during the second quarter of 2009. The standard requires that public entities evaluate subsequent events through the date that the financial statements are issued.

In June 2009, the FASB issued an accounting standard which establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification is effective for the Company in the third quarter of 2009, and accordingly, the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and all current and subsequent public filings will reference the Codification as the sole source of authoritative literature.

13

In August 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring liabilities at fair value. This ASU provides additional guidance clarifying the measurement of liabilities at fair value in circumstances in which a quoted price in an active market for the identical liability is not available; under those circumstances, a reporting entity is required to measure fair value using one or more of valuation techniques, as defined. This ASU is effective for the first reporting period, including interim periods, beginning after the issuance of this ASU. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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 Company is currently evaluating the impact of this ASU on its consolidated financial statements.

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 September 30, 2009 and December 31, 2008, the Company had deposits in excess of federally insured limits (including restricted cash) of $14,958,360 and $448,082 respectively. The Company has not experienced any losses in such accounts.

For the three months and nine months ended September 30, 2009 and 2008, 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 September 30, 2009 and December 31, 2008 also arose in the PRC.

The Company’s two largest vendors accounted for approximately 42% of the Company’s total purchases for the three months ended September 30, 2009, while the Company’s four largest vendors accounted for 65% of the Company’s total purchases for the three months ended September 30, 2008. The Company’s two largest vendors accounted for approximately 37% of the Company’s total purchases for the nine months ended September 30, 2009, while the Company’s four largest vendors accounted for 61% of the Company’s total purchases for the nine months ended September 30, 2008.  As of September 30, 2009, there were no amounts due to those two largest vendors.

The Company had one product that accounted for 20% and 26% of the Company’s total revenues for the three months and nine months ended September 30, 2009, respectively. Revenue from sales of this product accounted for 15% and 11% of the total revenue for the three months and nine months ended September 30, 2008, respectively.

14

Note 4 - - ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following:

	September 30,  2009			December 31,  2008
	(Unaudited)
Account receivable	$	6,427,921		$	2,751,959
Allowance for bad debts		(327,857	)		(327,857	)
Account receivable, net	$	6,100,064		$	2,424,102

The following table presents the movement of allowance for doubtful accounts as of September 30, 2009 and December 31, 2008:

Allowance for bad debt, December 31, 2007	$	199,639
Addition		114,239
Recovery		—
Translation adjustment		13,979
Allowance for bad debt, December 31, 2008		327,857
Addition		—
Recovery		—
Translation adjustment		—
Allowance for bad debt, September 30, 2009(unaudited)	$	327,857

Note 5 – INVENTORIES

Inventories consist of the following:

	September 30,  2009		December 31,  2008
	(Unaudited)
Raw materials	$	4,219,279	$	2,087,428
Packing materials		388,384		165,077
Work-in-process		5,520		2,446
Finished goods		2,990,901		811,538
Other		19,571		19,571
Total	$	7,623,655	$	3,086,060

The Company periodically reviews its reserves for slow moving and obsolete inventories. As of September 30, 2009 and December 31, 2008, the Company believes that no such reserves were necessary.

Note 6 - DEPOSITS AND PREPAID EXPENSES

Deposits and prepaid expenses are comprised of the following:

	September 30,  2009		December 31, 2008
	(Unaudited)
Prepayment for raw materials purchasing	$	5,038,161	$	4,210,618
Prepayment for packaging materials purchasing		43,447		499,755
Prepayment for advertisement fee		-		89,436
Prepayment for due diligence fee		12,916		73,350
Other		16,821		5,692
Total	$	5,111,345	$	4,878,851

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Note 7 – LOANS RECEIVABLE

Loans receivable consist of the following:

	September 30,  2009		December 31,  2008
	(Unaudited)
Shaanxi Xinbangdike Technology Developing Company (1)	$	586,800		$	295,087
Other loans receivable (2)		1,833,938			—
Total loans receivables	$	2,420,738		$	295,087

(1) Loan to Shaanxi Xinbangdike Technology Development Company is non-interest bearing, unsecured and due on demand.

(2) Loans to five vendors are non-interest bearing and unsecured, and were paid to the Company in October 2009.

Note 8 - PLANT AND EQUIPMENT, NET

Plant and equipment consist of the following:

	September 30, 2009		December 31,  2008
	(Unaudited)
Building and improvements	$	6,176,086	$	4,977,654
Machinery and equipment		3,035,620		3,035,376
Office equipment and furniture		191,802		186,702
Vehicles		329,146		329,331
Total		9,732,654		8,529,063
Less: accumulated depreciation		(1,500,127)		(1,115,374	)
Plant and equipment, net	$	8,772,527	$	7,413,689

Depreciation expense amounted to $158,512 and $112,777 for the three months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, depreciation expense amounted to $384,465 and $330,155, respectively.

Note 9 - CONSTRUCTION-IN-PROGRESS

Construction-in-progress 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 the end of 2009, at an estimated cost of $1,250,000. During the nine months ended September 30, 2009, administrative facilities were completed resulting in a transfer from CIP to property, plant and equipment of $2,870,569. No depreciation is provided for construction-in-progress until such time the assets are completed and placed into service.

16

For the three months and nine months ended September 30, 2009, $11,546 and $51,596 had been capitalized for construction-in- progress for the three months and nine months ended September 30, 2009, respectively. For the three months and nine months ended September 30, 2008, the Company did not capitalize interest expense as construction-in-progress as the amounts were de minimis.

Note 10 - LONG-TERM PREPAYMENTS

Long-term prepayments consist of the following as of September 30, 2009 and December 31, 2008:

	September 30, 2009		December 31, 2008
	(Unaudited)
Construction deposit	$	1,041,570	$	2,493,167
Deposit for potential acquisitions		-		2,713,950
Total	$	1,041,570	$	5,207,117

As of September 30, 2009 and December 31, 2008, 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 the projects underlying the construction deposit and any potential acquisitions is contingent upon the Company identifying target companies.

Deposits for potential acquisitions represent deposits made to four separate potential acquisition targets: one that produces veterinary medicines, one that produces micro-organisms and feed additives, one that produces veterinary medicines for domestic pets, and one with buildings for the Company’s own future expansion. In April 2009, all deposits made by the Company for potential acquisitions in the amount of $2,711,182 (RMB 18,500,000) were returned to the Company.

Note 11 – INTANGIBLE ASSETS

	September 30, 2009		December 31, 2008
	(Unaudited)
Land use rights	$	378,853	$	378,853
Technological know-how		2,053,800		880,200
Total		2,432,653		1,259,053
Less: accumulated amortization		(475,232)		(359,524	)
Intangible assets, net	$	1,920,421	$	899,529

During 2007, the Company paid $658,350 for the exclusive rights to the use of a strain of micro-bio organisms for a five-year term from November 1, 2007 through October 31, 2012. The Company began using the strain in its veterinary medicines in 2008.

For the three months ended September 30, 2009 and 2008, the amortization expense amounted to $38,551 and $38,498, respectively. The amortization expense for intangibles was $115,621 and $113,081 for the nine months ended September 30, 2009 and 2008, respectively.

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

17

Years ending December 31,	Amount
2009	$	97,249
2010		388,997
2011		388,997
2012		269,834
2013		242,297
2014 and thereafter		570,047
Total	$	1,957,421

Note 12 – SHORT-TERM LOANS

On September 3, 2008, the Company signed a one year short-term agreement with the Bank of East Asia to borrow up to $1.9 million (RMB 13 million) for operating purposes secured by the Company’s land use rights and buildings. On September 17, 2008, the Company received proceeds of $733,500 (RMB 5 million) from the bank.  The balance of $1.1 million (RMB 8 million) can be borrowed once the Company has a deposit balance in the amount of $4 million with the bank and uses the bank as the Company’s primary transaction bank.  The applicable interest rate of the loan is the Bank of China’s standard short-term rate, 6.93% at inception of the loan, which is subject to change with the government policy, plus an additional 20% interest rate float. Pursuant to these terms, the interest rates were approximately 8.32% and 8.32% as of September 30, 2009 and December 31, 2008, respectively. Interest payments to the Bank of East Asia are due every six months.  The Company repaid amount of $ 747,609(RMB 5 million) on September 16, 2009. 

Pursuant to the short-term loan agreement, the Company is required to comply with certain covenants, such as maintaining sufficient environmental controls with respect to the Company’s manufacturing processes, providing written notification to the bank for any changes in the organizational structure or executive officers, among others. As of September 30, 2009, the Company determined that it was in compliance with these covenants.

On January 14, 2009, the Company signed a one year short-term loan contract with Shaanxi Agricultural Yanta Credit Union for $219,885 (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 will become due on January 13, 2010.

Interest expense incurred and associated with the short-term loans amounted to $11,546 and $51,596 for the three months and nine months ended September 30, 2009, respectively, which has been capitalized as part of construction-in-progress.

Note 13 - DEFERRED GOVERNMENT GRANT

Deferred government grant represents subsidies for GMP projects granted by the PRC government. A subsidy in the amount of $641,000 was approved by the PRC government for the Company to construct a new factory in which operations will meet the GMP Standard. In 2003, $516,500 was received by the Company and the remaining $124,500 was received in the first quarter of 2006. In 2006, the Company expended $186,644 for the construction of its new factory (Note 9).

Also in 2003, the Company received a second subsidy in the amount of $256,400 to finance the Company’s research and development activities. In 2005, the Company received a third subsidy of $64,100 for the Company’s research and development activities, which was expended during that year.

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 September 30, 2009, 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 next year. Therefore, these amounts are reflected as non-current liabilities in the accompanying consolidated financial statements.

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Note 14 - CAPITAL TRANSACTIONS

On May 12, 2009, the Company effectuated a 10-for-1 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 10-for-1 reverse stock split. On November 5, 2009, the Company announced a two-for-one forward split of the Company’s outstanding common stock from 20 million to 40 million shares which will take place after market close on November 16, 2009. Number of common stock, warrants, options disclosed in the footnotes has been retroactively restated to reflect the 2-for-1 forward stock split.

Stock-based compensation

On February 12, 2008, the Company issued 18,000 shares of common stock as salary to a non-executive director. 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. The Company also had a $220,245 and $95,204 balance under shares to be issued as of September 30, 2009 and December 31, 2008, which represented 25,056 and 22,000 common shares to be issued to the non-executive director for his service provided for the period from May 2008 to September 2009, and for the period from May 2008 to December 2008, 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.

