UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10 -K




þ
            ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15 ( d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the fiscal year ended
June 30,
2009





OR





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For  the  transition
 period  from     to





Commission
file number: 000-51312




SHENGTAI
PHARMACEUTICAL, INC.


(formerly
known as West Coast Car Company)


(Exact
name of registrant as specified in i t s charter )





Delaware
                  
                  54-2155579State or other jurisdiction of
                    organization
                  
                  (I.R.S. Employer incorporation or
                    identification No.)





Changda
        Road   East,   Development   District,  
      Changle   County,   Shandong,   P.R.C.
                  
                  262400(Address of principal executive offices)
                  
                  (Zip Code)





Registrant’s
telephone number, including; area code  011 - 86 - 536 -
6295802





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
              
              Name of each exchange on which registered




Securities
registered pursuant to section 12(g) of the Act:





Common
Stock


par value
$0.001


(Title of
class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


 ̈Yes  
þNo





Indicate
  by check mark if   the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.   ̈  Yes   þNo





Note- Checking the box above
will not relieve any registrant required to file reports pursuant to Section 13
or 15(d) of the Exchange Act from their obligations under those
Sections.




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.  þ Yes    ̈No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of 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.  þ Yes    ̈No




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
definitions of “large accelerated filer,” “accelerated filer,” and smaller
reporting companies in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
                Do
      not check if a smaller reporting company
              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   þNo





The
aggregate market value of the voting and non -voting common equity held by
non-affiliates* (9,141,780
shares of common stock) computed by reference to the price of $1.40 per share of
common stock at which the common equity was last sold on December 31, 2008, the
last day of our most recently completed second fiscal quarter, as reported on
www.yahoo.com was: $12,798,492.




*
Excludes common stock held by executive officers, directors and stockholders
whose individual ownership exceeds 10% of common stock outstanding on June 30,
2009.




There
were 19,169,805 shares of Common Stock, par value $0.001, issued and outstanding
as of September 24, 2009.




DOCUMENTS
INCORPORATED BY REFERENCE




List here
under the following documents if incorporated by reference and the Part of the
Form 10 -K (e.g., Part I, Part II, etc.) in t o which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424 (b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).





None.







PART
I





Item
1. Business.





This
Annual Report on Form 10-K (including the section regarding Management’s
Discussion and Analysis of Financial Condition and Results of Operations)
contains forward-looking statements regarding our business, financial condition,
results of operations and prospects. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or
variations of such words are intended to identify forward-looking statements,
but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this Annual Report on Form 10-K.
Additionally, statements concerning future matters are forward-looking
statements.


2


Although
forward-looking statements in this Annual Report on Form 10-K reflect our good
faith judgment, 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
in Item 1A—“Risks Factors” below, as well as those discussed elsewhere in this
Annual Report on Form 10-K. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We file reports with the SEC. We make available on our web
site under “Investor Relations/SEC Filings,” free of charge, our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we
electronically file such materials with or furnish them to the SEC. You can also
read and copy any materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. 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 us.





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
Annual Report on Form 10-K. 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.





All
references to “us,” “we,” the “Company” and “Shengtai” refer to Shengtai
Pharmaceutical, Inc., and its subsidiaries, Weifang Shengtai Pharmaceutical Co.,
Ltd., a wholly foreign owned entity in the PRC (“Weifang Shengtai”) and Shengtai
Holding Inc., a New Jersey Corporation. All references to “China” or the “PRC”
refer to the People’s Republic of China.





Overview





We are
through our wholly-owned subsidiary, Weifang Shengtai, a PRC-based company, a
leading manufacturer and supplier of glucose products in the PRC. Our products
include pharmaceutical grade glucose used for medical purposes, and glucose and
starch products for the food and beverage industry, and for industrial
production. Most of our sales are made domestically in the PRC.




Dextrose
(a form of glucose) is one of the most important carbohydrates and the chief
source of energy in the human body. As such, dextrose monohydrate is used in a
wide array of pharmaceutical products such as transfusions and intravenous drips
for restorative and nutritional purposes. (Source: A survey by the China Starch
Industry Association.) (Source: An extract from “China’s Starch, Modified Starch
and Crystallized Glucose Production Summary, 2006 edition”, published in July
2007 by the China Starch Industry Association).





Approximately
50.13% of our revenues for the fiscal year ended June 30, 2009, were
attributable to sales of glucose products.





Approximately
24.22% of our sales revenues for the fiscal year ended June 30, 2009, were
attributable to sales of starch products.


3


In
addition to our pharmaceutical glucose series of products, we also produce the
other medicinal product lines described below and glucose and starch products
such as industrial glucose, starch, and dextrin, which are used for food,
beverage and industrial production .





We
believe that the global market for pharmaceutical grade glucose (dextrose) is
growing and is likely to continue to grow with the continuous growth of the
global and china pharmaceutical market.




Our
Products





We
manufacture three categories of products (i) pharmaceutical and medicinal grade
products and (ii) raw materials for the food and beverage processing industries
(iii) other products.




Pharmaceutical
and medicinal grade products:





These
products accounted for 38.40% of our sales for the fiscal year ended June 30,
2009. Set forth below is a list of our major pharmaceutical and medical grade
products:





·
            Dextrose
      Monohydrate




·
            Dextrose
      Anhydrous




·
            Dextrin




·
            Pharmaceutical Grade
      Cornstarch




Raw
Materials for the Food and Beverage and Processing Industries:





We
produce the following raw materials for the food and beverage and processing
industries:





·
            Industrial
      Glucose




·
            Dextrose Monohydrate
      Oral




·
            Food and Beverage Grade
      Cornstarch


4





·
            Fibers




·
            Corn
  Embryo





·
            Protein
      Powders





·
            Mother
    liquid




·
              Phytin


Other
Products





At the
end of June 2007, we set up a new product line to manufacture sodium gluconate.
This non-corrosive, non-toxic and highly pure gluconate is widely used in
pharmaceutical, construction and chemistry industries. However, we transferred
this product line into Dextrose
Monohydrate Oralproduction line in May 2009 because we did not achieve
economies of scale for sodium gluconate and we wanted to focus our limited
resources on our main product lines.





Sales
of Products by Type and Geographic Locations





Approximately
86.41% of our revenues for the fiscal year ended June 30, 2009 were attributable
to domestic sales made in the PRC. Set forth below is a breakdown of the
principal products sold by us in different geographic locations over the
previous two fiscal years and the revenues from such sales.





Sales
      by Product
                    
                    FY
      06/30/2008
                      (Revenue)
        $
                    
                    
                    %
       of  Total
                    
                    
                    FY
      06/30/2009
                      (Revenue)
        $
                    
                    
                    % of TotalDextrose
      Monohydrate (DMH)Domestic
                    
                    
                    15,895,933.82
                    
                    
                    
                    17.49
                    
                    
                    
                    15,387,809
                    
                    
                    
                    20.99International
                    
                    
                    1,399,039.25
                    
                    
                    
                    1.54
                    
                    
                    
                    1,352,045
                    
                    
                    
                    1.84Dextrose
      AnhydrousDomestic
                    
                    
                    3,801,014.49
                    
                    
                    
                    4.18
                    
                    
                    
                    4,888,540
                    
                    
                    
                    6.67International
                    
                    
                    3,376,338.41
                    
                    
                    
                    3.72
                    
                    
                    
                    3,225,273
                    
                    
                    
                    4.40Dextrose
      Monohydrate OralDomestic
                    
                    
                    2,974,842.00
                    
                    
                    
                    3.30
                    
                    
                    
                    6,500,689
                    
                    
                    
                    8.87International
                    
                    
                    4,341,758.00
                    
                    
                    
                    4.80
                    
                    
                    
                    2,871,143
                    
                    
                    
                    3.92Pharmaceutical
      Grade CornstarchDomestic
                    
                    
                    2,579,995.00
                    
                    
                    
                    2.80
                    
                    
                    
                    1,883,655
                    
                    
                    
                    2.57International
                    
                    
                    236,814.00
                    
                    
                    
                    0.30
                    
                    
                    
                    51,282
                    
                    
                    
                    0.07




5




Sales
and Marketing




Sales are
carried out directly by our sales department and we are not dependent on
distributors or middlemen. As of June 30, 2009, all the provinces except Tibet
in the mainland PRC have been covered by our domestic sales network. We have
established representative offices in 3 cities (Chengdu, Nanchang, and
Guangzhou) to fortify our domestic sales network. We believe that these offices
help us to better interact with our customers, reinforce our sales force, and
improve our corporate image. We export our products to customers to over seventy
countries, and we plan to increase our global sales.





In July
2008, we restructured our sales department to better serve our customers and
better accommodate expansion. We hired additional sales staff and subdivided the
sales department into five separate sales departments, four of which represent
different product lines: monohydrate glucose, anhydrous glucose, dextrose
anhydrate oral and corn starch. Our fifth sales department focuses on sales
outside of the PRC.





Delivery
Methods





We
utilize the following delivery methods: ground transportation, shipment by sea
and by rail. Products sold internationally are shipped by sea. We generally bear
the costs and risks of transportation unless a customer specifies another mode
of delivery. During the quarter ended March 31, 2009, we had requested most of
our customers bear the transportation cost. However, most customers still
prefers us arrange and bear the cost of shipment. So since April 2009, we began
to bear the costs for most of our customers again.





The
Glucose Production Process





Our
glucose is made from enzyme-converted cornstarch. The glucose that we produce
has the following characteristics: low heat, endotoxin in bacteria lower than
0.125Eu/ml, high purity, and a production standard of lower than
0.06Eu/ml.


6




The steps
required to produce glucose from cornstarch are:





·
            The cornstarch is converted into
      an emulsion;




·
            Alpha-Amylase Glucoamylase is
      added;




·
            The emulsion from the chemical
      reaction from the combination of the two above is cleaned and dried after
      filteri ng, discoloring, ion exchange, inspissation, crystallization and
      separation; and




·
            The cleaned and dried end-product
      of the above process is
glucose




Under
normal operating conditions, the finished product rate is 100%, with no rejects
and wasted products. In case of a power outage or equipment malfunction,
sub-standard output is detected by our quality control procedures, and is placed
back into the production process for re- processing.





Major
Suppliers





The three
principal ingredients for glucose production are cornstarch, enzyme
preparations, and active carbon. The major suppliers for these raw materials are
as follows:





Cornstarch




Cornstarch
Manufacturing Facility





In 2007,
we completed constructing a new cornstarch production complex with an annual
production capacity of 240,000 tons, which can be expanded to 300,000 tons per
year, if necessary. The complex is close to and
connected with our two glucose production plants. It started producing
cornstarch in January 2007.





During
fiscal year 2009, approximately 61.17% of the cornstarch production plant’s
output was used as raw materials for glucose production, and the other 38.83%
was sold to customers in the food and beverage, pharmaceutical and industrial
industries.





Our
cornstarch production complex consists of the following areas:





·
            Corn
    storage




·
            Cornstarch production
      line


7





·
            Warehouse for finished product
      (cornstarch)




·
            Logistical and delivery
      coordination center




·
            Environmentally friendly waste
      water treatment facilities




Our new
cornstarch production has the following benefits:





·
            Low-cost and stable supply of
      high-quality raw materials for glucose
  production




·
            The stable supply of cornstarch
      will enable our existing glucose production plant to operate at full
      capacity




·
            Reduced transportation costs of
      raw materials




·
            Quality
      assurance of cornstarch since we are producing our own
      cornstarch




Enzyme
Preparations





We
purchased a total of 155 tons of enzyme preparations during the previous two
fiscal years.





Active
Carbon





We
believe that Fujian Sha County Qingshan Chemical Carbon Corporation is one of
the major active carbon producers in the PRC. We purchased a total of 1,248 tons
of active carbon from it over the past two fiscal years. There are a number of
other suppliers of active carbon from whom we can make purchases, if
necessary.





We are
not dependent on any one supplier of raw materials and machinery, nor have we
ever experienced a shortage of supply of raw materials or
machinery.


8


New
Glucose Manufacturing Facility





In July
2008, we completed construction of a new glucose manufacturing facility to boost
our production capacity and at the end of September 2008, the facility passed
its GMP inspection. The facility has a production capacity of 120,000 tons, and
with our pre-existing facility including the production line transferred from
the sodium gluconate production line, we can produce a total of 192,000 tons (we
can increase capacity in the old facility by 30,000 tons, if necessary, for a
total of 222,000 tons). The final cost was approximately $35 million, out
of which the building accounted for approximately $12 million and machinery
and equipment approximately $23 million. The new facility has reached 35%
utilization rate as of June 30, 2009 and is building up to larger
quantities.





Quality
Control





Our PRC
production facilities are fully certified by applicable PRC regulations for GMP,
ISO9002 and HACCP international quality standards. The rate of quality output
(output conforming to pharmaceutical-grade glucose product specifications) is
maintained at 100% because non- conforming products can be
reprocessed.





A
three-tier quality control system (production team level, workshop level, and
management accountability for quality) ensures that all products are produced in
a pollution-free, contamination-free and efficient production environment
following strict quality-oriented procedures:





·
            A team of workers on-duty is
      responsible for the smooth operation of the production process by adhering
      to proper procedures. The intermediate output from each production step is
      sampled and checked to ensure that the final output is of specified
      quality standards.




·
                Equipment is checked
      regularly and maintained to ensure proper operation. The quality of the
      water used in the production process is regularly checked as well. The
      level of airborne particles and microbes in the production sites is
      regularly checked to eliminate
contamination.
  ·
                  The quality of all
      output is reviewed by the General Manager of the Quality Control
      Department, and ultimately approved by the CEO. A full set of written
      quality control records is
maintained.




The
qualities of our manufactured glucose can be summarized as follows:





Properties: white
crystal, granular powder, odorless, sweet taste, easy soluble in water, slightly
soluble in alcohol


Specific rotatory power: +52.0 degrees— +53.5degrees


Dry loss: ≤9.5%
Chloride:<0.02% Sulfate:<0.02%


Alcohol- insoluble matter:≤5mg


Ferrous salt:<0.002% Ignition residue:0.08% Heavy
metal:≤20ppm Arsenide:<2ppm


Sulfite and soluble starch:appear yellow when added to an iodine test solution.





The
qualities of our Dextrose Monohydrate Transfusion (liquid glucose) may be
summarized as follows: Perceptual index:





Appearance:colorless
without the impurity that can be seen by the naked eye


9




Odor:no unusual
odor


Taste:Clear
sweet





Physical
and chemical index S
olid substance:more than 84% DE:38-42


PH:4.6
-6.0


Maltose content:8% -
20% Transmittance
(426nm):more than 94


Coke Temperature:more than or equal to 125


Ash:no more than
0.3%





Hygienic
index:


As:not more than
0.5mg/Kg


Pb:not more than
0.5mg/Kg


Bacterium total:not
more than 1,000/g E.
coli:not more than 30/100g Pathogen:No





Market
Analysis





Industry
Overview and Trends





The
pharmaceutical transfusion was first put to use in 1832. Since then clinical
transfusion has grown from its rather limited choice of original physiological
brine to more than 200 different kinds of transfusion media.




The
diverse range of transfusion media can be grouped into five
categories:





·
            Body fluid balance
      (Isohydria)




·
            Nutritional
      transfusion




·
            Dialyzate




·
            Plasma
      expander




·
            Therapeutic transfusion
      (including herbal
transfusion)




Dextrose
Monohydrate is widely used in the medical and clinical environment for
restorative and nutritional purposes. For example, a solution of pure glucose
(Dextrose or D-glucose) has been recommended for use by subcutaneous injection
as a restorative measure after major operations or as a nutritive measure in
debilitating diseases.


10


Dextrose
Monohydrate is widely used in hospitals and clinical institutions in the PRC and
is covered by the PRC Government-subsidized Medical Insurance
Scheme.





Glucose
exists in many forms in nature, including in plants, fruits, honey and animal
products. In humans, every 100ml of blood typically contains 80-120 mg glucose.
Glucose is the ingredient for many saccharide compounds such as saccharose,
maltose, starch, glycogen and vitamins. The properties of glucose are summarized
as: white crystal with sweet taste, easily soluble in water, difficult to
dissolve in alcohol, insoluble in organic solvents such as ether, chloroform and
neutral reaction to litmus.





Liquid
glucose is a transparent and viscous liquid, and is produced by the action of
enzymes on refined cornstarch. Glucose is formed by the hydrolysis of many
carbohydrates, including sucrose, maltose, cellulose, starch and glycogen.
Fermentation of glucose by yeast produces ethyl alcohol and carbon dioxide.
Glucose is made industrially by the hydrolysis of starch under the influence of
diluted aid, or more commonly, under that of enzymes.





Glucose
is used for many different purposes, as a raw material for many food and
beverage products and as a substitute for sucrose. With the technological
advances in food and beverage production, and as also in response to the demand
from consumers for healthier food and drinks, producers are using more and more
glucose as a raw material. Glucose is also used in veterinary medicine as a
carrier of animal medicines.





