**U.
      S. 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
                1934For
                the quarterly period ended**September
                30, 2008**




o
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                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)




Securities
                registered pursuant to Section 12(b) of the Act:
            **None**Securities
                registered pursuant to Section 12(g) of the Act:
            **Common
                Stock, par value $0.001 per
                share**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No þ





Indicate
      by check mark whether the registrant is required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes þ No o





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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained to the best
      of
      the registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. 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 oNon-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
      October 23, 2008, the Registrant had 18,652,146 shares of Common Stock
      outstanding.







**SKYSTAR
      BIO-PHARMACEUTICAL COMPANY**


**FORM 10-Q**




**INDEX**




Page
              Number**SPECIAL
                NOTE REGARDING FORWARD-LOOKING STATEMENTS**
            
            3**PART
                I. FINANCIAL INFORMATION**
            
            4Item
                1.
            Financial
                Statements (unaudited)
            
            4Consolidated
                Balance Sheet as of September 30, 2008 and December 31,
                2007
            
            4Consolidated
                Statements of Operations and Other Comprehensive Income for the Nine
                Months Ended September 30, 2008 and 2007
            
            5Consolidated
                Statements of Shareholders’ Equity
            
            6Consolidated
                Statements of Cash Flows for the Nine Months Ended September 30,
                2008 and
                2007
            
            7Notes
                to the Consolidated Financial Statements as of September 30,
                2008
            
            8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            30Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk.
            
            41Item
                4.
            Controls
                and Procedures
            
            41**PART
                II. OTHER INFORMATION**
            
            42Item
                1.
            Legal
                Proceedings
            
            42Item
                1A.
            Risk
                Factors
            
            42Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            56Item
                3.
            Defaults
                Upon Senior Securities
            
            56Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            57Item
                5.
            Other
                Information
            
            57Item
                6.
            Exhibits
            
            57**SIGNATURES**
            
            60




-
          2
          -


**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 annual report, which attempt
      to
      advise interested parties of the risks and factors that may affect our business,
      financial condition, results of operations and prospects.*





-
          3
          -


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**


SKYSTAR
        BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
  September 30, 2008
              
              December 31, 2007(Unaudited)ASSETSCURRENT
                  ASSETS:Cash
              
              $
              685,826
              
              $
              771,492Restricted
                  cash
              
              
              80,516
              
              
              74,969Accounts
                  receivable, net of allowance for doubtful accounts of $213,036
                  and
                  $199,639 as of September 30, 2008 and December 31, 2007,
                  respectively.
              
              
              3,683,426
              
              
              1,356,094Inventories
              
              
              5,968,988
              
              
              2,242,611Deposits
                  and prepaid expenses
              
              
              4,017,692
              
              
              806,657Loans
                  receivable
              
              
              434,036
              
              
              968,852Other
                  receivables
              
              
              160,902
              
              
              43,800Other
                  receivables-related party
              
              
              -
              
              
              59,462Total
                  current assets
              
              
              15,031,386
              
              
              6,323,937PLANT
                  AND EQUIPMENT, net
              
              
              13,904,466
              
              
              11,793,967OTHER
                  ASSETS:Long
                  term prepayment
              
              
              1,170,400
              
              
              1,220,190Deferred
                  financing costs
              
              
              -
              
              
              101,815Intangible,
                  net
              
              
              963,702
              
              
              1,011,236Total
                  other assets
              
              
              2,134,102
              
              
              2,333,241Total
                  assets
              
              $
              31,069,954
              
              $
              20,451,145LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              247,474
              
              $
              126,754Accrued
                  expenses
              
              
              807,902
              
              
              502,871Short
                  term loan, interest bearing
              
              
              731,500
              
              
              -Deposits
                  from customers
              
              
              248,994
              
              
              61,706Taxes
                  payable
              
              
              2,613,110
              
              
              568,797Other
                  payables
              
              
              84,550
              
              
              81,221Amount
                  due to related companies
              
              
              4,361
              
              
              49,954Amount
                  due to shareholders and directors
              
              
              386,712
              
              
              31,616Total
                  current liabilities
              
              
              5,124,603
              
              
              1,422,919OTHER
                  LIABILITIES:Deferred
                  government grant
              
              
              1,097,250
              
              
              1,028,250Convertible
                  debenture, net of $398,171 discount as of December 31,
                  2007
              
              
              -
              
              
              84,752Total
                  other liabilities
              
              
              1,097,250
              
              
              1,113,002Total
                  liabilities
              
              
              6,221,853
              
              
              2,535,921CONTINGENT
                  LIABILITIES
              
              
              -
              
              
              -SHAREHOLDERS'
                  EQUITY:Preferred
                  stock, $0.001 par value, 50,000,000 shares authorized, 2,000,000
                  series
                  "A" shares issued and outstanding as of September 30, 2008 and
                  December
                  31, 2007, respectively; Nil series "B" shares issued and outstanding
                  as of
                  September 30, 2008 and December 31,2007, respectively.
              
              
              2,000
              
              
              2,000Common
                  stock, $0.001 par value, 50,000,000 shares authorized; 18,652,146
                  and
                  17,111,200 shares issued and outstanding as of September 30, 2008
                  and
                  December 31, 2007, respectively.
              
              
              18,652
              
              
              17,111Paid-in-capital
              
              
              16,315,721
              
              
              14,741,278Deferred
                  compensation
              
              
              -
              
              
              (62,758
              )Statutory
                  reserves
              
              
              2,270,690
              
              
              1,652,720Retained
                  earnings
              
              
              3,460,611
              
              
              122,271Accumulated
                  other comprehensive income
              
              
              2,780,427
              
              
              1,442,602Total
                  shareholders' equity
              
              
              24,848,101
              
              
              17,915,224Total
                  liabilities and shareholders' equity
              
              $
              31,069,954
              
              $
              20,451,145
 
 The
        accompanying notes are an integral part of this statement.
  -
            4
            -
  SKYSTAR
        BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
 FOR
        THE
        THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007
 (Unaudited)
  Three months ended
              
              Nine months endedSeptember 30
              
              September 302008
              
              2007
              
              2008
              
              2007REVENUE
              
              $
              10,051,259
              
              $
              5,448,561
              
              $
              17,215,807
              
              $
              10,190,830COST
                  OF SALES
              
              
              4,865,122
              
              
              2,268,344
              
              
              8,329,025
              
              
              4,376,670GROSS
                  PROFIT
              
              
              5,186,137
              
              
              3,180,217
              
              
              8,886,782
              
              
              5,814,160OPERATING
                  EXPENSESResearch
                  and development
              
              
              203,242
              
              
              117,605
              
              
              369,940
              
              
              224,486Selling
                  expenses
              
              
              549,580
              
              
              176,438
              
              
              1,042,267
              
              
              434,005General
                  and administrative
              
              
              318,470
              
              
              387,916
              
              
              1,220,796
              
              
              1,571,812Total
                  operating expenses
              
              
              1,071,292
              
              
              681,959
              
              
              2,633,003
              
              
              2,230,303INCOME
                  FROM OPERATIONS
              
              
              4,114,845
              
              
              2,498,258
              
              
              6,253,779
              
              
              3,583,857OTHER
                  INCOME (EXPENSE)Other
                  income
              
              
              328
              
              
              -
              
              
              830
              
              
              -Other
                  expense
              
              
              (494
              )
              
              (183,119
              )
              
              (494,254
              )
              
              (324,345
              )Interest
                  income
              
              
              519
              
              
              -
              
              
              33,103
              
              
              130Interest
                  expense
              
              
              (7,108
              )
              
              (827,639
              )
              
              (522,867
              )
              
              (1,694,284
              )Inducement
                  cost for debentures converted
              
              
              -
              
              
              -
              
              
              (257,775
              )
              
              -Total
                  other income (expense)
              
              
              (6,755
              )
              
              (1,010,758
              )
              
              (1,240,963
              )
              
              (2,018,499
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              4,108,090
              
              
              1,487,500
              
              
              5,012,816
              
              
              1,565,358PROVISION
                  FOR INCOME TAXES
              
              
              642,066
              
              
              415,578
              
              
              1,056,506
              
              
              715,845NET
                  INCOME
              
              
              3,466,024
              
              
              1,071,922
              
              
              3,956,310
              
              
              849,513OTHER
                  COMPREHENSIVE INCOME :Foreign
                  currency translation adjustment
              
              
              110,845
              
              
              211,633
              
              
              1,337,825
              
              
              495,309COMPREHENSIVE
                  INCOME
              
              $
              3,576,869
              
              $
              1,283,555
              
              $
              5,294,135
              
              $
              1,344,822EARNINGS
                  PER SHAREBasic
              
              $
              0.19
              
              $
              0.08
              
              $
              0.22
              
              $
              0.07Diluted
              
              $
              0.19
              
              $
              0.08
              
              $
              0.22
              
              $
              0.06WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARESBasic
              
              
              18,647,042
              
              
              12,865,739
              
              
              18,085,395
              
              
              12,819,290Diluted
              
              
              18,647,042
              
              
              13,232,060
              
              
              18,126,355
              
              
              13,325,955
  The
        accompanying notes are an integral part of this statement.
  -
            5
            -
  SKYSTAR
        BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
  AccumulatedPreferred stock
              
              Common stock
              
              
              
              
              
              Retained earnings
              
              otherPaid-in
              
              Deferred
              
              Statutory
              
              
              
              comprehensiveShares
              
              Amount
              
              Shares
              
              Amount
              
              capital
              
              Compensation
              
              reserves
              
              Unrestricted
              
              income
              
              TotalBALANCE,
                    December 31, 2006
              
              
              2,000,000
              
              $
              2,000
              
              
              12,795,549
              
              $
              12,795
              
              $
              6,246,325
              
              $
              (705,877
              )
              $
              779,624
              
              $
              2,952,343
              
              $
              460,020
              
              $
              9,747,230Shares
                  issued for services
              
              
              
              
              
              
              
              
              78,750
              
              
              79
              
              
              115,684
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              115,763Beneficial
                  conversion feature of debentures
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,130,575
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,130,575Warrants
                  issued to debenture holders
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,944,425
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,944,425Warrants
                  issued to placement agent
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              643,277
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              643,277Amortization
                  of deferred compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              563,619
              
              
              
              
              
              
              
              
              
              
              
              563,619Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              495,309
              
              
              495,309Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              849,513
              
              
              
              
              
              849,513Appropriation
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              410,961
              
              
              (410,961
              )
              
              
              
              
              -BALANCE,
                  September 30, 2007, (Unaudited)
              
              
              2,000,000
              
              $
              2,000
              
              
              12,874,299
              
              $
              12,874
              
              $
              11,080,286
              
              $
              (142,258
              )
              $
              1,190,585
              
              $
              3,390,895
              
              $
              955,329
              
              $
              16,489,711Inducement
                  cost for debentures converted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              634,450
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              634,450Inducement
                  cost for warrants exercised
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              279,547
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              279,547Debentures
                  converted to common stock
              
              
              
              
              
              
              
              
              3,278,720
              
              
              3,279
              
              
              2,747,953
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,751,232Cashless
                  exercise of warrants
              
              
              
              
              
              
              
              
              958,181
              
              
              958
              
              
              (958
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Amortization
                  of deferred compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              79,500
              
              
              
              
              
              
              
              
              
              
              
              79,500Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              487,273
              
              
              487,273Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,806,489
              )
              
              
              
              
              (2,806,489
              )Appropriation
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              462,135
              
              
              (462,135
              )
              
              
              
              
              -BALANCE,
                  December 31, 2007
              
              
              2,000,000
              
              $
              2,000
              
              
              17,111,200
              
              $
              17,111
              
              $
              14,741,278
              
              $
              (62,758
              )
              $
              1,652,720
              
              $
              122,271
              
              $
              1,442,602
              
              $
              17,915,224Shares
                  issued for services
              
              
              
              
              
              
              
              
              103,043
              
              
              103
              
              
              115,183
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              115,286Shares
                  issued for debt settlement
              
              
              
              
              
              
              
              
              210,400
              
              
              210
              
              
              220,710
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              220,920Inducement
                  cost for debentures converted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              257,775
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              257,775Debentures
                  converted to common stock
              
              
              
              
              
              
              
              
              1,227,503
              
              
              1,228
              
              
              980,775
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              982,003Amortization
                  of deferred compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              62,758
              
              
              
              
              
              
              
              
              
              
              
              62,758Foreign
                  currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,337,825
              
              
              1,337,825Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,956,310
              
              
              
              
              
              3,956,310Appropriation
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              617,970
              
              
              (617,970
              )
              
              
              
              
              -BALANCE,
                  September 30, 2008, (Unaudited)
              
              
              2,000,000
              
              $
              2,000
              
              
              18,652,146
              
              $
              18,652
              
              $
              16,315,721
              
              $
              -
              
              $
              2,270,690
              
              $
              3,460,611
              
              $
              2,780,427
              
              $
              24,848,101
  The
        accompanying notes are an integral part of this statement.
  -
            6
            -
  SKYSTAR
          BIO-PHARMACEUTICAL COMPANY AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 FOR
          THE
          NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (Unaudited)
  Nine months endedSeptember
                    302008
                
                2007CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income
                
                $
                3,956,310
                
                $
                849,513Adjustments
                    to reconcile net income to cash used in operating
                    activities:Depreciation
                
                
                330,155
                
                
                179,797Amortization
                
                
                113,081
                
                
                24,657Amortization
                    of deferred financing costs
                
                
                101,815
                
                
                286,132Amortization
                    of discount on debentures
                
                
                406,538
                
                
                1,176,618Amortization
                    of deferred compensation
                
                
                62,758
                
                
                563,619Inducement
                    cost for debentures converted
                
                
                257,775
                
                
                -Default
                    premium on debentures
                
                
                490,713
                
                
                -Issuance
                    of common stock for services
                
                
                115,286
                
                
                115,763Inducement
                    cost for debt settlement
                
                
                42,081
                
                
                -Change
                    in operating assets and liabilitiesAccounts
                    receivable
                
                
                (2,191,545
                )
                
                (1,051,083
                )Inventories
                
                
                (3,504,274
                )
                
                (2,080,140
                )Deposits
                    and prepaid expenses
                
                
                (2,901,353
                )
                
                (1,169,972
                )Other
                    receivables
                
                
                (102,306
                )
                
                (1,625,890
                )Accounts
                    payable
                
                
                109,968
                
                
                186,357Accrued
                    expenses
                
                
                273,498
                
                
                (201,124
                )Deposits
                    from customers
                
                
                179,479
                
                
                -Taxes
                    payables
                
                
                1,965,966
                
                
                500,991Other
                    payables
                
                
                (2,079
                )
                
                5,388Liquidated
                    damage payable
                
                
                -
                
                
                345,017Net
                    cash used in operating activities
                
                
                (296,134
                )
                
                (1,894,357
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Refund
                    of long term prepayment
                
                
                559,143Prepay
                    for potentional acquisition
                
                
                (430,110
                )
                
                -Loans
                    to third parties
                
                
                (109,930
                )
                
                (553,031
                )Proceeds
                    from loans receivable
                
                
                688,176
                
                
                -Purchase
                    of plant and equipment
                
                
                (1,622,813
                )
                
                (373,629
                )Net
                    cash used in investing activities
                
                
                (915,534
                )
                
                (926,660
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Increase
                    in restricted cash
                
                
                (506
                )
                
                (501
                )Repayments
                    to shareholders and directors
                
                
                (492,687
                )
                
                -Proceeds
                    from shareholders and directors
                
                
                601,686
                
                
                -Proceeds
                    from related companies
                
                
                -
                
                
                33,188Repay
                    amounts due to related companies
                
                
                (47,965
                )
                
                -Proceeds
                    from shareholders loans
                
                
                301,077
                
                
                -Proceeds
                    from short term loan
                
                
                716,850Repayments
                    on short term loan
                
                
                -
                
                
                (39,192
                )Principle
                    payment on convertible debenture
                
                
                -
                
                
                (777,512
                )Repayments
                    of non-interest bearing loan from third parties
                
                
                -
                
                
                (64,014
                )Proceeds
                    from convertible debentures, net of debenture expenses
                
                
                -
                
                
                3,737,250Net
                    cash provided by financing activities
                
                
                1,078,455
                
                
                2,889,219EFFECT
                    OF EXCHANGE RATE CHANGES ON CASH
                
                
                47,547
                
                
                1,994(DECREASE)
                    INCREASE IN CASH
                
                
                (85,666
                )
                
                70,196CASH,
                    beginning of period
                
                
                771,492
                
                
                192,016CASH,
                    end of period
                
                $
                685,826
                
                $
                262,212SUPPLEMENTAL
                    DISCLOSURE INFORMATIONInterest
                    paid
                
                $
                12,728
                
                $
                1,694,154Income
                    taxes paid
                
                $
                740,899
                
                $
                444,205Non-cash
                    investing and financing transactionsWarrants
                    issued for financing services
                
                $
                -
                
                $
                643,277Issuance
                    of common stock for debt settlement
                
                $
                178,839
                
                $
                -Debentures
                    converted to common stock
                
                $
                982,003
                
                $
                -
  The
        accompanying notes are an integral part of this statement.
  -
            7
            -




**Note
      1- DESCRIPTION OF BUSINESS AND ORGANIZATION**




Skystar
      Bio-Pharmaceutical Company (“Skystar” or the “Company”), was incorporated in
      Nevada. The Company has not carried on any substantive operations of its own,
      except for the entering of certain exclusive agreements with Xian Tianxing
      Bio-Pharmaceutical Co., Limited (“Xian Tianxing”), a joint stock company in the
      People’s Republic of China (“China” or “PRC”), through the Company’s wholly
      owned subsidiary, Skystar Bio-Pharmaceutical (Cayman) Holdings Co., Limited
      (“Skystar Cayman”), a Cayman Islands company which the Company acquired on
      November 7, 2005. Skystar Cayman, through its variable interest entity (“VIE”),
      Xian Tianxing, engages in research, development, production, marketing and
      sales
      of veterinary healthcare and medical care products. All current operations
      of
      the Company are in China.