On February 29, 2008, the Company issued 42,080 shares of common stock to its legal counsel as partial payment for services rendered. The trading value of the Company's common stock on February 29, 2008, was $5.25 per share and additional inducement cost of $42,081 between the fair value of the shares at $220,920 and the partial payment of $178,839 was charged to general and administrative expenses.

On April 21, 2008, two of the Company’s convertible debenture holders converted $982,003 of debentures into 245,500 shares of common stock.

On May 5, 2008, the Company agreed to issue 10,434 shares of common stock to its chief financial officer (“CFO”) during the term of the one-year agreement. The shares 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. The 2008 restricted stocks were fully vested.  On May 5, 2009, the Company renewed the one-year service agreement with the CFO and agreed to issue 14,440 restricted shares of the Company’s common stock, which will 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 $49,365 and $24,751 was charged to general and administrative expenses for the three months and nine months ended September 30, 2009, respectively. 

On May 26, 2009, the Company agreed to issue 5,556 shares of common stock to its 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 was charged to general and administrative expenses for the three months and nine months ended September 30, 2009.

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. As of September 30, 2009, none of these warrants have been exercised. Following is a summary of the status of warrants outstanding at September 30, 2009:

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Number of		Average Remaining	Average
Warrants		Contractual Life	Exercise Price
	195,000	0.42 years	$	6.00
	114,100	2.42 years	$	5.00
	309,100		$	5.63

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

Outstanding as of December 31, 2007	309,100
Granted	—
Forfeited	—
Exercised	—
Outstanding as of September 30, 2008 (unaudited)	309,100
Granted	—
Forfeited	—
Exercised	—
Outstanding as of December 31, 2008	309,100
Granted	—
Forfeited	—
Exercised	—
Outstanding as of September 30, 2009 (unaudited)	309,100

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, Skystar agreed to issue and sell an aggregate of 3,220,000 shares (including 420,000 over-allotment shares) of the Company’s 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 individuals from the Underwriters. The options are exercisable from June 30, 2010 to June 30, 2014, and each option is exercisable for one share of common stock of the Company, 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 at September 30, 2009:

Outstanding Options

Exercisable Options

Number

Average Remaining

Average

Number

Average Remaining

Average

of Options

Contractual Life

Exercise Price

of Options

Contractual Life

Exercise Price

140,000

4.75

$

8.11

—

—

$

—

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

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	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 September 30, 2009(unaudited)		140,000	$	8.11	$	—

Incremental costs incurred of this offering, including underwriting commission, legal fees, and printing costs were $1,730,477, and 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.

Note 15 - CONVERTIBLE DEBENTURES

In February 2007, the Company sold an aggregate of $4.075 million of its 8% convertible debentures (the “Debentures”) and issued warrants to purchase 815,000 shares of common stock to several institutional and accredited investors. On April 21, 2008, the Company entered into an Amendment and Waiver Agreement (the “Amendment”) with two institutional and accredited investors who acquired two remaining unconverted Debentures in a private transaction from the original holders of these Debentures. A summary of the Amendment is as follows:

• The Amendment amends the terms of these Debentures by: (a) changing the conversion price from $5.00 per share to $4.00 per share; (b) deleting the trading conditions for mandatory conversion; (c) granting the Company the right to mandatory conversion at any time, and (d) allowing the Company to designate the date for the mandatory conversion.

• The Amendment is deemed to be the Company’s notice to require conversion of the entire outstanding principal of these Debentures and all accrued but unpaid interest thereon.

The difference between the value of the conversion option at the previous prices and their value at the modified prices are deemed costs for the Company and are charged to operations. The inducement cost for the two Debentures converted was $257,775 for nine months ended September 30, 2008. The inducement cost for the converted Debentures was based on the market value of the additional 49,100 shares obtained by these two investors at $5.25 per share on April 21, 2008.

245,500 shares of common stock were issued upon conversion of the two Debentures with a carrying value of $982,003 (including $490,713 of default premium) at a reduced conversion price of $4.00.

In accordance with the accounting standard of application of certain convertible instruments, all unamortized discount amounting to $291,548 at the time of the conversion was recognized as interest expense for the nine months ended September 30, 2008. The unamortized deferred financing costs of $79,998 on conversion of the Debentures were also recorded as interest expense for the nine months ended September 30, 2008.

Note 16 - 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 registered capital of the respective subsidiaries, further appropriations are discretionary. The statutory surplus reserve can be used to increase the registered capital and eliminate future losses of the respective companies under PRC GAAP. The Company’s statutory surplus reserve is not distributable to shareholders except in the event of liquidation. As of September 30, 2009, Xian Tianxing has not met the statutory surplus reserve requirement, and approximately $6,464,917 still needs to be transferred to the statutory surplus reserve from Shanghai Siqiang and Sida.

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The reserve fund can be used to increase the registered capital upon approval by relevant government authorities and eliminate future losses of the respective companies upon a resolution by the board of directors.

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 17 – TAXES

Skystar is incorporated in the State of Nevada whereas its subsidiary, Skystar Cayman, is a tax-exempt company incorporated in the Cayman Islands and conducts all of its business through its subsidiaries, Fortunate Time, 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%.

The following table reconciles the U.S. statutory rates to the Company's effective tax rate as of September 30:

	2009			2008
	(Unaudited)			(Unaudited)
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)		2.9			6.1
Total provision for income taxes		17.9	%		21.1	%

(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 2.9% and 6.1% for the nine months ended September 30, 2009 and 2008, respectively.

The estimated tax savings due to the reduced tax rate for the three months ended September 30, 2009 and 2008 amounted to $640,813 and $419,931, respectively. If the statutory income tax had been applied, the Company would have decreased basic per share from $0.77 to $0.68 and from $0.93 to $0.82 for the three months ended September 30, 2009 and 2008, respectively.  The Company would have decreased diluted per share from $0.76 to $0.67 and from $0.93 to $0.82 for the three months ended September 30, 2009 and 2008, respectively.

The estimated tax savings due to the reduced tax rate for the nine months ended September 30, 2009 and 2008 amounted to $985,532 and $706,111, respectively. The net effect on earnings per share if the statutory income tax had been applied would decrease basic earnings per share for the nine months ended September 30, 2009 and 2008 to $1.10 and $0.90, respectively, and would decrease diluted earnings per share to $1.09 and $0.90, respectively.

Skystar is incorporated in the U.S. and has incurred a net operating loss for income tax purposes for 2009. As of September 30, 2009, the estimated net operating loss carryforwards for U.S. income tax purposes amounted to $4,183,663 which may be available to reduce future years’ taxable income. These carryforwards will expire, if not utilized, beginning in 2026 and continue through 2029. 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 September 30, 2009 and December 31, 2008. The valuation allowance at September 30, 2009 and December 31, 2008 was $1,422,445 and $967,424, respectively. The Company’s management reviews this valuation allowance periodically and makes adjustments as necessary.

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The Company has cumulative undistributed earnings of foreign subsidiaries of approximately $ 14,089,657 as of September 30, 2009, 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 18 - EARNINGS PER SHARE

The following is the calculation of earnings per share:

	For the three months ended September 30,				For the nine months ended September 30,
	2009		2008		2009		2008
Net income	$	5,347,334	$	3,446,024	$	6,295,181	$	3,956,310
Weighted average shares used in basic computation		6,960,028		3,729,408		4,824,306		3,617,079
Diluted effect of stock warrants		65,315				66,406		8,192
Weighted average shares used in diluted computation		7,025,343		3,729,408		4,890,712		3,625,271
Earnings per share:
Basic	$	0.77	$	0.93	$	1.30	$	1.09
Diluted	$	0.76	$	0.93	$	1.29	$	1.09

At September 30, 2009 and 2008, the Company had 309,100 warrants outstanding. For the nine months ended September 30, 2009 and 2008 and three months ended September 30, 2009, the average stock price was greater than the exercise prices of warrants which resulted in additional weighted-average common stock equivalents of 4,266,406, and 8,192 respectively.

140,000 outstanding options were excluded from the diluted earnings per share calculation as they are anti-dilutive.

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Note 19 - RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

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

	September 30,  2009		December 31, 2008
	(Unaudited)
Short-term loans from shareholders
Mr. Weibing Lu – officer and shareholder (1) (2)	$	36,675	$	220,050
Mr. Wei Wen – officer and shareholder (2)		36,675		44,010
Ms. Aixia Wang – shareholder (2)		36,675		44,010
Total	$	110,025	$	308,070
Shares to be issued to related party
Scott Cramer – non-executive director (3)	$	195,243	$	95,204
Mark D Chen – non-executive director(3)		25,002		—
Total	$	220,245	$	95,204
Amounts due (from) to related parties
Bennet P. Tchaikovsky – CFO (4)	$	—	$	13,168
Scott Cramer – non-executive director and shareholder (4)		43,556		224,684
Shaanxi Xingji Electronics Co. - owned by a director's wife (4)		—		4,373
Officer and shareholder (4)		(55,612)		—
Total	$	(12,056)	$	242,225

(1) In 2008, Weibing Lu obtained an unsecured personal loan in the amount of $176,040 (RMB 1,500,000) from Huaxia Bank with annual interest rate of 7.47% and advanced to Xian Tianxing to facilitate operations. Xian Tianxing guaranteed the loan. The loan principal and related interest was due on December 30, 2008. On January 4, 2009, Xian Tianxing paid the full principal amount to the bank, with related interest of $15,741.

(2) 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 $109,943. 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 and nine months ended September 30, 2009, Xian Tianxing paid interest of $ 0 and $5,630, respectively, for these loans.

(3) As of September 30, 2009 and December 31, 2008, the Company had $195,243  (representing 19,500 common shares) and $95,204 balances (representing 11,000 common shares), respectively, under agreement to issue shares to Scott Cramer, respectively, as compensation for being a representative of the Company in the United States for the periods from May 2008 to June 30, 2009, and December 31, 2008, respectively. In addition, as of September 30, 2009, the Company had $25,002 balance (representing 5,556 common shares) under agreement to issue shares to Mr. Mark D Chen as compensation at the beginning of each term of his directorship.

(4) Shaanxi Xinji Electronics Co., Ltd. is owned by the wife of Weibing Lu. The amounts due to Shaanxi Xinji Electronics as of September 30, 2009 and December 31, 2008 were short-term cash transfers for business operations, non-interest bearing, unsecured, and payable upon demand. As of September 30, 2009, the Company also had $55,612 receivable from  officers and shareholders for advance for short-term financing purposes. As of September 30, 2009 and December 31, 2008, the Company also had amounts due to Scott Cramer for the expenses paid by them on behalf of the Company.