Glucose
is used by the pharmaceutical and chemical industries in a variety of ways. By
using different reaction mechanisms, different types of chemical compounds are
produced, using the self-oxidation and combination mechanism to produce calcium
gluconate, zinc gluconate, and glucorone; using the hydro-reduction mechanism to
produce sorbic alcohol and manno-alcohol, or to produce Vitamin B2, glutamine,
ribose, and other vitamins.





World
Pharmaceutical Market





The global market for pharmaceutical
products had been growing at a significant rate before the world economic
crisis.  Even the deterioration in the global economic environment
affected the market demand, the global market for pharmaceutical products is
projected to continue to grow in 2009 and in the immediate future.
Pharmaceutical Market Trends, 2006-2010 by BioPortfolio forecast an increase in
the global pharmaceutical market to $842 billion in 2010. In its April 22, 2009
updates of 2009 Global Pharmaceutical Market forecast, IMS Health estimates that
the global pharmaceutical market will exceed $750 billion in 2009. IMS stated
that the sector will feel the impact of the economic climate — but to a lesser
extent than many other industries — through 2010, when a rebound is expected. It
estimates the global compound annual growth rate (CAGR) for pharmaceutical
market growth is forecast to be 3 - 6 percent through 2013. It estimates a new world order is
apparent as pharmerging markets grow collectively at a 13 - 16 percent pace
through 2013. The seven pharmerging markets (China, Brazil, Mexico, South Korea,
India, Turkey and Russia) will contribute more than half of global market growth
in 2009 and sustain an average 40 percent contribution through 2013. China,
which is currently the sixth-largest pharmaceutical market, will become the
third largest by 2011.


11


The
PRC Pharmaceutical Market





The
annual growth rate in the PRC pharmaceutical industry in 2008 was around 26%,
the PRC has become a critically important market (see “2008 Overview of China’s
pharmaceutical sector and expectations for 2009” January 26, 2009, available on
www.pharmaceutical-manufacturingnews.com). Our expectation of similar growth
rate also comes from a demographic analysis. The PRC has the most aged citizens
in the world. In 2004, it had 143 million people aged 60 and above. This number
will be 200 million in 2014 and 300 million in 2026. (See article titled
“China’s ageing problem and seven features”, dated February 24, 2006, available
on www.china.org.cn). We believe that an aging population will necessarily call
for the demand of more pharmaceutical and medicinal products to meet its
needs. Demand for better drugs and medical equipment is driving this market. We
believe it will continue to grow as the country modernizes and provides
healthcare to a population of 1.3 billion people. Currently, the population of
the PRC is served by approximately 310,000 medical and clinical
institutions.





In
February 2009, the National Development and Reform Commission (NDRC) stated that
it will allocate RMB 10 billion (US$1.46 billion) from the central budget to
build 2,000 township hospitals and 29,000 urban community health service
centers. The funds are part of the central government's RMB 850-billion
commitment to financing the country's health care reform plan. The plan will be
implemented over the course of next three years. With that as a backdrop, we
believe the long-term prospect for pharmaceutical grade glucose is very good
despite the near-term challenges.





The PRC
is one of the top 10 emerging pharmaceutical markets of the world, and is the
second largest market in Asia after Japan as reported in an article dated May 6,
2005, titled “Experts Forecast China will become the World’s Fifth Biggest
Medicine Market in 2010” on the Chinese Small- Medium Enterprises web site
(http://www.ynetc.gov.cn/Art icle_Show.asp?ArticleID=387). By 2010, it is believed the PRC will become the world’s fifth largest
pharmaceutical market after the USA, Japan, Germany, and France according to a
report dated November 13, 2002 titled “Asia Pacific Medical Industrial Council
Forecasts China will become the World’s Fifth Largest Pharmaceutical Market by
2010” on People’s Web site (www.people.com.cn). It is projected that the PRC
pharmaceutical market would be valued at $75 billion by 2010, accounting for 10%
of global demand, and $120 billion by 2020 (Source:
www.http://managert.bokee.com/4173614.html).





The value of PRC pharmaceutical goods
produced in 1970 was only $21.7 billion. (as reported on the Szechuan News Web
site, www.newssc.org, in an article titled “Discussion on the Development and
State of China’s Pharmaceutical Industry”). In 2008, the PRC pharmaceutical
market produces goods with a value of around $115 billion, (“2008 China
Pharmaceutical industry”, publish February 18, 2009,www.drcnet.com.cn).  The PRC produces a little
less than 25% of what is produced by the U.S. pharmaceutical market, which
is valued at web site (www.yd210.com)).




We
believe that the global demand for pharmaceuticals is likely to continue to
increase, with developing countries now being economically more prosperous and
capable of spending more money on improving healthcare.





Major
Import and Export Markets for Pharmaceutical Products





The major
producers of chemical pharmaceutical raw materials are Western Europe, North
America, Japan, China and India. Western Europe is a net exporter with 50% of
its total production being exported. North America is a major importer, with its
own products only able to satisfy 20% of its total demand. Japan is believed to
be evolving to become a net importer. The PRC and India have emerged into two
major exporters for pharmaceutical raw materials.


12


The total
annual chemical drug-based production of the PRC is approximately 500,000 tons,
consisting of raw materials for the production of anti-biotic, vitamins,
pain-killers and hormonal and other drugs, and is second only to the United
States. The PRC and India are emerging as the major exporters in these product
and raw material categories.





The
Pharmaceutical Raw Materials Manufacturing Industry in the PRC





The PRC,
as a country, has put a lot of emphasis on the production of pharmaceutical raw
materials in the past 40-50 years. Additionally, in the past ten years, a number
of large international pharmaceutical companies have set up their
productions to the PRC, such as Cargill, CPI and Roquette. Both factors have
contributed to the growth of this specific segment in the PRC.





This industry segment can be
categorized into three groups: first, the state-owned or government-subsidized
pharmaceutical companies taking up 6% of market share; second, the foreign-owned
or Sino-foreign Joint ventures taking up 54% of market share, and with the bulk
of  privately owned firms competing for the remaining 40%. (“2008
China Pharmaceutical industry”, publish February 18, 2009,www.drcnet.com.cn) We fall into the second
category.





Market
Analysis and Projections for Clinical Transfusion Products in the
PRC





Transfusion
solutions are one of most commonly used clinical prescriptions in hospitals and
healthcare institutions. Dextrose Monohydrate is one of the five most important
types of medical prescriptions in the PRC and is one of the most widely used
pharmaceutical products.





The total
production volume of transfusion solutions grew from 1.38 billion bottles in
1995 to 2.91 billion bottles in 2001, i.e. annual growth of around 16.1%
(source: http://www.chinapharm.com.en/html/scfx/20034815219.html). According to
China Pharmaceutical Industry Association, the total production volume of
transfusion solutions reached 7.10 billion bottles/bags in 2008, a 10% increase
compared to 2007. The types of transfusion solutions grew from 40 to more than
80 types of medical transfusion formulations. (www.cpia.org.cn).





There are
more than 200 types of transfusion solutions developed and used in overseas
countries, and the annual per capital consumption is more than 3 bottles. The
PRC has only approximately 80 types of transfusion products, and the per capital
consumption is around 2.15 bottles.





We are
one of the top producers of pharmaceutical glucose. These products are the raw
materials or base solutions for pharmaceutical manufacturers to add specific
medical formulations to produce medicated transfusion. Our industrial customers
are producers of medical transfusion solutions.





The
growth in demand for Dextrose Monohydrate transfusion solutions is co-related to
the growth of the pharmaceutical production and consumption trends and patterns.
Medical transfusion is a common and well-accepted treatment routine all over the
PRC for many ailments, ranging from the common cold, influenza, and intestinal
disorders to clinical restorative or recuperative prescriptions after surgical
operations. There are altogether around 310,000 medical service providers such
as hospitals, clinics, and health-care institutions serving the 1.3 billion
people in the PRC.


13


Based on
our analysis of the consumption of glucose products carried out by the China
Starch Industry Association and the disposable income per capita from China
National Statistics Bureau, we believe that there is a strong correlation
between the consumption of glucose products and the disposable income per
capita.





We
predict that higher living standards would lead to higher consumption of
pharmaceutical dextrose. It is our understanding that the robust and continuing
economic growth, the rising purchasing power of the domestic market, as well as
the public awareness of quality healthcare products, are all drivers to the
demand for our products. The strong growth in the PRC pharmaceutical industry
will also help increase the selling prices of our major products, and enhance
our revenues and increase our gross profit margin.





Target
Market





Our
principal customers are:





·
            Healthcare
      Institutions




·
            Medical supply
      companies




·
            Physician
      offices




·
            Pharmaceutical
      companies




·
            Medica l supply
      exporters




·
            Food and beverage
      companies




We market
our products to these types of businesses within the PRC and plan to expand our
export business as we increase our production capabilities, particularly in
wholesale sales to foreign distributors.





We
utilize the following factors/incentives to encourage the purchase of our
products:





·
            High quality, pharmaceutical
      grade products




·
            Certified product
      reliability


14





·
            On-time
      deliveries




·
            New and improved medicina l
      products and packaging




·
            Excellent service and
      support




·
            Excellent
      referrals




Domestic
and International Market





The
market in the PRC for our products is very large and growing rapidly. There are
more than 310,000 medical service providers such as hospitals and healthcare
institutions all over the PRC.





We
believe that the export market is a lucrative market that we plan to further
develop and expand. Our export revenues for the Dextrose Monohydrate series of
products (which also includes anhydrous glucose and oral glucose) derived from
our top four export markets are summarized as follows:





South
Korea





Import
approval permit issued in 2003


Products
exported: Dextrose Monohydrate Oral and Dextrose Anhydrous





FY2008
                        
                        FY2009$
                        3,103,805
                        
                        $
                        1,204,513





Russia





Import
approval permit issued in 2004


Products
exported: Dextrose Monohydrate Oral, Dextrose Monohydrate
transfusion





FY2008
                        
                        FY2009$
                        1,248,805
                        
                        $
                        586,368




15




Australia





Import
approval permit issued in 2003


Product
exported: Dextrose Monohydrate Oral





FY2008
                      
                      FY2009$
                      433,312.6
                      
                      $
                      15,166




Singapore
(plus re-export to Thailand)




Import
approval permit issued in 2003


Products
exported: Dextrose Monohydrate Injection




FY2008
                      
                      FY2009$
                      60,573
                      
                      $
                      693,736




Competition





Some of
our competitors of its main products are listed below. They are coded as
follows:





(trans =
competitor in Dextrose Monohydrate transfusion solution)


(oral =
competitor in oral Dextrose Monohydrate)


(andh =
competitor in Dextrose Anhydrous)





·
            Dong Ping Rui Xing Petrochemical
      Company Ltd (trans)




·
            North China Pharmaceutical
      Production Company Ltd
(trans)


·
                Ci
      Feng Pharmaceutical Production Company Ltd (trans)
  ·
                Yi
      Kan Pharmaceutical Production Company Ltd
  (trans)
  ·
                Hebei Shengxue Company Ltd
      (andh)


·
              Northern China Kan Yin
      Pharmaceutical Product Company Ltd
  (trans)


16





·
            Shandong Xi Wang Company Ltd
      (oral)





·
            QingHuangDao Lihua Glucose
      Company Ltd (oral)





·
            Hebei Hua Ying Glucose Company
      Ltd (oral)





·
            Cargill USA (trans),
      (oral)





·
            CPI USA (oral)
      ,(andh)





·
            Roquette (trans),
      (andh)





·
            Cerestar (trans),
      (andh)





·
            Hebei Zhou Ping Rui Xue Glucose
      Company Ltd (andh)





·
            Hebei Linhua Glucose and
      Medicinal Production Company Ltd
(andh)





Among our
domestic competitors, we believe that we are the largest manufacturer of
pharmaceutical grade glucose. Internationally, although our foreign competitors
may be better-capitalized, we have significant advantages as
follows:





Competitive
Advantages





With the
PRC being a major corn-producing region of Asia, and Shandong being the major
corn-producing province of the PRC, our operating subsidiary Weifang Shengtai,
located in Shandong, has the advantage of a steady supply of raw materials,
which are located nearby with low transportation costs.





Among our
assets is a total of 252,275 square meters of land, of which approximately only
94.17% is being utilized, leaving room for expansion. We export to markets
such as South Korea, Russia, Australia and Singapore and seventy other
countries. Taking into consideration the geographical proximity and
cross-cultural similarities with the Northern and South-Eastern Asian markets,
we believe that we can be competitive in terms of product price, delivery
lead-time and customer service responsiveness.





With our
cornstarch facility connected with the existing glucose manufacturing facility
and the new glucose manufacturing facility, we believe that we will be able to
stabilize our glucose’ raw material costs and production, enable our glucose
production facility to function at maximum capacity and produce more products
for both the domestic and export markets.


17




We
believe that we are one of the leading producers of pharmaceutical Dextrose
Monohydrate products in the PRC, with an estimated 30% of the overall PRC market
share. The other suppliers of pharmaceutical Dextrose Monohydrate products do
not have as a complete production lines as ours.




Backlog





Our
orders are processed on a made to order basis and we do not have any backlog of
orders.





Growth
Initiative





We have
developed and are implementing the following initiatives to achieve our goals
for growth:





•
            Vertical integration of our
      manufacturing capabilities by operating a cornstarch
      plant





We
believe the cornstarch plant can lower production costs and improve profit
margin because higher-quality and lower cost raw materials could be produced
in-house and there is no transportation costs because the cornstarch processing
plant is next to and connected to the glucose production factories. This will
somewhat shield us from external cornstarch price fluctuation, thus protecting
or improving its profit margins.





•
            Increase
      its glucose production capabilities to be able to meet market
      demand




Overseas demand of our glucose products
had not been fully satisfied in the past before the economic crisis because our
products have been sold out due to strong domestic demand in the PRC. We are
also seeing the recovery of the economy and expect growing sales. We believe
that our 240,000 tons (it can be easily expanded to 300,000 tons) cornstarch
processing plant will supply enough raw materials to increase production volumes
and sales to an expanding domestic client base and fulfill more overseas orders
which offer higher profit margins. In line with this, we commenced construction
of our new glucose manufacturing facility, which was completed in July
2008. The productions line is ramping up its production capacity.




•
            Expand
      our marketing and sales efforts to identify and secure additional domestic
      customers and increase our export
sales






18





We plan
to (i) optimize our web site to describe and promote our business, (ii)
reorganize sales department, (iii) buy advertisements for various search words
and phrases (e.g. "glucose") on Google and Yahoo and major PRC search engines,
(iv) conduct seminars at various trade show events to promote our products, and
(v) optimize our web site so that people doing ‘natural’ searches will see the
web site link on the first page of the search by refining the Search Engine
Optimization.





Major
Customers




Our
customers are principally located in the PRC but we hope to expand our
international customer base. Our principal customers are hospitals and
pharmaceutical companies. Below is a list of our largest PRC
customers:




•
            Shandong
      Xiwang Food Co Ltd





•
            Qingdao
      Chenyu Biochemistry Technology Co
Ltd




•
            Qingdao
      Shizhan Technology Co Ltd





•
            Luogaite
      (China) Fine Chemical Co Ltd




•
            Weifang
      Phoenix Paper Co Ltd




•
            Shandong
      Xinxinhai Cereals and Oil Industrial Co
Ltd




•
            Shandong
      Fufeng Zymosis Co Ltd




•
            Anhui
      Shuanghe Pharmaceutical Co Ltd





•
            Weifang
      Yongchang Feedstuff Co Ltd




•
            Weifang
      Xingda Feedstuff Co Ltd





No
customer accounted for more than 10% of our sales for fiscal years ended June
30, 2009, and 2008.




19




Intellectual
Property




We
formally acquired the registered "Heng De Bao" trademark from Changle Medical
Starch Factory on or about July 28, 2000. The trademark was assigned by the
Chinese Trademark Bureau and registered under classes 31 (pharmaceutical starch
and white dextrin) and 5 (pharmaceutical glucose). The class 31 registration is
valid through June 10, 2009, while the class 5 registration was renewed and
valid till May 9, 2011. International Class Code 5 covers pharmaceuticals,
veterinary and sanitary preparations; dietetic substances adapted for medical
use; food for babies; plasters, materials for dressings; material for stopping
teeth, dental wax; disinfectants; preparations for destroying vermin;
fungicides, herbicides. International Class Code 31 covers agricultural,
horticultural, and forestry products and grains not included in other classes;
live animals, fresh fruits and vegetables; seeds, natural plants, and flowers;
and malt which is animal food.




Insurance




We
purchased automobile insurance with third party liability coverage for our
vehicles and liabilities insurance for our key personnel and company. We do not
have other insurance such as property insurance, business liability or
disruption insurance coverage for our operations in the PRC. While a lawsuit
against a company such as Weifang Shengtai in the PRC would be rare, we cannot
make any assurance that we will not have exposure for liability in the event of
a lawsuit.




Government
Regulations




Because
we manufacture pharmaceutical products, we are subject to the laws governing the
Good Practice in the Manufacturing and Quality Control of Drugs (as amended in
1998) as promulgated by the PRC State Food and Drug Administration on March 18,
1999.




We are
also subject to business license and approval regulations that are required for
all corporations in the PRC.