On
      August
      21, 2007, Xian Tianxing invested $66,700 to establish Shanghai Siqiang
      Biotechnological Company Limited (“Shanghai Siqiang”). Shanghai Siqiang was
      established in Putuo District, City of Shanghai, China with a registered capital
      of $66,700 and Xian Tianxing is the 100% shareholder. Shanghai Siqiang was
      established to become a research and development center for Xian Tianxing and
      engages in research, development, production and sales of veterinary products,
      feed additives, and veterinary disease diagnosis equipment.




On
      October 16, 2007, the board of directors of the Company approved the purchase
      of
      all of the issued and outstanding shares of Fortunate Time International Limited
      (“Fortunate Time”), a Hong Kong company owned 100% by the Company’s
      non-executive director Russell Scott Cramer, for $129 (HKD 1,000).




On
      July
      10, 2007, Fortunate Time established Sida Biotechnology (Xian) Co., Ltd.
      (“Sida”) 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. Pursuant to the Xian High Technology District approval notice, Fortunate
      Times is required to contribute the remaining $3,000,000 of registered capital
      by July 09, 2009. Except for the $2,000,000 investment in Sida Biotechnology
      Co., Ltd. and payables to Skystar Cayman for the same amount, Fortunate
      Time did not have any assets or liabilities. Sida was established in a high
      technology district in Xian, China. Sida’s principal business is to perform
      veterinary bio-pharmaceutical research, production and selling activities.
      Sida
      also provides technology consultation services to Xian Tianxing.




On
      March
      10, 2008, the Company entered into a series of agreements (collectively the
      “Transfer Agreements”) transferring the contractual arrangements governing the
      relationship among Skystar Cayman, Xian Tianxing, and the majority shareholders
      of Xian Tianxing. Pursuant to the Transfer Agreements, all of the rights and
      obligations of Skystar Cayman under the contractual arrangements were
      transferred to Sida. In effect, Skystar Cayman assigned the contractual rights
      it had with Xian Tianxing to Sida.




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, Sida accounts for Xian Tianxing as a variable
      interest entity (“VIE”) under FASB Interpretation No. 46R (“FIN 46R”),
“Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”.
      Accordingly, Sida consolidates Xian Tianxing’s results, assets and
      liabilities.




-
          8
          -




**Note
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




Basis
      of presentation and consolidation




The
      accompanying consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      consolidated financial statements include the financial statements of the
      Company, its wholly-owned subsidiaries and its variable interest entities.
      The
      Company has concluded that Xian Tianxing is a VIE and that the Company’s wholly
      owned subsidiaries, Skystar Cayman (prior March 10, 2008) and Sida (March 10,
      2008 and thereafter), absorb a majority of the risk of loss from Xian Tianxing’s
      activities and enable the Company to receive a majority of its expected residual
      returns, the Company accounts for Xian Tianxing as a variable interest entity
      (“VIE”). All significant inter-company transactions and balances between the
      Company, its subsidiaries and VIEs are eliminated upon
      consolidation.




In
      the
      opinion of management, the unaudited consolidated financial statements furnished
      herein include all adjustments, all of which are of a normal recurring nature,
      necessary for a fair statement of the results for the interim period presented.
      Operating results for the period ended September 30, 2008 are not necessarily
      indicative of the results that may be expected for the year ending December
      31,
      2008.




Use
      of
      estimates




The
      preparation of consolidated financial statements in conformity with generally
      accepted accounting principles 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
      differ from those estimates.




Fair
      values of financial instruments




On
      January 1, 2008, the Company adopted SFAS No. 157 which defines fair value,
      establishes a three-level valuation hierarchy for disclosures of fair value
      measurement and enhances disclosures requirements for fair value measures.
      The
      carrying amounts reported in the balance sheets for current receivables,
      payables and short term loans qualify as financial instruments and 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 their
      current market rate of interest. The three levels are defined as
      follow:




·
            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.




The
      Company did not identify any assets and liabilities that are required to be
      presented on the balance sheet at fair value in accordance with SFAS No.
      157.




The
      Company analyzes all financial instruments with features of both liabilities
      and
      equity under SFAS 150, “Accounting for Certain Financial Instruments with
      Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company’s Own Stock.” During 2007, the Company issued 8% convertible debentures
      in a face amount of $4.075 million which are due February 28, 2009. During
      2007
      and the second quarter of 2008, the entire amount of $4.075 million of
      debentures were converted into common stock. As fixed prices are set for the
      conversion prices of such convertible debentures and the attached warrants,
      the
      Company is in a position to be sure it had adequate authorized shares for the
      future conversion of convertible debentures and warrants. Therefore, the
      embedded derivatives and warrants were recorded as equity and are not required
      to be recorded at fair value and marked-to-market at each reporting
      period.




-
          9
          -




Revenue
      recognition




Revenues
      of the Company include 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 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.




Shipping
      and handling costs related to costs of goods sold are included in selling,
      general and administrative costs, which totaled $182,274 and $53,434 for the
      three months ended September 30, 2008 and 2007, respectively, and $306,162
      and
      $128,775 during the nine months ended September 30, 2008 and 2007,
      respectively.




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




Three months ended
            
            Nine months endedSeptember30, 2008
            
            September30, 2007
            
            September30, 2008
            
            September30, 2007(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)RevenuesMicro-organism
            
            $
            2,411,526
            
            $
            1,467,380
            
            $
            4,352,781
            
            $
            3,506,220Veterinary
                Medications
            
            
            6,785,154
            
            
            3,327,622
            
            
            11,389,155
            
            
            5,211,589Feed
                Additives
            
            
            513,980
            
            
            367,562
            
            
            784,161
            
            
            915,359Vaccines
            
            
            340,599
            
            
            285,997
            
            
            689,710
            
            
            557,662Total
                Revenues
            
            
            10,051,259
            
            
            5,448,561
            
            
            17,215,807
            
            
            10,190,830Cost
                of SalesMicro-organism
            
            
            720,667
            
            
            395,063
            
            
            1,305,793
            
            
            1,189,379Veterinary
                Medications
            
            
            3,894,925
            
            
            1,689,614
            
            
            6,607,869
            
            
            2,621,569Feed
                Additives
            
            
            212,938
            
            
            152,285
            
            
            339,578
            
            
            503,107Vaccines
            
            
            36,592
            
            
            31,382
            
            
            75,785
            
            
            62,615Total
                Cost of Sales
            
            
            4,865,122
            
            
            2,268,344
            
            
            8,329,025
            
            
            4,376,670Gross
                Profit
            
            $
            5,186,137
            
            $
            3,180,217
            
            $
            8,886,782
            
            $
            5,814,160




-
          10
          -




Cash




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




Restricted
      cash




The
      Company had restricted cash of $80,516 and $74,969 as of September 30, 2008
      and
      December 31, 2007, respectively. The restricted cash was received from the
      PRC
      government subsidies and set aside for specific uses (see Note 11). The
      restricted funds are kept as bank deposits. Restricted cash is classified as
      current assets as of September 30, 2008 and December 31, 2007, based on the
      expected period when the funds will be put into their specific
      usages.




Accounts
      and other receivables




Accounts
      and other receivables 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 valuation 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. The
      valuation allowance balance is adjusted to the amount computed as a result
      of
      the aging method. When facts subsequently become available to indicate that
      the
      allowance provided requires an adjustment, then the adjustment will be
      classified as a change in estimate. The ultimate collection of the Company’s
      accounts receivable may take one year and any portion of accounts receivable
      outstanding more than one year is considered to be write-off.




Inventories




Inventories
      are stated at the lower of cost, as determined on moving weighted average basis,
      or market. Costs of inventories include purchases and related costs incurred
      in
      bringing the products to their present location and condition.




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. Estimated useful lives of the assets are as follows:




Estimated Useful LifeBuildings
            
            20-40
                yearsMachinery
                and equipment
            
            10
                yearsComputer,
                office equipment and furniture
            
            5
                yearsAutomobiles
            
            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
      the
      fixed 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 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, 2008, there
      was no impairment of its plant and equipment.




-
          11
          -




Construction
      in progress




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




Intangibles




Land
      use
      rights - Land use rights represent the costs paid to acquire a long-term
      interest to utilize the land underlying the Company’s facility. This type of
      arrangement is common for the use of land in the PRC. The land use rights are
      amortized on the straight-line method over the 50 year term of the land use
      rights.




Technological
      know-how - Purchased technological know-how includes secret formulas,
      manufacturing processes, technical and procedural manuals and is amortized
      using
      the straight-line method over the expected useful economic life of 5 years,
      which reflects the period over which those formulas, manufacturing processes,
      technical and procedural manuals are kept secret to the Company as agreed
      between the Company and the selling party.




Impairment
      of intangibles - The Company evaluates the carrying value of intangibles
      annually, more often when factors indicating impairment are present, and the
      undiscounted cash flows estimated to be generated by those assets are less
      than
      the assets’ carrying amounts. In that event, a loss is recognized based on the
      amount by which the carrying amount exceeds the fair market value of the
      long-lived assets. Loss on long-lived assets to be disposed of is determined
      in
      a similar manner, except that fair market values are reduced for the cost of
      disposal. Based on its review, the Company believes that, as of September 30,
      2008, there were no impairments of its intangible assets.




Comprehensive
      income




SFAS
      No.
      130, “Reporting Comprehensive Income”, requires disclosure of all components of
      comprehensive income and loss on an annual and interim basis. Comprehensive
      income and loss is defined as the change in equity of a business enterprise
      during a period from transactions and other events and circumstances from
      non-owner sources. Accumulated other comprehensive income arose from the changes
      in foreign currency exchange rates.




Research
      and development costs




Research
      and development costs are expensed to operations as incurred and include
      salaries, professional fees and technical support fees.




Income
      taxes




The
      Company records income tax pursuant to SFAS No. 109, "Accounting for Income
      Taxes". SFAS No. 109 requires the recognition of deferred income tax liabilities
      and assets for the expected future tax consequences of temporary differences
      between income tax basis and financial reporting basis of assets and
      liabilities. Provision for income taxes consists of taxes currently due plus
      deferred taxes. The Company adopted FASB Interpretation 48, “Accounting for
      Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. 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. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosures, and
      transition. The adoption had no affect on the Company’s financial statements.
      There are no deferred tax amounts at September 30, 2008 and December 31,
      2007.




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 change to these
      uncertainties.




-
          12
          -




The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet date.




Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit. In principle, deferred
      tax liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probable that
      taxable profit will be available against which deductible temporary differences
      can be utilized.




Deferred
      tax is calculated at the tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when related items are credited or
      charged directly to equity, in which case the deferred tax is also dealt with
      in
      equity.




Deferred
      tax assets and liabilities are offset when they relate to income taxes levied
      by
      the same taxation authority and the Company intends to settle its current tax
      assets and liabilities on a net basis.




Stock
      based compensation




The
      Company adopted Statement of Financial Accounting Standards No. 123R “Accounting
      for Stock-Based Compensation” (“SFAS 123R”), which defines a fair-value-based
      method of accounting for stock based employee compensation and transactions
      in
      which an entity issues its equity instruments to acquire goods and services
      from
      non-employees. Stock compensation for stock granted to non-employees has been
      determined in accordance with SFAS 123R and the Emerging Issues Task Force
      consensus in Issue No. 96-18, "Accounting for Equity Instruments that are issued
      to Other than Employees for Acquiring, or in Conjunction with Selling Goods
      or
      Services" ("EITF 96-18"), as the fair value of the consideration received or
      the
      fair value of equity instruments issued, whichever is more reliably measured.
      SFAS 123R allows the “simplified” method to determine the term of employee
      options when other information is not available. Because the Company does not
      have a history of employee stock options, the Company used the “simplified”
method to estimates the life of the options.




Earnings
      per share




Basic
      earnings per share (“EPS”) is computed by dividing income available to common
      shareholders by the weighted average number of common shares outstanding for
      the
      period. Diluted EPS includes the effect of the common share equivalents of
      the
      Company’s convertible preferred stock outstanding. The Company accounts for a
      stock dividend or split in accordance with SFAS No. 128, “Earnings Per Share”,
      which requires that a stock dividend or split be accounted for retrospectively
      if the stock dividend or split occurs during the period, or retroactively if
      the
      stock dividend or split occurs after the end of the period but before the
      release of the financial statements, by considering it outstanding for the
      entirety of each period presented.




Foreign
      currency translation




The
      Company uses the United States dollar (“U.S. dollars”) for financial reporting
      purposes. The Company’s subsidiary 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.




In
      general, for consolidation purposes, the Company translates the subsidiary’s and
      VIEs’ assets and liabilities into U.S. dollars using the applicable exchange
      rates prevailing at the balance sheet date, and the statement of income 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 statement
      of
      cash flows will not necessarily agree with changes in the corresponding balances
      on the balance sheet. Equity accounts are translated at historical rates.
      Adjustments resulting from the translation of the subsidiary’s and VIEs’
financial statements are recorded as accumulated other comprehensive income.




-
          13
          -




This
      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 rate of exchange quoted by the People’s Bank of China on September
      30, 2008 and December 31, 2007 was $1.00 to RMB6.84 and RMB7.29, respectively.
      The weighted average translation rate of $1.00 to RMB6.98 and RMB7.66 was
      applied to the income statement accounts in September 30, 2008 and 2007,
      respectively.




Approval
      of foreign currency payments by the 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.




Related
      parties




Parties
      are considered to be related to the Company if the parties that, 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 principal owners of the Company and its 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. A party which can significantly influence the management
      or
      operating policies of the transacting parties or if it has an ownership interest
      in one of the transacting parties and can significantly influence the other
      to
      an extent that one or more of the transacting parties might be prevented from
      fully pursuing its own separate interests is also a related party.




Recently
      issued accounting pronouncements




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained non-controlling equity investments when a subsidiary
      is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 is effective for fiscal years beginning after December 15, 2008. The Company
      has not determined the effect that the application of SFAS 160 will have on
      its
      consolidated financial statements.