Note 20 - 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.

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

Period	Amount
Three months ending December 31, 2009	$	14,824
Year ending December 31, 2010		59,296
Year ending December 31, 2011		59,296
Year ending December 31, 2012		35,003
Year ending December 31, 2013		35,003
Year ending December 31, 2014 and thereafter		89,575
Total	$	292,997

Rental expense for the three months ended September 30, 2009 and 2008 amounted to $14,813 and $20,417, respectively. Rental expense for the nine months ended September 30, 2009 and 2008 amounted to $44,439 and $48,473, respectively.

(b) Legal proceedings

From time to time, the Companyis involved in legal matters arising in the ordinary course of business. Management currentlyis not aware of any legal matters or pending litigation, which would have a significant effect on the Company’s consolidated financial statements as of September 30, 2009.

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.

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.

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.

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(c) Ownership of leasehold property

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 September 30, 2009, the Company incurred approximately $117,272 (RMB 800,000) of expenses relating to this project, and also prepaid approximately $366,750 (RMB2,500,000) for specific raw materials and equipment for 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.

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 September 30, 2009, the Company incurred approximately $308,000 (RMB2,100,000) expenses relating to this project. This project is estimated to be completed in 2009.

During the third quarter of 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 September 30, 2009, the Company incurred approximately $293,180 (RMB2,000,000) expenses relating to this project.

Note 21 - SUBSEQUENT EVENTS

On October 27, 2009, a holder of 25,000 warrants that were issued in February 2007 and priced at $12.00 per share which expire in February 2010, exercised their cashless option which will result in the issuance of 9,578 shares. These shares will be issued to the holder after November 16, 2009. 

On November 5, 2009, the Company announced a two-for-one forward split of the Company’s outstanding common stock from 20 million to 40 million shares which will take place after market close on November 16, 2009. These financial statements have been adjusted retroactively to reflect this split.

The Company has performed an evaluation of subsequent events through November 16, 2009 which is the date the financial statements were issued.

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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 September 30, 2009 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. All share amounts have been adjusted for our two-for-one forward split of our common stock from 20 million to 40 million shares which will take place after market close on November 16, 2009.

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 and nine months ended September 30, 2009, 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 140 products;

· Our veterinary medicine line for poultry and livestock currently includes over 10 products;

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· Our feed additives line currently includes over 10 products; and

· Our micro-organism products line currently includes over 10 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 September 30, 2009, we had over 1,276 distributors and 473 direct customers.

Completion of Public Offering

On July 7, 2009, we completed a registered public offering of 3.22 million shares of common stock at a price of $6.49 per share, resulting in gross proceeds to the Company, prior to deducting underwriting discounts, commissions and offering expenses, of approximately $21 million.

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 collectibility 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:	September 30, 2009			December 31, 2008
0-30 days	$	4,266,392		$	1,639,549
31 – 60 days		1,752,579			543,153
61 – 90 days		223,217			156,153
91 – 120 days		49,554			299,828
121 – 150 days		136,179			113,276
Allowance for bad debts		(327,857	)		(327,857	)
Total	$	6,100,064		$	2,424,102

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.

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• Convertible debentures and warrants: We have adopted the accounting standards of accounting for convertible debt and debt issued with stock purchase warrants and other related derivative accounting standards for valuation and accounting treatment of our outstanding convertible debentures and warrants.

• Liquidated damages: We have adopted the FASB’s accounting standard of accounting for contingencies and the EITF’s accounting standard of accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, in connection with the liquidated damages, we accrued pursuant to the terms of our Registration Rights Agreement with certain investors dated February 27, 2007.

Recent Accounting Pronouncements

An amendment on disclosures about derivative instruments and hedging activities became effective for the Company on January 1, 2009.  The amendment seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding the impact on financial position, financial performance, and cash flows. To achieve this increased transparency, the amendment requires (1) the disclosure of the fair value of derivative instruments and gains and losses in a tabular format; (2) the disclosure of derivative features that are credit risk-related; and (3) cross-referencing within the footnotes. The adoption of the amendment did not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued an accounting standard determining whether instruments granted in share-based payment transactions are participating securities. The standard addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in the FASB’s accounting standard of “Earnings per Share.” The standard requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The accounting standard is effective for fiscal years beginning after December 15, 2008; earlier application is not permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In January 2009, the FASB issued an accounting standard amending the Impairment Guidance of recognition of interest income and impairment on purchased and retained beneficial interests in securitized financial assets. The newly issued accounting standard changes the impairment model included to be more consistent with the impairment model of another accounting standard for accounting for securities.  The new accounting standard remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of this FASB Staff Positions did not have a material impact the Company’s consolidated financial statements.

In April 2009, the FASB issued three related FASB Staff Positions: (i) Recognition of Presentation of Other-Than-Temporary Impairments, (ii) Interim Disclosures about Fair Value of Financial Instruments, and (iii) Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, which are effective for interim and annual reporting periods ending after June 15, 2009. The first Staff Position modifies the requirement for recognizing other-than-temporary impairments, changes the existing impairment model, and modifies the presentation and frequency of related disclosures. The second Staff Position requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements.  The third Staff Position requires new disclosures regarding the categories of fair value instruments, as well as the inputs and valuation techniques utilized to determine fair value and any changes to the inputs and valuation techniques during the period.  The adoption of these FASB Staff Positions did not have a material impact the Company’s consolidated financial statements.

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In June 2009, the FASB issued an accounting standard amending the accounting and disclosure requirements for transfers of financial assets. This accounting standard requires entities to provide more information regarding sales of securitized financial assets and similar transactions, particularly if the entity has continuing exposure to the risks related to transferred financial assets. In addition, it eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of the standard on its consolidated financial statements.

In June 2009, the FASB issued an accounting standard amending the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). This standard modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. It clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. An ongoing reassessment is required of whether a company is the primary beneficiary of a variable interest entity. Further, it also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. The standard is effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the impact of the standard on its consolidated financial statements.

In August 2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring liabilities at fair value. This ASU provides additional guidance clarifying the measurement of liabilities at fair value in circumstances in which a quoted price in an active market for the identical liability is not available; under those circumstances, a reporting entity is required to measure fair value using one or more of valuation techniques, as defined. This ASU is effective for the first reporting period, including interim periods, beginning after the issuance of this ASU. The adoption of this ASU did not have a material impact the Company’s consolidated financial statements.

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 Company is currently assessing the impact of this ASU on its consolidated financial statements.

Results of Operations – Three Month Periods ended September 30, 2009 and 2008

The following table summarizes our results of operations for the three months ended September 30, 2009 and 2008.

	Three Months Ended September 30,
	2009					2008
	Amount		Percentage of total revenue			Amount		Percentage of total revenue
Revenues	$	12,777,095		100.0	%	$	10,051,259		100.0	%
Gross Profit	$	6,669,618		52.2	%	$	5,186,137		51.6	%
Operating Expense	$	1,689,602		13.2	%	$	1,071,292		10.7	%
Income from Operations	$	4,980,016		39.0	%	$	4,114,845		40.9	%
Other (Expenses)/ gains	$	1,181,040		9.2	%	$	(6,755)		(0.1	)%
Income Tax Expenses	$	813,722		6.4	%	$	642,066		6.4	%
Net Income	$	5,347,334		41.9	%	$	3,466,024		34.5	%

         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 September 30, 2009, we had revenues of $12,777,095 as compared to revenues of $10,051,259 for the three months ended September 30, 2008, an increase of approximately 27.1%. 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.

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Revenues — Veterinary Medications.  Revenues from sales of our veterinary medications product line increased from $6,785,154 for the three months ended September 30, 2009 to $8,483,233 for the three months ended September 30, 2009 for an increase of $1,698,079 or 25%.  The increase in veterinary medication sales was primarily due to our increased utilization of our 2007 veterinary medicine facility expansion of 200% and increased sales efforts. We were able to utilize this capacity expansion as our customers increased the use of products for the treatment of livestock and poultry diseases during the three months ended September 30, 2009. $632,173 of this increase was the result of the sales of new products during the three months ended September 30, 2009. Of total revenues from veterinary medications during the three months ended September 30, 2009, approximately $3,330,000 or 26% of total revenue resulted from the sale of Praziquantel tablets which treats schistosomiasis.

Revenues — Micro-Organism.  Revenues from sales of our micro-organism product line increased from $2,411,526 for the three months ended September 30, 2008 to $3,186,453 during the three months ended September 30, 2009 for an increase of $774,927 or 32.1%. The increase was the result of increased sales efforts of our probiotics micro-organism products during the three months ended September 30, 2009.

Revenues — Feed Additives.  Revenues from sales of our feed additives product line increased from $513,980 for the three months ended September 30, 2008 to $539,856 for the three months ended September 30, 2009, for an increase of $25.876 or 5.0%.

Revenues — Vaccines.  Revenues from sales of our vaccines product line increased from $340,599 for the three months ended September 30, 2008 to $567,553 for the three months ended September 30, 2009, for an increase of $226,954 or 66.6%. This increase was the result of an increase in customer demand of our vaccine products during the three months ended September 30, 2009. 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 at the end of this year.

Cost of Sales

Cost of Sales.  For the three months ended September 30, 2009, we had cost of sales, which consists of raw materials, direct labor, and manufacturing overhead, of $6,107,477 as compared to cost of sales of $4,865,122 the three months ended September 30, 2008, an increase of approximately 25.5% as a result of our overall sales increase of 27.1%. Our cost of sales consists of four product lines: veterinary medications, micro-organism, feed additives, and vaccines.

Cost of Sales — Veterinary Medications.  Cost of sales of our veterinary medications product line increased from $3,894,925 for the three months ended September 30, 2008 to $5,069,745 for the three months ended September 30, 2009, for an increase of $1,174,820 or approximately 30.2%. 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 $720,667 for the three months ended September 30, 2008 to $786,741 for the three months ended September 30, 2009, for an increase of $66,074 or approximately 9.2%. This increase was mainly due to a corresponding increase in micro-organism sales.

Cost of Sales — Feed Additives.  Cost of sales of our feed additives product line decreased from $212,938 for the three months ended September 30, 2008 to $205,543 for the three months ended September 30, 2009, for an decrease of $7,395 or 3.5%.

