SKYSTAR BIO-PHARMACEUTICAL CO

On October 10, 2014, the Company entered into a one-year loan agreement from October 10, 2014 to October 9, 2015 with Xi’an Yanghua for this advance for the purpose of receiving favorable pricing and deepening the relationship with an important and major supplier. The loan bears interest at an annual interest rate determined by using the People's Bank of China floating benchmark lending rate over the same period plus 20% of that rate, which was 7.2% at the date when the agreement was entered. This loan is guaranteed by Shaanxi Mingrui Agriculture Development Co., Ltd, (“Shaanxi Mingrui”), an unrelated third party to the Company. One of the shareholders of Shaanxi Mingrui was the common shareholder of Xian Tiantai Investment Co., Ltd. who was engaged by the Company to facilitate potential acquisition projects (Note 10). On November 12, 2014, the Board of Directors approved and ratified this loan agreement.

Gross proceeds are first allocated the initial fair value of the freestanding derivative instruments (ie the Investor Warrants). The remaining proceeds are allocated between the common Stock and the Series C Preferred Stock based on the relative numbers of common stock underlying these equity instruments. The related issuance expenses, including the placement agent cash fees, legal fees, the initial fair value of the Placement Agent Warrants, etc, were allocated between the equity instruments and the Investor Warrants based on the proceeds allocated to these instruments. Expenses related to the issuance of equity instruments were charged to paid-in capital. Expenses related to issuance of the derivative instruments were expensed upon issuance.

Revenue — Veterinary Medication. Revenue from sales of our veterinary medications increased by $497,075 or 5.1%, from $9,828,431 for the three months ended September 30, 2013 to $10,325,506 for the three months ended September 30, 2014. This modest year-to-year growth in sales was primarily the result of our increased sales efforts and a stabilized veterinary drug market in China with no major large-scale epidemic outbreak this year. We have two veterinary medication plants located in Huxian and Jingzhou, with Huxian historically being our main facility. Of the total revenues from veterinary medications during the three months ended September 30, 2014, approximately 85.8% of total revenue resulted from the sale of products from the Huxian facility. In October, as required by the local environmental protection department,  Huxian facility was in a process of replacing its coal boiler with a natural gas one. As a result, the manufacturing of certain verterinary products was affected and production for these products were temporarily suspended. We expect to finish the project and resume our production in early December. The revenue from sales of veterinary medication products was the largest revenue contributor for the entire company and contributed 56.3% of total revenue during the three months ended September 30, 2014. The average selling prices of our products decreased 12.4% in the three months ended September 30, 2014 compared to the same period of 2013. The increase in revenue was mainly due to the increase of sales volume of our products with a lower average selling price.

Revenue — Vaccines. Revenue from sales of our vaccines decreased by $606,094 or 99.8% from $607,208 for the three months ended September 30, 2013 to $1,114 for the three months ended September 30, 2014. The significant decrease was primarily the impact of our transition from small scale lab production to large scale factory manufacturing as our new state-of-art vaccine facility has been completed and certified by the Chinese GMP standard. We currently no longer produce vaccine products in our lab. We received three vaccine production permits from the government in the third quarter and the manufacturing of these approved vaccines has been launched in our new facility at the date of this report. According to MOA's requirements for the sale of vaccine products in China, a sample from each batch of vaccine must be randomly chosen and submitted to MOA for inspection before commercial sales can be taken place. The approval period is around 20 to 30 days. As a result, the newly approved vaccine products manufactured in this facility were still under the Government's inspection and no sales occurred during the third quarter for these products. The average selling prices of our vaccine products increased approximately 27.3% for the three months ended September 30, 2014 compared to those in 2013. The decrease in revenue was primarily due to the

decrease of sales volume.

On November 10, 2014, the Company’s Board of Directors approved and ratified an employment agreement with the Company’s Chief Financial Officer (CFO). The Company agreed to compensate Mr. Mei for his services with a base annual salary of $210,000, subject to 5% increases on an annual basis, for a term of three years, and a total 8,000 shares of common stock, 2,000 of which will be issued on each three-month anniversary of his engagement with the Company. While employed as the Company’s CFO, Mr. Mei may continue to devote his business time to operating Bing Mei, CPA. In addition, Mr. Mei agreed not to engage in any business competitive with that of the Company during the term of his employment and three years following such term. The employment agreement contains certain termination, confidentiality and other terms and provisions customary for the agreements of this nature. The foregoing summary of the Bing Mei Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the Mei Employment Agreement attached hereto as Exhibit 10.1, which is incorporated herein by reference.