In
      December 2007, Statement of Financial Accounting Standards No. 141(R), *Business
      Combinations* ,
      was
      issued. SFAS No. 141R replaces SFAS No. 141, *Business
      Combinations.* SFAS
      141R
      retains the fundamental requirements in SFAS 141 that the acquisition method
      of
      accounting (which SFAS 141 called the *purchase
      method* )
      be used
      for all business combinations and for an acquirer to be identified for each
      business combination. SFAS 141R requires an acquirer to recognize the assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree at the acquisition date, measured at their fair values as of that
      date,
      with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
      required the cost of an acquisition to be allocated to the individual assets
      acquired and liabilities assumed based on their estimated fair values. SFAS
      141R
      also requires the acquirer in a business combination achieved in stages
      (sometimes referred to as a step acquisition) to recognize the identifiable
      assets and liabilities, as well as the noncontrolling interest in the acquiree,
      at the full amounts of their fair values (or other amounts determined in
      accordance with SFAS 141R). SFAS 141R applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. An entity
      may not apply it before that date. The Company is currently evaluating the
      impact that adopting SFAS No. 141R will have on its financial
      statements.




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities – An Amendment of SFAS No. 133” (“SFAS
      161”). Effective on January 1, 2009, SFAS 161 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, SFAS 161
      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. SFAS 161 is effective for fiscal years beginning after November
      15,
      2008. The Company is in the process of evaluating the new disclosure
      requirements under SFAS 161.




-
          14
          -




In
      May
      2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
      Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial
      reporting by identifying a consistent framework, or hierarchy, for selecting
      accounting principles to be used in preparing financial statements that are
      presented in conformity with U.S. GAAP for nongovernmental entities. SFAS 162
      is
      effective 60 days following the SEC's approval of the Public Company Accounting
      Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly
      in
      Conformity with Generally Accepted Accounting Principles." The Company is in
      the
      process of evaluating the impact of adoption of this statement on the results
      of
      operations, financial position or cash flows.




In
      June
      2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
      an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
      No. 07-5”). This Issue is effective for financial statements issued for fiscal
      years beginning after December 15, 2008, and interim periods within those fiscal
      years. Early application is not permitted. Paragraph 11(a) of SFAS No 133
“Accounting for Derivatives and Hedging Activities” (“SFAS 133”) 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. EITF No. 07-5 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 SFAS 133 paragraph 11(a) scope exception. This standard triggers
      liability accounting on all options and warrants exercisable at strike prices
      denominated in any currency other than the functional currency of the operating
      entity in China (Renminbi). EITF No. 07-5 is effective for fiscal years
      beginning after December 15, 2008. The Company is currently evaluating the
      impact of adoption of EITF No. 07-5 on the Company’s consolidated financial
      statements.




In
      June
      2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
      Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
      is to provide transition guidance for conforming changes made to EITF No. 98-5,
      “Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
      150, “Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity”. This Issue is effective for financial statements issued
      for fiscal years ending after December 15, 2008. Early application is permitted.
       Management is currently evaluating the impact of adoption of EITF No. 08-4
      on the accounting for the 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 the 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.




Certain
      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 Federal Deposit Insurance Corporation
      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, 2008 and December 31, 2007, the Company had deposits in
      excess of federally insured limits (including restricted cash) of $649,442
      and
      $844,773, respectively. The Company has not experienced any losses in such
      accounts and believes it is not exposed to any significant risks on its cash
      in
      bank accounts.




-
          15
          -




For
      the
      period ended September 30, 2008 and year ended December 31, 2007, all of the
      Company’s sales arose in the PRC. In addition, all accounts receivable as at
      September 30, 2008 and December 31, 2007 also arose in the PRC. No major
      customers accounted for more than 10% of the Company’s total revenues and total
      accounts receivable as of and for the nine months ended September 30, 2008
      and
      2007, respectively.




The
      Company’s four largest vendors collectively accounted for approximately 64.77%
      and 66.13% of the Company’s total purchases for the three months ended September
      30, 2008 and September 30, 2007, respectively.




The
      Company’s four largest vendors collectively accounted for approximately 60.95%
      and 58.48% of the Company’s total purchases for the nine months ended September
      30, 2008 and September 30, 2007, respectively.




The
      Company’s one major product accounted for approximately 14.56% of the Company’s
      total revenues for the three months ended September 30, 2008, while no single
      product accounted for more than 10% of the Company’s total revenues for the
      three months ended September 30, 2007.




A
      major
      product of the Company accounted for approximately 11.07% of the Company’s total
      revenues for the nine months ended September 30, 2008, while no single product
      accounted for more than 10% of the Company’s total revenues for the nine months
      ended September 30, 2007.




**Note
      4 - RESTRICTED CASH**




Restricted
      cash consists of the following:




September 30,2008
            
            December 31, 2007(Unaudited)Funds
                received from PRC government
            
            $
            80,516
            
            $
            74,969(See
                Note 11)




**Note
      5 - INVENTORIES**




Inventories
      consist of the following:




September 30, 2008
            
            December 31, 2007(Unaudited)Raw
                material
            
            $
            3,132,437
            
            $
            1,761,145Packing
                materials
            
            
            375,072
            
            
            110,020Work
                in process
            
            
            7,633
            
            
            2,639Finished
                goods
            
            
            2,434,329
            
            
            355,041Low
                value consumables
            
            
            19,517
            
            
            13,766Total
            
            $
            5,968,988
            
            $
            2,242,611




-
          16
          -




**Note
      6 - LOANS RECEIVABLE**




Loans
      receivable consists of the following:




September 30,2008
            
            December 31, 2007(Unaudited)Shanxi
                Suoang Biotechnological Company, due October 30, 2007, extended to
                March
                31, 2008, annual interest at 7.0%, secured by unrelated company Shanxi
                New
                Resource Co.
            
            
            -
            
            
            27,420Xi’an
                Tiantai Investment Company, due upon demand, minimum annual interest
                at
                7.2%, unsecured
            
            
            424,270
            
            
            383,880Xi’an
                SilverRiver Automatic Equipment Company, due on March 23, 2008 and
                extended to April 2008, annual interest rate 8.4%, unsecured, balance
                was
                repaid in April 2008
            
            
            -
            
            
            411,300Shanxi
                Hongye Housing Company, due on demand, non-interest bearing,
                unsecured
            
            
            -
            
            
            137,100Others,
                non-interest bearing, due on demand, unsecured
            
            $
            9,766
            
            $
            9,152Total
                loan receivable
            
            $
            434,036
            
            $
            968,852




**Note
      7 - PLANT AND EQUIPMENT**




Plant
      and
      equipment consists of the following:




September 30, 2008
            
            December 31, 2007(Unaudited)Building
                and improvements
            
            $
            3,833,592
            
            $
            3,592,519Plant
                and machinery
            
            
            3,025,467
            
            
            2,827,591Office
                equipment
            
            
            188,009
            
            
            167,617Vehicles
            
            
            328,248
            
            
            295,995Construction
                in progress
            
            
            7,528,715
            
            
            5,531,236Total
            
            
            14,904,031
            
            
            12,414,958Less:
                accumulated depreciation
            
            
            (999,565
            )
            
            (620,991
            )Plant
                and equipment , net
            
            $
            13,904,466
            
            $
            11,793,967





-
          17
          -




Construction
      in progress is related to a production facility which will meet the Good
      Manufacturing Practices Standard (“GMP Standard”); construction commenced in
      2005 and its completion, expected to be completed in early 2009, is dependent
      upon the Company’s ability to raise additional capital. The Company estimates
      $2.5 million will need to be further injected to the project under construction.
      No depreciation is provided for construction in progress until such time as
      the
      assets are completed and placed into service. Maintenance, repairs and minor
      renewals are charged directly to expenses as incurred. Major additions and
      betterments to property and equipment are capitalized.




Depreciation
      expense was $112,777 and $100,200 for the three months ended September 30,
      2008
      and 2007, respectively. Depreciation expense was $330,155 and $179,797 for
      the
      nine months ended September 30, 2008 and 2007, respectively.




**Note
      8 - LONG TERM PREPAYMENT**




Long
      term
      prepayment consists of the following:




September 30,
              2008
              (Unaudited)
            
            December 31,
              2007Equipment
                deposit
            
            $
            438,900
            
            $
            411,300Construction
                deposit
            
            
            292,600
            
            
            274,200Refundable
                deposit for the potential acquisitions
            
            
            438,900
            
            
            534,690Total
            
            $
            1,170,400
            
            $
            1,220,190




**Note
      9 - INTANGIBLES**




Intangibles
      consist of the following:




2008
            
            2007(Unaudited)Land
                use rights
            
            $
            877,800
            
            $
            354,061Technological
                know-how
            
            
            377,820
            
            
            822,600Total
            
            
            1,255,620
            
            
            1,176,661Less:
                accumulated amortization
            
            
            (291,918
            )
            
            (165,425
            )Intangible
                assets, net
            
            $
            963,702
            
            $
            1,011,236




Amortization
      expense for intangibles was $38,498 and $13,846 for the three months ended
      September 30, 2008 and 2007, respectively. Amortization expense for intangibles
      was $113,081 and $24,657 for the nine months ended September 30, 2008 and 2007,
      respectively. During 2007, the Company paid $694,500 for exclusive rights to
      a
      strain of micro-bio organism from November 1, 2007 through October 31, 2012;
      the
      Company began using the strain in its veterinary medicines in 2008.




-
          18
          -


**Note
      10 – SHORT TERM LOAN**




On
      September 3, 2008 the Company signed a one year short term loan contract
      with the Bank of East Asia to borrow up to $1.9 million (RMB13 million) for
      operating purposes secured by the Company’s buildings. On September 17, 2008,
      the Company received $731,500 (RMB5 million) from the Bank of East Asia.
      This amount will become due in September 2009. The balance of $1.1 million
      (RMB8
      million) can be borrowed once the Company deposits $4 million to the bank and
      uses the bank as the Company’s primary transaction bank. The interest rate is
      the Bank of China’s standard short term rate, presently 6.93%, which is subject
      to change with the government policy, plus an additional 20% interest rate
      float. Pursuant to these terms, the interest rate was approximately 8.32% as
      of
      September 30, 2008. The interest payments to the Bank of East Asia are due
      every three months.




**Note
      11 - DEFERRED GOVERNMENT GRANT**




The
      amounts represent subsidies for GMP projects granted by the PRC government.
      A
      subsidy in the amount of $641,000 was approved by the PRC government to be
      granted to the Company for the purpose of constructing a new factory 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.
      According to the PRC’s government regulations for these types of grants, the
      funds being granted may be treated as capital contributed by the company
      appointed by the PRC government (“contributing company”) or as a loan from such
      company, which the Company will be required to repay. However, no agreement
      has
      been reached with the contributing company regarding the final treatment of
      this
      subsidy.




Also
      in
      2003, another subsidy of $256,400 was received for financing the Company’s
      research and development activities. In 2006, the Company applied and utilized
      $186,644 in paying for the construction of the new plant facility. In 2005,
      another subsidy of $64,100 was received for the Company’s research and
      development activities. This amount was put into use during the period. As
      of
      September 30, 2008, the Company has not reached a final agreement with the
      PRC
      government regarding the treatment of these two subsidies as either a loan
      or
      capital contribution, and the Company does not expect that the final agreement
      will be completed within the year of 2008; therefore, these amounts are carried
      as liabilities in the accompanying financial statements.




**Note
      12 - CAPITAL TRANSACTIONS**




On
      July
      10, 2007, the Company issued 40,000 shares of common stock as salary to a
      non-executive director. On the same date, the Company issued 38,750 shares
      of
      common stock to an independent consultant. The trading value of the Company's
      common stock as of July 10, 2007 was $1.47 per share and expense of $115,763
      was
      charged to general and administrative expense.




In
      the
      fourth quarter of 2007, certain of the Company’s convertible note holders
      converted their debentures into 3,278,720 shares of common stock as more fully
      described in Note 13.




In
      the
      fourth quarter of 2007, certain of the Company’s warrant holder exercised
      3,100,000 warrants into 958,181 shares of common stock, in a cashless
      exercise.




On
      February 12, 2008, the Company issued 90,000 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 $1.11 per share and expense of $99,900 was charged to
      general and administrative expense.




On
      February 29, 2008, the Company issued 210,400 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 $1.05 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
      expense.




-
          19
          -




On
      April
      21, 2008, two of the Company’s convertible note holders converted $982,003 of
      debentures into 1,227,503 shares of common stock as more fully described in
      Note
      13.




On
      May 5,
      2008, the Company agreed to issue 52,173 shares of common stock to its new
      chief
      financial officer during the term of his agreement. The shares vest in four
      equal installments of 13,043 shares each quarter. The trading value of the
      common stock on May 5, 2008 was $1.17 per share and total fair value of $61,042.
      The compensation expense will be recognized on a straight-line basis over the
      vesting period. Compensation expense of $15,386 and $24,751 was charged to
      general and administrative expense for the three months and nine months ended
      September 30, 2008, respectively. 13,043 shares were vested in the third quarter
      of 2008.




**Note
      13 - CONVERTIBLE DEBENTURES**




On
      February 27, 2007, the Company entered into a Securities Purchase Agreement
      (the
“Agreement”), with several institutional and accredited investors (the
“Purchasers”) pursuant to which the Company sold to the Purchasers $4.075
      million 8% convertible debentures due February 28, 2009 (the “Debentures”), and
      warrants to purchase 4,075,000 shares of the common stock of the Company (the
      “Warrants”), (collectively referred to as the “Transaction”). The initial
      conversion price of the debentures is $1.00 per share. The initial exercise
      price of the warrants is $1.20 per share with a life of three years. The
      conversion price and warrant exercise price are subject to downward adjustments
      should the Company issue more shares of common stock or securities convertible
      into common stock for capital raising activities for less than the conversion
      price or exercise price. Additional interest of 15% would begin in June 2007
      and
      would continue through February 2008 after which the additional interest would
      increases to 25% through the maturity date of the note.




The
      transaction closed on February 27, 2007. Gross proceeds from the sale to the
      Company were $4.075 million, of which $285,250 was paid to Pacific Ridge Capital
      who served as placement agent for the transaction and $52,500 was paid to
      consultants for the Purchasers in connection with the transaction. The Company
      also issued to the placement agent a warrant to purchase an aggregate of 570,500
      shares of common stock with an exercise price of $1.00 per share with a life
      of
      five years. The value of the warrants issued to the placement agent was
      calculated as $643,277 using the Binomial Model. The total amount of the cash
      payments and the fair value of the warrants amounted to $981,027, which was
      recorded as deferred debenture expenses. These costs will be amortized to
      interest expense over the two year life of the Debentures. For the three months
      ended September 30, 2008 and 2007, $0 and $122,628 was amortized to interest
      expense, respectively. For the nine months ended September 30, 2008 and 2007,
      $101,815 and $286,132 was amortized to interest expense, respectively.




The
      Company determined the value of the warrants using a Binomial Model with a
      volatility of approximately 75%, which is calculated by using the historical
      closing prices of the Company’s common stock. According to APB No. 14,
      Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,
      EITF-98-5, and EITF-00-27, the Company allocated the proceeds using relative
      fair value method and determined that the Debentures were issued with a
      beneficial conversion feature. As a result, on February 27, 2007, the allocated
      value of the Warrants amounted to $1,944,425 and the beneficial conversion
      feature amounted to $2,130,575. The allocated value of the Warrants and
      beneficial conversion feature totaling $4,075,000, was recorded as discount
      (or
      reduction in the carrying amount) of the Debentures and additional paid-in
      capital and will be amortized over the two year life of the Debentures using
      the
      effective interest method. For the three months ended September 30, 2008 and
      2007, $0 and $584,598 was amortized as interest expense respectively. For the
      nine months ended September 30, 2008 and 2007, $406,538 and $1,176,618 was
      amortized as interest expense, respectively.




On
      or
      about December 6, 2007, the Company entered into an Amendment, Exchange and
      Waiver Agreement (“Amended Agreement”), dated as of November 9, 2007, with
      certain of the purchasers (“Participating Purchasers”). Below are highlights of
      the Amended Agreement:




·
            The
                Amended Agreement amends the terms of the Debentures held by the
                Participating Purchasers by: (a) changing the conversion price from
                $1.00
                per share to $0.85 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.