Cost of Sales — Vaccines.  Cost of sales of our vaccines product line increased from $36,592 for the three months ended September 30, 2008 to $45,448 for the three months ended September 30, 2009, for an increase of $8,856 or 24.2%. This increase was a result of an increase of vaccine product sales during the three months ended September 30, 2009. 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 at the end of this year.

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Operating Expenses

	The three Months Ended September 30,
	2009					2008
	Amount		Percentage of total revenue			Amount		Percentage of total revenue
Gross Profit	$	6,669,618		52.2	%	$	5,185,137		51.6	%
Operating Expenses	$	1,689,602		13.2	%	$	1,071,292		10.7	%
Selling Expenses	$	412,051		3.2	%	$	549,580		5.5	%
General and Administrative Expenses	$	878,866		6.9	%	$	318,470		3.2	%
Research and Development Costs	$	398,685		3.1	%	$	203,242		2.0	%
Income from Operations	$	4,980,016		39.0	%	$	4,114,845		40.9	%

Selling Expenses.  Selling expenses, which consist of commissions, advertising and promotion expenses, freight charges, and salaries, totaled $412,051 for the three months ended September 30, 2009 as compared to $585,207 for the three months ended September 30, 2008, a decrease of approximately 25.0%. This decrease is a result of incurring greater selling and marketing costs in the third quarter of 2009, which reduced the cost for the third quarter of 2009. Although our selling expenses were lower, we anticipate that our selling expenses will continue to increase.

General and Administrative Expenses.  General and administrative expenses totaled $318,470 for the three months ended September 30, 2008, as compared to $878,866 for the three months ended September 30, 2009, an increase of approximately 176.0%. General and administrative expenses are primarily legal, accounting and other professional fees that we incurred as a U.S. public company. Our general and administrative expenses increased as a result increased costs relating to being on a senior exchange and ancillary costs relating to the financing. However, we anticipate that our general and administrative expenses will increase due to the increasing costs of being a U.S. public company, including, but not limited to, our annual NASDAQ Capital Market fees, fees related to investor relations and costs of complying with Sarbanes-Oxley.

Research and Development Costs.  Research and development costs, which consist of salaries, professional fees, and technical support fees, totaled $398,685 for the three months ended September 30, 2009, as compared to $203,242 for the three months ended September 30, 2008, an increase of approximately 96.2%. This increase is primarily attributable to increased research and development activities from developing veterinary vaccines. We anticipate that our research and development costs will continue to increase as we continue improve existing products and develop new products.

Results of Operations – Nine Month Periods ended September 30, 2009 and 2008

The following table summarizes out results of operations for the nine months ended September 30, 2009 and 2008.

	Nine Months Ended September 30,
	2009					2008
	Amount		Percentage of total revenue			Amount			Percentage of total revenue
Revenues	$	22,844,099		100.0	%	$	17,215,807			100.0	%
Gross Profit	$	11,831,427		51.8	%	$	8,886,782			51.6	%
Operating Expense	$	3,906,305		17.1	%	$	2,633,003			15.3	%
Income from Operations	$	7,925,122		34.7	%	$	6,253,779			36.3	%
Other Expenses	$	(262,144)		(1.1	)%	$	(1,240,963	)		(7.2	)%
Income Tax Expenses	$	1,367,797		6.0	%	$	1,056,506			6.1	%
Net Income (loss)	$	6,295,181		27.6	%	$	3,956,310			23.0	%

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Revenues.  For the nine months ended September 30, 2009, we had revenues of $22,844,099 as compared to revenues of $17,215,807 for the nine months ended September 30, 2008, an increase of approximately 32.7%. 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 $11,389,155 for the nine months ended September 30, 2008 to $14,999,173 for the nine months ended September 30, 2009, for an increase of $3,610,018 or 31.7%.  The increase in veterinary medication sales was primarily due to our increased utilization of our 2007 veterinary medicine facility expansion of 200% and increased sales efforts. We were able to utilize this capacity expansion as our customers increased the use of products for the treatment of livestock and poultry diseases during the nine months ended September 30, 2009. $1,232,307 of this increase was a result of the sales of new products during the nine months ended September 30, 2009. Approximately $4,600,000 or 20% and $1,900,000 or 8.3% of total revenue resulted from the sale of Praziquantel tablets which treats schistosomiasis during the nine months ended September 30, 2009 and 2008, respectively.

Revenues — Micro-Organism.  Revenues from sales of our micro-organism product line increased from $4,352,781 for the nine months ended September 30, 2008 to $5,815,280 during the nine months ended September 30, 2009, for an increase of $1,462,499 or 33.6%. The increase of $1,462,499 was the result of increased sales efforts of our probiotics micro-organism products during the nine months ended September 30, 2009.

Revenues — Feed Additives.  Revenues from sales of our feed additives product line increased from $784,161 for the nine months ended September 30, 2008 to $1,003,628 for the nine months ended September 30, 2009, for an increase of $219,467 or 28.0%. The increase of $219,467 was the result of increased sales efforts of our multi-enzyme feed additive products during the earlier half of 2009.

Revenues — Vaccines.  Revenues from sales of our vaccines product line increased from $689,710 for the nine months ended September 30, 2008 to $1,026,018 for the nine months ended September 30, 2009, for an increase of $336,308 or 48.8%. This increase was a result of an increase in customer demand of our vaccine products during the nine months ended September 30, 2009. 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 at the end of this year.

Cost of Sales

Cost of Sales.  For the nine months ended September 30, 2009, we had cost of sales, which consists of raw materials, direct labor, and manufacturing overhead, of $11,012,672 as compared to cost of sales of $8,329,025 the nine months ended September 30, 2008, an increase of approximately 32.2% as a result of our overall sales increase of 32.7%.

Cost of Sales — Veterinary Medications.  Cost of sales of our veterinary medications product line increased from $6,607,869 for the nine months ended September 30, 2008 to $8,938,770 for the nine months ended September 30, 2009, for an increase of $2,330,901 or approximately 35.3%. 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 $1,305,793 for the nine months ended September 30, 2008 to $1,560,588 for the nine months ended September 30, 2009, for an increase of $254,795 or approximately 19.5%. This increase was mainly due to a corresponding increase in micro-organism sales.

Cost of Sales — Feed Additives.  Cost of sales of our feed additives product line increased from $339,578 for the nine months ended September 30, 2008 to $404,349 for the nine months ended September 30, 2009, for an increase of $64,771 or 19.1%. The increase was primarily due to an increase in feed additive sales during the nine months ended September 30, 2009.

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Cost of Sales — Vaccines.  Cost of sales of our vaccines product line increased from $75,785 for the nine months ended September 30, 2008 to $108,965 for the nine months ended September 30, 2009, for an increase of $33,180 or 43.8%. This increase was the result of an increase of vaccine product sales during the nine months ended September 30, 2009. 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 at the end of this year.

Operating Expenses

	Nine Months Ended September 30,
	2009					2008
	Amount		Percentage of total revenue			Amount		Percentage of total revenue
Gross Profit	$	11,831,427		51.8	%	$	8,886,782		51.6	%
Operating Expenses	$	3,906,305		17.1	%	$	2,633,003		15.3	%
Selling Expenses	$	1,204,653		5.3	%	$	1,042,267		6.1	%
General and Administrative Expenses	$,	1,818,920		8.0	%	$	1,220,796		7.1	%
Research and Development Costs	$	882,732		3.9	%	$	369,940		2.1	%
Income from Operations	$	7,925,122		34.7	%	$	6,253,779		36.3	%

Selling Expenses.  Selling expenses, which consist of commissions, advertising and promotion expenses, freight charges, and salaries, totaled $1,042,267 for the nine months ended September 30, 2008 as compared to $1,204,653 for the nine months ended September 30, 2009, an increase of approximately 15.6%. This increase is the result of our increased sales during the nine months ended September 30, 2009.

General and Administrative Expenses.  General and administrative expenses totaled $1,818,920 for the nine months ended September 30, 2009, as compared to $1,220,796 for the nine months ended September 30, 2008, an increase of approximately 49.0%. General and administrative expenses are primarily legal, accounting and other professional fees that we incurred as a U.S. public company. Our increase in general and administrative expenses was a result of costs incurred during the third quarter of 2009 relating to costs surrounding our financing as well as increased investor relations costs. We anticipate that our general and administrative expenses will increase due to the increasing costs of being a U.S. public company, including, but not limited to, our annual NASDAQ Capital Market fees, fees related to investor relations and costs of complying with Sarbanes-Oxley.

Research and Development Costs.  Research and development costs, which consist of salaries, professional fees, and technical support fees, totaled $882,732 for the nine months ended September 30, 2009, as compared to $369,940 for the nine months ended September 30, 2008, an increase of approximately 138.6%. This increase is primarily attributable to increased research and development activities from developing veterinary vaccines. We anticipate that our research and development costs will continue to increase as we continue improve existing products and develop new products.

Liquidity

 For the nine months ended September 30, 2009, cash used in operating activities was $7,198 compared to cash used of $296,134 for the same period in 2008.  For the nine months ended September 30, 2009, net cash used in operating activities other than net income was primarily due to an increase of $1,481,662 in accounts receivable, $1,029,920 in inventory, a decrease of accrued expenses of $473,576, a decrease in taxes payable of $482,933, and a decrease in accounts payable of $378,263. However, this decrease was offset by a decrease of $2,669,020 in inventory deposits. Collectively this decreased cash used in operating activities by $1,177,334 for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. For the nine months ended September 30, 2009, inventories increased by $4,534,194 as a result of the company carrying additional raw materials inventory to produce finished goods in the fourth quarter. For the nine months ended September 30, 2008, the decrease in cash used in operating activities was a result of (a) bulk purchases of certain raw materials for anticipated production of both existing and new products in the fourth quarter of fiscal 2008, (b) increased prepayments to certain suppliers to ensure low purchase price of certain raw materials, and (c) an increase in accounts receivable offset by an increase in taxes payable.

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We used $3,565,681 in cash flows for investing activities for the nine months ended September 30, 2009, as compared to using $915,534 for investing activities for the nine months ended September 30, 2008. The net cash used in investing activities for the nine months ended September 30, 2009 was a result of payments made towards ongoing construction projects and plant and equipment of $2,980,086, purchase of an intangible asset of 1,172,720, and net loans made to third parties and raw material suppliers of $2,124,057 offset by refunds of long term prepayments of $2,711,182 previously made by the Company. The cash used in investing activities for the nine months ended September 30, 2008 was primarily the result of purchases of plant and equipment of $1,622,813 offset by a repayment of a loan of $688,176.