We have obtained Certificates of Good
Manufacturing Practices for Pharmaceutical Products ("GMP Certificates") issued
by the PRC State Food and Drug Administration. The GMP Certificates certify that
we have complied with the requirements of Chinese Current Good Manufacturing
Practices for Pharmaceutical Products in the manufacture of Dextrose Monohydrate
oral glucose, Dextrose Monohydrate glucose, and Anhydrous glucose and the GMP
Certificate is valid through November 10, 2013 respectively. Additionally, we have obtained Drug
Registration Certificates for glucose and glucose pro oral from the State Food
and Drug Administration in accordance with the PRC Medical Products Governance
Law and its implementing regulations.




Environmental
Compliance




We are subject to PRC environmental
laws, rules and regulations that are standard to manufacturing
facilities.




All of
our production lines including the new glucose production lines have passed
inspection by the Environmental Protection Bureau of the PRC and was issued a
Certificate of Qualification.




20




Employees




As of
June 30, 2009, we employed approximately 770 full-time employees. Of these, 8
are directors, approximately 37 are in sales, approximately 135 perform
operating and administrative functions, and approximately 590 are in production,
storage and distribution.




Item
1A. Risk Factors.




Investment
in our common stock involves risks. You should carefully consider the risks we
describe below before deciding to invest. The market price of our common stock
could decline due to any of these risks, in which case you could lose all or
part of your investment. In assessing these risks, you should also refer to the
other information included in this Annual Report, including our consolidated
financial statements and the accompanying notes. You should pay particular
attention to the fact that we are a holding company with substantial operations
in China and are subject to legal and regulatory environments that in many
respects differ from that of the United States. Our business, financial
condition or results of operations could be affected materially and adversely by
any of the risks discussed below and any others not foreseen. This discussion
contains forward-looking statements.




Risks
related to doing business in the People’s Republic of China




Our
business operations are conducted primarily in the PRC. Because PRC laws,
regulations and policies are continually changing, our PRC operations will face
several risks summarized below.




Our
ability to operate in the PRC may be harmed by changes in its laws and
regulations




Our
offices and manufacturing plants are located in the PRC and the production, sale
and distribution of our products are subject to PRC rules and regulations. In
particular, the manufacture and supply of pharmaceutical grade and medicinal
products are subject to the PRC rules and regulations, such as the Good Practice
in the Manufacturing and Quality Control of Drugs (as amended in 1998) as
promulgated by the PRC State Food and Drug Administration on March 18, 1999 and
the PRC Medical Products Governance Law. In addition, because we operate a
cornstarch production facility which produces waste water, we are subject to the
environmental rules and regulations such as the Integrated Wastewater Discharge
Standard (GB8978-1996).




The PRC
only recently has afforded provincial and local economic autonomy and permitted
private economic activities. The PRC government has exercised and continues to
exercise substantial control over virtually every sector of the PRC economy
through regulation and state ownership.




Our ability to operate in the PRC may
be harmed by changes in its laws and regulations, including those relating to
manufacturing, taxation, import and export tariffs, environmental regulations,
land use rights, property and other matters.




21




Our production and manufacturing
facility is subject to PRC regulation and environmental laws. The PRC government
has been active in regulating the pharmaceutical and medicinal goods industry.
Our business and products are subject to government regulations mandating the
use of good manufacturing practices. Changes in these laws or regulations
in the PRC, or other countries we sell into, that govern or apply to our
operations could have a materially adverse effect on our business. For example,
the law could change so as to prohibit the use of certain chemical agents in our
products. If such chemical agents are found in our products, then such a
change would reduce our productivity of that product.




We are a
state-licensed corporation. If we were to lose our state-licensed status, we
would no longer be able to manufacture our products in the PRC.




There
is no assurance that PRC economic reforms will not adversely affect our
operations in the future




As a
developing nation, the PRC's economy is more volatile than that of developed
Western industrial economies. It differs significantly from that of the U.S. or
a Western European country in such respects as structure, level of development,
capital reinvestment, resource allocation and self- sufficiency. Only in recent
years has the PRC economy moved from what had been a command economy through the
1970s to one that during the 1990s encouraged substantial private economic
activity. Although the PRC government still owns the majority of productive
assets in the PRC, in the past several years the government has implemented
economic reform measures that emphasize decentralization and encourage private
economic activity.




In 1993,
the Constitution of the PRC was amended to reinforce such economic reforms. The
trends of the 1990s indicate that future policies of the Chinese government will
emphasize greater utilization of market forces. The PRC government has confirmed
that economic development will follow the model of a market economy. For
example, in 1999 the Government announced plans to amend the Chinese
Constitution to recognize private property, although private business will
officially remain subordinated to the state-owned companies, which are the
mainstay of the Chinese economy. However, there can be no assurance that, under
some circumstances, the government's pursuit of economic reforms will not be
restrained or curtailed. Actions by the central government of the PRC could have
a significant adverse effect on economic conditions in the country as a whole
and on the economic prospects for our Chinese operations. Economic reforms could
either benefit or damage our operations and profitability. Some of the things
that could have this effect are: (i) level of government involvement in the
economy; (ii) control of foreign exchange; (iii) methods of allocating
resources; (iv) international trade restrictions; and (v) international
conflict.




Under the
present direction, we believe that the PRC will continue to strengthen its
economic and trading relationships with foreign countries and business
development in the PRC will follow market forces. While we believe that this
trend will continue, there can be no assurance that this will be the case. A
change in policies by the PRC government could adversely affect our interests
by, among other factors: changes in laws, regulations or the interpretation
thereof, confiscatory taxation, restrictions on currency conversion, imports or
sources of supplies, or the expropriation or nationalization of private
enterprises and could require us to divest ourselves of any interest we then
hold in Chinese properties or businesses. Although the PRC government has been
pursuing economic reform policies for more than two decades, there is no
assurance that the government will continue to pursue these policies or that
these policies may not be significantly changed, especially in the event of a
change in leadership, social or political disruption, or other circumstances
affecting the PRC's political, economic and social life.




22




Because these economic reform measures
may be inconsistent, ineffectual or temporary, there are no assurances
that:




•
            we will be able to capitalize on
      economic reforms;




•
            the Chinese government will
      continue its pursuit of economic reform
  policies;




•
            the economic policies, even if
      pursued, will be successful;




•
            economic policies will not be
      significantly altered from time to time;
  and




•
            business operations in the PRC
      will not become subject to the risk of
    nationalization.




Anti-inflation
measures may be ineffective or harm our ability to do business in the
PRC




Since
1979, the PRC government has continued to reform its economic system. Because
many reforms are unprecedented or experimental, they are expected to be refined
and improved. Other political, economic and social factors, such as political
changes, changes in the rates of economic growth, unemployment or inflation, or
in the disparities in per capita wealth between regions within the PRC, could
lead to further readjustment of the reform measures. This refining and
readjustment process may instead negatively affect our operations and there is
no guarantee that it will be effective.




Over the
last few years, the PRC's economy has registered a high growth rate. During the
past ten years, the rate of inflation in the PRC has been as high as 20.7% and
as low as -2.2%. Recently, there have been indications that rates of inflation
have increased. In response, the PRC government recently has taken measures to
curb this excessively expansive economy. These corrective measures were designed
to restrict the availability of credit or regulate growth and contain
inflation. These measures have included devaluations of the PRC currency, the
Renminbi (RMB), restrictions on the availability of domestic credit, reducing
the purchasing capability of certain of its customers, and limited
re-centralization of the approval process for purchases of some foreign
products. These austere measures alone may not succeed in slowing down the
economy's excessive expansion or control inflation, and may result in severe
dislocations in the PRC economy. The PRC government may adopt additional
measures to further combat inflation, including the establishment of freezes or
restraints on certain projects or markets. Such measures could harm the market
for our products and inhibit our ability to conduct business in the
PRC.




The
PRC’s legal and judicial system may not adequately protect our business and
operations and the rights of foreign investors




The PRC
legal and judicial system may negatively impact foreign investors. In 1982, the
National People's Congress amended the Constitution of China to authorize
foreign investment and guarantee the "lawful rights and interests" of foreign
investors in the PRC. However, the PRC's system of laws is not yet
comprehensive. The legal and judicial systems in the PRC are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in the PRC lack
the depth of legal training and experience that would be expected of a judge in
a more developed country. Because the PRC judiciary is relatively inexperienced
in enforcing the laws that do exist, anticipation of judicial decision-making is
more uncertain than would be expected in a more developed country. It may be
impossible to obtain swift and equitable enforcement of laws that do exist, or
to obtain enforcement of the judgment of one court by a court of another
jurisdiction. The PRC's legal system is based on the civil law regime, that is,
it is based on written statutes; a decision by one judge does not set a legal
precedent that is required to be followed by judges in other cases. In addition,
the interpretation of Chinese laws may be varied to reflect domestic political
changes.




23




The
promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign investors. However,
the trend of legislation over the last 20 years has significantly enhanced the
protection of foreign investment and allowed for more control by foreign parties
of their investments in PRC enterprises. There can be no assurance that a change
in leadership, social or political disruption, or unforeseen circumstances
affecting the PRC's political, economic or social life, will not affect the PRC
government's ability to continue to support and pursue these reforms. Such a
shift could have a material adverse effect on our business and our
prospects.




The
practical effect of the PRC legal system on our business operations in the PRC
can be viewed from two separate but intertwined considerations. First, as a
matter of substantive law, the Foreign Invested Enterprise laws provide
significant protection from government interference. In addition, these laws
guarantee the full enjoyment of the benefits of corporate articles and contracts
to Foreign Invested Enterprise participants. These laws, however, do impose
standards concerning corporate formation and governance, which are qualitatively
different from the general corporation laws of the United States. Similarly, the
PRC accounting rules mandate accounting practices, which are not consistent
with U.S. generally accepted accounting principles. PRC’s accounting rules
require that an annual "statutory audit" be performed in accordance with PRC
accounting standards and that the books of accounts of Foreign Invested
Enterprises are maintained in accordance with Chinese accounting rules. Article
14 of the People's Republic of China Wholly Foreign-Owned Enterprise Law
requires a wholly foreign-owned enterprise to submit certain periodic fiscal
reports and statements to designated financial and tax authorities, at the risk
of business license revocation. Weifang Shengtai is a wholly foreign-owned
enterprise. Second, while the enforcement of substantive rights may appear less
clear than United States procedures, the Foreign Invested Enterprises and Wholly
Foreign-Owned Enterprises are Chinese registered companies, which enjoy the same
status as other Chinese registered companies in business-to-business dispute
resolution.




Since the
Articles of Association of Weifang Shengtai do not provide for the resolution of
disputes the parties are free to proceed to either the Chinese courts, or if
they are in agreement, to arbitration.




Any award
rendered by an arbitration tribunal is enforceable in accordance with the United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(1958). Therefore, as a practical matter, although no assurances can be given,
the Chinese legal infrastructure, while different in operation from its United
States counterpart, should not present any significant impediment to the
operation of Foreign Invested Enterprises.




In
addition, some of our present and future executive officers and our directors,
most notably, Mr. Qingtai Liu, Mr. Yongqiang Wang, Ms. Yiru Shi, and Mr. Chris
Wang, may be residents of the PRC and not of the United States, and
substantially all the assets of these persons are located outside the U.S. As a
result, it could be difficult for investors to effect service of process in the
United States, or to enforce a judgment obtained in the United States against us
or any of these persons.




The PRC
laws and regulations governing our current business operations are sometimes
vague and uncertain. There are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including but not
limited to the laws and regulations governing our business, or the enforcement
and performance of our arrangements with customers in the event of the
imposition of statutory liens, death, bankruptcy and criminal proceedings. We
and any future subsidiaries are considered foreign persons or foreign funded
enterprises under PRC laws, and as a result, we are required to comply with PRC
laws and regulations. These laws and regulations are sometimes vague and may be
subject to future changes, 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. We cannot predict what
effect the interpretation of existing or new PRC laws or regulations may have on
our business.




24




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




The
majority of our revenues will be settled in Renminbi and U.S. dollars, and any
future restrictions on currency exchanges may limit our ability to use revenues
generated in Renminbi to fund any future business activities outside the PRC or
to make dividend or other payments in U.S. dollars. Although the PRC government
introduced regulations in 1996 to allow greater convertibility of the Renminbi
for current account transactions, significant restrictions still remain,
including primarily the restriction that foreign-invested enterprises like us
may only buy, sell or remit foreign currencies after providing valid commercial
documents, at those banks in the PRC authorized to conduct foreign exchange
business.




In addition, conversion of Renminbi for
capital account items, including direct investment and loans, is subject to
governmental approval in the PRC, and companies are required to open and
maintain separate foreign exchange accounts for capital account items. We cannot
be certain that the PRC regulatory authorities will not impose more stringent
restrictions on the convertibility of the Renminbi.




The
value of our securities and your ability to receive dividends may be affected by
the foreign exchange rates between U.S. dollars and Renminbi and the PRC
government’s control over the Renminbi.




The value
of our common stock will be affected by the foreign exchange rates between U.S.
dollars and Renminbi, and between those currencies and other currencies in which
our sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and should the Renminbi
appreciate against the U.S. dollar at that time, our financial position, our
business, and the price of our common stock may be harmed. Conversely, if we
decide to convert our Renminbi into U.S. dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates against the Renminbi, the U.S. dollar equivalent of our earnings
from our subsidiary in the PRC would be reduced.




The PRC government imposes controls on
the convertibility of Renminbi into foreign currencies and, in certain cases,
the remittance of currency out of the PRC. We receive substantially all of our
revenues in Renminbi which is currently not a freely convertible currency.
Shortages in the availability of foreign currency may restrict our ability to
remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign
currency dominated obligations. Under existing PRC foreign exchange regulations,
payments of current account items, including profit distributions, interest
payments and expenditures from the transaction, can be made in foreign
currencies without prior approval from the PRC State Administration of Foreign
Exchange by complying with certain procedural requirements. However, approval
from appropriate governmental authorities is required where Renminbi is to be
converted into foreign currency and remitted out of the PRC to pay capital
expenses, such as the repayment of bank loans denominated in foreign
currencies.




25




The PRC 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 certain expenses as they come due.




The
fluctuation of the Renminbi may materially and adversely affect your
investment.




The value of the Renminbi against the
U.S. Dollar and other currencies may fluctuate and is affected by, among other
things, changes in the PRC's political and economic conditions. As we rely
almost entirely on revenues earned in the PRC—most of our sales occur in the
PRC—any significant revaluation of the Renminbi may materially and adversely
affect our cash flows, revenues and financial condition. For example, to the
extent that we need to convert U.S. Dollars we receive from an offering of
our securities into Renminbi for our operations, appreciation of the Renminbi
against the U.S. Dollar could have a material adverse effect on our business,
financial condition and results of operations. Conversely, if we decide to
convert our Renminbi into U.S. Dollars for the purpose of making payments for
dividends on our common shares or for other business purposes and the U.S.
Dollar appreciates against the Renminbi, the U.S. Dollar equivalent of the
Renminbi we convert would be reduced. In addition, the depreciation of
significant U.S. Dollar denominated assets could result in a charge to our
income statement and a reduction in the value of these assets. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the Renminbi to the U.S.
Dollar. Under the new policy, the Renminbi is permitted to fluctuate within a
narrow and managed band against a basket of certain foreign currencies. This
change in policy has resulted in appreciation of the Renminbi against the U.S.
Dollar. While the international reaction to the Renminbi revaluation has
generally been positive, there remains significant international pressure on the
PRC government to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the Renminbi against
the U.S. Dollar.




Recent PRC regulations relating to the
establishment of offshore special purpose companies by PRC domestic residents
and registration requirements for employee stock ownership plans or share option
plans may subject our PRC resident beneficial owners or the plan participants to
personal liability, limit our ability to inject capital into our PRC
subsidiaries, limit our subsidiaries’ ability to increase their registered
capital or distribute profits to us, or may otherwise adversely affect
us.




The China State Administration of
Foreign Exchange ("SAFE") issued a public notice in October 2005 requiring PRC
domestic residents to register with the local SAFE branch before establishing or
controlling any company outside of China for the purpose of capital financing
with assets or equities of PRC companies, referred to in the notice as an
"offshore special purpose company." PRC domestic residents who are shareholders
of offshore special purpose companies and have completed round trip investments
but did not make foreign exchange registrations for overseas investments before
November 1, 2005 were retroactively required to register with the local SAFE
branch before March 31, 2006. PRC resident shareholders are also required to
amend their registrations with the local SAFE in certain circumstances. After
consultation with China counsel, we do not believe that any of our PRC domestic
resident shareholders are subject to the SAFE registration requirement, however,
we cannot provide any assurances that all of our shareholders who are PRC
residents will not be required to make or obtain any applicable registrations or
approvals required by these SAFE regulations in the future. The failure or
inability of our PRC resident shareholders to comply with the registration
procedures set forth therein may subject us to fines and legal sanctions,
restrict our cross-border investment activities, or limit our PRC subsidiaries’
ability to distribute dividends or obtain foreign-exchange-dominated loans to
our company.