-
          20
          -




·
            The
                Amended Agreement amends the terms of the Warrants held by the
                Participating Purchasers by: (a) changing the exercise price from
                $1.20
                per share to $0.95 per share; and (b) granting to the Participating
                Purchasers the right to exercise their Warrants on a cashless
                basis


·
            The
                Amended Agreement is deemed to be: (a) the Company’s notice (the
                “Conversion Notice”) to require conversion of the entire outstanding
                principal of the Debentures held by the Participating Purchasers
                and all
                accrued but unpaid interest thereto; and (b) the Participating Purchasers’
                notice (the “Exercise Notice”) to the Company to exercise all of their
                unexercised Warrants on a cashless
                basis


·
            The
                Amended Agreement amends the Registration Rights Agreement by waiving
                all
                outstanding registration damages due to the Purchasers in their entirety.
                Because the outstanding principal amounts of the Debentures held
                by the
                Participating Purchasers, as of the effective date of the Agreement,
                total
                more than seventy-five percent (75%) of the aggregate outstanding
                principal amounts of the outstanding Debentures held by all the Purchasers
                on that date, the amendment to the Registration Rights Agreement
                binds all
                of the Purchasers.





The
      Company has evaluated the cost of the amended terms of the Warrants and the
      Debentures. As the amendment has reduced the exercise price of the Warrants
      and
      the conversion price of the Debentures held by the Participating Purchasers,
      the
      difference between the value of the Warrants and the conversion option at the
      old prices and their value at the modified prices are costs for the Company
      and
      are charged to income.




The
      inducement cost for the Debentures converted is $634,450 for the fiscal year
      ended December 31, 2007. The inducement cost for the Debentures converted was
      based on the market value of the additional 461,418 shares obtained by the
      Participating Purchasers at $1.375 per shares on November 9, 2007. The
      inducement cost for the Warrants exercised is $279,547 for the fiscal year
      ended
      December 31, 2007. The inducement cost for the Warrants exercised is calculated
      using the Binomial Model by determining the difference between the original
      exercise price of $1.20 shares and the reduced exercise price of $0.95.




3,076,120
      shares of common stock were issued upon conversion of the Participating
      Purchasers’ Debentures with a carrying value of $2,548,632 at a reduced
      conversion price of $0.85. Another 202,600 shares of common stock were issued
      upon conversion of the Participating Purchasers’ Debentures with a carry value
      of $202,600 at the original conversion price of $1.00.




In
      accordance with paragraph 21 of EITF 00-27, all unamortized discount at the
      time
      of the conversion must be recognized as interest expense. The unamortized
      discount of the above converted Debentures is $2,403,480, which has been
      recorded as interest expenses in the accompanying consolidated statements of
      operations. The unamortized deferred financing costs of $540,167 at conversion
      of the Debentures into common stock was also recorded as interest expenses
      in
      the consolidated statements of operations for the year ended December 31,
      2007.




In
      connection to the issuance of the Debentures, the Company entered into a
      Registration Rights Agreement, in which a registration statement registering
      the
      resale of the common stock into which the Debentures are convertible and for
      which the Warrants are exercisable, as well as certain other shares of the
      Company's common stock is required to be filed with the Securities and Exchange
      Commission not later than April 13, 2007 and be declared effective by the SEC
      not later than May 28, 2007 if there is no SEC review of the registration
      statement, and June 27, 2007 if there is an SEC review. Failure to meet these
      deadlines will result in liquidated damages of 2% of the aggregate purchase
      price of the Debentures and Warrants per month, pro rated for partial periods.
      The Company filed the registration statement on June 1, 2007, however the
      registration statement did not become effective until September 25, 2007.
      Because the Amended Agreement waived all outstanding registration damages,
      the
      Company reversed the previously accrued liquidated damages totaling $345,017
      at
      December 31, 2007.




The
      Company entered into an Amendment and Waiver Agreement (the “Amendment”) with
      two institutional and accredited investors who acquired the two remaining
      unconverted Debentures in a private transaction from the original holders of
      these Debentures effective April 21, 2008. The Amendment is similar to the
      above
      Amendment Agreement with significant differences summarized below:




-
          21
          -




·
            The
                Amendment amends the terms of the Debentures held by these two investors
                by changing the conversion price from $1.00 per share to $0.80 per
                share.


·
            The
                Amendment is deemed to be: (a) the Company’s notice (the “Conversion
                Notice”) to require conversion of the entire outstanding principal of the
                Debentures held by these two investors and all accrued but unpaid
                interest
                thereto.





The
      difference between the value of the conversion option at the old prices and
      their value at the modified prices are costs for the Company and are charged
      to
      income. The inducement cost for the two Debentures converted was $0 for the
      three months and $257,775 for the nine months ended September 30, 2008. The
      inducement cost for the converted Debentures was based on the market value
      of
      the additional 245,501 shares obtained by these two investors at $1.05 per
      shares on April 21, 2008.




1,227,503
      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 $0.80.




In
      accordance with paragraph 21 of EITF 00-27, all unamortized discount at the
      time
      of the conversion must be recognized as interest expense. The unamortized
      discount of the above converted Debentures is $291,548, which has been recorded
      as interest expenses for the nine months ended September 30, 2008. The
      unamortized deferred financing cost of $79,998 at conversion of the Debentures
      were also recorded as interest expenses for the nine months ended September
      30,
      2008.




Following
      is a summary of the status of warrants outstanding at September 30, 2008:




Outstanding
                Warrants
            
            Exercisable
                WarrantsExercise
              Price
            
            Number
            
            Average
              Remaining
              Contractual
              Life
            
            Average
              Exercise
              Price
            
            Number$
            1.20
            
            
            975,000
            
            
            1.42
                years
            
            $
            1.20
            
            
            975,000$
            1.00
            
            
            570,500
            
            
            3.42
                years
            
            $
            1.00
            
            
            570,500Total
            
            
            1,545,500
            
            
            
            
            
            
            
            
            1,545,500




Following
      is a summary of the Warrant activity:




Outstanding
                as of December 31, 2006
            
            
            -Granted
            
            
            4,645,500Forfeited
            
            
            -Exercised
            
            
            3,100,000Outstanding
                as of December 31, 2007
            
            
            1,545,500Granted
            
            
            -Forfeited
            
            
            -Exercised
            
            
            -Outstanding
                as of September 30, 2008
            
            
            1,545,500




-
          22
          -




**Note
      14 - STATUTORY RESERVES**




Statutory
      reserves represent restricted retained earnings. Based on the legal formation
      of
      the entities, all PRC entities are required to set aside 10% of its net income
      as reported in its statutory accounts on an annual basis to the Statutory
      Surplus Reserve Fund. Once the total Statutory Surplus Reserve reaches 50%
      of
      the 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.




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. During the nine months ended
      September 30, 2008 and 2007, the Company made total appropriations to these
      statutory reserves of $617,970, and $410,961, respectively.




There
      are
      no legal requirements in the PRC to fund these statutory reserves by transfer
      of
      cash to any restricted accounts, and the Company does not do so. These reserves
      are not distributable as cash dividends.




**Note
      15 - TAXES**




The
      Company is registered 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 and Sida, and
      Sida’s PRC VIEs, Xian Tianxing and Shanghai Siqiang.




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




For
      the
      three month period ended September 30, 2008 and 2007, the provision for taxes
      on
      earnings consisted of:




2008
            
            2007(Unaudited)
            
            (Unaudited)Current
                PRC income tax expenseEnterprise
                income tax
            
            $
            642,066
            
            $
            415,578




The
      following table reconciles the U.S. statutory rates to the Company's effective
      tax rate for the three months ended September 30:




2008
            
            2007(Unaudited)
            
            (Unaudited)U.S.
                Statutory rates
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in USA
            
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            25.0
            
            
            33.0China
                income tax exemption
            
            
            (10.0
            )
            
            (18.0
            )Total
                provision for income taxes
            
            
            15.0
            %
            
            15.0
            %




-
          23
          -




The
      estimated tax savings due to the reduced tax rate for the three months ended
      September 30, 2008 and 2007 amounted to $419,931 and $544,120, respectively.
      The
      net effect on earnings per share if the income tax had been applied would
      decrease basic earnings per share for three months ended September 30, 2008
      and
      2007 to $0.16 and $0.04, respectively, and would decrease diluted earnings
      per
      share to $0.16 and $0.04, respectively




For
      the
      nine month period ended September 30, 2008 and 2007, the provision for taxes
      on
      earnings consisted of:




2008
            
            2007(Unaudited)
            
            (Unaudited)Current
                PRC income tax expenseEnterprise
                income tax
            
            $
            1,056,506
            
            $
            715,845




The
      following table reconciles the U.S. statutory rates to the Company's effective
      tax rate for the nine months ended September 30:




2008
            
            2007(Unaudited)
            
            (Unaudited)U.S.
                Statutory rates
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized in USA
            
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            25.0
            
            
            33.0China
                income tax exemption
            
            
            (10.0
            )
            
            (18.0
            )Total
                provision for income taxes
            
            
            15.0
            %
            
            15.0
            %




The
      estimated tax savings due to the reduced tax rate for the nine months ended
      September 30, 2008 and 2007 amounted to $706,111 and $953,219, respectively.
      The
      net effect on earnings per share if the income tax had been applied would
      decrease basic earnings per share for the nine months ended September 30, 2008
      and 2007 to $0.18 and $(0.01), respectively, and would decrease diluted earnings
      per share to $0.18 and $(0.01), respectively.




The
      Company was incorporated in the United States and has incurred net operating
      loss for income tax purpose for 2008. The net operating loss carry forwards
      for
      United States income tax purposes amounted to $ 8,362,539 which may be available
      to reduce future years’ taxable income. These carry forwards will expire, if not
      utilized, beginning in 2006 and continue through 2027. Management believes
      that
      the realization of the benefits arising from this loss appears to be uncertain
      due to Company’s limited operating history and continuing losses for United
      States income tax purposes. Accordingly, the Company has provided a 100%
      valuation allowance at September 30, 2008. The valuation allowance at September
      30, 2008 was $3,399,344. Management will review this valuation allowance
      periodically and will make adjustments as warranted.




-
          24
          -




The
      Company accounts for income taxes under the Statement of Financial Accounting
      Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
      Statement 109, deferred tax assets and liabilities are recognized for the future
      tax consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. Under Statement 109, the
      effect on deferred tax assets and liabilities of a change in tax rates is
      recognized in income in the period that included the enactment
      date.




The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”) as of January 1, 2007. 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 adoption had no
      effect on the Company’s financial statements.




The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet date. Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit. In principle, deferred
      tax liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probably that
      taxable profit will be available against which deductible temporary differences
      can be utilized.




Deferred
      tax is calculated at the tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when it related to items credited
      or
      charged directly to equity, in which case the deferred tax is also dealt with
      in
      equity. Deferred tax assets and liabilities are offset when they relate to
      income taxes levied by the same taxation authority and the Company intends
      to
      settle its current tax assets and liabilities on a net basis.




The
      Company’s accounting policy is to accrue interest and penalties, if and when
      required, as a component of income tax expenses or benefits in the income
      statement.




**Note
      16 - EARNINGS PER SHARE**




The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128, “Earnings per Share.” SFAS No. 128 requires presentation of 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 computed
      by dividing income available to common stockholders by the weighted average
      common shares outstanding during the period. Diluted earnings per share takes
      into account the potential dilution that could occur if securities or other
      contracts to issue common stock were exercised and converted into common stock.




-
          25
          -




The
      following demonstrates the calculation for earnings per share:




For the three months ended
              September 30,
            
            For the nine months ended
              September 30,2008
            
            2007
            
            2008
            
            2007Net
                income for earnings per share
            
            $
            3,466,024
            
            $
            1,071,922
            
            $
            3,956,310
            
            $
            849,513Weighted
                average shares used in basic computation
            
            
            18,647,042
            
            
            12,865,739
            
            
            18,085,395
            
            
            12,819,290Diluted
                effect of stock options and warrants
            
            
            -
            
            
            366,321
            
            
            40,960
            
            
            506,665Weighted
                average shares used in diluted computation
            
            
            18,647,042
            
            
            13,232,060
            
            
            18,126,355
            
            
            13,325,955Earnings
                per share:Basic
            
            $
            0.19
            
            $
            0.08
            
            $
            0.22
            
            $
            0.07Diluted
            
            $
            0.19
            
            $
            0.08
            
            $
            0.22
            
            $
            0.06




For
      the
      three months ended September 30, 2008, all outstanding warrants were excluded
      from the diluted earnings per share calculation as they are anti-dilutive due
      to
      the exercise price higher than the market price.




For
      the
      three months ended September 30, 2007, the average stock price was greater
      than
      the exercise prices of the 4,645,500 outstanding warrants which resulted in
      additional weighted average common stock equivalents of 366,321; all outstanding
      convertible debentures were excluded from the diluted earnings per share
      calculation as they are anti-dilutive.




For
      the
      nine months ended September 30, 2008, the average stock price was greater than
      the exercise prices of 570,500 outstanding warrants which resulted in additional
      weighted average common stock equivalents of 40,960; 975,000 outstanding
      warrants were excluded from the diluted earnings per share calculation as they
      are anti-dilutive.




For
      the
      nine months ended September 30, 2007, the average stock price was greater than
      the exercise prices of the 4,645,500 outstanding warrants which resulted in
      additional weighted average common stock equivalents of 506,665; all outstanding
      convertible debentures were excluded from the diluted earnings per share
      calculation as they are anti-dilutive.




-
          26
          -




**Note
      17 - RELATED PARTY TRANSACTIONS AND ARRANGEMENTS**




*Related
      party receivables and payables*




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




September
                30,
              2008
            
            December
                31,
              2007(Unaudited)Amounts
                due from shareholder:Mr.
                Weibing Lu (1)
            
            $
            -
            
            $
            59,462Amount
                due to shareholder and director:Ms.
                Aixia Wang (1)
            
            $
            8,778
            
            $
            1,371Mr.
                Weibing Lu (1)
            
            
            40,459Ms.
                Aixia Wang (2)
            
            
            43,890
            
            
            -Mr.
                Weibing Lu (2)
            
            
            219,450
            
            
            -Mr.
                Wei Wen (2)
            
            
            43,890
            
            
            -Mr.
                Scott Cramer(1)
            
            
            30,245
            
            
            30,245Total
            
            $
            386,712
            
            $
            31,616Amount
                due to related companies:TianXing
                Digital - owned by a director (3)
            
            $
            -
            
            $
            17,137Shanxi
                Xingji Electronics Co. - owned by a director's wife (3)
            
            
            4,361
            
            
            32,817Total
            
            $
            4,361
            
            
            49,954




(1)
            The
                related individuals, Weibing Lu, Aixia Wang, and Scott Cramer are
                all
                shareholders of the Company. Mr. Lu and Mr. Cramer are also the directors
                of the Company, with Mr. Lu additionally being the chief executive
                office.
                The amounts due from Mr. Lu were expense advances for Mr. Lu’s
                business-related travels on behalf of Xian Tianxing. Mr. Lu was permitted
                to continue drawing on the expense advancement toward his travels
                through
                the second quarter of 2008, at the end of which Mr. Lu returned to
                Xian
                Tianxing the then remaining unsubstantiated balance of the advance.
                Going
                forward, the Company does not intend to provide Mr. Lu or any other
                management members with similar type of expense advancement until
                such
                time that its board of directors, comprising of a majority of independent
                directors, shall have determined that such arrangement is appropriate
                and/or necessary for the Company, and have adopted specific policy
                and
                procedure accordingly. The amounts due to Mr. Lu, Ms. Wang and Mr.
                Cramer
                were cash advances to facilitate Xian Tianxing operations or expenses
                paid
                by these individuals on behalf of the Company. These balances are
                non-interest bearing, unsecured, due on demand, and the ultimate
                manner of
                settlement is in cash.(2)
            The
                related individuals, Weibing Lu, Aixia Wang, and Wei Wen are all
                shareholders of the Company. Mr. Lu and Mr. Wen are also the directors
                of
                the Company, with Mr. Lu additionally being the chief executive officer.
                These individuals obtained personal loans from the bank and advanced
                the
                cash to facilitate Company operations. The short-term loans with
                balances
                of $175,560 and $43,890 from Mr. Lu bear annual interest at 7.47%
                and
                $8.44%, respectively, and are due on December 30, 2008 and May 29,
                2009,
                respectively. The short-term loans from Ms. Wang and Mr. Wen
                each have a balance of $43,890, bear annual interest at 8.44%,
                and are both due on May 29, 2009.