Cash generated by financing activities was $17,864,129 for the nine months ended September 30, 2009 as compared to $1,078,455 for the nine months ended September 30, 2008. Cash generated by financing activities for the nine months ended September 30, 2009 was the result of the financing that the Company completed on June 30, 2009. Cash provided by financing activities for the nine months ended September 30, 2008 was the result of advances from shareholders and shareholder loans.

As of September 30, 2009, we had cash of $14,796,990. Our total current assets were $36,183,942, and our total current liabilities were $3,780,370, which resulted in a net working capital of $32,403,572. Management believes that we have the ability to meet cash requirements for our operations in order to continue as a going concern, including sufficient cash flows to meet our obligations on a timely basis in the foreseeable future, provided that we can continue to maintain profitable operations and our net working capital remains liquid.

Capital Resources

During the nine months ended September 30, 2009 we completed a public offering of 3,220,000 shares of our common stock at a price of $6.49 per share resulting in net proceeds of 18,411,496. 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 $10,500,000 (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. The remaining facilities of the Huxian plant are expected to be completed by the latter part of 2009. We anticipate that the new plant 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.

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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	$	676,778	$	676,778	$			$		$
Operating Lease Obligations		292,997		59,296		94,299			70,006		69,396
Total	$	969,775	$	736,074	$	94,299		$	70,006	$	69,396

During the first quarter of 2008, Xian Tianxing entered into an agreement with Northwestern Agricultural Technology University to jointly work on a research and development project regarding the application of nano-technology in the prevention of a major milk cow disease. The total projected budget for this project is approximately $574,000 (RMB 4 million), which we would pay in installments as the stages of the project are completed. We expect this project to be completed in one year. The research and development expense for this project was approximately $117,272 (RMB 800,000) as of September 30, 2009.  We also made $366,750 (RMB 2,500,000) of prepayments for the purchase of specific raw materials for the project. We anticipate that the remaining $89,978 (RMB 620,000) will be spent during the remainder of 2009.

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 September 30, 2009, the Company incurred approximately $308,000 (RMB2,100,000) expenses relating to this project. This project is estimated to be completed in 2009.

During the third quarter of 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 September 30, 2009, the Company incurred approximately $293,180 (RMB2,000,000) expenses relating to this project.

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 Dollars 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 Dollars for the purposes of preparing the consolidated financial statements or otherwise stated in this Quarterly Report were as follows:

	September 30, 2009	December 31, 2008	September 30, 2008
Assets and liabilities	USD0.1467:RMB1	USD0.1467:RMB1	USD0.1463:RMB1
Statements of operations and cash flows for the period/year ended	USD0.14659:RMB1	USD0.14415:RMB1	USD0.1434:RMB1

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

Off-Balance Sheet Arrangements

As of the date of this Quarterly Report, 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 stockholder’s 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2009, 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.

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Remediation of Material Weaknesses in Internal Control over Financial Reporting 

In our annual report on Form 10-K for the year ended December 31, 2008, we reported certain material weaknesses involving control activities, specifically:

1. Accounting and Finance Personnel Weaknesses - The current accounting staffs are relatively inexperienced, and require substantial training so as to meet with the higher demands necessary to fulfill the requirements of U.S. GAAP-based reporting and SEC rules and regulations.

2. Lack of Internal Audit Function - The Company lacks qualified resources to perform the internal audit functions properly. The Company lacked an internal audit department, which rendered the Company ineffective in preventing and detecting control lapses and errors in the accounting of certain key areas like revenue recognition, purchase approvals, inter-company transactions, cash receipt and cash disbursement authorizations, inventory safeguard and proper accumulation for cost of products, in accordance with the appropriate costing method used by the Company.

The Company’s management has identified the steps necessary to address the material weaknesses described above, as follows:

We expect that we will satisfactorily address the control deficiencies and material weaknesses relating to these matters by the end of our fiscal year ending December 31, 2009, although there can be no assurance that compliance will be achieved in this time frame.

Management, including our chief executive officer and our chief financial officer, does not expect that our disclosure controls and internal controls will prevent errors and omissions, even as the same are improved to address any deficiencies and/or weaknesses. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and errors and omissions, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

Our financial reporting process includes extensive procedures we undertake in order to obtain assurance regarding the reliability of our published financial statements, notwithstanding the material weaknesses in internal control. We expanded our review of accounting for business combinations to help compensate for our material weaknesses in order to provide assurance that the financial statements are free of material inaccuracies or omissions of material fact. As a result, management, to the best of its knowledge, believes that (i) this report does not contain any untrue statements of a material fact or omits any material fact and (ii) the financial statements and other financial information included in this report have been prepared in conformity with U.S. GAAP and fairly present in all material aspects our financial condition, results of operations, and cash flows.

Changes in Internal Control over Financial Reporting

Except for the remedial actions taken as described above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following discussion 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.

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. 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.  Additionally, on February 5, 2009, the Court ruled in favor of 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 in the case, but both motions were denied.

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 case was removed to the U.S. District Court, District of Connecticut, and assigned to the same judge in the related federal case already dismissed. 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.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this offering that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

Our relatively limited operating history makes it difficult to evaluate our future prospects and results of operations.

We have a relatively limited operating history. Xian Tianxing, the variable interest entity through which we operate our business, commenced operations in 1997 and first achieved profitability in the quarter ended September 30, 1999. Accordingly, you should consider our future prospects in light of the risks and uncertainties typically experienced by companies such as ours in evolving industries such as the bio-pharmaceutical industry in China. Some of these risks and uncertainties relate to our ability to:

· offer new and innovative products to attract and retain a larger customer base;

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· attract additional customers and increase spending per customer;

· increase awareness of our brand and continue to develop user and customer loyalty;

· raise sufficient capital to sustain and expand our business;

· maintain effective control of our costs and expenses;

· respond to changes in our regulatory environment;

· respond to competitive market conditions;

· manage risks associated with intellectual property rights;

· attract, retain and motivate qualified personnel;

· upgrade our technology to support additional research and development of new products; and

· maintain or improve our position as one of the market leaders in China.

If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.

If we fail to obtain additional financing we will be unable to execute our business plan.

Despite our recent financing, we may need additional funds to build new production facilities; pursue further research and development; obtain regulatory approvals; file, prosecute, defend and enforce our intellectual property rights; and market our products. Should such needs arise, we intend to seek additional funds through public or private equity or debt financing, strategic transactions and/or from other sources.

There are no assurances that future funding will be available on favorable terms or at all. If additional funding is not obtained, we will need to reduce, defer or cancel development programs, planned initiatives or overhead expenditures, to the extent necessary. The failure to fund our capital requirements would have a material adverse effect on our business, financial condition and results of operations.

Our business will be materially and adversely affected if our collaborative partners, licensees and other third parties over whom we are very dependent fail to perform as expected.

Due to the complexity of the process of developing bio-pharmaceuticals, our core business depends on arrangements with bio-pharmaceutical institutes, corporate and academic collaborators, licensors, licensees and others for the research, development, clinical testing, technology rights, manufacturing, marketing and commercialization of our products. We have various research collaborations and outsource other business functions. Our license agreements could obligate us to diligently bring potential products to market, make substantial milestone payments and royalties and incur the costs of filing and prosecuting patent applications. There are no assurances that we will be able to establish or maintain collaborations that are important to our business on favorable terms, or at all. We could enter into collaborative arrangements for the development of particular products that may lead to our relinquishing some or all rights to the related technology or products. A number of risks arise from our dependence on collaborative agreements with third parties. Product development and commercialization efforts could be adversely affected if any collaborative partner:

· terminates or suspends its agreement with us;

· causes delays;

·  fails to timely develop or manufacture in adequate quantities a substance needed in order to conduct clinical trials;

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· fails to adequately perform clinical trials;

· determines not to develop, manufacture or commercialize a product to which it has rights; or

· otherwise fails to meet its contractual obligations.

Our collaborative partners could pursue other technologies or develop alternative products that could compete with the products we are developing.

Our products will be adversely affected if we are unable to protect proprietary rights or operate without infringing the proprietary rights of others.

The profitability of our products will depend in part on our ability to obtain and maintain patents and licenses and preserve trade secrets, and the period our intellectual property remains exclusive. We must also operate without infringing the proprietary rights of third parties and without third parties circumventing our rights. The patent positions of bio-pharmaceutical and biotechnology enterprises, including ours, are uncertain and involve complex legal and factual questions for which important legal principles are largely unresolved. For example, no consistent policy has emerged regarding the breadth of biotechnology patent claims that are granted by the U.S. Patent and Trademark Office or enforced by the U.S. federal courts. In addition, the scope of the originally claimed subject matter in a patent application can be significantly reduced before a patent is issued. The biotechnology patent situation outside the U.S. is even more uncertain, is currently undergoing review and revision in many countries, and may not protect our intellectual property rights to the same extent as the laws of the U.S. Because patent applications are maintained in secrecy in some cases, we cannot be certain that we or our licensors are the first creators of inventions described in our pending patent applications or patents or the first to file patent applications for such inventions.

Other companies may independently develop similar products and design around any patented products we develop. We cannot assure you that:

· any of our patent applications will result in the issuance of patents;

· we will develop additional patentable products;

· the patents we have been issued will provide us with any competitive advantages;

· the patents of others will not impede our ability to do business; or

· third parties will not be able to circumvent our patents.

A number of pharmaceutical, biotechnology, research and academic companies and institutions have developed technologies, filed patent applications or received patents on technologies that may relate to our business. If these technologies, applications or patents conflict with ours, the scope of our current or future patents could be limited or our patent applications could be denied. Our business may be adversely affected if competitors independently develop competing technologies, especially if we do not obtain, or obtain only narrow, patent protection. If patents that cover our activities are issued to other companies, we may not be able to obtain licenses at a reasonable cost, or at all; develop our technology; or introduce, manufacture or sell the products we have planned.

Patent litigation is becoming widespread in the biotechnology industry. Such litigation may affect our efforts to form collaborations, to conduct research or development, to conduct clinical testing or to manufacture or market any products under development. There are no assurances that our patents would be held valid or enforceable by a court or that a competitor’s technology or product would be found to infringe our patents in the event of patent litigation. Our business could be materially affected by an adverse outcome to such litigation. Similarly, we may need to participate in interference proceedings declared by the U.S. Patent and Trademark Office or equivalent international authorities to determine priority of invention. We could incur substantial costs and devote significant management resources to defend our patent position or to seek a declaration that another company’s patents are invalid.