26




As it is uncertain how the SAFE
regulations will be interpreted or implemented, we cannot predict how these
regulations will affect our business operations or future strategy. For example,
we may be subject to more stringent review and approval process with respect to
our foreign exchange activities, such as remittance of dividends and
foreign-currency-denominated borrowings, which may adversely affect our results
of operations and financial condition. In addition, if we decide to acquire a
PRC domestic company, we cannot assure you that we or the owners of such
company, as the case may be, will be able to obtain the necessary approvals or
complete the necessary filings and registrations required by the SAFE
regulations. This may restrict our ability to implement our acquisition strategy
and could adversely affect our business and prospects.




In December 2006, the People’s Bank of
China promulgated the Implementation Rules of the Administrative Measures for
Individual Foreign Exchange, or the Individual Foreign Exchange Rules, setting
forth the respective requirements for foreign exchange transactions by PRC
individuals under either the current account or the capital account. In January
2007, SAFE issued implementing rules for the Individual Foreign Exchange Rules,
which, among other things, specified approval requirements for certain capital
account transactions such as a PRC citizen’s participation in the employee stock
ownership plans or stock option plans of an overseas publicly-listed company. On
March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange
Administration for Domestic Individuals Participating in Employee Stock Holding
Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule.
Under the Stock Option Rule, PRC citizens who are granted stock options by an
overseas publicly-listed company are required, through a PRC agent or PRC
subsidiary of such overseas publicly-listed company, to register with SAFE and
complete certain other procedures. We and our PRC employees who may be granted
stock options are subject to the Stock Option Rule. If we or our PRC optionees
fail to comply with these regulations, we or our PRC optionees may be subject to
fines and legal sanctions.




The
new provisions of the PRC Employment Contract Law may substantially increase our
labor-related costs in the future.




The PRC
Employment Contract Law, which became effective as of January 1, 2008, contains
many more provisions favorable to employees than existing labor regulations in
effect in China. This may substantially increase our labor-related costs in our
future operations. According to the new law, an employee is entitled to
terminate his or her employment relationship with his or her employer for
certain causes, such as delay in payment of wages or social insurance
contribution or dissatisfactory labor protection, and under such circumstances
the employer is liable to pay compensation to the employee. The amount of such
compensation payment shall be one month's salary for each year that the employee
has served the employer, subject to a cap of twelve months' salary. An employer
shall also be liable to compensate an employee when the employer decides not to
renew an existing employment contract that is about to expire, unless the
employee refuses to renew the employment contract even though the employer
offers equal or more favorable terms than those in the existing employment
contract. In addition, an employer is obligated to conclude an open-ended
employment contract with an employee after two consecutive terms of fixed-term
employment, which means the employer will be liable to pay damages to an
employee if it terminates this employee without cause, until the employee
reaches an age at which he or she is eligible for pension payment. We may have
greater difficulty terminating underperforming employees and may incur higher
levels of labor costs in order to comply with the provisions of the new law,
which may have a material adverse effect on our business, financial condition
and operating results.




27




Risks
related to our business




We
cannot give any assurance that any plans for future expansion will be
implemented or that they will be successful.




While we
have expansion plans, which include making full use of the newly built
cornstarch manufacturing plant (partially completed and operational since
January 2007), upgrading our existing glucose manufacturing facility, building a
new glucose manufacturing facility and expanding our sales overseas, there is no
guarantee that such plans will be implemented or that they will be successful.
These plans are subject to, among other things, their feasibility to meet the
challenges we face, our ability to arrange for sufficient funding and the
ability to hire qualified and capable employees to carry out these expansion
plans.




We have a limited
operating history and limited historical financial information upon which you
may evaluate our performance.




Our
operating subsidiary, Weifang Shengtai, was incorporated in 1999 and our
operations have been largely confined to the PRC. In addition, while we have had
some experience in managing a cornstarch manufacturing facility, we may not be
adequately prepared to manage and operate a larger, more modern
facility.




We are in
our early stages of development and face risks associated with a new company in
a growth industry. We may not successfully address these risks and uncertainties
or successfully implement our operating strategies. If we fail to do so, it
could materially harm our business to the point of having to cease operations
and could impair the value of our common stock to the point investors may lose
their entire investment. Even if we accomplish these objectives, we may not
generate positive cash flows or the profits we anticipate in the
future.




Although
our revenues have grown rapidly since our inception from the growing demand for
our glucose products, we cannot assure you that we will maintain our
profitability or that we will not incur net losses in the future. We expect that
our operating expenses will increase as we expand. Any significant failure to
realize anticipated revenue growth could result in significant operating losses.
We will continue to encounter risks and difficulties frequently experienced by
companies at a similar stage of development, including our potential failure
to:




•
            expand our product offerings and
      maintain the high quality of our
  products;





•
            manage our expanding operations,
      including the integration of any future
    acquisitions;





•
            obtain sufficient working capital
      to support our expansion and to fill customers' orders in
      time;





•
            maintain adequate control of our
      expenses;





•
            implement our product
      development, marketing, sales, and acquisition strategies and adapt and
      modify them as needed; and





•
            anticipate and adapt to changing
      conditions in the dextrose monohydrate and glucose products markets in
      which we operate as well as the impact of any changes in government
      regulation, mergers and acquisitions involving our competitors,
      technological developments and other significant competitive and market
      dynamics.




28


We may have
difficulty establishing adequate management, legal and financial controls in the
PRC, and such difficulties could reduce the value of any investment in our
common stock.




The PRC historically has not adopted a
western style of management and financial reporting concepts and practices, or a
modern western style of banking, computer and other control systems. We may have
difficulty in hiring and retaining a sufficient number of employees qualified in
these areas to work for our operating company in the PRC. As a result of these
factors, we have had, and may continue to have difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices relating to our PRC operations that meet Western
standards. We have
recently discovered material weaknesses in our internal control over financial
reporting and cannot assure you that additional material weaknesses will not be
identified in the future.  We concluded that our internal control over
financial reporting and disclosure controls and procedures are not effective,
although we believe that the financial statements included in our past filings
correctly present our financial condition, results of operations and cash flows
for the fiscal years covered thereby in all material
respects.  Accordingly in the future there may be errors in our
financial statements that could require a restatement or our filings may not be
timely and investors may lose confidence in our reported financial information,
which could lead to a decline in our stock price.




A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.




A
significant deficiency is a deficiency, or a combination of deficiencies, in
internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those responsible for
oversight of the Company’s financial reporting.




Material
weaknesses related to:




•
            Accounting
      and Finance Personnel Weaknesses - US GAAP expertise - The current staff
      in the accounting department is relatively new and inexperienced, and
      needs substantial training so as to meet with the higher demands of being
      a U.S. public company. The accounting skills and understanding necessary
      to fulfill the requirements of U.S. GAAP-based reporting, including the
      skills of subsidiary financial statements consolidation, are inadequate
      and were inadequately supervised.




•
            Lack
      of internal audit function - The Company lacks qualified resources to
      perform the internal audit function properly.  In addition, the
      scope and effectiveness of the internal audit function are yet to be
      developed.






29




The steps we have taken to remediate
these weaknesses include the following:




1. In May 2008, we engaged Ms. Yiru
Shi, a CPA with experience as an independent auditor as well as financial
experience at Sun Microsystems and Hewlett Packard, to serve as our chief
financial officer. Ms. Yiru Shi has extensive experience in internal control and
U.S. GAAP reporting compliance and an MBA from the University of
California-Irvine and together with our chief executive officer will oversee and
manage our the financial reporting process and required training of the
accounting staff.




2. In
July, 2008 we engaged independent consultants to assist the Company in improving
the internal control system based on the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. The consultants had conducted an evaluation of our
internal control over financial reporting, and assisted us in designing enhanced
processes and procedures to improve our internal control over financial
reporting.




3. We
plan to train our internal accountants well in U.S. GAAP principles and
reporting. Although our accounting staff is professional and experienced in
accounting requirements and procedures generally accepted in the PRC, management
has determined that they require additional training and assistance in U.S. GAAP
matters.




4.
We had set up a team comprised of staff from different departments to conduct
internal audit function periodically. We are also planning to establish an
internal audit unit to establish effective internal control. We plan to allocate
sufficient resources to achieve an effective internal audit
function.




5. We
plan to recruit and train additional accounting personnel with experience in
U.S. GAAP.




We plan
for the above policy to be consistently followed, which we hope will provide for
much greater credibility and consistency in the financial
statements.




However, as a result of these material
weaknesses and deficiencies in our disclosure controls and procedures, current
and potential stockholders could lose confidence in our financial reporting and
disclosures made in our public filings, which would harm our business and the
trading price of our stock.




Standards
for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.




Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal control over financial reporting, and
attestation of this assessment by our company's independent registered public
accountants.  The SEC extended the compliance dates for
non-accelerated filers like us.  Accordingly, the annual assessment of
our internal controls first applied to our  annual report for the 2009
fiscal year and the attestation requirement of management's assessment by
independent registered public accountants will first apply to our annual report
for the 2010 fiscal year. The standards that must be met for management to
assess the internal control over financial reporting as effective are new and
complex, and require significant documentation, testing and possible remediation
to meet the detailed standards.  We may encounter problems or delays
in completing activities necessary to make an assessment of our internal control
over financial reporting. In addition, the attestation process by our
independent registered public accountants is new and we may encounter problems
or delays in the future in completing the implementation of any requested
improvements and receiving an attestation of our assessment by our independent
registered public accountants.  Since we cannot assess our internal
control over financial reporting as effective, and our independent registered
public accountants are unlikely to be able to provide an unqualified attestation
report, investor confidence and share value may be negatively
impacted.




30




We
face stiff competition, some of which may be from companies which may be better
capitalized and more experienced than us.




We face
competition from other domestic and global manufacturers and suppliers of
pharmaceutical grade glucose. Although we view ourselves in a favorable position
vis-à-vis our competition, some of the other companies that sell into our
markets may be more successful than us and/or have more experience and financial
resources than we do. This additional experience and financial backing may
enable our competitors to produce more cost-effective products and market their
products with more success than we are able to, which would decrease our sales.
We expect that we will be required to continue to invest in product development
and productivity improvements to compete effectively in our markets. However, we
cannot assure you that we can successfully remain competitive. If our
competitors develop a more efficient product or undertake more aggressive and
costly marketing campaigns than us, this could have a material adverse effect on
our business, results of operations or financial condition.




A slowdown in the
PRC economy may adversely affect our operations.




As all of
our operations are conducted in the PRC and most of our revenues are generated
from sales in the PRC, a slowdown or other adverse developments in the PRC
economy could materially and adversely affect our customers, demand for our
products, and our business. Recent economic slowdown since 2008 had affected our
business, especially our cornstarch related business. While we believe that
the economy is recovering, and although we believe that the demand for our
products is not totally dependent on the health of the economy, we do not know
how sensitive we are to a slowdown in economic growth or other adverse changes
in the PRC economy. A slowdown in overall economic growth, an economic downturn
or recession or other adverse economic developments in the PRC may materially
reduce the demand for our products and materially and adversely affect our
business.




Our major
competitors may be better able than us to successfully endure downturns in our
sector. In periods of reduced demand for our products, we can either choose to
maintain market share by reducing our selling prices to meet competition or
maintain selling prices, which would likely sacrifice market share. Sales and
overall profitability would be reduced under either scenario. In addition, we
cannot assure you that additional competitors will not enter our existing
markets, or that we will be able to compete successfully against existing or new
competition.




Inflation
in the PRC could negatively affect our profitability and growth.




While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for our products rise at a rate that is insufficient to
compensate for the rise in the costs of supplies, it may have an adverse effect
on profitability. In order to control inflation in the past, the PRC government
has imposed controls on bank credits, limits on loans for fixed assets and
restrictions on state bank lending. Such an austere policy can lead to a slowing
of economic growth. In October 2004, the People's Bank of China, the PRC's
central bank, raised interest rates for the first time in nearly a decade and
indicated in a statement that the measure was prompted by inflationary concerns
in the PRC economy. Repeated rises in interest rates by the central bank would
likely slow economic activity in the PRC which could, in turn, materially
increase our costs and also reduce demand for our products.


31


A
widespread health problem in the PRC could negatively affect our
operations
  A
potential outbreak of widespread public health problem in the PRC, such as H1N1
flu, could force us temporarily to stop our operations, and thus have an adverse
effect on our operations. Our
operations may be impacted by a number of health-related factors, including
quarantines or closures of some offices that would adversely disrupt our
operations. Any of the foregoing events or other unforeseen consequences of
public health problems could adversely affect our operations.
  Enforcement
against us or our directors and officers may be difficult
 
 Because
our principal assets are located outside of the U.S. and almost all our
directors and officers reside outside of the U.S., it may be difficult for you
to enforce your rights based on U.S. Federal securities laws against us and our
officers and some directors or to enforce a U.S. court judgment against us
or them in the PRC.
 
 In
addition, our operating subsidiary is located in the PRC and substantially all
of its assets are located outside of the U.S. It may, therefore, be difficult
for investors in the U.S. to enforce their legal rights based on the civil
liability provisions of the U.S. Federal securities laws against us in the
courts of either the U.S. or the PRC, even if civil judgments are obtained in
U.S. courts to enforce such judgments in PRC courts. Further, it is unclear if
extradition treaties now in effect between the U.S. and the PRC would permit
effective enforcement against us or our officers and directors of criminal
penalties under the U.S. Federal securities laws or otherwise.
 
 We have
identified significant deficiencies in our internal
controls.
 
 As set
forth in Item 9A, below, we have identified significant deficiencies in our
internal controls. While we are taking steps to address these significant
deficiencies, there can be no assurance that such steps will be adequate to
entirely cure the deficiencies.
  Inadequate
funding for our capital expenditures may affect our growth and
profitability
  Our sales
revenues have increased from $19,999,826 for the year ended June 30, 2004, to
$73,321,862 for the year ended June 30, 2009. Our continued growth is dependent
upon our ability to raise capital from outside sources and improvement of
profitability. Our ability to obtain financing will depend upon a number of
factors, including:
 
 •
              our financial condition and
      results of operations;
 
 •
              the condition of the PRC economy
      and the healthcare sector in the
PRC;
  32
  •
              conditions in relevant financial
      markets; and
 
 •
              relevant PRC laws and
      regulations.
 
 If we are
unable to obtain financing, as needed, on a timely basis and on acceptable terms
to our investors or lenders, our financial position, competitive position,
growth and profitability may be adversely affected.
  We
may not be able to effectively control and manage our growth.
 
 With our
business and markets grow and develop, it will be necessary for us to finance
and manage expansion in an orderly fashion. We may not have the requisite
experience to manage and operate a larger, more modern cornstarch manufacturing
plant and a bigger glucose production line. In addition, we may face challenges
in managing expanding product offerings and in integrating acquired businesses
with our own. These events would increase demands on our existing management,
workforce and facilities. Failure to satisfy these increased demands
could interrupt or adversely affect our operations and cause production
backlogs, longer product development time frames and administrative
inefficiencies.
 
 Significant
fluctuations in raw material prices may have a material adverse effect on
us
 
 We do not
have any long-term supply contracts with our raw materials suppliers. Any
significant fluctuation in price of our raw materials could have a material
adverse effect on the manufacturing cost of our products. We are subject to
market conditions and although raw materials are generally available and we have
not experienced any raw materials shortage in the past, we cannot assure you
that the necessary materials will continue to be available to us at prices
currently in effect or acceptable to us.
 
 We may
have limited options in the short-term for alternative supplies if our suppliers
fail for any reason, including their business failure or financial difficulties,
to continue the supply of raw materials. Moreover, identifying and accessing
alternative sources may increase our costs.
  Although
we are in the corn-producing region in the Shandong province, there is no
guarantee that we will not face a shortage of corn because of some natural
calamity or other reasons beyond our control.
  We had
also mitigated the risks of a shortage in cornstarch by implementing a vertical
integration manufacturing program, which includes building our own cornstarch
processing plant, in which the plant is now operational. This will not only
lower production costs and improve profit margins, but it will also allow
Weifang Shengtai to produce higher quality, lower-cost cornstarch. We cannot
guarantee these measures will be effective in eliminating all risks
attendant to the supply of raw materials. In the event that our cost of
materials increase, we may have to raise prices of our products, making us less
competitive in price.
  33
  We may
not be able to adjust our product prices, especially in the short-term, to
recover the costs of any increases in raw materials. Our future profitability
may be adversely affected to the extent we are unable to pass on higher raw
materials costs to our customers.
 
 Potential
environmental liability could have a material adverse effect on our operations
and financial condition.
 
 To the
knowledge of management, neither the production nor the sale of our products
constitute activities, or generate materials in a material manner, that requires
our operation to comply with the PRC environmental laws. Although it has not
been alleged by PRC government officials that we have violated any current
environmental regulations, we cannot assure you that the PRC government will not
amend the current PRC environmental protection laws and regulations. Our
business and operating results may be materially and adversely affected if we
were to be held liable for violating existing environmental regulations or if we
were to increase expenditures to comply with environmental regulations affecting
our operations.
 