-
          27
          -




(3)
            Shanxi
                Xinji Electronics Company is owned by the wife of Mr. Lu and Tianxing
                Digital Co. Ltd. is owned by Mr. Lu. The amount due to Shanxi Xinji
                Electronics Co. Ltd. and Tianxing Digital Co., Ltd are short term
                cash
                transfers for business operations, non-interest bearing, unsecured,
                and
                payable upon demand. The ultimate manner of settlement is in cash.




**Note
      18 - COMMITMENTS AND CONTINGENCIES**




(a)  *Lease
      commitments*




The
      Company recognizes lease expense on a straight line basis over the term of
      the
      lease in accordance to SFAS. 13, “Accounting for leases.” The Company has
      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 an annual rent
      of
      $13,563 (or RMB94,600), which is subject to a 10% increase every four subsequent
      years.




The
      Company leased additional office space from the
      Company’s CEO, Weibing Lu ,
      for a
      period of five years from January 1, 2007 to December 31, 2011 with an annual
      rent of approximately $23,742 (or RMB165,600).




The
      Company entered into a tenancy agreement with the Company’s CEO, Weibing Lu, for
      the lease of Shanghai Siqiang office for a period of ten years from August
      1,
      2007 to August 1, 2017 with an annual rent of $20,645 (or
      RMB144,000).




The
      Company’s commitments for minimum rental payments under this lease for the next
      five years and thereafter are as follows:




Three
                months ending December 31, 2008
            
            $
            14,488Year
                ending December 31, 2009
            
            
            57,950Year
                ending December 31, 2010
            
            
            57,950Year
                ending December 31, 2011
            
            
            57,950Year
                ending December 31, 2012
            
            
            34,547Thereafter
            
            
            120,733$
            343,618




Rental
      expense for the three months ended September 30, 2008 and 2007 amounted to
      $20,417 and $2,995 and for the nine months ended September 30, 2008 and 2007
      amounted to $48,473 and $8,525, respectively.




(b)  *Legal
      proceedings*




In
      March
      2006, Gregory Evans filed suit against the Company, R. Scott Cramer, Steve
      Lowe
      and David Wassung in State of Nevada District Court in Clark Country, Nevada,
      alleging causes of action for “Refusing to Call Vote of Shareholders” and
“Conversion” on or about November 18, 2005. On December 1, 2007, the lawsuit was
      dismissed. Prior to the dismissal, the Company was never served with a summons
      or complaint in the matter.




-
          28
          -




In
        May
        2007, 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 Securities Exchange Act of 1934.  In or around November 2007, the
        defendants filed motions to dismiss the complaint for failure to state a
        claim
        and for lack of personal jurisdiction.  Plaintiff agreed to voluntarily
        amend the complaint after the motions were filed, and an amended complaint
        was
        subsequently filed on or around January 4, 2008.  The amended complaint
        dropped Weibing Lu (who is a resident of China and had never been served)
        as a
        defendant.  The remaining defendants contended that the amended complaint
        failed to correct the deficiencies of the original, and filed a renewed motion
        to dismiss for failure to state a claim, also preserving their challenge
        to
        personal jurisdiction.  The defendants denied all claims and moved the
        Court to dismiss the amended complaint in its entirety in their motion to
        dismiss. The motion to dismiss also requested that the Court award sanctions
        against Mr. Chien under the Private Securities Litigation Reform Act and
        other
        authority. On July 17, 2008, the Court granted defendants’ motion and
        subsequently dismissed the lawsuit, entering a judgment on behalf of the
        defendants. The
        defendants were invited to bring a post-judgment motion for sanctions, which
        they did.  A hearing on the defendants motion for sanctions is scheduled to
        take place in November 2008.  Plaintiff has filed a Notice of Appeal of the
        Court’s dismissal of his lawsuit, which remains pending.


Other
      than the above described legal proceeding, the Company is not aware of any
      legal
      proceedings 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 Company
      or
      has a material interest adverse to the Company. No provision has been made
      in
      the consolidated financial statements for the above contingencies.




*(c)
            Ownership of leasehold property*




In
      2005,
      one of the shareholders contributed a leasehold office building as additional
      capital of Xian Tianxing. However, the title of the leasehold property has
      not
      passed to the Company. Management believes, there should be no 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 building, there is the risk that the buildings will need to be vacated
      due to illegitimate ownership. Management believes that this possibility while
      present is very remote. As a result, no provision has been made in the financial
      statements for this potential occurrence.




*(d)
      R&D project*




During
      the first quarter of 2008, the Company contracted with Northwestern Agricultural
      Technology University to jointly work on an R&D project: researching the
      application of nano technology in prevention a major milk cow disease.  The
      total projected budget for this project is approximately $574,000 (RMB4 million)
      which is paid according to the completed stages of the project. The Company
      expects this project to be completed in 1 year. The R&D expense during the
      first 3 quarters of 2008 was $370,000 (RMB2.6 million) and the remaining
      $204,000 (RMB1.4 million) will be spent during the fourth quarter of 2008 and
      the first quarter of 2009.




**Note
      19- POTENTIAL STOCK SPLIT**




Immediately
      prior to the effectiveness of the Company’s S-1 registration statement that was
      initially filed on May 7, 2008, the Company plans to effect a 10-for-1 reverse
      stock split and corresponding proportionate reduction of the number of shares
      of
      authorized common stock to be effected immediately prior to the effectiveness
      of
      the registration statement. As the number of authorized and outstanding shares
      will be equally impacted by this reverse stock split, except the basic and
      diluted EPS will be increased by ten times higher than the current EPS number,
      the Company does not believe that there will be any other material impact to
      its
      financial statements.




-
          29
          -




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




*The
      following discussion and analysis of our results of operations and financial
      condition for the quarter ended September30, 2008 and 2007, should be read
      in
      conjunction with Selected Consolidated Financial Data and our financial
      statements and the notes to those financial statements that are included
      elsewhere in this prospectus. Our discussion includes forward-looking statements
      based upon current expectations that involve risks and uncertainties, such
      as
      our plans, objectives, expectations and intentions. Actual results and the
      timing of events could differ materially from those anticipated in these
      forward-looking statements as a result of a number of factors, including those
      set forth under the “Risk Factors”, “Cautionary Notice Regarding Forward-Looking
      Statements” and “Description of Business” sections and elsewhere in this
      prospectus. We use words such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,”
“could,” “predict,” and similar expressions to identify forward-looking
      statements.**Although
      we believe the expectations expressed in these forward-looking statements are
      based on reasonable assumptions within the bound 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
      Registration Statement. 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 US$ and in accordance with accounting
      principles generally accepted in the United States. See “Exchange Rates” below
      for information concerning the exchanges rates at which Renminbi (“RMB”) were
      translated into US$ at various pertinent dates and for pertinent
      periods.*





**Overview**





We
      are a
      holding company that, through our indirect wholly-owned subsidiary Sida
      Biotechnology (Xian) Co., Ltd. (“Sida”) and our variable interest entity ("VIE")
      Xian Tianxing Bio-Pharmaceutical Co., Ltd. (“Xian Tianxing”), manufacture and
      distribute medicines, vaccines and other health care and medical care products
      for poultry, livestock and domestic pets in the People’s Republic of China,
      which we will refer to as China. We have four product lines, including a vaccine
      line, a veterinary medicine line, a fodder and feed additives line, and a
      micro-organism line. All four product lines are developed, manufactured and
      distributed by Xian Tianxing, which we operate and control through contractual
      arrangements between Sida and Xian Tianxing. These contractual arrangements
      enable Sida to control and receive the profits of Xian Tianxing. Sida is the
      wholly owned subsidiary of Fortunate Time International Ltd. (“Fortunate Time”),
      which is wholly owned by Skystar Bio-Pharmaceutical (Cayman) Holdings Co.,
      Ltd.
      (“Skystar Cayman”), our wholly owned subsidiary. Xian Tianxing has a wholly
      owned subsidiary, Shanghai Siqiang Biotechnological Co., Ltd. ("Shanghai
      Siqiang"), which we also control. Other than our interests in the contractual
      arrangements with Xian Tianxing, neither we nor our direct and indirect
      subsidiaries have any equity interests in Xian Tianxing.




Currently,
      our four product lines include the following number of products:





·
            Our
                vaccine line currently includes 10 products;·
            Our
                veterinary medicine line for poultry and livestock currently includes
                140
                products;·
            Our
                fodder and feed additives line currently includes 10 products;
                and·
            Our
                micro-organism products line currently includes 13
                products.




Among
      our
      prominent products is a vaccine that is designed to prevent the onset of avian
      coccidiosis disease, a parasitic and highly contagious gastrointestinal disease
      affecting chicken and other poultry. We refer to this vaccine as the “DLV
      chicken vaccine.” This disease has a significant economic impact to the poultry
      industry. The U.S. Department of Agriculture estimates that avian coccidiosis
      costs the worldwide poultry industry $3 billion in treatment expenses, bird
      losses and unmarketable birds due to low bird weight. Management believes that
      our DLV chicken vaccine is safe, effective and easy to administer, and may
      save
      costs by as much as 60% as compared to using conventional chemical medicines
      such as sulfaquinoxaline sodium and salinomycin sodium.




-
          30
          -





The
      following table represents the overview of our revenue by product
      line:




Three months ended
            
            Nine months ended09/30/2008
            
            09/30/2007
            
            9/30/2008
            
            9/30/2007Vaccine
                products
            
            
            3.39
            %
            
            5.25
            %
            
            4.01
            %
            
            5.47
            %Veterinary
                medicine products
            
            
            67.51
            %
            
            61.07
            %
            
            66.16
            %
            
            51.14
            %Feed
                additive products
            
            
            5.11
            %
            
            6.75
            %
            
            4.55
            %
            
            8.98
            %Micro-organism
                products
            
            
            23.99
            %
            
            26.93
            %
            
            25.28
            %
            
            34.41
            %Total
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            100
            %





We
      sell
      our products through a distribution channel covering 29 provinces in
      China. As of September 30, 2008, we had 824 distributors and 323 direct
      customers in 29 provinces in China. We intend to establish more representative
      offices and engage additional distribution agents in order to strengthen our
      distribution network.





On
      July
      11, 2008, we filed a Certificate of Amendment to our Articles of Incorporation
      with the Secretary of State of the State of Nevada after stockholders approved
      a
      proposal at a special meeting of the stockholders held on June 30, 2008, to
      increase the number of authorized shares of Common Stock from 50,000,000 to
      200,000,000.





**2008
      Outlook**





***Acquisition
      Strategy*** *.* We
      intend to continue exploring acquisitions of Good Manufacturing Practice (“GMP”)
      certified veterinary healthcare and medical care products companies located
      close to our headquarters in Shaanxi province. One of our considerations for
      acquisition is that the potential target has production capacity for different
      dosage forms such as injectibles and powders. We may also consider acquiring
      veterinary healthcare and medical care products companies with similar
      production capacity in regions of China outside Shaanxi province. Our goal
      is to
      be among the top producers and distributors of veterinary health care and
      medical care products in China, and we hope to be able to complete some
      acquisitions by the end of 2008. We are looking at and making inquiries
      regarding potential acquisition targets. However, we have not entered into
      any
      letter of intent or definitive agreement with any potential acquisition targets
      as of the date of the prospectus.





Based
      on
      our own experience, we know that the GMP certification process requires
      considerable amount of resources, which may create cash flow issues for many
      of
      the small to medium-size veterinary healthcare and medical care products
      companies that currently make up a significant portion of our industry in China.
      Accordingly, unless we can accurately and effectively evaluate the financial
      conditions of a potential target company, we may expose our business operations
      to cash flow risks subsequent to an acquisition transaction.





***Brand
      Awareness*** .
      Our
      goal is to associate the “Skystar” brand with reputable, high-quality products,
      including veterinary products. We intend to spend a portion of our net
      proceeds in marketing and advertising efforts to increase the exposure of our
      brand with potential customers. We recognize the importance of branding as
      well
      as packaging. All of our products bear a uniform brand and we also brand
      and package our products with specialized designs to differentiate the different
      categories of our products.





We
      also
      conduct promotional marketing activities to publicize and enhance our image
      as
      well as to reinforce the recognition of our brand name, including:





·
            publishing
                advertisements and articles in national as well as specialized and
                provincial newspapers, magazines, and in other media, including the
                Internet;





·
            participating
                in national meetings, seminars, symposiums, exhibitions for veterinary
                healthcare and medical care products and other related
                industries;





·
            organizing
                cooperative promotional activities with distributors;
                and·
            sending
                direct mail to major farms.





-
          31
          -


However,
      we may not immediately realize measurable economic benefits from our marketing
      efforts, as brand awareness may require the passage of a significant amount
      of
      time and a continuing commitment of our resources. Moreover, we cannot give
      assurance that our marketing and branding efforts will ultimately be successful.




***Manufacturing
      Facility*** *.* Under
      our current planning and if we complete a financing by the end of the fourth
      quarter, the vaccine manufacturing facility at our Huxian Plant is expected
      to
      be completed by the second quarter of 2009 and obtain GMP certification towards
      the end of the third quarter of 2009. Once completed, we believe that this
      facility will increase production capacity by 6.0 billion units with a value
      of
      $14.0 million in projected revenue at a gross margin rate of 60-70%.





However,
      there is no assurance that we will be able to complete the facility as planned,
      which may thereby also delay the projected GMP certification. In addition,
      as
      the GMP certification is conducted by unrelated third party, we cannot give
      assurance that our facility will be GMP certified or when the certification
      can
      be completed.





***Additional
      Products*** *.* We plan
      to commercialize new products in each of the four product lines. We are also
      expending significant amount of resources into our research and development
      in
      order to have additional products in the future. Management believes that such
      products will ultimately increase future revenue to our company. However, due
      to
      the unpredictable natures of many of the afflictions and diseases that our
      products are intended to address and/or prevent, we cannot give assurance as
      to
      the success of any new products, since market acceptance and demands of any
      such
      product may significant shift and adversely affect our profitability.





**Critical
      Accounting Policies and Estimates**





In
      preparing the consolidated financial statements in accordance with accounting
      principles generally accepted in the United States, 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, may vary from the related actual results. We consider the following
      to be the most critical accounting policies:


·
              Revenue
                  recognition: Our revenues are primarily 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 collectibility is reasonably assured. Sales are presented net
                  of value
                  added tax (VAT) and estimated returns of product from distributors
                  and/or
                  customers. We allow our distributors and/our customers to return
                  product
                  only if our product is later determined by us to be ineffective.
                  Based on
                  our historical experience over the past three years, product returns
                  have
                  been insignificant throughout all of our product lines: Micro-Organism,
                  Veterinary Medications, Feed Additives and Vaccines. Therefore,
                  we do not
                  estimate deductions for sales returns. Sales returns are taken
                  against
                  revenue when products are returned from a distributor and/or
                  customers. Sales are presented net of any discounts given to
                  customers. We use this recognition policy for both distributors
                  and end
                  users.
 
 *(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.
 
 ·
                Inventories:Inventories
                    are stated at the lower of cost, as determined on moving weighted
                    average
                    basis, or market. Costs of inventories include purchases and
                    related costs
                    incurred in bringing the products to their present location and
                    condition.
  -
            32
            -
  ·
              Research
                  and development costs: Research and development costs are expensed
                  to
                  operations as incurred and include materials, salaries, professional
                  fees
                  and technical support fees.
 
 ·
              Convertible
                  debentures and warrants: We have adopted APB No. 14, Accounting
                  for
                  Convertible Debt and Debt Issued with Stock Purchase Warrants,
                  FAS 133,
                  EITF-98-5, and EITF-00-27, for valuation and accounting treatment
                  of our
                  outstanding convertible debentures and
                  warrants.
 