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Much of our know-how and technology may not be patentable, though it may constitute trade secrets. There are no assurances that we will be able to meaningfully protect our trade secrets. We cannot assure you that any of our existing confidentiality agreements with employees, consultants, advisors or collaborators will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Collaborators, advisors or consultants may dispute the ownership of proprietary rights to our technology, for example by asserting that they developed the technology independently.

Difficulties in manufacturing our products could have a material adverse effect on our profitability.

Before our products can be profitable, they must be produced in commercial quantities in a cost-effective manufacturing process that complies with regulatory requirements, including China’s Good Manufacturing Practice (GMP), production and quality control regulations. If we cannot arrange for or maintain commercial-scale manufacturing on acceptable terms, or if there are delays or difficulties in the manufacturing process, we may not be able to conduct clinical trials, obtain regulatory approval or meet demand for our products.

Failure or delays in obtaining an adequate amount of raw material or other supplies would materially and adversely affect our revenue

Production of our products could require raw materials which are scarce or which can be obtained only from a limited number of sources. If we are unable to obtain adequate supplies of such raw materials, the development, regulatory approval and marketing of our products could be delayed.

Our ability to generate more revenue would be adversely affected if we need more clinical trials or take more time to complete our clinical trials than we have planned. 

Clinical trials vary in design by factors including dosage, end points, length, and controls. We may need to conduct a series of trials to demonstrate the safety and efficacy of our products. The results of these trials may not demonstrate safety or efficacy sufficiently for regulatory authorities to approve our products. Further, the actual schedules for our clinical trials could vary dramatically from the forecasted schedules due to factors including changes in trial design, conflicts with the schedules of participating clinicians and clinical institutions, and changes affecting product supplies for clinical trials.

We rely on collaborators, including academic institutions, governmental agencies and clinical research organizations, to conduct, supervise, monitor and design some or all aspects of clinical trials involving our products. Since these trials depend on governmental participation and funding, we have less control over their timing and design than trials we sponsor. Delays in or failure to commence or complete any planned clinical trials could delay the ultimate timelines for our product releases. Such delays could reduce investors’ confidence in our ability to develop products, likely causing the price of our common stock to decrease.

If we are unable to obtain the regulatory approvals or clearances that are necessary to commercialize our products, we will have less revenue than expected.

China and other countries impose significant statutory and regulatory obligations upon the manufacture and sale of bio-pharmaceutical products. Each regulatory authority typically has a lengthy approval process in which it examines pre-clinical and clinical data and the facilities in which the product is manufactured. Regulatory submissions must meet complex criteria to demonstrate the safety and efficacy of the ultimate products. Addressing these criteria requires considerable data collection, verification and analysis. We may spend time and money preparing regulatory submissions or applications without assurances as to whether they will be approved on a timely basis or at all.

Our product candidates, some of which are currently in the early stages of development, will require significant additional development and pre-clinical and clinical testing prior to their commercialization. These steps and the process of obtaining required approvals and clearances can be costly and time-consuming. If our potential products are not successfully developed, cannot be proven to be safe and effective through clinical trials, or do not receive applicable regulatory approvals and clearances, or if there are delays in the process:

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• the commercialization of our products could be adversely affected;

• any competitive advantages of the products could be diminished; and

• revenues or collaborative milestones from the products could be reduced or delayed.

Governmental and regulatory authorities may approve a product candidate for fewer indications or narrower circumstances than requested or may condition approval on the performance of post-marketing studies for a product candidate. Even if a product receives regulatory approval and clearance, it may later exhibit adverse side effects that limit or prevent its widespread use or that force us to withdraw the product from the market.

Any marketed product and its manufacturer, including us, will continue to be subject to strict regulation after approval. Results of post-marketing programs may limit or expand the further marketing of products. Unforeseen problems with an approved product or any violation of regulations could result in restrictions on the product, including its withdrawal from the market and possible civil actions.

In manufacturing our products we will be required to comply with applicable good manufacturing practices regulations, which include requirements relating to quality control and quality assurance, as well as the maintenance of records and documentation. We cannot comply with regulatory requirements, including applicable good manufacturing practice requirements, we may not be allowed to develop or market the product candidates. If we or our manufacturers fail to comply with applicable regulatory requirements at any stage during the regulatory process, we may be subject to sanctions, including fines, product recalls or seizures, injunctions, refusal of regulatory agencies to review pending market approval applications or supplements to approve applications, total or partial suspension of production, civil penalties, withdrawals of previously approved marketing applications and criminal prosecution.

Competitors may develop and market bio-pharmaceutical products that are less expensive, more effective or safer, making our products obsolete or uncompetitive.

Some of our competitors and potential competitors have greater product development capabilities and financial, scientific, marketing and human resources than we do. Technological competition from biopharmaceutical companies and biotechnology companies is intense and is expected to increase. Other companies have developed technologies that could be the basis for competitive products. Some of these products have an entirely different approach or means of accomplishing the desired curative effect than products we are developing. Alternative products may be developed that are more effective, work faster and are less costly than our products. Competitors may succeed in developing products earlier than us, obtaining approvals and clearances for such products more rapidly than us, or developing products that are more effective than ours. In addition, other forms of treatment may be competitive with our products. Over time, our technology or products may become obsolete or uncompetitive.

Our revenue will be materially and adversely affected if our products are unable to gain market acceptance.

Our products may not gain market acceptance in the agricultural community. The degree of market acceptance of any product depends on a number of factors, including establishment and demonstration of clinical efficacy and safety, cost-effectiveness, clinical advantages over alternative products, and marketing and distribution support for the products. Limited information regarding these factors is available in connection with our products or products that may compete with ours.

To directly market and distribute our bio-pharmaceutical products, we or our collaborators require a marketing and sales force with appropriate technical expertise and supporting distribution capabilities. We may not be able to further establish sales, marketing and distribution capabilities or enter into arrangements with third parties on acceptable terms. If we or our partners cannot successfully market and sell our products, our ability to generate revenue will be limited.

Our operations and the use of our products could subject us to damages relating to injuries or accidental contamination and thus reduce our earnings or increase our losses.

Our research and development processes involve the controlled use of hazardous materials. We are subject to federal, provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and waste products. The risk of accidental contamination or injury from handling and disposing of such materials cannot be completely eliminated. In the event of an accident involving hazardous materials, we could be held liable for resulting damages. We are not insured with respect to this liability. Such liability could exceed our resources. In the future we could incur significant costs to comply with environmental laws and regulations.

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If we were sued for product liability, we could face substantial liabilities that may exceed our resources.

We may be held liable if any product we develop, or any product which is made using our technologies, causes injury or is found unsuitable during product testing, manufacturing, marketing, sale or use. These risks are inherent in the development of agricultural and bio-pharmaceutical products. We currently do not have product liability insurance. If we cannot obtain sufficient insurance coverage at an acceptable cost or otherwise protect against potential product liability claims, the commercialization of products that we develop may be prevented or inhibited. If we are sued for any injury caused by our products, our liability could exceed our total assets, whether or not we are successful.

We have no business liability or disruption insurance coverage and therefore we are susceptible to catastrophic or other events that may disrupt our business.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. We do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.

We will be unsuccessful if we fail to attract and retain qualified personnel.

We depend on a core management and scientific team. The loss of any of these individuals could prevent us from achieving our business objective of commercializing our product candidates. Our future success will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing and government regulation. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. If our recruitment and retention efforts are unsuccessful, our business operations could suffer.

Downturn in the global economy may slow domestic growth in China, which in turn may affect our business.

Due to the global downturn in the financial markets, China may not be able to maintain its recent growth rates mainly due to the lack of demand of exports to countries that are in recessions. Although we do not presently export any of our products, our earnings may become unstable if China’s domestic growth slows significantly and the demand for meats and poultry declines.

Risks Related to Our Corporate Structure

Chinese laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions. In addition, changes in such Chinese laws and regulations may materially and adversely affect our business.

There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with our affiliated Chinese entity, Xian Tianxing, and its stockholders. We are considered a foreign person or foreign invested enterprise under Chinese law. As a result, we are subject to Chinese law limitations on foreign ownership of Chinese companies. These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

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The Chinese government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future Chinese laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

We may be adversely affected by complexity, uncertainties and changes in Chinese regulation of bio-pharmaceutical business and companies, including limitations on our ability to own key assets.

The Chinese government regulates the bio-pharmaceutical industry including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the bio-pharmaceutical industry. These laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be a violation of applicable laws and regulations. Issues, risks and uncertainties relating to Chinese government regulation of the bio-pharmaceutical industry include the following:

• we only have contractual control over Xian Tianxing. We do not own it due to the restriction of foreign investment in Chinese businesses; and

• uncertainties relating to the regulation of the bio-pharmaceutical business in China, including evolving licensing practices, means that permits, licenses or operations at our company may be subject to challenge. This may disrupt our business, or subject us to sanctions, requirements to increase capital or other conditions or enforcement, or compromise enforceability of related contractual arrangements, or have other harmful effects on us.

The interpretation and application of existing Chinese laws, regulations and policies and possible new laws, regulations or policies have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, bio-pharmaceutical businesses in China, including our business.

In order to comply with Chinese laws limiting foreign ownership of Chinese companies, we conduct our bio-pharmaceutical business through Xian Tianxing by means of contractual arrangements. If the Chinese government determines that these contractual arrangements do not comply with applicable regulations, our business could be adversely affected.

The Chinese government restricts foreign investment in bio-pharmaceutical businesses in China. Accordingly, we operate our business in China through Xian Tianxing, a Chinese joint stock company. Xian Tianxing holds the licenses and approvals necessary to operate our bio-pharmaceutical business in China. We have contractual arrangements with Xian Tianxing and its stockholders that allow us to substantially control Xian Tianxing. We cannot assure you, however, that we will be able to enforce these contracts.

Although we believe we comply with current Chinese regulations, we cannot assure you that the Chinese government would agree that these operating arrangements comply with Chinese licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. If the Chinese government determines that we do not comply with applicable law, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business.

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Our contractual arrangements with Xian Tianxing and its stockholders may not be as effective in providing control over these entities as direct ownership.