 We
rely on Mr. Qingtai Liu, our Chief Executive Officer and President, for the
management of our business, and the loss of his services may significantly harm
our business and prospects.
  We
depend, to a large extent, on the abilities and participation of our current
management team, but have a particular reliance upon Mr. Qingtai Liu, our Chief
Executive Officer and President, for the direction of our business. The loss of
the services of Mr. Liu, for any reason, may have a material adverse effect on
our business and prospects. We cannot assure you that the services of Mr. Liu
will continue to be available to us, or that we will be able to find a suitable
replacement for Mr. Liu. We have not entered into an employment contract with
Mr. Liu. We do not have key man insurance policy on Mr. Qingtai Liu. If Mr. Liu
dies and we are unable to replace Mr. Liu for a prolonged period of time, we may
be unable to carry out our long term business plan and our future prospect for
growth, and our business may be harmed.
 
 We
may not be able to hire and retain qualified personnel to support our growth and
if we are unable to retain or hire such personnel in the future, our ability to
improve our products and implement our business objectives could be adversely
affected.
  Our
future success depends heavily upon the continuing services of the members of
our senior management team, in particular our Chief Executive Officer and
President, Mr. Qingtai Liu. If one or more of our senior executives or other key
personnel is/are unable or unwilling to continue in his/her/their present
positions, we may not be able to replace them easily or at all, and our business
may be disrupted and our financial condition and results of operations may be
materially and adversely affected. Competition for senior management and
personnel is intense, the pool of qualified candidates is very limited, and we
may not be able to retain the services of our senior executives or senior
personnel, or attract and retain high-quality senior executives or senior
personnel in the future. This failure could materially and adversely affect our
future growth and financial condition.
 
 We
have inadequate insurance coverage
 
 We do not
presently maintain product liability insurance, and our property and equipment
insurance does not cover the full value of our property and equipment, which
leaves us with exposure in the event of loss or damage to our properties or
claims filed against us.
  34
  We
currently do not carry any product liability or other similar insurance. We
cannot assure you that we would not face liability in the event of the failure
of any of our products. This is particularly true given our plan to
significantly expand our sales into international markets, such as the United
States, where product liability claims are more prevalent.
 
 Except
for automobile insurance, and Directors & Officers Liability and Company
Reimbursement Insurance, we do not have other insurance such as business
liability or disruption insurance coverage for our operations in the
PRC.
 
 We do not
maintain a reserve fund for warranty or defective products claims. Our costs
could substantially increase if we experience a significant number of warranty
claims. We have not established any reserve funds for potential warranty claims
since historically we have experienced few warranty claims for our products so
that the costs associated with our warranty claims have been low. If we
experience an increase in warranty claims or if our repair and replacement costs
associated with warranty claims increase significantly, it would have a material
adverse effect on our financial condition and results of
operations.
  Risks
related to an investment in our common stock
 
 Our
Chief Executive Officer and President controls us through his position and stock
ownership and his interests may differ from other stockholders
  Our Chief
Executive Officer and President, Mr. Qingtai Liu, beneficially owns
approximately 38.49% of our common stock. As a result, although Mr. Liu is not
the holder of a majority of the outstanding shares, Mr. Liu may be able to
influence the outcome of stockholder votes on various matters, including the
election of directors and extraordinary corporate transactions, including
business combinations. Mr. Liu's interests may differ from other
stockholders.
  We
do not intend to pay cash dividends in the foreseeable future
 
 We
currently intend to retain all future earnings for use in the operation and
expansion of our business. We do not intend to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate. Should
we decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiary based in the PRC, Weifang Shengtai.
Our operating subsidiary, from time to time, may be subject to restrictions on
its ability to make distributions to us, including as a result of restrictions
on the conversion of local currency into U.S. dollars or other hard currency and
other regulatory restrictions. See "Risks related to doing business in the
People’s Republic of China."
 
 There
is currently a limited trading market for our common stock
 
 Our
common stock has been quoted on the over-the-counter Bulletin Board since
January 2007. Because we were formerly a shell company, our bid and ask
quotations have not regularly appeared on the OTC Bulletin Board for any
consistent period of time. There is a limited trading market for our common
stock and our common stock may never be included for trading on any stock
exchange or through any other quotation system, including, without limitation,
the American Stock Exchange. You may not be able to sell your shares due to the
absence of an established trading market.
  35
  Our
common stock is subject to the Penny Stock Regulations
 
 Our
common stock is, and will continue to be, subject to the SEC's "penny stock"
rules to the extent that the price remains less than $5.00. Those rules, which
require delivery of a schedule explaining the penny stock market and the
associated risks before any sale, may further limit your ability to sell your
shares.
 
 The SEC
has adopted regulations which generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share. Our common stock,
when and if a trading market develops, may fall within the definition of penny
stock and subject to rules that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000, or annual incomes 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 such securities and have received
the purchaser's prior written consent to the transaction. Additionally, for any
transaction, other than exempt transactions, involving a penny stock, the rules
require the delivery, prior to the transaction, of a risk disclosure document
mandated by the 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, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our common stock and may affect the ability of investors to sell their
common stock in the secondary market.
 
 Our
common stock is illiquid and subject to price volatility unrelated to our
operations
 
 The
market price of our common stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our common stock.
 
 A large
number of shares of common stock will be issuable for future sale which will
dilute the ownership percentage of our current holders of common stock. We have
successfully registered for public resale 8,750,000 shares (as well as 4,375,000
shares issuable on exercise of the attached warrants) belonging to our investors
and the availability for public resale of those shares may depress our stock
price.
 
 Also as a
result, there will be a significant number of new shares of common stock on the
market in addition to the current public float. Sales of substantial amounts of
common stock, or the perception that such sales could occur, and the existence
of warrants to purchase shares of common stock at prices that may be below the
then current market price of the common stock, could adversely affect the market
price of our common stock and could impair our ability to raise capital through
the sale of our equity securities.
  36
  Item
1B. Unresolved Staff Comments.
 
 Not
applicable.
 
 Item
2. Properties.
 
 Our
facility in the PRC is located at the Hi-Tech Industrial Park of Changle County,
Shandong Province, PRC 262400.
 
 All land
in the PRC is owned by the government and cannot be sold to any individual or
entity. Instead, the government grants or allocates landholders a "land use
right." From March 2000 to June 2007 Weifang Shengtai purchased various land use
rights in succession for a total price of approximately $2,243,000. Weifang
Shengtai obtained another land use right in July 2007 for a price of
approximately $314,000. Weifang Shengtai obtained a new land use right in March
2008 for a price of $346,410. In May 2008, the Company paid approximately
$734,000 to a local government which enabled the land use right to be classified
from industrial use to commercial use. From July 2008 to June 2009, the
Company incurred additional cost relating to various land use rights for
approximately $480,520 and sold a piece of land use right for approximately
$474,610. As a result Weifang Shengtai has the right to use various parcels of
land that range from 20 to 50 years in term, all of which are
currently being used by Weifang Shengtai for its business.
 
 Weifang
Shengtai occupies an area of approximately 252,275 square meters (72 acres) in
Changle Economic and Technology Development Zone. Set forth below is the
detailed information regarding the land:
 
 Location
                                
                                Area
                                  (square
      meters)
                                
                                Construction
      on the
                                  Land
                                
                                ExpirationChangle
      Economic and Technology Development Zone
                                
                                
                                85,880.43
                                
                                New
      glucose production complex
                                
                                April
      20,2057Changle
      Economic and Technology Development Zone
                                
                                
                                14,696
                                
                                (Reserved
      for future growth)
                                
                                January
      14, 2030Changle
      Economic and Technology Development Zone
                                
                                
                                73,313.38
                                
                                Old
      glucose production facility
                                
                                April
      28, 2052Changle
      Economic and Technology Development Zone
                                
                                
                                19,692.4
                                
                                Office
      and staff buildings
                                
                                September
      21, 2052Changle
      Economic and Technology Development Zone
                                
                                
                                58,692
                                
                                Cornstarch
      processing plant (11,800 sq meters)
                                
                                April
      2,
2054
  37
  Item
3.  Legal Proceedings.
 
 We know
of no material, active, pending or threatened proceeding against us or our
subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or
defendant in any material proceeding or pending litigation.
  Item
4. Submission of Matters to a Vote of Security Holders.
  None.
 
 PART II
 
 Item
5. Market for Registrant’s Common Equity, Related Stock holder Matters and
Issuer Purchases of Equity Securities.
 
 Market
Information
  We began
trading on the Over the Counter Bulletin Board on January 12, 2007, and our
symbol is "SGTI.OB." Prior to that, there had never been any established public
market for shares of our common stock. The following table sets forth for the
period indicated the prices of the common stock in the over-the-counter market,
as reported and summarized by the OTC Bulletin Board. Such prices are based on
inter-dealer bid and asked prices, without markup, markdown, commissions, or
adjustments and may not represent actual transactions. As of September 24, 2009,
the last reported bid price of our common stock was $1.00 per share and the last
reported ask price was $1.01 per share.
  CALENDAR
      QUARTER ENDED
                        
                        HIGH
      BID(S)
                        
                        
                        LOW
      BID(S)September
      30, 2008
                        
                        $
                        3.00
                        
                        
                        $
                        2.04December
      31, 2008
                        
                        $
                        2.68
                        
                        
                        $
                        0.72March
      31, 2009
                        
                        $
                        1.80
                        
                        
                        $
                        0.57June
      30, 2009
                        
                        $
                        1.60
                        
                        
                        $
                        0.90
  Holders
  As of
September 24, 2009, there were 19,169,805 shares of our common stock issued and
outstanding and there were 34 holders of record of our common
stock.
 
 Dividends
 
 Since our
incorporation, no dividends have been paid on our common stock. We intend to
retain any earnings for use in our business activities, so it is not expected
that any dividends on our common stock will be declared and paid in the
foreseeable future.
  38
  As a
holding company, our ability to pay dividends is dependent on the receipt of
dividends from SHI and our PRC based operating company Weifang Shengtai. The PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the PRC. We
receive substantially all of our revenues in Renminbi which is currently not a
freely convertible currency. Shortages in the availability of foreign currency
may restrict our ability to remit sufficient foreign currency to pay dividends,
or otherwise satisfy foreign currency dominated obligations.
 
 Equity
Compensation Plan Information and Warrants and Options
 
 As of
September 24, 2009 we had 4,398,945 outstanding warrants to purchase 4,398,945
shares of common stock. Set forth below is a description of our outstanding
warrants.
 
 On May
15, 2007, we entered into a share purchase agreement and completed a private
placement of our shares and warrants. Under the share purchase agreement we sold
to the Selling Stockholders for $2.00 per share (or a total of $17,500,000) an
aggregate of 8,750,000 shares of common stock and 4,375,000 warrants to
purchase 4,375,000 shares of common stock. The exercise price of the
warrants is $2.60 per share, as adjusted, and the warrants expire on May 15,
2012 .
 
 On May
15, 2007, we issued to Chinamerica Fund, L.P. 75,000 warrants and Jeff Jenson
25,000 warrants to compensate the former as lead investor and the latter in
assisting in providing the shell. These warrants have an exercise price of $0.01
per share and a term of five years. In June 2008, Jeff Jenson exercised the
25,000 warrants issued to him. In November 2008, Chinamerica Fund, LP exercised
the 75,000 warrants issued to the fund.
 
 As part
of their consideration for acting as placement agent for the May 15, 2007,
private placement, Brill Securities, Inc .received five year warrants
to purchase 218,750 shares of common stock at an exercise price of 2.60 per
share, as adjusted. These have the same terms as the warrants issued to the
Selling Stockholders in the May 15, 2007, private placement.
 
 On
January 4, 2008, the Company adopted “Shengtai Pharmaceutical, Inc. 2007 Stock
Incentive Plan” (the “Stock Incentive Plan”).
 
 On May
14, 2008, the Company granted 500,000 stock options and 160,000 non-qualified
stock options pursuant to the Stock Incentive Plan. All options have an exercise
price of $3.34, which is the closing price on the date of grant, and expire five
years after the date of grant. All options vest over a period of three years
from the date of grant.
  Plan
                                category
                              
                              Number of securities to be issued
                                upon exercise of outstanding
                                options, warrants and rights
                              
                              Weighted-average exercise price
                                of outstanding options, warrants
                                and rights
                              
                              Number of securities remaining available for
                                future issuance under equity compensation
                                plans (excluding securities reflected in column
                                (a))(a)
                              
                              (b)
                              
                              (c)Equity
      compensation plans approved by security holders
                              
                              0
                              
                              
                              0
                              
                              0Equity
      compensation plans not approved by security holders
                              
                              660,000
                              
                              $
                              3.34
                              
                              1,340,000Total
                              
                              660,000
                              
                              $
                              3.34
                              
                              1,340,000
  39


Item 6. Selected Financial
Data.





The
following selected financial data for the fiscal years ended 2009, 2008, 2007,
2006 and 2005 are derived from our audited consolidated financial statements.
The data should be read in conjunction with our consolidated financial
statements and notes thereto and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included elsewhere in this
report.





Consolidated Statements of
      Operations
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          2007
                                          
                                          
                                          2006
                                          
                                          
                                          2005(audited)
                                          
                                          
                                          (audited)
                                          
                                          
                                          (audited)
                                          
                                          
                                          (audited)
                                          
                                          
                                          (audited)Sales
      revenue
                                          
                                          $
                                          73,321,862
                                          
                                          
                                          $
                                          90,871,223
                                          
                                          
                                          $
                                          51,706,215
                                          
                                          
                                          $
                                          36,029,179
                                          
                                          
                                          $
                                          24,860,399Cost
      of good sold
                                          
                                          
                                          65,799,486
                                          
                                          
                                          
                                          70,613,757
                                          
                                          
                                          
                                          39,527,662
                                          
                                          
                                          
                                          27,568,092
                                          
                                          
                                          
                                          19,557,743Gross
      profit
                                          
                                          
                                          7,522,376
                                          
                                          
                                          
                                          20,257,466
                                          
                                          
                                          
                                          12,178,553
                                          
                                          
                                          
                                          8,461,087
                                          
                                          
                                          
                                          5,302,656Research
      and development expense
                                          
                                          
                                          365,689
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Selling,
      general and administrative expenses
                                          
                                          
                                          8,607,560
                                          
                                          
                                          
                                          7,390,623
                                          
                                          
                                          
                                          4,674,679
                                          
                                          
                                          
                                          3,831,778
                                          
                                          
                                          
                                          3,242,330Operating
      income (loss)
                                          
                                          
                                          (1,450,873
                                          )
                                          
                                          
                                          12,866,843
                                          
                                          
                                          
                                          7,503,874
                                          
                                          
                                          
                                          4,629,309
                                          
                                          
                                          
                                          2,060,326Other
      income (expense), net
                                          
                                          
                                          (1,213,015
                                          )
                                          
                                          
                                          (1,810,530
                                          )
                                          
                                          
                                          524,088
                                          
                                          
                                          
                                          (418,398
                                          )
                                          
                                          
                                          (445,169
                                          )Income
      (loss) before income taxes
                                          
                                          
                                          (2,663,888
                                          )
                                          
                                          
                                          11,056,313
                                          
                                          
                                          
                                          8,027,962
                                          
                                          
                                          
                                          4,210,911
                                          
                                          
                                          
                                          1,615,157Provision
      for income taxes
                                          
                                          
                                          —
                                          
                                          
                                          
                                          645,988
                                          
                                          
                                          
                                          878,836
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Net
      income (loss)
                                          
                                          $
                                          (2,663,888
                                          )
                                          
                                          $
                                          10,410,325
                                          
                                          
                                          $
                                          7,149,126
                                          
                                          
                                          $
                                          4,210,911
                                          
                                          
                                          $
                                          1,615,157Foreign
      Currency Translation Adjustment
                                          
                                          
                                          225,362
                                          
                                          
                                          
                                          3,890,123
                                          
                                          
                                          
                                          641,596
                                          
                                          
                                          
                                          185,402
                                          
                                          
                                          
                                          —Comprehensive
      Income (loss)
                                          
                                          $
                                          (2,438,526
                                          )
                                          
                                          $
                                          14,300,448
                                          
                                          
                                          $
                                          7,790,722
                                          
                                          
                                          $
                                          4,396,313
                                          
                                          
                                          $
                                          11,615,157Earning
      per share - basic
                                          
                                          $
                                          (0.14
                                          )
                                          
                                          $
                                          0.55
                                          
                                          
                                          $
                                          0.64
                                          
                                          
                                          $
                                          0.42
                                          
                                          
                                          $
                                          0.16Earning
      per share - diluted
                                          
                                          $
                                          (0.14
                                          )
                                          
                                          $
                                          0.52
                                          
                                          
                                          $
                                          0.62
                                          
                                          
                                          $
                                          0.42
                                          
                                          
                                          $
                                          0.16Basic
      weighted average common shares outstanding
                                          
                                          
                                          19,139,394
                                          
                                          
                                          
                                          18,993,789
                                          
                                          
                                          
                                          11,251,712
                                          
                                          
                                          
                                          10,125,000
                                          
                                          
                                          
                                          10,125,000Diluted
      weighted average common shares outstanding
                                          
                                          
                                          19,139,394
                                          
                                          
                                          
                                          19,874,486
                                          
                                          
                                          
                                          11,477,545
                                          
                                          
                                          
                                          10,125,000
                                          
                                          
                                          
                                          10,125,000





40





Year
      Ended June 30,Consolidated
      Balance Sheets
                            
                            2009
                            
                            2008
                            
                            2007
                            
                            2006
                            
                            2005(audited)
                            
                            (audited)
                            
                            (audited)
                            
                            (audited)
                            
                            (audited)Current
      Assets
                            
                            $
                            48,453,449
                            
                            
                            $
                            24,282,846
                            
                            
                            $
                            31,266,489
                            
                            
                            $
                            12,149,634
                            
                            
                            $
                            11,981,783Total
      Assets
                            
                            
                            
                            124,931,365
                            
                            
                            
                            101,313,662
                            
                            
                            
                            73,760,133
                            
                            
                            
                            31,271,457
                            
                            
                            
                            23,672,498Current
      Liabilities
                            
                            
                            
                            74,335,910
                            
                            
                            
                            51,904,264
                            
                            
                            
                            38,468,085
                            
                            
                            
                            23,612,427
                            
                            
                            
                            19,564,316Total
      Liabilities
                            
                            
                            
                            79,978,466
                            
                            
                            
                            54,558,259
                            
                            
                            
                            42,129,557
                            
                            
                            
                            24,614,027
                            
                            
                            
                            20,411,316Total
      Stockholders’ Equity
                            
                            
                            
                            44,952,899
                            
                            
                            
                            46,755,403
                            
                            
                            
                            31,630,576
                            
                            
                            
                            6,657,430
                            
                            
                            
                            3,261,182




Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.