 ·
              Stock
                  based compensation: We adopted Statement of Financial Accounting
                  Standards
                  No. 123R “Accounting for Stock-Based Compensation” (“SFAS 123R”), which
                  defines a fair-value-based method of accounting for stock based
                  employee
                  compensation and transactions in which an entity issues its equity
                  instruments to acquire goods and services from non-employees. Stock
                  compensation for stock granted to non-employees has been determined
                  in
                  accordance with SFAS 123R and the Emerging Issues Task Force consensus
                  in
                  Issue No. 96-18, "Accounting for Equity Instruments that are issued
                  to
                  Other than Employees for Acquiring, or in Conjunction with Selling
                  Goods
                  or Services" ("EITF 96-18"), as the fair value of the consideration
                  received or the fair value of equity instruments issued, whichever
                  is more
                  reliably measured. SFAS 123R allows the “simplified” method to determine
                  the term of employee options when other information is not available.
                    Because the Company does not have a history of employee stock
                  options, the
                  Company used the “simplified” method to estimates the life of the
                  options.
  ·
              Liquidated
                  damages: We have adopted FAS 5 and FSP EITF 00-19-2 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**




In
      December 2007, the FASB issued SFAS 141(R),“Business Combinations”, which
      replaces SFAS 141. SFAS No. 141(R) establishes principles and requirements
      for
      how an acquirer recognizes and measures in its financial statements the
      identifiable assets acquired, the liabilities assumed, any non-controlling
      interest in the acquiree and the goodwill acquired. The Statement also
      establishes disclosure requirements which will enable users to evaluate the
      nature and financial effects of the business combination. SFAS 141(R) is
      effective for fiscal years beginning after December 15, 2008. The adoption
      of
      SFAS 141(R) will have an impact on accounting for business combinations once
      adopted, but the effect is dependent upon acquisitions at that
      time.




In
      December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained non-controlling equity investments when a subsidiary
      is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 is effective for fiscal years beginning after December 15, 2008. The Company
      has not determined the effect that the application of SFAS 160 will have on
      its
      consolidated financial statements.




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS 161”),
      which changes the disclosure requirements for derivative instruments and hedging
      activities. Entities are required to provide enhanced disclosures about (a)
      how
      and why an entity uses derivative instruments, (b) how derivative instruments
      and related hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The Company has not
      determined the effect of the application of SFAS 161 on its consolidated
      financial statements.


In
        May
        2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
        Accounting Principles.” This Statement identifies the sources of accounting
        principles and the framework for selecting the principles to be used in the
        preparation of financial statements of nongovernmental entities that are
        presented in conformity with generally accepted accounting principles (GAAP)
        in
        the United States (the GAAP hierarchy). This Statement will not have and
        impact
        on the Company’s financial statements.




-
          33
          -





In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
      this Statement is limited to financial guarantee insurance (and reinsurance)
      contracts, as described in this Statement, issued by enterprises included within
      the scope of Statement 60. Accordingly, this Statement does not apply to
      financial guarantee contracts issued by enterprises excluded from the scope
      of
      Statement 60 or to some insurance contracts that seem similar to financial
      guarantee insurance contracts issued by insurance enterprises (such as mortgage
      guaranty insurance or credit insurance on trade receivables). This Statement
      also does not apply to financial guarantee insurance contracts that are
      derivative instruments included within the scope of FASB Statement No. 133,
      “Accounting for Derivative Instruments and Hedging Activities.” This Statement
      will not have and impact on the Company’s financial statements.





In
      June
      2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
      an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
      No. 07-5”). This Issue is effective for financial statements issued for fiscal
      years beginning after December 15, 2008, and interim periods within those fiscal
      years. Early application is not permitted. Paragraph 11(a) of Statement of
      Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
      Activities” (“SFAS 133”) 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.
      EITF No.07-5 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 SFAS 133 paragraph 11(a) scope exception.
      Management is currently evaluating the impact of adoption of EITF No. 07-5
      on
      the Company’s consolidated financial statements.





In
      June
      2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
      Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
      is to provide transition guidance for conforming changes made to EITF No. 98-5,
      “Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
      150, “Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity”. This Issue is effective for financial statements issued
      for fiscal years ending after December 15, 2008. Early application is
      permitted.





**Results
      of Operations**





**Three-Month
      Periods Ended September 30, 2008 and 2007**





The
      following table summarizes our results of operations as of the three-month
      periods ended September 30, 2008 and 2007. The table and the discussion below
      should be read in conjunction with the unaudited financial statements and the
      notes thereto appearing elsewhere in this report.




Three Months Ended September 30,2008
            
            2007(in U.S. Dollars, except for percentages)Sales
            
            $
            10,051,259
            
            
            100.00
            %
            $
            5,448,561
            
            
            100.00
            %Gross
                Profit
            
            $
            5,186,137
            
            
            51.60
            %
            $
            3,180,217
            
            
            58.37
            %Operating
                Expense
            
            $
            1,071,292
            
            
            10.66
            %
            $
            681,959
            
            
            12.52
            %Income
                From Operations
            
            $
            4,114,845
            
            
            40.94
            %
            $
            2,498,258
            
            
            45.85
            %Other
                Expenses
            
            $
            (6,755
            )
            
            (0.07
            )%
            $
            (1,010,758
            )
            
            (18.55
            )%Income
                Tax Expenses
            
            $
            642,066
            
            
            6.39
            %
            $
            415,578
            
            
            7.63
            %Net
                Income (Loss)
            
            $
            3,466,024
            
            
            34.48
            %
            $
            1,071,922
            
            
            19.67
            %





*Revenues* All of
      our revenue is derived from the sale of veterinary healthcare and medical care
      products in the PRC. During the three months ended September 30, 2008, we had
      revenues of $10,051,259 as
      compared to revenues of $ 5,448,561
      during the three months ended September 30, 2007, an increase of approximately 84.48% .




-
          34
          -




*Revenues-
      Veterinary Medications.* Revenues
      from sales of our veterinary medications product line increased from $3,327,622
      during the three months ended September 30, 2007 to $6,785,154 during the three
      months ended September 30, 2008 for an increase of $3,457,532 or 104%. This
      increase was responsible for the majority growth of overall revenue between
      the
      three months ended September 30, 2007 and September 30, 2008. The increase
      in
      veterinary medication sales was primarily attributable to 94 additional
      product offerings, our enhanced marketing efforts and our customers’ use of the
      products for the treatment of livestock and poultry diseases during the three
      months ended September 30, 2008 as compared to the three months ended September
      30, 2007.





*Revenues-
      Micro-Organism.* Revenues
      from sales of our micro-organism product line increased from $1,467,380 during
      the three months ended September 30, 2007 to $2,411,526 during the three months
      ended September 30, 2008 for an increase of $944,146 or 64%. The increase of
      $944,146 was a result of increased customer demand for our new probiotics
      micro-organism products and enhanced sales efforts during the three months
      ended
      September 30, 2008.




*Revenues-
      Feed Additives.* Revenues
      from sales of our feed additives product line increased from $367,562 during
      the
      three months ended September 30, 2007 to $513,980 during the three months ended
      September 30, 2008 for an increase of $146,418 or 40%. The increase of $146,418
      was a result of increased customer demand for our multi-enzyme feed additive
      products during the three months ended September 30, 2008.





*Revenues-
      Vaccines* .
      Revenues from sales of our vaccines product line increased from $285,997 during
      the three months ended September 30, 2007 to $340,599 during the three months
      ended September 30, 2008 or an increase of $54,602 or 19%. This increase was
      a
      result of an increase in customer demand of our vaccine products during the
      three months ended September 30, 2008. 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.




**Cost
      of Sales**





The
      following table sets forth the components of our cost of sales in absolute
      amount and as a percentage of total net sales for the periods
      indicated.




**Three
                Months Ended September 30,****2008**
            
            **2007**(in
                U.S. dollars, except for percentages)**Total
                Net Sales**
            
            **$**
            10,051,259
            
            
            100.00
            %
            **$**
            5,448,561
            
            
            100.00
            %Raw
                materials
            
            $
            4,689,914
            
            
            46.65
            %
            $
            2,119,515
            
            
            38.90
            %Labor
            
            $
            42,724
            
            
            0.
                43
            %
            $
            55,806
            
            
            1.02
            %Manufacturing
                Overhead
            
            $
            132,484
            
            
            1.32
            %
            $
            93,023
            
            
            1.71
            %**Total
                Cost of Goods Sold**
            
            **$**
            4,865,122
            
            
            48.40
            %
            **$**
            2,268,344
            
            
            41.63
            %**Gross
                Profit**
            
            **$**
            5,186,137
            
            
            51.60
            %
            **$**
            3,180,217
            
            
            58.37
            %





*Cost
      of Sales.* Cost
      of
      Sales, which consists of raw materials, direct labor, and manufacturing
      overhead, was $4,865,122 for the three months ended September 30, 2008 as
      compared to $2,268,344 for the three months ended September 30, 2007. Our cost
      of sales consists of four product lines: veterinary medications, micro-organism,
      feed additives, and vaccines. During the three months ended September 30, 2008,
      we incurred higher raw material prices due to the Beijing Olympics held in
      August 2008. However, management has noticed that since September 2008, raw
      materials prices have begun to decline.





*Cost
      of Sales- Veterinary Medications.* Cost of
      sales of our veterinary medications product line increased from $1,689,614
      during the three months ended September 30, 2007 to $3,894,925 during the three
      months ended September 30, 2008 for an increase of $2,205,311 or approximately
      131%. This increase was a result of an increase in veterinary medications sales.
      However, the gross margin for veterinary medications declined from approximately
      49.22% for the three months ended September 30, 2007 to approximately 42.60%
      for
      the three months ended September 30, 2008 due to higher raw materials prices.





*Cost
      of Sales- Micro-Organism.* Cost of
      sales of our micro-organism product line increased from $395,063 during the
      three months ended September 30, 2007 to $720,667 during the three months ended
      September 30, 2008 for an increase of $325,604 or approximately 82%. The
      increase was mainly attributable to increased sales of micro-organisms products.
      However, the gross margin for micro organism products decreased slightly from
      73% during the three months ended September 30, 2007 to 70% during the three
      months ended September 30, 2008 as a result of higher raw materials prices.





-
            35
            -





*Cost
      of Sales- Feed Additives.* Cost of
      sales of our feed additives product line increased from $152,285 during the
      three months ended September 30, 2007 to $212,938 during the three months ended
      September 30, 2008 for an increase of $60,653 or 40%. The increase was mainly
      attributable to increased sales of feed additives.





*Cost
      of Sales- Vaccines.* Cost of
      sales of our vaccines product line increased from $31,382 during the three
      months ended September 30, 2007 to $36,592 during the three months ended
      September 30, 2008 for an increase of $5,210 or 17%. The increase was a result
      of increased sales of our vaccines product line.




**Selling,
      General and Administrative Expenses**





**For the Three Months Ended September 30,****2008**
            
            **2007****% of Total**
              **Net Sales**
            
            
            
            **% of Total**
              **Net Sales**(in
                U.S. Dollars, except for percentages)Gross
                Profit
            
            $
            5,186,137
            
            
            51.60
            %
            $
            3,180,217
            
            
            58.37
            %Operating
                Expenses:
            
            $
            1,071,292
            
            
            10.66
            %
            $
            681,959
            
            
            12.52
            %Selling
                Expenses
            
            $
            549,580
            
            
            5.47
            %
            $
            176,438
            
            
            3.24
            %General
                and Administrative Expenses
            
            $
            318,470
            
            
            3.17
            %
            $
            387,916
            
            
            7.12
            %Research
                and Development Costs
            
            $
            203,242
            
            
            2.02
            %
            $
            117,605
            
            
            2.16
            %Income
                from Operations
            
            $
            4,114,845
            
            
            40.94
            %
            $
            2,498,258
            
            
            45.85
            %





*Selling
      Expenses* .
      Selling
      expenses, which consist of commissions, advertising and promotion expenses,
      freight charges, and salaries totaled $549,580 for the three months ended
      September 30, 2008 as compared to $176,438 for the three months ended September
      30, 2007, an increase of approximately 211.49%. This increase is primarily
      attributable to our expanding sales team and activities, which are, in turn,
      reflected in our increased sales. We believe that our selling expenses will
      continue to increase as our sales continue to grow.





*General
      and Administrative Expenses* .
      General
      and administrative expenses totaled $318,470 for the three months ended
      September 30, 2008, as compared to $387,916 for the three months ended September
      30, 2007, a decrease of approximately 17.9%. General and administrative expenses
      are primarily legal accounting and other professional fees that we incurred
      as a
      U.S. public company. Such professional expenses were more for the third quarter
      of 2007 as a result of equity transactions occurring during that period, while
      no similar transactions occurred during the three months ended September 30,
      2008. We anticipate, however, that our general and administrative expenses
      will
      increase due to the increasing costs of being a U.S. public
      company.





*Research
      and Development Costs* .
      Research and development costs, which consist of salaries, professional fees,
      and technical support fees, totaled $203,242 for the three months ended
      September 30, 2008, as compared to $117,605 for the three months ended September
      30, 2007, an increase of approximately 73%. This increase is primarily
      attributable to increased research activities with certain outside experts
      and
      institutions with whom we cooperate on research and development of both existing
      and new products. We anticipate that our research and development costs will
      continue to increase as we will continue improve existing products and develop
      new products.





**Nine-Month
      Periods Ended September 30, 2008 and 2007**





The
      following table summarizes our results of operations as of the nine-month
      periods ended September 30, 2008 and 2007. The table and the discussion below
      should be read in conjunction with the unaudited financial statements and the
      notes thereto appearing elsewhere in this report.





-
            36
            -




Nine
                Months Ended September 30,2008
            
            2007(in
                U.S. Dollars, except for percentages)Sales
            
            $
            17,215,807
            
            
            100.00
            %
            $
            10,190,830
            
            
            100.00
            %Gross
                Profit
            
            $
            8,886,782
            
            
            51.62
            %
            $
            5,814,160
            
            
            57.05
            %Operating
                Expense
            
            $
            2,633,003
            
            
            15.29
            %
            $
            2,230,303
            
            
            21.89
            %Income
                From Operations
            
            $
            6,253,779
            
            
            36.33
            %
            $
            3,583,857
            
            
            35.16
            %Other
                Expenses
            
            $
            (1,240,963
            )
            
            (7.21
            )%
            $
            (2,018,499
            )
            
            (19.80
            )%Income
                tax expenses
            
            $
            1,056,506
            
            
            6.14
            %
            $
            715,845
            
            
            7.02
            %Net
                Income (Loss)
            
            $
            3,956,310
            
            
            22.98
            %
            $
            849,513
            
            
            8.34
            %





*Revenues* All of
      our revenue is derived from the sale of veterinary healthcare and medical care
      products in the PRC. During the nine months ended September 30, 2008, we had
      revenues of $ 17,215,807
      as compared to revenues of $ 10,190,830
      during the nine months ended September 30, 2007, an increase of approximately
      68.93%.





*Revenues-Veterinary
      Medications.* Revenues
      from sales of our veterinary medications product line increased from $5,211,589
      during the nine months ended September 30, 2007 to $11,389,155 during the nine
      months ended September 30, 2008 for an increase of $6,177,566 or approximately
      118.53%. This increase was responsible for almost all of the growth of overall
      revenue between the nine months ended September 30, 2007 and September 30,
      2008.
      The increase in veterinary medication sales was primarily attributable
      to 84 additional product offerings, our enhanced marketing efforts and our
      customers’ use of the products for the treatment of livestock and poultry
      diseases during the nine months ended September 30, 2008 as compared to the
      nine
      months ended September 30, 2007.





*Revenues-Micro-Organism.* Revenues
      from sales of our micro-organism product line increased from $3,506,220 during
      the nine months ended September 30, 2007 to $4,352,781 during the nine months
      ended September 30, 2008 for an increase of $846,561 or 24.14%. This increase
      during the nine months ended September 30, 3008 was a result of increased
      customer demand for our new probiotics micro-organism products and enhanced
      sales efforts during the three months ended September 30, 2008 which offset
      the
      slight sales decline of our micro-organism products during the first two
      quarters of 2008.





*Revenues-
      Feed Additives.* Revenues
      from sales of our feed additives product line decreased from $915,359 during
      the
      nine months ended September 30, 2007 to $784,161 during the nine months ended
      September 30, 2008 for a decrease of $131,198 or 14.33%. The decrease of
      $131,198 was a result of certain products not being produced during the first
      and second quarter of 2008 due to significant increases in raw materials prices
      of certain feed additive products.