Since Chinese law limits foreign equity ownership in bio-pharmaceutical companies in China, we operate our business through Xian Tianxing. We have no equity ownership interest in Xian Tianxing and rely on contractual arrangements to control and operate such businesses. These contractual arrangements may not be as effective in providing control over Xian Tianxing as direct ownership. For example, Xian Tianxing could fail to take actions required for our business despite its contractual obligation to do so. If Xian Tianxing fails to perform under their agreements with us, we may have to rely on legal remedies under Chinese law, which may not be effective. In addition, we cannot assure you that either of Xian Tianxing’s stockholders will act in our best interests.

Because we rely on the consulting services agreement with Xian Tianxing for our revenue, the termination of this agreement will severely and detrimentally affect our continuing business viability under our current corporate structure.

We are a holding company and do not have any assets or conduct any business operations other than the contractual arrangements between Sida and Xian Tianxing. As a result, we currently rely entirely for our revenues on dividends payments from Sida after it receives payments from Xian Tianxing pursuant to the consulting services agreement which forms a part of the contractual arrangements between Sida and Xian Tianxing. The consulting services agreement may be terminated by written notice of Sida or Xian Tianxing in the event that: (a) one party causes a material breach of the agreement, provided that if the breach does not relate to a financial obligation of the breaching party, that party may attempt to remedy the breach within 14 days following the receipt of the written notice; (b) one party becomes bankrupt, insolvent, is the subject of proceedings or arrangements for liquidation or dissolution, ceases to carry on business, or becomes unable to pay its debts as they become due; (c) Sida terminates its operations; (d) Xian Tianxing’s business license or any other license or approval for its business operations is terminated, cancelled or revoked; or (e) circumstances arise which would materially and adversely affect the performance or the objectives of the agreement. Additionally, Sida may terminate the consulting services agreement without cause.

Because neither we nor our direct and indirect subsidiaries own equity interests of Xian Tianxing, the termination of the consulting services agreement would sever our ability to continue receiving payments from Xian Tianxing under our current holding company structure. While we are currently not aware of any event or reason that may cause the consulting services agreement to terminate, we cannot assure you that such an event or reason will not occur in the future. In the event that the consulting services agreement is terminated, this may have a severe and detrimental effect on our continuing business viability under our current corporate structure, which in turn may affect the value of your investment.

Members of Xian Tianxing’s management have potential conflicts of interest with us, which may adversely affect our business and your ability for recourse.

Weibing Lu, our Chief Executive Officer, is also the Chief Financial Officer and Chairman of the Board of Directors of Xian Tianxing. Mr. Wei Wen, who is Xian Tianxing’s Vice-General Manager and Director, is a member of Skystar’s board of directors. Conflicts of interests between their respective duties to our company and Xian Tianxing may arise. As our directors and executive officer (in the case of Mr. Lu), they have a duty of loyalty and care to us under U.S. and Cayman Islands law when there are any potential conflicts of interests between our company and Xian Tianxing. We cannot assure you, however, that when conflicts of interest arise, every one of them will act completely in our interests or that conflicts of interests will be resolved in our favor. For example, they may determine that it is in Xian Tianxing’s interests to sever the contractual arrangements with Sida, irrespective of the effect such action may have on us. In addition, any one of them could violate his or her legal duties by diverting business opportunities from us to others, thereby affecting the amount of payment Xian Tianxing is obligated to remit to us under the consulting services agreement.

Our board of directors is comprised of a majority of independent directors (including two based in the United States). These independent directors may be in a position to deter and counteract the actions of our officers or non-independent directors that are against our interests, as the independent directors do not have any position with, or interests in, our affiliate entities, and should therefore not have any conflicts of interests such as those potentially of our officers and directors who are management members of Xian Tianxing. Additionally, the independent directors have fiduciary duties to act in our best interests, and failure on their part to do so may subject them to personal liabilities for breach of such duties. We cannot, however, give any assurance as to how the independent directors will act. Further, if we or the independent directors cannot resolve any conflicts of interest between us and those of our officers and directors who are management members of Xian Tianxing, we would have to rely on legal proceedings, which could result in the disruption of our business.

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In the event that you believe that your rights have been infringed under the securities laws or otherwise as a result of any one of the circumstances described above, it may be difficult or impossible for you to bring an action against Xian Tianxing or our officers or directors who are members of its management, the majority of whom reside within China. Even if you are successful in bringing an action, the laws of China may render you unable to enforce a judgment against the assets of Xian Tianxing and its management, all of which are located in China.

Risks Related to Doing Business in China

Adverse changes in economic and political policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

Substantially all of our business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The Chinese government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the Chinese government has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition.

If Chinese law were to phase out the preferential tax benefits currently being extended to foreign invested enterprises and “new or high-technology enterprises” located in a high-tech zone, we would have to pay more taxes, which could have a material and adverse effect on our financial condition and results of operations.

Under Chinese laws and regulations, a foreign invested enterprise may enjoy preferential tax benefits if it is registered in a high-tech zone and also qualifies as “new or high-technology enterprise”. As a foreign invested enterprise as well as a certified “new or high-technology enterprise” located in a high-tech zone in Xian, the Company has been approved as a new technology enterprise and under Chinese Income Tax Laws, it is entitled to a preferential tax rate of 15%. If the Chinese law were to phase out preferential tax benefits currently granted to “new or high-technology enterprises” and technology consulting services, we would be subject to the standard statutory tax rate, which currently is 25%, and we would be unable to obtain business tax refunds for our provision of technology consulting services. Loss of these preferential tax treatments could have a material and adverse effect on our financial condition and results of operations.

Xian Tianxing is subject to restrictions on making payments to us.

We are a holding company incorporated in Nevada and do not have any assets or conduct any business operations other than our indirect investments in our affiliated entity in China, Xian Tianxing. As a result of our holding company structure, we rely entirely on payments from Xian Tianxing under our contractual arrangements. The Chinese government also imposes controls on the conversion of the Chinese currency, Renminbi (RMB), into foreign currencies and the remittance of currencies out of China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. See “Government control of currency conversion may affect the value of your investment.” Furthermore, if our affiliated entity in China incurs debt on their own in the future, the instruments governing the debt may restrict their ability to make payments. If we are unable to receive all of the revenues from our operations through these contractual or dividend arrangements, we may be unable to pay dividends on our ordinary shares.

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Uncertainties with respect to the Chinese legal system could adversely affect us.

We conduct our business primarily through our affiliated Chinese entity, Xian Tianxing. Our operations in China are governed by Chinese laws and regulations. We are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The Chinese legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the Chinese legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us, our management or the experts named in the prospectus.

We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, all of our senior executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon our senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our Chinese counsel has advised us that China does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

Governmental control of currency conversion may affect the value of your investment.

The Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current structure, our income is primarily derived from payments from Xian Tianxing. Shortages in the availability of foreign currency may restrict the ability of our Chinese subsidiaries and our affiliated entity to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from China State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The Chinese government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our stockholders.

Fluctuation in the value of RMB may have a material adverse effect on your investment.

The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. Our revenues and costs are mostly denominated in RMB, while a significant portion of our financial assets are denominated in U.S. dollars. We rely entirely on fees paid to us by our affiliated entity in China. Any significant fluctuation in the value of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our stock in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. An appreciation of RMB against the U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate our U.S. dollar denominated financial assets into RMB, as RMB is our reporting currency.

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We face risks related to health epidemics and other outbreaks.

Our business could be adversely affected by the effects of an epidemic outbreak, such as the SARS epidemic in April 2004. Any prolonged recurrence of such adverse public health developments in China may have a material adverse effect on our business operations. For instance, health or other government regulations adopted in response may require temporary closure of our production facilities or of our offices. Such closures would severely disrupt our business operations and adversely affect our results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of SARS or any other epidemic.

Risks Related to an Investment in Our Securities

To date, we have not paid any cash dividends and no cash dividends are expected to be paid in the foreseeable future.

We do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We intend to retain all earnings for our operations.

The NASDAQ Capital Market may delist our common stock from trading on its exchange, which could limit investors’ ability to effect transactions in our common stock and subject us to additional trading restrictions.

Our common stock is listed on the NASDAQ Capital Market. We cannot assure you that our common stock will continue to be listed on the NASDAQ Capital Market in the future.  If the NASDAQ Capital Market delists our common stock from trading on its exchange, we could face significant material adverse consequences including:

• a limited availability of market quotations for our common stock;

• a limited amount of news and analyst coverage for our company; and

• a decreased ability to issue additional securities or obtain additional financing in the future.

Our common shares are thinly traded and, you may be unable to sell at or near ask prices or at all if you desire to liquidate your shares.

We cannot predict the extent to which an active public market for our common stock will develop or be sustained. 

Although our common shares commenced trading on the NASDAQ Capital Market on June 26, 2009, our common shares have historically been sporadically or “thinly traded”, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

The market price for our common stock is particularly volatile given our status as a relatively small company with a small and thinly traded “float” that could lead to wide fluctuations in our share price. The price at which you purchase our common stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.

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The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our fluctuating level of revenues or profits to date and uncertainty of future market acceptance for our current and potential products. As a consequence of this enhanced risk, more risk-averse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. The following factors may add to the volatility in the price of our common shares: actual or anticipated variations in our quarterly or annual operating results; adverse outcomes; the termination of our contractual agreements with Xian Tianxing; and additions or departures of our key personnel, as well as other items discussed under this “Risk Factors” section, as well as elsewhere in this report. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

Volatility in our common share price may subject us to securities litigation.

The market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

Our corporate actions are substantially controlled by our management stockholders and affiliated entities.

As of November 12, 2009, our management and their affiliated entities own approximately 17.0% of our outstanding common shares, representing approximately 17.0% of our voting power. These stockholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in these principal stockholders and their affiliated entities, elections of our board of directors will generally be within the control of these stockholders and their affiliated entities. While all of our stockholders are entitled to vote on matters submitted to our stockholders for approval, the concentration of shares and voting control presently lies with these principal stockholders and their affiliated entities. As such, it would be difficult for stockholders to propose and have approved proposals not supported by management. There can be no assurances that matters voted upon by our officers and directors in their capacity as stockholders will be viewed favorably by all stockholders of the company.

The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.

Our articles of incorporation do not contain any specific provisions that eliminate the liability of our directors for monetary damages to our company and stockholders, however we are prepared to give such indemnification to our directors and officers to the extent provided by Nevada law. We also have contractual indemnification obligations under our employment agreements with our chief executive officer, chief financial officer and certain of our directors. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and stockholders.

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Legislative actions, higher insurance costs and potential new accounting pronouncements may impact our future financial position and results of operations.