This
report contains forward-looking statements. These statements relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as “may,” “will,” “should,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or
“continue,” the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
Factors that may cause our results to differ include, but are not limited to:
changes in the scope or timing of our projects; slowdown in the demand for
pharmaceutical grade glucose and glucose and starch products generally, which
could reduce revenues and profit margins.





Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we, nor any other person, assume
responsibility for the accuracy and completeness of the forward-looking
statements. We are under no obligation to update any of the forward-looking
statements after the filing of this Annual Report on Form 10-K to conform such
statements to actual results or to changes in our expectations.




The
following discussion should be read in conjunction with our audited consolidated
financial statements and the related notes and other financial information
appearing elsewhere in this Form 10-K and other reports and filings made with
the Securities and Exchange Commission. Readers are also urged to carefully
review and consider the various disclosures made by us which attempt to advise
interested parties of the factors which affect our business, including without
limitation the disclosures made under the caption “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and Item 1A—Risk
Factors.





Overview





We are,
through our wholly-owned subsidiary, Shengtai Holding Inc. and its wholly-owned
subsidiary in the PRC, Weifang Shengtai Pharmaceutical Co., Ltd, a leading
manufacturer and supplier of pharmaceutical grade glucose in the PRC. We also
manufacture glucose and starch products for food and beverage industry for
domestic market.





During
the reporting period, we increased our production of pharmaceutical grade
glucose products, in particular dextrose monohydrate. Dextrose monohydrate is
one of the five most important types of medical prescriptions in the PRC and is
one of the most widely used pharmaceutical products for restorative and
nutritional purposes. It is used as a raw material in a wide array of
pharmaceutical products such as transfusions and intravenous drips.





41





Our
cornstarch production facility with the design capacity to produce 240,000 tons
of cornstarch a year was completed and started production in January 2007. This
complex is located close and connected to our existing glucose production
plant and new glucose production complex which was completed in July 2008.
Additionally, this new facility allows us to produce our own cornstarch and
replace our suppliers of cornstarch. We are able to ensure the adequacy and
quality of the cornstarch we use and also meet our increasing demand for quality
cornstarch. Since cornstarch is produced on our premises, we are able to
eliminate shipping costs to transport the cornstarch to our glucose production
facility and operating costs, thus resulting in lower manufacturing
costs.





In
addition to our pharmaceutical glucose series of products, we also have produced
other product lines of glucose and starch products such as industrial glucose,
cornstarch, Avermectins, dextrin, and other products which are used for
food, beverage and industrial production. In May 2008, we stopped producing
Avermectins because we cannot currently produce and sell this product on an
efficient scale and we want to focus our limited resources to our main product
line for the time being.





Based on
our analysis of the consumption of glucose products carried out by the China
Starch Industry Association and the disposable income per capita from China
National Statistics Bureau, we believe that there is a strong correlation
between the consumption of glucose products and the disposable income per
capita.





We
predict that higher living standards would lead to higher consumption of
pharmaceutical dextrose. It is our understanding that the recovering economic
growth, the rising purchasing power of domestic market, the government as well
as the public awareness of quality healthcare products, are all drivers to the
demand for our products. The strong growth in the PRC pharmaceutical industry
will also help increase the selling prices of our major products, and enhance
our revenues and increase our gross profit margin.





Management
has been placing emphasis on (i) product quality control (ii) enhancement of
operating efficiency (iii) expansion of geographical coverage and
diversification of customer base, and (iv) new product development. We believe
that these points are essentially for maintaining our
competitiveness.





Our
production facilities have been fully certified GMP (Good Manufacturing Practice
for Drugs), ISO9002 and HACCP. The rate of quality output (output conforming to
pharmaceutical-grade glucose product specifications) is maintained at 100%. We
have a three-tier quality control system and a well equipped quality inspection
center to ensure timely detection and then reprocessing of non-conforming
products.





Our
production lines are vertically integrated. Our production facilities are all
inter-connected by an enclosed pipeline system to enhance overall production
efficiency, minimize wastage of water and raw materials, and to avoid production
contamination.





We are
currently developing new production technology to recycle our waste water and
byproducts. At the same time, we are improving overall production efficiency by
analyzing and ameliorating inefficient production processes. We believe that
environment protection and production efficiency are important in our
growth.





42





At the
end of calendar year 2006, the Changle local government negotiated with us and
required us to surrender the land use right of our old factory in the downtown
Changle for their municipal construction. The land we occupied was 27,396 square
meters. We were offered a bigger parcel of land in Changle Economic and
Technology Development Zone with 85,880 square meters as described
below.





In April
2007, we acquired the rights to use a piece of land measuring 85,880 square
meters in the Changle Economic and Technology evelopment Zone. We developed the
land and built a new glucose production complex with an expected production
capacity of 120,000 tons per year. The construction has been finished at the end
of July 2008. The new facility is used to produce pharmaceutical grade
glucose.





In July
2007, we acquired the right to use a piece of land measuring 40,000 square
meters in the Changle Economic and Technology Development Zone. This land was
sold in the year ended June 30, 2009.





During
the reporting period under review, we managed to successfully expand our
domestic sales network. As of June 30, 2009, all the provinces except Tibet in
the PRC have been covered by our domestic sales network. We have established
representative offices in 3 provinces to fortify our domestic sales network. We
believe that these offices help us to better interact with our customers,
reinforce our sales force and improve our corporate image. In the meantime,
we export our products to customers in over seventy countries, and we plan to
increase our global sales in the coming years.





We
constantly strive to broaden and diversify our customer base. A broader customer
base can not only mitigate our reliance on certain big customers, but also bring
us more opportunities. We believe a broader market for our products can increase
demand for our products, reduce our vulnerability to market changes, and provide
additional areas of growth in the future. Our top ten customers accounted
for only 25.17% for our total sales for the fiscal year ended June 30,
2009.





Our sales
and profitability was affected by the world economic crisis for the year ended
June 30, 2009. With the recovery of the world and China economy, management has
seen increased sales trend that would improve our market and financial position.
We will continue to identify and pursue innovative products and technology to
increase our market share and optimize our cost structure. Barring unforeseen
circumstances, we anticipate continued growth in our sales growth in next few
years. Our ability to meet increased customer demand and stay profitable will
however still depend on factors such as world and china economic recovery,
market demand, our production capacity, and working capital.





43





Result
of Operations





Year
Ended June 30, 2009 Compared with Year Ended June 30, 2008





The
following table shows our operating results for the fiscal years ended June 30,
2009 and 2008.





Fiscal Year ended
                    June 30, 2009
                  
                  
                  Fiscal Year ended
                    June 30, 2008Sales Revenue
                  
                  $
                  73,321,862
                  
                  
                  $
                  90,871,223Costs
      of Goods Sold
                  
                  
                  65,799,486
                  
                  
                  
                  70,613,757Gross
      Profit
                  
                  
                  7,522,376
                  
                  
                  
                  20,257,466Research
      and development expense
                  
                  
                  365,689
                  
                  
                  
                  —Sales,
      General and Administrative Expenses
                  
                  
                  8,607,560
                  
                  
                  
                  7,390,623Operating
      Income (Loss)
                  
                  
                  (1,450,873
                  )
                  
                  
                  12,866,843Other
      Income (Expense), Net
                  
                  
                  (1,213,015
                  )
                  
                  
                  (1,810,530
                  )Income
      (loss) before Income Taxes
                  
                  
                  (2,663,888
                  )
                  
                  
                  11,056,313Provision
      for Income Taxes
                  
                  
                  —
                  
                  
                  
                  645,988Net
      Income (loss)
                  
                  
                  (2,663,888
                  )
                  
                  
                  10,410,325




Sales
revenue for the fiscal year ended June 30, 2009 was $73,321,862, a decrease of
$17,549,361, or 19.31% compared with the corresponding period in 2008. This
decrease was mostly the result of the decrease in sales of our corn starch and
other products which include Fibers, Dextrin, corn embryo, and Protein Powders.
In addition, the decrease in the sales was due to decrease in average selling
prices and it is because of world and China economic crisis. As the demand for
the cornstarch and other products are decreased the selling prices became more
competitive. However, revenue from Glucose products remained relatively
stable.




Costs of
goods sold for the year ended June 30, 2009 was $65,799,486, a decrease of
$4,814,271, or 6.82% compared with the corresponding period in 2008. The
decrease in cost of goods sold is in tandem with the increase in sales of our
products and because of the increased of depreciation expenses in our new
production facilities.





Gross
profit for the year ended June 30, 2009 was $7,522,376, a decrease of
$12,735,090, or 62.87% compared with the corresponding period in 2008. The
reason for the decrease in gross profit was mostly due to decreased
sales.





The
profit margin of 2009 is lower than 2008. Gross profit margin for the year ended
June 30, 2009 was 10.3%, while it was 22.3% for the same period in 2008. The
decreased gross profit margin is because of the decreased unit prices and
increased unit cost due to higher depreciation and lower efficiency due to
starting the new glucose factory.





Selling,
general and administrative expenses and research and development expenses for
the year ended June 30, 2009 was $8,973,249, an increase of $1,582,626, or
21.41% compared with the corresponding period in 2008. The increase in our
selling, general and administrative expenses was the result of the higher worker
insurance requirements related expenditures. The increased expenses of expanding
new sales network for increased capacity are also the causes of higher general
and administrative expenses. In addition, the expense of stock options for the
year ended June 30, 2009 was $317,636 higher than for the same period ended June
30, 2008. We also incurred some research and development expenses in relating to
our effort of developing high tech new products. Currently, we have not
successfully completed our development but we will focus on developing high
value added products to increase our gross margin.





Net loss
for the year ended June 30, 2009 was $2,663,888, a decrease of $13,074,213 or
125.50% compared with the corresponding period in 2008. The decrease of net
income was due to decrease in sales volume and gross profit, and due to the
increase in selling, general and administrative expenses.





44





Liquidity
and Capital Resources





Operating
Activities




Net cash
used in operating activities for fiscal year 2009 was $1,287,385 compared to
$5,494,342 provided by operating activities for fiscal year 2008. The decrease
of net cash provided by operations was mostly because of the loss from
operation, larger purchase of inventory, and larger payments of tax
payable.  Notes receivable and other receivables are classified as
operating cash flows because these assets are used for operating purposes. These
assets are mainly used to purchase our raw materials and fund our normal
operations. Cash paid for income taxes increased from $14,809 in fiscal year
2008 to $1,134,656 in fiscal year 2009 because of payments in fiscal 2009 for
taxes for past years.  No payments for past years are expected in the
future, but, as disclosed in Note 7, the effective tax rate will rise from 12%
to 25% in August 2009, when the Company’s tax exemptions will
expire.





Investing
Activities




Net cash
used in investing activities for fiscal 2009 was $1,432,818, compared to
$11,998,626 used in investing activities for fiscal 2008. The decrease of net
cash used in investing activities is because we spent most of our capital
expenditures for building our cornstarch and glucose factories in fiscal year
2007 and 2008. The glucose factory was completed in July 2008. In fiscal year
2009, we are in the process of completing decorating the new factory and
building our dormitory. Thus we had less capital expenditure.





Financing
Activities




Net cash
provided by financing activities for fiscal 2009 was $1,087,699 compared to
$3,176,334 for the same period in fiscal 2008. The decrease The decrease was
mostly because of the increased restricted cash.




Contractual obligations
                    
                    Payments due
                      by periodTotal
                    
                    
                    Less than 1 year
                    
                    
                    1-3 years
                    
                    
                    3-5 years
                    
                    
                    More than 5
                      yearsLong-Term Debt Obligations
                    
                    $
                    2,661,788
                    
                    
                    $
                    1,690,813
                    
                    
                    $
                    970,975
                    
                    
                    $
                    —
                    
                    
                    $
                    —Capital
      Lease Obligations
                    
                    
                    5,428,551
                    
                    
                    
                    756,970
                    
                    
                    
                    4,671,581
                    
                    
                    
                    —
                    
                    
                    
                    —Operating
      Lease Obligations
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Purchase
      Obligations
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Other
      Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
      GAAP
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Total
                    
                    $
                    8,090,339
                    
                    
                    $
                    2,447,783
                    
                    
                    $
                    5,642,556
                    
                    
                    $
                    —
                    
                    
                    $
                    —




45




Loans





Other
than the equity financing last year, our PRC operating subsidiary, Weifang
Shengtai financed its operations and capital expenditure requirements primarily
through bank loans and operating income. Weifang Shengtai had a total of
$25,637,500, and $22,658,270short term bank loans outstanding as of June 30,
2009, and 2008, respectively. The loans were secured by Weifang Shengtai’s
properties and accounts receivable. The terms of all these short term loans were
for one year. Weifang Shengtai has never defaulted on any loans. In
addition Weifang Shengtai had $35,218,600 and $10,942,500 in short-term notes
due to banks as of June 30, 2009 and 2008, respectively.  These notes
were due within one year and secured by 50% to 100% of the loan amount in
restricted cash.  Some were guaranteed by unrelated third
parties.




Weifang
Shengtai does not have any long term loans from local banks. The outstanding
long-term loans, or the non-current portion of payables, and the non-current
portion of capital lease obligation, which can be classified as long term
liabilities, were $5,642,556, and $2,653,995, as of June 30, 2009 and 2008,
respectively.





Guarantees





We have
guaranteed certain borrowings of other unrelated third parties including short
term bank loans, lines of credit and bank notes. The total guaranteed amounts
were $10,108,500, and $7,295,000 as of June 30, 2009, and 2008. Some unrelated
third parties have guaranteed approximately $ 47,671,100, and $ 13,729,190 of
our debt, as of June 30, 2009 and 2008 respectively.





Future
cash commitments





We
estimate the need for $6 million to $10 million to run the new glucose
facilities. The exact amount will be determined based on both the market demand
of our products and the time needed for these facilities to run at full
capacity. We may carefully review our financial condition and consider financing
either with the cash internally generated, bank loans, or with additional
equity.





Critical
Accounting Policies and Estimates





We have
disclosed in the notes to our financial statements those accounting policies
that we consider to be significant in determining our results of operations and
our financial position which are incorporating by reference herein. We believe
that the following reflect the more critical accounting policies that currently
affect our financial condition and results of operations.





46





Revenue
recognition





The
Company recognizes revenue when the goods are delivered, title has passed,
pricing is fixed, and collection is reasonably assured. Sales revenue represents
the invoiced value of goods, net of value-added tax (“VAT”), and estimated
returns of product from customers. Most of the Company’s products sold in the
PRC are subject to a VAT rate of 17% of the gross sales price or at a rate
approved by the Chinese local government. This VAT may be offset by VAT paid by
the Company on raw materials and other materials included in the cost of
producing their finished products and certain freight expenses. We allow our
customers to return products 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.
Therefore, we do not estimate deductions or allowance for sales returns. Sales
returns are taken against revenue when products are returned from customers.
Sales are presented net of any discounts given to customers.





Use
of estimates





In
preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories. Actual results could differ from those estimates.





Accounts
Receivables





In the
normal course of business, the Company extends credit to its customers without
requiring collateral or other security interests. Management reviews its
accounts receivables at each reporting period to provide for an allowance
against accounts receivable for an amount that could become uncollectible. This
review process may involve the identification of payment problems with specific
customers. The Company estimates this allowance based on the aging of the
accounts receivable, historical collection experience, and other relevant
factors, such as changes in the economy and the imposition of regulatory
requirements that can have an impact on the industry. These factors continuously
change, and can have an impact on collections and the Company’s estimation
process. These impacts may be material.