*Revenues-
      Vaccines* .
      Revenues from sales of our vaccines product line increased from $557,662 during
      the nine months ended September 30, 2007 to $689,710 during the nine months
      ended September 30, 2008 for an increase of $132,048 or 23.67%. This increase
      occurred primarily due to customer demand for our vaccine products during the
      nine months ended September 30, 2008. 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.




**Cost
      of Sales**





The
      following table sets forth the components of our cost of sales in absolute
      amount and as a percentage of total net sales for the periods
      indicated.




**Nine
                Months Ended September 30,****2008**
            
            **2007**(in
                U.S. dollars, except for percentages)**Total
                Net Sales**
            
            **$**
            17,215,807
            
            
            100.00
            %
            **$**
            10,190,830
            
            
            100.00
            %Raw
                materials
            
            $
            7,863,477
            
            
            45.68
            %
            $
            4,023,907
            
            
            39.49
            %Labor
            
            $
            136,434
            
            
            0.79
            %
            $
            171,487
            
            
            1.68
            %Manufacturing
                Overhead
            
            $
            329,114
            
            
            1.91
            %
            $
            181,276
            
            
            1.78
            %**Total
                Cost of Goods Sold**
            
            **$**
            8,329,025
            
            
            48.38
            %
            **$**
            4,376,670
            
            
            42.95
            %**Gross
                Profit**
            
            **$**
            8,886,782
            
            
            51.62
            %
            **$**
            5,814,160
            
            
            57.05
            %





-
            37
            -





*Cost
      of Sales.* Cost
      of
      Sales, which consists of raw materials, direct labor, and manufacturing
      overhead, was $8,329,025 for the nine months ended September 30, 2008 as
      compared to $4,376,670 for the nine months ended September 30, 2007. Our cost
      of
      sales consists of four product lines: veterinary medications, micro-organism,
      feed additives, and vaccines. During the nine months ended September 30, 2008,
      we incurred higher raw material prices leading up to the Bejing Olympics held
      in
      August 2008. However, management has noticed that since September 2008, raw
      materials prices have begun to decline.





*Cost
      of Sales- Veterinary Medications.* Cost of
      sales of our veterinary medications product line increased from $2,621,569
      during the nine months ended September 30, 2007 to $6,607,869 during the nine
      months ended September 30, 2008 for an increase of $3,986,300 or approximately
      152.06%. This increase was a result of an increase in veterinary medication
      sales. However, the gross margin for veterinary medications declined from
      approximately 50% for the nine months ended September 30, 2007 to 42% for the
      nine months ended September 30, 2008 due to increased raw materials
      prices.





*Cost
      of Sales- Micro-Organism.* Cost of
      sales of our micro-organism product line increased from $1,189,379 during the
      nine months ended September 30, 2007 to $1,305,793 during the nine months ended
      September 30, 2008 for an increase of $116,414 or approximately 9.78%. The
      increase was a result of higher micro-organism sales. The gross margins of
      micro-organisms improved from 66% for the nine months ended September 30, 2007
      to 70% for the nine months ended September 30, 2008 as a result of improved
      manufacturing techniques and product sales with better margins which offset
      the
      increase in raw material prices for the nine months ended September 30, 2008.





*Cost
      of Sales- Feed Additives.* Cost of
      sales of our feed additives product line decreased from $503,107 during the
      nine
      months ended September 30, 2007 to $339,578 during the nine months ended
      September 30, 2008 for a decrease of $163,529 or 32.50%. The decrease was a
      result of fewer sales of feed additive products. However, the gross margins
      for
      feed additives improved from 45% for the nine months ended September 30, 2007
      to
      57% for the nine months ended September 30, 2008 as a result of product sales
      with better margins and improved manufacturing techniques which offset the
      increase in raw materials prices for the nine months ended September 30,
      2008.





*Cost
      of Sales- Vaccines.* Cost of
      sales of our vaccines product line increased from $62,615 during the nine months
      ended September 30, 2007 to $75,785 during the nine months ended September
      30,
      2008 for an increase of $13,170 or 21.03%. This slight increase was a result
      of
      increase in vaccine product sales which is presently running at full
      capacity.





**Selling,
      General and Administrative Expenses**


**For the Nine Months Ended September 30,****2008**
                
                **2007****$% of Total**
                  **Net Sales**
                
                
                
                **$% of Total**
                  **Net Sales**(in
                    U.S. Dollars, except for percentages)Gross
                    Profit
                
                $
                8,886,782
                
                
                51.62
                %
                $
                5,814,160
                
                
                57.05
                %Operating
                    Expenses:
                
                $
                2,633,003
                
                
                15.29
                %
                $
                2,230,303
                
                
                21.88
                %Selling
                    Expenses
                
                $
                1,042,267
                
                
                6.05
                %
                $
                434,005
                
                
                4.26
                %General
                    and Administrative Expenses
                
                $
                1,220,796
                
                
                7.09
                %
                $
                1,571,812
                
                
                15.42
                %Research
                    and Development Costs
                
                $
                369,940
                
                
                2.15
                %
                $
                224,486
                
                
                2.20
                %Income
                    (Loss) from Operations
                
                $
                6,253,779
                
                
                36.33
                %
                
                3,583,857
                
                
                35.17
                %





*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 $434,005 for the nine months ended September
      30, 2007, an increase of approximately 140.15%. This increase is primarily
      attributable to our expanding sales team and activities, which is, in turn,
      reflected in our increased sales. We believe that our selling expenses will
      continue to increase as the our sales continue to grow.


-
            38
            -




*General
      and Administrative Expenses* .
      General
      and administrative expenses totaled $1,220,796 for the nine months ended
      September 30, 2008, as compared to $1,571,812 for the nine months ended
      September 30, 2007, a decrease of approximately 22.33%. General and
      administrative expenses are primarily legal accounting and other professional
      fees that we incur as a U.S. public company. Such professional expenses were
      higher during the nine months ended September 30, 2007 as a result of our
      private financing transaction that closed during the first quarter of 2007.
      However, we anticipate that our general and administrative expenses will
      increase due to the increasing costs of being a U.S. public
      company.





*Research
      and Development Costs* .
      Research and development costs, which consist of salaries, professional fees,
      and technical support fees, totaled $369,940 for the nine months ended September
      30, 2008, as compared to $224,486 for the nine months ended September 30, 2007,
      an increase of approximately 64.79%. This increase is primarily attributable
      to
      increased research activities with certain outside experts and institutions
      with
      whom we cooperate on research and development of both existing and new products.
      We anticipate that our research and development costs will continue to increase
      as we will continue improve existing products and to develop new products.





**Liquidity**





For
      the
      nine months ended September 30, 2008, cash used in operating activities was
      $296,134 as compared to $1,894,357 cash used in operating activities for the
      nine months ended September 30, 2007. The decrease in net cash used in operating
      activities is primarily attributable to the increase in net income and delayed
      tax payments offset by bulk purchases of certain raw materials for production
      in
      the fourth quarter of fiscal 2008, increased accounts receivable, and increased
      prepayments to certain suppliers to ensure low purchase price of certain raw
      materials.





We
      used
      $915,534 in investing activities for the nine months ended September 30, 2008,
      as compared to using $926,660 in investing activities for the nine months ended
      September 30, 2007. The slight decrease in net investing activities for the
      nine
      months ended September 30, 2008 was a result of increased expenditures of
      $1,622,813 primarily relating to construction in progress and $430,110
      prepaid to potential acquisition that was offset by the refund of loans of
      $688,176 and prior prepayments of $559,143 made by us, as compared to property
      plant and equipment expenditures totaling $373,629 and loans made to third
      parties totaling $553,031 for the nine months ended September 30,
      2007.





From
      financing activities, we generated $1,078,455 for the nine months ended
      September 30, 2008 as compared to $2,889,219 generated from the nine months
      ended September 30, 2007. The decrease in cash generated from financing
      activities is mainly attributable to the proceeds of $3,737,250 from sales
      of our convertible debentures in the nine months ended September 30 2007. For
      the nine months ended September 30 2008, we generated proceeds from shareholder
      loans and 1 year short term loans. These loans are further discussed in detail
      in Note 10 and Note 17, respectively, of the footnotes accompanying the
      consolidated financial statements.





As
      of
      September 30, 2008, we had cash of $685,826. Our total current assets were
      $15,031,386, and our total current liabilities were $5,124,603, which resulted
      in a net working capital of $9,906,783. Management believes that we have the
      ability to meet cash requirements for its 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, 2008 we borrowed $716,850 on a short term
      basis from a bank, collected $601,686 on a loan receivable, and received
      $301,077 from shareholder loans, the majority of which was to continue
      construction on ongoing facilities projects. If we are to acquire another
      business or further expand our operations, we will need to acquire
      additional capital.





On
      March
      9, 2007, we received gross proceeds in the amount of $4.075 million from our
      closing of a private financing transaction with certain accredited investors.
      Of
      the capital raised, approximately $400,000 was applied toward the construction
      of our new plant, approximately $270,000 was spent on research and development
      of new products, approximately $680,000 was applied toward the acquisition
      of
      proprietary technology, and the remaining balance used to expand our sales
      network and as a reserve for our working capital needs.





-
            39
            -





**Exchange
      Rate**





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





Until
      July 21, 2005, RMB had been pegged to US$ at the rate of RMB8.30: US$1.00.
      On
      July 21, 2005, the Chinese government reformed the exchange rate system into
      a
      managed floating exchange rate system based on market supply and demand with
      reference to a basket of currencies. In addition, the exchange rate of RMB
      to
      US$ was adjusted to RMB8.11: US$1.00 as of July 21, 2005. The People’s Bank of
      China announces the closing price of a foreign currency such as US$ traded
      against RMB in the inter-bank foreign exchange market after the closing of
      the
      market on each working day, which will become the unified exchange rate for
      the
      trading against RMB on the following working day. The daily trading price of
      US$
      against RMB in the inter-bank foreign exchange market is allowed to float within
      a band of ± 0.3% around the unified exchange rate published by the People’s Bank
      of China. This quotation of exchange rates does not imply free convertibility
      of
      RMB to other foreign currencies. All foreign exchange transactions continue
      to
      take place either through the Bank of China or other banks authorized to buy
      and
      sell foreign currencies at the exchange rates quoted by the People’s Bank of
      China. Approval of foreign currency payments by the Bank of China or other
      institutions required submitting a payment application form together with
      invoices, shipping documents and signed contracts.




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




**September**
              **30, 2008**
            
            **December 31, 2007**
            
            **September 30, 2007**Assets
                and liabilities
            
            US$
            0.1463:RMB1
            
            US$
            0.1371:RMB1
            
            US$
            0.1334:RMB1Statements
                of operations and cash flows for the period/year ended
            
            US$
            0.14337:RMB1
            
            US$
            0.13167:RMB1
            
            US$
            0.13064:RMB1




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





**Inflation**





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





**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**Long-Term
                Debt Obligations
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —R&D
                Project Obligation
            
            
            204,000
            
            
            204,000Operating
                Lease Obligations
            
            
            343,618
            
            
            57,821
            
            
            116,254
            
            
            75,733
            
            
            93,810**Total**
            
            $
            547,618
            
            $
            261,821
            
            $
            116,254
            
            $
            75,733
            
            $
            93,810





During
      the first quarter of 2008, we entered into a contract with Northwestern
      Agricultural Technology University jointly work on an R&D project:
      researching 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 is paid by us according to the
      completed stages of the project. We expect this project to be completed in
      1
      year. The research and development expense during the first 3 quarters of 2008
      was approximately $370,000 (RMB 2.6 million) and we anticipate that the
      remaining $204,000 (RMB 1.4 million) will be spent during the fourth quarter
      of
      2008 and the first quarter of next year 2009.





-
            40
            -





*Off-Balance
      Sheet Arrangements*





We
      do not
      have any outstanding financial guarantees or commitments to guarantee the
      payment obligations of any third parties. We have not entered into any
      derivative contracts that are indexed to our shares and classified as
      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, 2008, 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.





**Remediation
      of Material Weaknesses in Internal Control over Financial
      Reporting**





In
      our
      annual report on Form 10-K for the year ended December 31, 2007, we reported
      certain material weaknesses involving control activities, specifically (1)
      accounting and finance personnel weaknesses, (2) lack of internal audit function
      and (3) lack of internal audit system. In light of the foregoing, our management
      has undertaken steps to address these issues, some of which were outlined in
      our
      annual report. Specifically, we have retained Mr. Bennet P. Tchaikovsky as
      our
      chief financial officer, whom our management believes has the requisite
      financial reporting experience, skills and knowledge to complement our existing
      personnel. Additionally,
      our board of directors has appointed four independent directors, namely, Mr.
      Qiang Fan, Dr. Chengtun Qu, Mr. Winston Yen and Dr. Shouguo Zhao.
      The
      independent directors are tasked to establish certain internal audit functions
      within our company, and we have also established audit and compensation
      committees comprising entirely of independent directors. Mr. Yen, who is a
      licensed certified public accountant, serves on the audit committee of the
      board
      of directors, along with Mr. Fan and Dr. Zhao, and additionally serves as
      committee chairman and its financial expert. Mr. Fan serves on the compensation
      committee, along with Mr. Yen and Dr. Zhao, and additionally serves as committee
      chairman.





Management,
      including our chief executive officer and our chief financial officer, does
      not
      expect that our disclosure controls and internal controls will prevent all
      error
      or all fraud, 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 instances of fraud, 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
      Quarterly Report on Form 10-Q 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 GAAP and fairly present in all material aspects our financial
      condition, results of operations, and cash flows.





-
            41
            -





**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, 2008
      that have materially affected, or are reasonably likely to materially affect,
      our internal control over financial reporting.





**PART
      II. OTHER INFORMATION**





**ITEM
      1.**  **LEGAL
      PROCEEDINGS**





The
      following 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.





Gregory
      Evans v. The Cyber Group Network Corp, et al. (District Court, Clark County, State of Nevada, Case No. A513378). In March
      2006, Gregory Evans filed suit against us, (under our former name, The Cyber
      Group Network Corp), R. Scott Cramer, Steve Lowe and David Wassung in State
      of
      Nevada District Court in Clark County, Nevada, alleging causes of action for
      “Refusing to Call Vote of Stockholders” and “Conversion” on or about November
      18, 2005. On December 1, 2007, the lawsuit was dismissed following an Order
      to
      Show Cause regarding Dismissal. Prior to the dismissal, the Company was never
      served with a summons or complaint in the matter.





Andrew
      Chien v. Skystar Bio-Pharmaceutical Company, et. al. (US.
      District Court, District of Connecticut, Case No. 3:2007cv00781). Andrew Chien
      filed suit against the Company, R. Scott Cramer, Steve Lowe, David Wassung
      and
      Weibing Lu in United States District Court for the District of Connecticut,
      alleging causes of action for violation of Sections 10(b) and 20(a) of the
      Exchange Act. In or around November 2007, the defendants filed motions to
      dismiss the complaint for failure to state a claim and for lack of personal
      jurisdiction. Mr. Chien agreed to voluntarily amend the complaint after the
      motions were filed, and an amended complaint was subsequently filed on or around
      January 4, 2008. The amended complaint dropped Weibing Lu (who is a resident
      of
      China and was never served) as a defendant. The remaining defendants
      contended that the amended complaint failed to correct the deficiencies of
      the
      original complaint, and filed a renewed motion to dismiss for failure to state
      a
      claim, also preserving their challenge to personal jurisdiction. The
      defendants denied all claims and moved the Court to dismiss the amended
      complaint in its entirety in their motion to dismiss. The motion to dismiss
      also
      requested that the Court award sanctions against Mr. Chien under the Private
      Securities Litigation Reform Act and other authority. On July 17, 2008, the
      Court granted defendants’ motion to dismiss and subsequently dismissed the
      lawsuit, entering judgment on behalf of the Defendants.  Defendants were
      invited to bring a post-judgment motion for sanctions pursuant to Federal Rule
      of Civil Procedure, Rule 11 and the PSLRA, which they did.  A hearing on
      Defendants’ motion for sanctions is scheduled to take place in November
      2008.  Chien has filed a Notice of Appeal of the Court’s dismissal of his
      lawsuit, which remains pending.