There have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and there may potentially be new accounting pronouncements or additional regulatory rulings that will have an impact on our future financial position and results of operations. The Sarbanes-Oxley Act of 2002 and other similar rule changes are likely to increase general and administrative costs and expenses. Additionally, we currently maintain directors’ and officers insurance (“D&O Insurance”) as we are contractually obligated to do so. In light of the high claims rates in recent years, we expect that the premium for such insurance will increase. Further, there could be changes in certain accounting rules. These and other potential changes could materially increase the expenses we report under generally accepted accounting principles, and adversely affect our operating results.

Past company activities prior to the reverse merger may lead to future liability for the company.

Prior to our acquisition of Skystar Cayman in November 2005, we were engaged in businesses unrelated to our current operations. Although the prior business owners provided certain indemnifications against any loss, liability, claim, damage or expense arising out of or based on any breach of or inaccuracy in any of their representations and warranties made regarding such acquisition, any liabilities relating to such prior business against which Skystar is not completely indemnified may have a material adverse effect on Skystar.

The market price for our stock may be volatile.

The market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:

• actual or anticipated fluctuations in our quarterly operating results;

• changes in financial estimates by securities research analysts;

• conditions in bio-pharmaceutical and agricultural markets;

• changes in the economic performance or market valuations of other bio-pharmaceutical companies;

• announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;

• addition or departure of key personnel;

• fluctuations of exchange rates between RMB and the U.S. dollar;

• intellectual property litigation; and

• general economic or political conditions in China.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our stock.

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We may need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our stockholders.

We believe that our current cash and cash equivalents, anticipated cash flow from operations and the net proceeds from our recent financing will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of our internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of our internal controls over financial reporting. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Shares eligible for future sale may adversely affect the market.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement (which disappears after one year). Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Of the approximately 6.97 million shares of our common stock outstanding as of November 12, 2009, approximately 4.91 million shares are, or will be, freely tradable without restriction, as of November 12, 2009. Any substantial sale of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.

The issuance of our series “A” preferred stock may subject us to certain claims by the holder of series “A” preferred shares as well as indemnification obligations to the directors who authorized the issuance.

In 2001, 2,000,000 shares of our series “A” preferred stock were issued to a corporation wholly owned by our then Chief Executive Officer and director for services purportedly rendered by him. The resolutions of the board of directors approving such issuance stated that the series “A” preferred shares carries a “super voting power of five.” No certificate of designation was ever filed with the Nevada Secretary of State for these shares and we do not believe any certificate evidencing such shares was issued by any transfer agent. As a result, the board of directors believes that the issuance was not valid under Nevada law and thus has adopted resolutions that resolve voiding all outstanding shares of the series “A” preferred stock and barring any re-issuance or authorization of our series “A” preferred stock unless such matter was submitted to a vote of our shareholders and approved by a disinterested vote of a majority of each class of our outstanding stock. We therefore intend to omit all reference to the status of having issued 2,000,000 series “A” preferred shares in future filings with the Securities and Exchange Commission as soon as the resolutions as adopted by the board of directors are implemented.

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Notwithstanding our position on this matter, our former Chief Executive Officer may potentially assert claims against us or the directors who authorized the issuance, in law or equity, for the proper issuance or reissuance of those shares. In a lawsuit, he may assert any number of legal or equitable theories in a forum with proper jurisdiction over the matter, but the substance would likely rest on whether he is entitled to the shares or, alternatively, whether he should be entitled to some form of damage payment from the Company for the services that he purportedly rendered to our company. In the event of any legal action, adequate insurance coverage may not be available to us to cover the cost of litigation, indemnification of any of our officers or directors named in such action or of any award or other resolution. If a court were to order the issuance of any shares of series “A” preferred stock, such shares could increase the total number of our shares outstanding and thereby dilute the interests of our other shareholders in our company, could control a significant voting interest in our company and possess other rights determined by a court which we are unable to predict.

The eventual development, outcome and cost of legal proceedings are by their nature uncertain and subject to many factors, including but not limited to, the discovery of facts not presently known to us or determinations by judges, juries or other finders of fact which do not accord with our evaluation of the merits or facts of the case. As a result, we can provide no assurance that we will succeed against any such challenge or as to the results if it were ever made.

Should we fail to prevail in our defense of such a claim, we may be subject to restitution or other forms of monetary damages, the amount of which is difficult to determine but may take into consideration the then and current fair market value of the series “A” preferred shares. Additionally, although the directors who authorized the issuance of the series “A” preferred shares are no longer members of our board of directors, we may nevertheless be obligated in certain circumstances to indemnify and defend these directors.

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

None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

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 (stockholders of Hollywood Entertainment Network, Inc.) dated May 12, 2000(1)
2.2	Plan of Merger Agreement between The Cyber Group Network Corp. 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 Stockholders dated September 20, 2005(3)

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3.1	Charter of The Cyber Group Network Corporation as filed with the State of Nevada(4)
3.2	Certificate of Amendment and Certificate of Change(5)
3.3	Certificate of Amendment to Increase Number of Authorized Shares of Common Stock(13)
3.4	Amended and Restated Bylaws of Skystar Bio-Pharmaceutical Company(14)
3.5	Certificate of Designation of Series B Convertible Preferred Stock(4)
3.6	Certificate of Change(16)
4.1	Form of Common Stock Certificate(19)
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 Purchase Option granted to the representative of the underwriters(19)
10.1	Form of Securities Purchase Agreement, dated as of February 26, 2007 by and among the Company and the Purchasers(6)
10.2	Form of Registration Rights Agreement, dated as of February 26, 2007 by and among the Company and the Purchasers(6)
10.3	Form of Company Principal Lockup Agreement in connection with the Securities Purchase Agreement dated as of February 26, 2007(6)
10.4	Form of the Amendment, Exchange and Waiver Agreement between Skystar Bio-Pharmaceutical Company and the Participating Purchasers dated November 9, 2007(7)
10.5	Form of the Amendment and Waiver Agreement between Skystar Bio-Pharmaceutical Company and two institutional and accredited investors dated March 31, 2008(10)
10.6	Form of 6-month Lock-up Agreement(15)
10.7	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)
10.8	Equity Pledge Agreement among Skystar Cayman, Xian Tianxing and Xian Tianxing’s Majority Stockholders dated October 28, 2005(4)
10.9	Operating Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, and Weibing Lu dated October 28, 2005(4)
10.10	Proxy Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders and Weibing Lu dated October 28, 2005(4)
10.11	Option Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing Majority Stockholders and Weibing Lu dated October 28, 2005(4)
10.12	Amendment to Consulting Services Agreement among Skystar Cayman, Xian Tianxing and Sida Biotechnology (Xian) Co., Ltd. (“Sida”) dated March 10, 2008(8)
10.13	Amendment to Equity Pledge Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, and Sida dated March 10, 2008(8)
10.14	Agreement to Transfer of Operating Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, Weibing Lu and Sida dated March 10, 2008(8)
10.15	Designation Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority Stockholders, Weibing Lu and Sida dated March 10, 2008(8)
10.16	Agreement to Transfer of Option Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing Majority Stockholders, Weibing Lu and Sida dated March 10, 2008(8)
10.17	Employment Agreement with Weibing Lu dated May 5, 2008(11)
10.18	Loanout Agreement with Worldwide Officers, Inc. with respect to the services of Bennet Tchaikovsky, our Chief Financial Officer, dated May 5, 2008(18)
10.19	Form of Director Offer Letter with Mr. Qiang Fan and Mr. Winston Yen(14)
10.20	Form of Director Offer Letter with Mr. Chengtun Qu and Mr. Shouguo Zhao(14)
10.21	Form of Amendment to Loanout Agreement with Wordwide Officers, Inc(17)
10.22	Form of Director Offer Letter with Mr. Mark D. Chen(17)
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*

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32.2	Section 906 Certification by the Corporation's Chief Financial Officer*
99.1	Legal Opinion from Allbright Law Offices regarding, among other things, the contractual arrangements Skystar Cayman entered into with Xian Tianxing and its stockholders, dated November 3, 2005(12)
99.2	Legal Opinion from Allbright Law Offices regarding the transfer of the contractual arrangements from Skystar Cayman to Sida, dated April 29, 2008(12)
99.3	Lease Agreement between Xian Tianxing and Weibing Lu dated June 1, 2007(9)
99.4	Lease Agreement between Shanghai Siqiang Biotechnological Co., Ltd. and Weibing Lu dated June 17, 2007(12)
99.5	Summary of Research Arrangement between Shanghai Poultry Verminosis Institute and Xian Tianxing(12)
99.6	Cooperation Agreement between Shaanxi Microbial Institute and Xian Tianxing(12)

*   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 December 11, 2007.

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

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

(10) Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on April 23, 2008.

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

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

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

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

(15) Incorporated by reference from the Registrant’s Registration Statement on Form S-1/A filed on November 28, 2008.

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

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

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

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

54

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.

November 16, 2009	SKYSTAR BIO-PHARMACEUTICAL COMPANY
	By:	/s/ Weibing Lu
		Weibing Lu Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Bennet P. Tchaikovsky
		Bennet P. Tchaikovsky Chief Financial Officer (Principal Financial and Accounting Officer)

55

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Weibing Lu, certify that:

1. I have reviewed this QuarterlyReport on Form10-Q of Skystar Bio-Pharmaceutical Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 16, 2009	/s/ Weibing Lu
	Weibing Lu
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Bennet P. Tchaikovsky, certify that:

1. I have reviewed this QuarterlyReport on Form10-Q of Skystar Bio-Pharmaceutical Company;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:  November 16, 2009	/s/ Bennet P. Tchaikovsky
	Bennet P. Tchaikovsky
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the periodic report of Skystar Bio-Pharmaceutical Company (the “Company”) on Form 10-Q for the quarter ended September 30, 2009, as filed with the Securities and Exchange Commission (the “Report”), I, Weibing Lu, Chief Executive Officer (Principal Executive Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date:  November 16, 2009	/s/ Weibing Lu
	Weibing Lu
	Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION

In connection with the periodic report of Skystar Bio-Pharmaceutical Company (the “Company”) on Form 10-Q for the quarter ended September 30, 2009, as filed with the Securities and Exchange Commission (the “Report”), I, Bennet P. Tchaikovsky, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date:  November 16, 2009	/s/ Bennet P. Tchaikovsky
	Bennet P. Tchaikovsky
	Chief Financial Officer
	(Principal Financial and Accounting Officer)