Certain accounts
receivable amounts are charged off against allowances after designated period of
collection efforts. Subsequent cash recoveries are recognized as income in the
period when they occur.





Property
and equipment





Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed using straight-line method, with 3% residual value, over the estimated
useful lives of the assets.





47





Foreign
currency translation





Our
functional currency is the Chinese Renminbi (“RMB”). Foreign currency
transactions are translated at the applicable rates of exchange in effect at the
transaction dates. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the applicable rates of
exchange in effect at that date. Revenues and expenses are translated at the
average exchange rates in effect during the reporting period.





Translation
adjustments arising from the use of different exchange rates from period to
period are included as a component of stockholders’ equity as “Accumulated Other
Comprehensive Income”. Gains and losses resulting from foreign currency
translations are included in Accumulated Other Comprehensive
Income.





Item7A.
Quantitative and Qualitative Disclosures About Market Risk.





Credit
Risk.





We are
exposed to credit risk from our cash at bank, fixed deposits and contract
receivables. The credit risk on cash at bank and fixed deposits is limited
because the counterparts are recognized financial institutions. Contract
receivables are subject to credit evaluations. We periodically record a
provision for doubtful collections based on an evaluation of the
collectibility of contract receivables by assessing, among other factors, the
customer’s willingness or ability to pay, repayment history, general economic
conditions and our ongoing relationship with the customers.





Country
Risk.





Substantial
portion of our business, assets and operations are located and conducted in the
PRC. While the PRC’s economy has experienced significant growth in the past
twenty years, growth has been uneven, both geographically and among various
sectors of the economy. The economic crisis since 2008 has certain effect on the
growth of the China economy. The PRC government has implemented various measures
to encourage economic growth and guide the allocation of resources. In February
2009, the National Development and Reform Commission (NDRC) stated that it will
allocate RMB 10 billion (US$1.46 billion) from the central budget to build 2,000
township hospitals and 29,000 urban community health service centers. The funds
are part of the central government's RMB 850-billion commitment to financing the
country's health care reform plan. The plan will be implemented over the course
of next three years. With that as a backdrop, we believe the long-term prospect
for pharmaceutical grade glucose is very good despite the near-term challenges.
Some of these measures benefit the overall economy of the PRC, but may also have
a negative effect on us. For example, our operating results and financial
condition may be adversely affected by government control over capital
investments or changes in regulations applicable to us. If there are any changes
in any policies by the PRC government and our business is negatively affected as
a result, then our financial results, including our ability to generate revenues
and profits, will also be negatively affected.





48





Foreign
Currency Risk.




Substantially
all of our operations are conducted in the PRC. Our sales and purchases are
conducted within the PRC in Renminbi. Conversion of the Renminbi into foreign
currencies is regulated by the People’s Bank of China through a unified floating
exchange rate system. Although the PRC government has stated its intention to
support the value of the Renminbi, there can be no assurance that such
exchange rate will not again become volatile or that the Renminbi will not
devalue significantly against the U.S. dollar. Exchange rate fluctuations may
adversely affect the value, in U.S. dollar terms, of our net assets and
income derived from our operations in the PRC. In addition, the Renminbi is not
freely convertible into foreign currency and all foreign exchange transactions
must take place through authorized institutions.





Item
8. Financial Statements and Supplementary Data.





The
information required by this Item 8 is included in Item 15 of this Form
10-K.





Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.





During
the fiscal year ended June 30, 2009, there were no changes in and disagreements
with accountants and financial disclosure.





Item
9A Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





Mr.
Qingtai Liu, our Chief Executive Officer and Ms. Yiru Melody Shi, our Chief
Financial Officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, as of the end of the period covered by this
Report. Based on that evaluation, our officers concluded that due to the
material weaknesses in the internal control over financial reporting as
disclosed below in the Section of “Management’s Report on Internal Control over
Financial Reporting,” our disclosure controls and procedures were ineffective
and are not adequately designed to ensure that the information required to be
disclosed by us in the reports we submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
applicable rules and forms and that such information was accumulated and
communicated to our chief executive officer and chief financial officer, in a
manner that allowed for timely decisions regarding required
disclosure.





Notwithstanding
management’s assessment that our internal control over financial reporting was
ineffective as of June 30, 2009 due to the material weakness described below
under Management’s Report on Internal Control Over Financial Reporting, we
believe that the consolidated financial statements included in this Annual
Report on Form 10-K correctly present our financial condition, results of
operations and cash flows for the fiscal years covered thereby in all material
respects after all the adjustments proposed by our auditors were accepted and
made by the Company.





Management’s
Report on Internal Control over Financial Reporting





Internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) refers to the process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Management is responsible for
establishing and maintaining adequate internal control over financial
reporting.





49





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, the application of any evaluation of
effectiveness to future periods is subject to the risk that controls may become
inadequate because of changes in conditions, or that compliance with the
policies or procedures may deteriorate.





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.





A
significant deficiency is a deficiency, or a combination of deficiencies, in
internal control over financial reporting that is less severe than a material
weakness; yet important enough to merit attention by those responsible for
oversight of the Company’s financial reporting.





We have
evaluated the effectiveness of our internal control over financial reporting as
of June 30, 2009. This evaluation was performed using the Internal Control – Evaluation
Frameworkdeveloped by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on such evaluation, management concluded
that the Company’s internal control over financial reporting was not effective
and identified the material weaknesses in the Company’s internal control over
financial reporting as stated below.





Material
weaknesses related to:





•
            Accounting
      and Finance Personnel Weaknesses - US GAAP expertise - The current staff
      in the accounting department is relatively new and inexperienced, and
      needs substantial training so as to meet with the higher demands of being
      a U.S. public company. The accounting skills and understanding necessary
      to fulfill the requirements of U.S. GAAP-based reporting, including the
      skills of subsidiary financial statements consolidation, are inadequate
      and were inadequately supervised.




•
            Lack
      of internal audit function - The Company lacks qualified resources to
      perform the internal audit functions properly.  In addition, the
      scope and effectiveness of the internal audit function are yet to be
      developed.





Due to
those above material weaknesses, during the annual audit process for the year
ended June 30, 2009, our independent auditor proposed material adjustments to
allowance for bad debt, interest expenses from the capital lease equipment,
unrecorded restricted cash and notes payable.





50





Management
Remediation Plan





During
its audit of our consolidated financial statements for the fiscal year ended
June 30, 2009, our independent registered public accounting firm reported
material weakness in our financial statement reporting process.





In order
to correct the foregoing material weaknesses, we have taken the following
remedial measures:





1. In May
2008, we engaged Ms. Yiru Shi, a CPA with experience as an independent auditor
as well as financial experience at Sun Microsystems and Hewlett Packard, to
serve as our chief financial officer. Ms. Yiru Shi has extensive experience in
internal control and U.S. GAAP reporting compliance and an MBA from the
University of California-Irvine and together with our chief executive officer
will oversee and manage our the financial reporting process and required
training of the accounting staff.





2. In
July, 2008 we engaged independent consultants to assist the Company in improving
the internal control system based on the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. The consultants had conducted an evaluation of our
internal control over financial reporting, and assisted us in designing enhanced
processes and procedures to improve our internal control over financial
reporting.





3. We
plan to train our internal accountants well in U.S. GAAP principles and
reporting. Although our accounting staff is professional and experienced in
accounting requirements and procedures generally accepted in the PRC, management
has determined that they require additional training and assistance in U.S. GAAP
matters.





4. We are
also planning to establish an internal audit unit to establish effective
internal control. We plan to allocate sufficient resources to achieve an
effective internal audit function.





5. We
plan to recruit and train additional accounting personnel with experience in
U.S. GAAP.





We
believe that the steps we are taking are necessary for remediation of the
material weaknesses identified above, and we will continue to monitor the
effectiveness of these steps and to make any changes that our management deems
appropriate.





Changes
in Internal Control Over Financial Reporting





No change
in our internal control over financial reporting has occurred during the quarter
ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





Auditor
Attestation





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.





51





Item 9B. Other
Information.





None.





PART
III





Item
10. Directors, Executive Officers and Corporate Governance.





Below are
our executive officers and directors. Most of our executive officers and
directors are residents of the PRC. As a result, it may be difficult for
investors to effect service of process within the United States upon them or to
enforce court judgments obtained against them in the United States
courts.





Directors
      and Executive Officers
                    
                    Position/Ti
      tle
                    
                    AgeQingtai Liu
                    
                    Chief Executive Officer / Director
                    
                    51Yongqiang Wang
                    
                    Director
                    
                    40Chris W. Wang
                    
                    Director
                    
                    38Changxin Li
                    
                    Director
                    
                    49Winfred Lee
                    
                    Director
                    
                    48Yiru Shi
                    
                    Chief Financial Officer
                    
                    36





The
following is a summary of the biographical information of our directors and
officers:





Qingtai Liu, 51, graduated
from the Electrical Engineering Faculty of the Shandong Technical University
with a Bachelor of Science degree in February 1982. He became the workshop
director and head of the production department of Changle Wireless Device
Factory until 1988, whereupon he assumed the position of Head of Science and
Technology at the Changle Power Factory. In 1990, Mr. Liu became the Director of
Weifang Fifth Pharmaceutical Plant. From January 1999 to present day, he is the
Chairman and Chief Executive Officer of Weifang Shengtai Pharmaceutical Co.,
Ltd. Under his leadership, the Company successfully developed unique production
techniques for the production of glucose and medicinal coating products, and has
won Technology Innovation awards issued by the Chang Le County, Weifang City and
the Shandong provincial government offices. The medicinal coating material
technology that Mr Liu jointly developed with the Shandong University has
been certified by the Technology Development Bureau of the Shandong Province to
be of international standard. Over the years, Mr Liu has been endorsed by the
Weifang City Government office as a Leading Technology Innovator and a
Distinguished Pharmaceutical Production Director. He also is the deputy to the
People’s Conference of both Weifang City and Changle County.




Yongqiang Wang, 40, graduated
with an Associates degree from the Shandong Economic and Management Institute.
He joined Weifang Shengtai in April 2006 as the assistant to the General Manager
of the Accounts Department and was in charged of the finance department. He
assumed the position of Deputy General Manager of the Accounts Department in
February 2007. Prior to joining us, Mr. Wang worked as a financial manager for
various enterprises.





52




Wenbing Christopher Wang,38, has served as Chief
Financial Officer of Fushi Copperweld, Inc. since December 13, 2005 and on
January 21, 2008 was appointed as its President and director. Mr. Wang has
served as Chief Financial Officer of Dalian Fushi since March 2005.  Prior
to Fushi, Mr. Wang was an Executive Vice President of Redwood Capital, Inc.
from November 2004 to March 2005 and an Assistant VP of Portfolio Management at
China Century Investment Corporation from October 2002 to September 2004. Mr.
Wang worked for Credit Suisse First Boston (HK) Ltd in 2001. From 1999 to 2000,
Mr. Wang worked for VCChina as a Management Analyst. Fluent in both English and
Chinese, Mr. Wang holds an MBA in Finance and Corporate Accounting from Simon
Business School of University of Rochester. Mr. Wang was named one of the top
ten CFO’s of 2007 in China by CFO magazine.




Changxin Li, 49, has been the
Medical Director of both the Echocardiography Laboratory and Cardiopulmonary
Department of the Otsego Memorial Hospital since 2005, Medical Director, Cardiac
Rehabilitation since January 2009 and Medical Director, Intensive Care Unit
since July 2009. He has also been an internist with the Otsego Memorial Hospital
since 1995. Mr. Li graduated with an MB from the Weifang (formerly Changwei)
Medical College, Weifang, Shandong, China in 1982 and a PhD from the Department
of Physiology, University of Alberta, Edmonton, Alberta, Canada in 1990. He is a
Fellow of the American College of Physicians (USA).





Winfred Lee, 48, has been a
Contract Administrator with Tenet Healthsystems for South Bay Medical Center,
North Hollywood Medical Center, Midway Hospital, Century City Hospital, and
Brotman Medical Center from 1997. Mr. Lee graduated with a Bachelor of Science
in Business Management from Brigham Young University, Provo, Utah in 1984. He
then graduated with a Doctor of Medicine from the Medical College of Wisconsin,
Milwaukee, Wisconsin, in 1988 and a Doctor of Jurisprudence from the J. Reuben
Clark Law School at Brigham Young University, Provo, Utah, in 1992. Mr. Lee is a
member of the California Bar and the Phi Delta Phi Legal Society





Yiru Shi, 36, Served as audit
manager for Kabani & Co., Inc., Controller at Aroa Marketing, Channel
Program Manager at Sun Microsystems and financial analyst at Hewlett Packard
China, obtained MBA from University of California, Irvine, Bachelors degrees in
Computer Science and International Trade and Business from Beijing Polytechnic
University and is a Certified Public Accountant





All of
our directors hold offices until the next annual meeting of the shareholders of
the Company, and until their successors have been qualified after being elected
or appointed. Officers serve at the discretion of the board of
directors.





There are
no family relationships among our directors or executive officers. There is no
arrangement or understanding between or among our officers and directors
pursuant to which any director or officer was or is to be selected as a director
or officer, and there is no arrangement, plan or understanding as to whether
non-management shareholders will exercise their voting rights to continue to
elect the current Board of Directors.





Our
directors and executive officers have not, during the past five
years:





 ̈
            had
      any bankruptcy petition foiled by or against any business of which was a
      general partner or executive officer, either at the time of the bankruptcy
      or within two years prior to that
time,




53





 ̈
            been
      convicted in a criminal proceeding and is not sub ject to a pending
      criminal proceeding,





 ̈
            been
      subject to any order, judgment or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise lim iting his
      involvement in any type of business, securities, futures, commodities or
      banking activities; or





 ̈
            been
      found by a court of competent jurisdiction (in a civil action), the
      Securities Exchange Commission or the Commodity Futures Trading Commis
      sion to have violated a federal or state securities or commodities law,
      and the judgment has not been reversed, suspended or
    vacated.





Section 16(A) Beneficial
Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
and directors and persons who own more than 10% of a registered class of our
equity securities to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission (the "SEC"). Such persons
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file.





Based
solely on review of the copies of such forms received by us with respect to
fiscal year 2009, or written representations from certain reporting persons, we
believe that our directors, officers and persons who own more than ten percent
of a registered class of our equity securities have complied with all applicable
Section 16(a) filing requirements..





Item
11. Executive Compensation.





Compensation
Discussion and Analysis





We
endeavor to provide our “named executive officers” (as defined in Item 402 of
Regulation S-K) with a competitive base salary that is in- line with their roles
and responsibilities when compared to peer companies of comparable size in the
same or similar locality.





It is not
uncommon for PRC private corporations in that locality to have base salaries as
the sole and only form of compensation. The base salary level is established and
reviewed based on the level of responsibilities, the experience and tenure of
the individual and the current and potential contributions of the individual.
The base salary is compared to the list of similar positions within comparable
peer companies and with consideration of the executive’s relative
experience in his or her position. Base salaries are reviewed periodically
and at the time of promotion or other changes in responsibilities.





We plan
to implement a more comprehensive compensation program, which takes into account
other elements of compensation, including without limitation, short and long
term compensation, cash and non-cash, and other equity-based compensation such
as stock options. This compensation program shall be comparative to our peers in
the industry and aimed to retain and attract talented individuals.





54





We have
formed a Compensation Committee of the Board of Directors comprised solely of
independent directors to oversee the compensation of our named executive
officers. The members of our Compensation Committee are Wenbing Christopher Wang
(Chairman) Changxin Li; and Winfred Lee.





Summary
Compensation Table





The
following is a summary of the compensation we paid for each of the two years
ended June 30, 2009, and 2008, respectively (i) to the person who acted as our
principal executive officer during our fiscal year ended June 30, 2009 and (ii)
to the former employee who received compensation in excess of $100,000 for one
of these years . None of our other executive officers received compensation in
excess of $100,000 for any of these two years.




Name and
                                          Principal
                                          Position
                                        
                                        Year
                                        
                                        Salary($)
                                        
                                        Bonus($)
                                        
                                        StockAwards($)
                                        
                                        Option
                                          Awards($)
                                        
                                        Non Equity
                                          Incentive Plan
                                          Compensation
                                          ($)
                                        
                                        Change in
                                          Pension Value
                                          and
                                          Nonqualified
                                          Deferred
                                          Compensation
                                          Earnings ($ )
                                        
                                        All Other
                                          Compension
                                          ($)
                                        
                                        Total ($)Qingtai
      Liu (1)
                                        
                                        
                                        2009
                                        
                                        120,000
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        120,0002008
                                        
                                        133,714
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        96,253
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        229,967Yiru
      Shi (2)
                                        
                                        
                                        2009
                                        
                                        108,000
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        108,0002008
                                        
                                        22,500
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        22,500Yizhao
      Zhang (3)
                                        
                                        
                                        2009
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —2008
                                        
                                        105,500
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        77,003
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        185,503







(1)
            Chairman
      and Chief Executive Officer (Principal Executive
  Officer).




55





(2)
            Ms.
      Shi joined us as our Chief Financial Officer in May
  2008.