**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.*





-
            42
            -





**Risks
      Relating to Our Business**





***Our
      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 veterinary healthcare and medical care products 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;




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




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.***




The
      revenues from the production and sale of veterinary healthcare and medical
      care
      products and the projected revenues from these products are not adequate to
      support our expansion and product development programs. Despite our recent
      financing and the financing described in this prospectus, we may need additional
      funds to build our 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.




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          43
          -




***Our
      business will be materially and adversely affected if our collaborative
      partners, licensees and other third parties fail to perform as
      expected.***





Due
      to
      the complexity of the process of developing veterinary healthcare and medical
      care products, we may on occasions depend 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
      are
      currently collaborating with Shanghai Poultry Verminosis Institution and Shaanxi
      Microbial Institute to develop products for animal immunization,
      protein technology and enzyme mechanism, non-pathogenic micro-organisms to
      cure
      gastrointestinal tract diseases, and veterinary medicines for pets. However,
      we
      do not have any written agreement with Shanghai Poultry Verminosis Institution
      regarding ongoing collaborations, and under our cooperation agreement with
      Shaanxi Microbial Institute, the Institute is not obligated to us with respect
      to any specific period of time or research projects. There are no assurances
      that we will be able to maintain our present collaborations or establish new
      ones in the future. 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. Moreover, product development
      and commercialization efforts could be adversely affected if any collaborative
      partner:




·
            terminates
                or suspends its agreement or arrangement with
                us;




·
            causes
                delays;·
            fails
                to timely develop or manufacture in adequate quantities a substance
                needed
                in order to conduct clinical trials;·
            fails
                to adequately perform clinical trials;·
            determines
                not to develop, manufacture or commercialize a product to which it
                has
                rights;·
            pursue
                other technologies or develop alternative products that compete with
                the
                products we are developing; or·
            otherwise
                fails to meet its contractual
                obligations.




***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 protection for our intellectual property rights, such as patents,
      licenses and trade secrets, and the period our intellectual property remains
      exclusive. We must also operate without infringing on the proprietary rights
      of
      third parties and without third parties circumventing our rights. The
      proprietary rights of enterprises such as 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 or proprietary products we develop. We cannot assure you
      that:




·
            any
                of our applications for patent or exclusivity will result in their
                issuance;·
            we
                will develop additional patentable or proprietary
                products;·
            the
                patents or exclusive rights 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 or proprietary
                rights.





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            44
            -





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.




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.





Implementation
      of China’s intellectual property-related laws has historically been lacking,
      primarily because of ambiguities in China’s laws and difficulties in
      enforcement. Accordingly, intellectual property rights and confidentiality
      protections in China may not be as effective as in the United States or other
      countries.





***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***





While
      our
      current products use raw materials that are readily available presently, we
      cannot give assurance that these raw materials will not become scarce in the
      future. Additionally, we may produce products in the future that 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.





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            45
            -




***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 veterinary healthcare and medical care 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:





·
            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 veterinary healthcare and medical care products that
      are
      less expensive, more effective or safer, making our products obsolete or
      uncompetitive.***




We
      have
      three major competitors in China: Jielin Bio-Tech Production Co., Ltd., Qilu
      Animal Health Production Co., Ltd., and Zhongmu Industrial Joint Stock Co.,
      Ltd.
      These companies and other 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.





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            46
            -




***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 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 national, 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.




***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.


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            47
            -
  ***Downturn
      in the global economy may slow domestic growth in China, which in turn
      may effect 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.




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.





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            48
            -







***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 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, and have been advised
      by
      our PRC counsel that in their opinion, the structure for operating our business
      in China (including our corporate structure and contractual arrangements with
      Xian Tianxing) complies with all applicable PRC laws, rules and regulations,
      and
      does not violate, breach, contravene or otherwise conflict with any applicable
      PRC laws, rules or 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.




***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.


-
          49
          -





***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, Ms. Xinya Zhang, who is Xian Tianxing’s Vice-General Manager, and Ms.
      Erna Gao, who is Xian Tianxing’s Chief Financial Officer, are all members 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.





After
      our
      recent appointment of four independent directors (including two in the
      United States), our board of directors is now comprised of a majority of
      independent directors, which we are required to have in order to list our
      securities on the NYSE Alternext US LLC (formerly known as the American Stock
      Exchange) or on the NASDAQ Capital Market. 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.




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, all
      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.


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          -





***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.




***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 or our management.***




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. In
      addition, all of Xian Tianxing’s assets are located in, and most 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 and directors not residing
      in
      the United States, 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. As a result, our public shareholders may have substantial
      difficulty in protecting their interests through actions against our management
      or directors than would shareholders of a corporation with assets and management
      members located in the United States.




***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.


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          -





***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.




***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
      application of the “penny stock” rules could adversely affect the market price
      of our common stock and increase your transaction costs to sell those
      shares.***





The
      trading price of our common stock is currently below $5 per share. As such,
      the
      open-market trading of our common shares is subject to the “penny stock” rules.
      The “penny stock” rules impose additional sales practice requirements on
      broker-dealers who sell securities to persons other than established customers
      and accredited investors (generally those with assets in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 together with their spouse). For
      transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchase of securities and have received
      the
      purchaser’s written consent to the transaction before the purchase.
      Additionally, for any transaction involving a penny stock, unless exempt, the
      broker-dealer must deliver, before the transaction, a disclosure schedule
      prescribed by the Securities and Exchange Commission relating to the penny
      stock
      market. The broker-dealer also must disclose the commissions payable to both
      the
      broker-dealer and the registered representative and current quotations for
      the
      securities. Finally, monthly statements must be sent disclosing recent price
      information on the limited market in penny stocks. These additional burdens
      imposed on broker-dealers may restrict the ability or decrease the willingness
      of broker-dealers to sell our common shares, and may result in decreased
      liquidity for our common shares and increased transaction costs for sales and
      purchases of our common shares as compared to other securities.


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          52
          -




***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 its common stock will
      develop or be sustained. We intend to apply for listing on the American Stock
      Exchange, but cannot assure you that this listing or listing on any other
      exchange will ever occur.




Our
      common shares have historically been sporadically or “thinly-traded” on the OTC
      Bulletin Board, 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” and lack of
      current revenues 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.




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
      registration statement. 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.




Stockholders
      should be aware that the market for penny stocks has suffered in recent years
      from patterns of fraud and abuse. Such patterns include (1) control of the
      market for the security by one or a few broker-dealers that are often related
      to
      the promoter or issuer; (2) manipulation of prices through prearranged matching
      of purchases and sales and false and misleading press releases; (3) boiler
      room
      practices involving high-pressure sales tactics and unrealistic price
      projections by inexperienced sales persons; (4) excessive and undisclosed
      bid-ask differential and markups by selling broker-dealers; and (5) the
      wholesale dumping of the same securities by promoters and broker-dealers after
      prices have been manipulated to a desired level, along with the resulting
      inevitable collapse of those prices and with consequent investor losses. Our
      management is aware of the abuses that have occurred historically in the penny
      stock market. Although we do not expect to be in a position to dictate the
      behavior of the market or of broker-dealers who participate in the market,
      management will strive within the confines of practical limitations to prevent
      the described patterns from being established with respect to our securities.
      The occurrence of these patterns or practices could increase the volatility
      of
      our share price.


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          53
          -





***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 principal stockholders
      and
      affiliated entities.***




As
      of
      October 23, 2008, our principal stockholders and their affiliated entities
      own
      approximately 31% of our outstanding common shares, representing approximately
      31% 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.***





Pursuant
      to our articles of incorporation, we are obligated to indemnify our directors
      and officers for monetary damages to our company and our stockholders to the
      extent provided by Nevada law. We also have contractual indemnification
      obligations under our employment agreements with our chief executive officer
      and
      chief financial officer. 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.




***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. While we
      currently do not maintain any insurance policies, we may obtain insurance
      coverage of our business and our directors and officers in the future. Should
      we
      do so we expect that premiums for insurance policies may be considerable in
      light of the high claims rates in recent years. Additionally, 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 entry into the contractual arrangements with Xian Tianxing on October 28,
      2005, we 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;


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          54
          -




•
            changes
                in financial estimates by securities research
                analysts;




•
            conditions
                in veterinary healthcare and medical care and agricultural
                markets;•
            changes
                in the economic performance or market valuations of other veterinary
                healthcare and medical care products
                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.




***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, beginning with our annual report for fiscal
      2008, 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. As reported in our annual report on Form 10-K for the
      year
      ended December 31, 2007, we reported certain material weaknesses involving
      control activities, specifically (1) accounting and finance personnel weaknesses
      in that the current staff in the accounting department is relatively
      inexperienced and requires substantial training; (2) lack of internal audit
      function in that we lack qualified resources to perform the internal audit
      functions properly, and the scope and effectiveness of internal audit function
      are yet been fully developed; and (3) lack of internal audit system in that
      we
      do not have an internal audit department to prevent and detect control lapses
      and errors in the accounting of certain key areas in accordance with the
      appropriate costing method used by us.




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          55
          -


In
      light
      of the foregoing, our management began to undertake steps to address these
      issues, including the engagement of a new chief financial officer whom
      management believes has the requisite financial reporting experience, skills
      and
      knowledge to complement our existing personnel. Additionally, our board of
      directors now has four independent directors, including a member who is
      appropriately credentialed as a financial expert. The independent directors
      will
      be tasked to establish certain internal audit functions within our company,
      and
      we have also established audit and compensation committees comprising entirely
      of independent directors. However, there is no assurance that additional
      remedial measures will not be necessary, or that after the remediation our
      management will be able to conclude that our internal controls over our
      financial reporting are 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 18.64 million shares of our common stock outstanding as of October
      23, 2008, approximately 12.68 million shares are, or will be, freely
      tradable without restriction, unless held by our "affiliates", as
      of October 23, 2008. Any substantial sale of our common stock pursuant to
      Rule 144 or pursuant to any resale prospectus may have a material adverse effect
      on the market price of our Common Stock.





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




In
      2001,
      we issued 2,000,000 shares of series “A” preferred stock to a corporation
      wholly-owned by our then Chief Executive Officer and director, Gregory Evans,
      for services 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”. Neither Mr. Evans nor any other member of
      management at such time filed a certificate of designation with the Secretary
      of
      State of the State of Nevada. Because no certificate of designation was filed
      with the Nevada Secretary of State prior to the issuance of 2,000,000 shares
      of
      our series “A” preferred stock, these shares do not have terms under Nevada
      corporate law.





As
      such,
      the holder of these shares may potentially assert a claim against us and the
      directors who authorized the issuance on grounds of improper issuance. While
      we
      may have estoppel and related affirmative defenses against Mr. Evans in such
      a
      claim, we cannot assure you that we would prevail in such lawsuit. Additionally,
      although these directors are no longer members of our board of directors, we
      may
      nevertheless be obligated, should such claim arises, to indemnify and defend
      these directors, provided we have no such obligation if the actions of these
      directors, in authorizing the issuance of the series “A” preferred shares, are
      determined to have arisen out of their own gross negligence or willful
      misconduct.





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





None.





**ITEM
      3.**  **DEFAULTS
      UPON SENIOR SECURITIES**





None.


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          56
          -





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITYHOLDERS**





None.





**ITEM
      5.**  **OTHER
      INFORMATION**





None.





**ITEM
      6.**  **EXHIBITS**





The
      following exhibits are filed herewith:





**Exhibit No.**
            
            **Description**2.1
            
            Share
                Purchase Agreement by and between The Cyber Group Network, Inc. and
                Howard
                L. Allen and Donald G. Jackson (shareholders of Hollywood Entertainment
                Network, Inc.) dated May 12, 2000 (1)2.2
            
            Plan
                of Merger Agreement between The Cyber Group Network 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 Shareholders dated September 20, 2005 (3)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
                (16)3.3
            
            Amended
                and Restated Bylaws of Skystar Bio-Pharmaceutical Company
                (17)4.1
            
            Form
                of Common Stock Certificate (15)4.2
            
            Form
                of Class A Convertible Debenture (7)4.3
            
            Form
                of Class B Convertible Debenture (7)4.4
            
            Form
                of Class A Warrant (7)4.5
            
            Form
                of Class B Warrant (7)10.1
            
            Form
                of Securities Purchase Agreement, dated as of February 26, 2007 by
                and
                among the Company and the Purchasers (7)10.2
            
            Form
                of Registration Rights Agreement, dated as of February 26, 2007 by
                and
                among the Company and the Purchasers (7)10.3
            
            Form
                of Company Principal Lockup Agreement (7)10.4
            
            Form
                of the Amendment, Exchange and Waiver Agreement between the Company
                and
                certain accredited investors dated November 9, 2007
                (8)


10.5
            
            Form
                of the Amendment and Waiver Agreement between Skystar Bio-Pharmaceutical
                Company and two institutional and accredited investors dated March
                31,
                2008 (13)




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10.6
            
            Amendment
                to Consulting Services Agreement among Skystar Cayman, Xian Tianxing
                and
                Sida Biotechnology (Xian) Co., Ltd. (“Sida”) dated March 10, 2008
                (11)10.7
            
            Amendment
                to Equity Pledge Agreement among Skystar Cayman, Xian Tianxing, Xian
                Tianxing’s Majority Stockholders, and Sida dated March 10, 2008
                (11)10.8
            
            Agreement
                to Transfer of Operating Agreement among Skystar Cayman, Xian Tianxing,
                Xian Tianxing’s Majority Stockholders, Weibing Lu and Sida dated March 10,
                2008 (11)10.9
            
            Designation
                Agreement among Skystar Cayman, Xian Tianxing, Xian Tianxing’s Majority
                Stockholders, Weibing Lu and Sida dated March 10, 2008
                (11)10.10
            
            Agreement
                to Transfer of Option Agreement among Skystar Cayman, Xian Tianxing,
                Xian
                Tianxing Majority Stockholders, Weibing Lu and Sida dated March 10,
                2008
                (11)10.11
            
            Employment
                Agreement with Weibing Lu dated May 5, 2008 (14)10.12
            
            Loanout
                Agreement with Worldwide Officers, Inc. dated May 5, 2008
                (14)10.13
            
            Form
                of Director Offer Letter with Mr. Qiang Fan and Mr. Winston Yen
                (17)10.14
            
            Form
                of Director Offer Letter with Mr. Chengtun Qu and Mr. Shouguo Zhao
                (17)31.1
            
            Certifications
                pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                Act
                of 1934, as amended, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (18)31.2
            
            Certifications
                pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                Act
                of 1934, as amended, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 (18)32.1
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (18)32.2
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (18)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 (15)99.2
            
            Legal
                Opinion from Allbright Law Offices regarding the transfer of the
                contractual arrangements from Skystar Cayman to Sida, dated April
                29, 2008
                (15)99.3
            
            Lease
                Agreement between Xian Tianxing and Weibing Lu dated June 1, 2007
                (12)99.4
            
            Lease
                Agreement between Shanghai Siqiang Biotechnological Co., Ltd. and
                Weibing
                Lu dated June 17, 2007 (15)99.5
            
            Summary
                of Research Arrangement between Shanghai Poultry Verminosis Institute
                and
                Xian Tianxing (15)99.6
            
            Cooperation
                Agreement between Shaanxi Microbial Institute and Xian Tianxing
                (15)





(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.


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          58
          -




(6)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K on December
                21, 2005.(7)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on
                March 5, 2007.(8)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on
                December 11, 2007.(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 on March 11,
                2008.(11)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on
                March 11, 2008.(12)
            Incorporated
                by reference from the Registrant’s Annual Report on Form 10-K filed on
                April 2, 2008.(13)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on
                April 23, 2008.(14)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on May
                7, 2008.(15)
            Incorporated
                by reference from the Registrant’s Registration Statement on Form S-1/A
                filed on June 26, 2008.(16)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on
                July 14, 2008.(17)
            Incorporated
                by reference from the Registrant’s Current Report on Form 8-K filed on
                July 15, 2008.(18)
            Filed
                herewith.




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          59
          -


**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.





October
                24, 2008
            SKYSTAR
                BIO-PHARMACEUTICAL COMPANYBy:
            /s/
                Weibing LuWeibing
                Lu
              Chief
                Executive Officer
              (Principal
                Executive Officer)By:
            /s/
                Bennet P. TchaikovskyBennet
                P. Tchaikovsky
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)




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