(3)
            Mr.
      Zhang joined us as our Chief Financial Officer in May 2007 and resigned in
      May 2008.





Grants
of Plan-Based Awards in Fiscal 2008





On
January 4, 2008, the Company adopted “Shengtai Pharmaceutical, Inc. 2007 Stock
Incentive Plan” (the “Stock Incentive Plan”).





On May
14, 2008, the Company granted 500,000 stock options and 160,000 non-qualified
stock options pursuant to the Stock Incentive Plan. All options have an exercise
price of $3.34, which is the closing price on the date of grant, and expire five
years after the date of grant. All options vest over a period of three years
from the date of grant.





Outstanding
Equity Awards at 2009 Fiscal Year End





As of
June 30, 2009, there are 660,000 shares of options outstanding.





Equity
Compensation Plan Information at June 30, 2009




The
following table sets forth information as of June 30, 2009 regarding
compensation plans under which the Company’s equity securities are authorized
for issuance.





(a)
                      
                      
                      (b)
                      
                      
                      (c)Plan Category
                      
                      Number of
                        securities to be
                        issued upon
                        exercise of
                        outstanding
                        equity awards
                      
                      
                      Weighted-average
                        exercise price of
                        outstanding
                        equity awards($)
                      
                      
                      Number of
                        securities
                        remaining
                        available for
                        future issuance
                        under equity
                        compensation
                        plans (excluding
                        securities
                        reflected in
                        column(a))Equity
      compensation plans approved by security holders
                        Shengtai
      Pharmaceutical, Inc. 2007 Stock Incentive Plan.
                      
                      
                      —
                      
                      
                      
                      
                      
                      
                      —Equity compensation plans not
      approved by security holders
                        Issuances
      of non-qualified options to employees
                      
                      
                      660,000
                      
                      
                      $
                      3.34
                      
                      
                      
                      1,340,000Total
                      
                      
                      660,000
                      
                      
                      $
                      3.34
                      
                      
                      
                      1,340,000




56





Option
Exercises and Stock Vested in Fiscal 2009.





There
were no option exercises or stock vested in 2009.





Employment
Agreements





We have
employment agreements with Qingtai, Liu, our chief executive officer, and with
Yiru (Melody) Shi, our Chief Financial Officer.





Compensation
of Directors.





Our
current non-executive directors are compensated for all services they perform as
directors , including attendance at Board of Directors meetings and service as
members of committees of the Board of Directors to which they are appointed.
Executive officers are not compensated for services they perform as directors of
the Company. The details of such compensation are:




 ̈
            annual
      compensation of $15,000;




 ̈
            additional
      annual compensation of $15,000 if the director serves as the Chairman of
      the Audit Committee; and





 ̈
            we
      may also grant the non-executive directors certain options to purchase our
      shares, the amount a nd terms of which shall be determined by the Board of
      Directors.





The
non-executive directors are also reimbursed for all of their out-of-pocket
expenses in traveling to and attending meetings of the Board of Directors and
committees on which they would serve.





Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.





The
following table sets forth certain information with respect to the beneficial
ownership of our voting securities by (i) any person or group owning more than
5% of any class of voting securities, (ii) each director, (iii) our chief
executive officer and the Company’s top three most highly compensated officers
and (iv) all executive officers and directors as a group as of June 30,
2009.





57





Name and Address of Beneficial Owner
                                                                                                                              
                                                                                                                              Title of Class
                                                                                                                              
                                                                                                                              Amount and Nature of
                                                                                                                                Beneficial Ownership (1)(2)
                                                                                                                              
                                                                                                                              Percent of Class
                                                                                                                                (4)Qingtai
      Liu (3)Chief
      Executive officer and PresidentHi-Tech
      Industrial Park of Changle County,
                                                                                                                                Shandong
      Province, PRC 262400
                                                                                                                              
                                                                                                                              Common
      Stock
                                                                                                                              
                                                                                                                              
                                                                                                                              7,378,025
                                                                                                                              
                                                                                                                              38.49
                                                                                                                              %Yiru
      Shi (3)Chief
      Financial OfficerHi-Tech
      Industrial Park of Changle County,
                                                                                                                                Shandong
      Province, PRC 262400
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              —Yongqiang
      Wang (3)directorHi-Tech
      Industrial Park of Changle County,
                                                                                                                                Shandong
      Province, PRC 262400
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              —Chris
      Wenbing Wang (3)directorHi-Tech
      Industrial Park of Changle County,
                                                                                                                                Shandong
      Province, PRC 262400
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              —Winfred
      Lee (3)directorHi-Tech
      Industrial Park of Changle County,
                                                                                                                                Shandong
      Province, PRC 262400
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              —Changxin
      Li (3)directorHi-Tech
      Industrial Park of Changle County,
                                                                                                                                Shandong
      Province, PRC 262400
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              
                                                                                                                              —
                                                                                                                              
                                                                                                                              —China
      Private Equity Partners Co., Limited15
      Church Street, Alpine, NJ 07620
                                                                                                                                Common
      Stock
                                                                                                                              
                                                                                                                              Common
      Stock
                                                                                                                              
                                                                                                                              
                                                                                                                              1,025,000
                                                                                                                              
                                                                                                                              5.35
                                                                                                                              %Pope
      Investments LLC5150
      Poplar Avenue, Suite 805, Memphis,
                                                                                                                                TN
      38137
                                                                                                                              
                                                                                                                              Common
      Stock
                                                                                                                              
                                                                                                                              
                                                                                                                              2,650,000
                                                                                                                              
                                                                                                                              13.82
                                                                                                                              %





58





(1) On
May 15, 2007, we entered into the share exchange agreement. Under the share
exchange agreement Messrs. Qingtai Liu and Chenghai Du, holders of all the
issued and outstanding shares of common stock of Shengtai Holding, Inc. (SHI),
exchanged their SHI shares for 8,212,500 and 912,500 newly-issued shares of the
Company’s common stock (representing approximately 91% of the issued and
outstanding shares then outstanding). The share exchange closed on May 15, 2007.
Mr. Qingtai Liu entered into an agreement dated May 8, 2006 with certain foreign
finders and Hickey Turner Capital, Inc. in which Mr. Liu agreed to transfer
446,175 shares of the our common stock for the benefit of the foreign finders
and Hickey Turner Capital, Inc. and/or its designees for consulting services. In
addition to transferring these shares, on May 15, 2007, he also transferred an
aggregate of 776,600 shares to his wife and minor child equally on the same date
(which shares are deemed to be beneficially owned by Mr. Liu).





(2) On
May 15, 2007, we entered into and closed on a share purchase agreement. Under
the share purchase agreement, certain investors purchased for $2.00 per share
(or a total of $17,500,000) an aggregate of 8,750,000 shares of common stock and
4,375,000 attached five year warrants.





(3)
Messrs. Qingtai Liu and Yongqiang Wang were appointed directors of the Company
on May 15, 2007. Mr. Zhang was appointed as our Chief Financial Officer in May
2007. Ms Shi was appointed as our Chief Financial Officer in May 2008. Messrs.
Wang, Li and Lee were appointed directors of the Company on June 22,
2007.





(4) Based
on 19,169,805 shares of common stock issued and outstanding on June 30, 2009. In
addition, in determining the percent of common stock owned by a person on June
30, 2009, (a) the numerator is the number of shares of the class beneficially
owned by such person and includes shares which the beneficial owner may acquire
within 60 days upon conversion or exercise of a derivative security, and (b) the
denominator is the sum of (i) the shares of that class outstanding on June 30,
2009, and (ii) the total number of shares that the beneficial owner may acquire
upon conversion or exercise of a derivative security within such 60 day period.
Unless otherwise stated, each beneficial owner has sole power to vote and
dispose of the shares.





59





Item
13. Certain Relationships and Related Transactions, and Director
Independence.





Weifang
Shengtai entered into a joint venture partnership with Weifang City Investment
Company and Changle Century Sun Paper Industry Co., Ltd on September 16, 2003
and formed Changle Shengshi Redian Co., Ltd (“Changle Shengshi”). Changle
Shengshi was incorporated at Weifang City, Shandong Province, People’s Republic
of China. Changle Shengshi’s principal activity is to produce and sell
electricity and heat.





Weifang
Shengtai owned a 30% interest in Changle Shengshi as of June 30, 2004. On April
12, 2005, its percentage ownership in Changle Shengshi was diluted from 30% to
20% due to an additional investment into Changle Shengshi from another party.
Changle Shengshi has a registered capital of approximately $10,800,000. Weifang
Shengtai invested approximately $2,200,000 towards its registered capital, which
accounts for a 20% share of Changle Shengshi’s stock. As of June 30, 2009, total
investment of approximately $3,944,807 represents 20% of Changle Shengshi’s
paid-in capital, which includes earnings on equity investment.





As an
investor and shareholder of Changle Shengshi, Weifang Shengtai enjoys a
preferential discount of 19.7% off the market price of electricity supplied by
the plant to Weifang Shengtai. The intercompany profits were eliminated on our
financial statements.





Weifang
Shengtai had a total of $437,112, and $714,776 of accounts payable and accrued
liabilities to Changle Shengshi at June 30, 2009, and 2008, respectively. The
utilities expenses amounted to $8,612,090, and $9,851,833, for the years ending
June 30, 2009, and 2008, respectively.




The
Company loaned money to Changle Shengshi and entered into a loan contract as
follows:





June 30, 2009
                          
                          
                          June 30, 2008Due
      on September 14, 2009, unsecured, 7.6% interest rate per
    annum
                          
                          $
                          439,500
                          
                          
                          $
                          437,700Total
                          
                          $
                          439,500
                          
                          
                          $
                          437,700





Item
14. Principal Accounting Fees and Services.





Aggregate
fees billed by our current principal accountants, Moore Stephens Wurth Frazer
and Torbet, LLP for audit services related to the most recent fiscal year, and
for other professional services billed in the most recent fiscal year, were as
follows:




Fiscal 2009
                        
                        
                        Fiscal 2008 (3)Audit
      Fees (1)
                        
                        $
                        202,150
                        
                        
                        $
                        145,000Audit-Related
      Fees
                        
                        
                        —
                        
                        
                        
                        —Tax
      Fees (2)
                        
                        
                        8,000
                        
                        
                        
                        5,000All
      Other Fees
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        $
                        210,150
                        
                        
                        $
                        150,000




60




(1)
            Comprised
      the audit of the Company's annual financial statements and reviews of the
      Company's quarterly financial statements, as well as consents related to
      and reviews of other documents filed with the Securities and Exchange
      Commission.





(2)
            Comprised
      preparation of all federal and state corporate income tax returns for the
      Company and its subsidiaries.





(3)
            In
      our Annual Report on Form 10-KSB filed on March 27, 2007, we reported that
      our Board of Directors, pursuant to our Bylaws, approve d a change in our
      fiscal year end from December 31 to June 30. Disclosure of the fees billed
      by our current accountants, Moore Stephens Wurth Frazer and Torbet, LLP is
      for the fiscal year ended June 30,
2008.





Under the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our
independent accountants must now be approved in advance by our Audit Committee
to assure that such services do not impair our accountants' independence . Our
Audit Committee’s Chairman is Mr. Chris Wang and the other members are Changxin
Li and Winfred Li. Our Audit Committee reviews and recommends to our Board of
Directors for approval audit and permissible non-audit services performed by
Moore Stephens Wurth Frazer and Torbet, LLP as well as fees charged by them for
such services. Previously when we did not have an Audit Committee, our Board of
Directors carried out this function.





PART
IV





Item
15. Exhibits, Financial Statement Schedules.





(a)
            Financial
      Statements and Financial Statement
Schedules




Report
      of Independent Registered Public Accounting Firm
                    
                    
                    F-1Consolidated
      Balance Sheets as of June 30, 2009 and 2008
                    
                    
                    F-2Consolidated
      Statements of Operations and Other Comprehensive Income (loss) for the
      Years Ended June 30, 2009, and 2008
                    
                    
                    F-3Consolidated
      Statements of Shareholders' Equity for the Years Ended June 30, 2009, and
      2008
                    
                    
                    F-4Consolidated
      Statements of Cash Flows for the Years Ended June 30, 2009, and
      2008
                    
                    
                    F-5Notes
      to Consolidated Financial Statements
                    
                    
                    F-6




All other
schedules for which provision is made in the applicable accounting regulations
of the SEC are not required under the related instructions or are inapplicable
and therefore have been omitted.




61





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of


Shengtai
Pharmaceutical, Inc. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of Shengtai Pharmaceutical,
Inc. and Subsidiaries (the “Company”) as of June, 2009 and 2008, and the related
consolidated statements of operations and other comprehensive  income
(loss), shareholders’ equity and cash flows for each of the years in the
two-year period ended June 30, 2009. Shengtai Pharmaceutical, Inc.’s management
is responsible for these consolidated financial statements. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shengtai
Pharmaceutical, Inc. and Subsidiaries as of June 30, 2009 and 2008, and the
results of its operations and cash flows for each of the years in the two-year
period ended June 30, 2009 in conformity with accounting principles generally
accepted in the United States of America.





/s/ Moore
Stephens Wurth Frazer and Torbet, LLP





Brea,
California









F-1




SHENGTAI
PHARMACEUTICAL, INC. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS


AS OF
JUNE 30, 2009 AND 2008





2009
                                        
                                        
                                        2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                        
                                        $
                                        1,779,476
                                        
                                        
                                        $
                                        3,405,606Restricted
      cash
                                        
                                        
                                        31,730,382
                                        
                                        
                                        
                                        6,763,500Accounts
      receivable, net of allowance for doubtful accounts of
    $946,207and
      $440,701 as of June 30, 2009 and 2008, respectively
                                        
                                        
                                        6,922,982
                                        
                                        
                                        
                                        7,614,236Notes
      receivable
                                        
                                        
                                        1,074,011
                                        
                                        
                                        
                                        458,630Other
      receivables
                                        
                                        
                                        79,598
                                        
                                        
                                        
                                        691,215Loan
      to related party
                                        
                                        
                                        439,500
                                        
                                        
                                        
                                        -Inventories
                                        
                                        
                                        6,215,707
                                        
                                        
                                        
                                        5,039,278Prepayments
                                        
                                        
                                        211,793
                                        
                                        
                                        
                                        310,381Total
      current assets
                                        
                                        
                                        48,453,449
                                        
                                        
                                        
                                        24,282,846PLANT
      AND EQUIPMENT, net
                                        
                                        
                                        69,380,016
                                        
                                        
                                        
                                        69,943,021OTHER
      ASSETS:Investment
      in unconsolidated affiliate
                                        
                                        
                                        3,952,310
                                        
                                        
                                        
                                        3,607,912Loan
      to related party - non-current
                                        
                                        
                                        -
                                        
                                        
                                        
                                        437,700Intangible
      assets, net
                                        
                                        
                                        3,145,590
                                        
                                        
                                        
                                        3,042,183Total
      other assets
                                        
                                        
                                        7,097,900
                                        
                                        
                                        
                                        7,087,795Total
      assets
                                        
                                        $
                                        124,931,365
                                        
                                        
                                        $
                                        101,313,662LIABILITIES AND SHAREHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                                        
                                        $
                                        4,737,156
                                        
                                        
                                        $
                                        7,669,728Accounts
      payable - related party
                                        
                                        
                                        437,112
                                        
                                        
                                        
                                        714,776Short
      term bank loans
                                        
                                        
                                        25,637,500
                                        
                                        
                                        
                                        22,658,270Notes
      payable - banks
                                        
                                        
                                        35,218,600
                                        
                                        
                                        
                                        10,942,500Accrued
      liabilities
                                        
                                        
                                        233,110
                                        
                                        
                                        
                                        261,187Other
      payable
                                        
                                        
                                        424,341
                                        
                                        
                                        
                                        317,058Employee
      loans
                                        
                                        
                                        730,502
                                        
                                        
                                        
                                        1,382,287Employee
      loan - officer
                                        
                                        
                                        248,415
                                        
                                        
                                        
                                        53,605Third
      party loan
                                        
                                        
                                        248,336
                                        
                                        
                                        
                                        640,228Customer
      deposits
                                        
                                        
                                        1,906,177
                                        
                                        
                                        
                                        1,229,322Taxes
      payable
                                        
                                        
                                        2,066,878
                                        
                                        
                                        
                                        4,631,252Long
      term loan - current maturities
                                        
                                        
                                        2,447,783
                                        
                                        
                                        
                                        1,404,051Total
      current liabilities
                                        
                                        
                                        74,335,910
                                        
                                        
                                        
                                        51,904,264Other
      payable - noncurrent
                                        
                                        
                                        5,642,556
                                        
                                        
                                        
                                        2,653,995Total
      liabilities
                                        
                                        
                                        79,978,466
                                        
                                        
                                        
                                        54,558,259COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS'
      EQUITY:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized,no
      shares issued and outstanding
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock, $0.001 par value, 100,000,000 shares authorized,19,169,805
      and 19,094,805 shares issued and outstandingas
      of June 30, 2009 and 2008, respectively
                                        
                                        
                                        19,170
                                        
                                        
                                        
                                        19,095Paid-in
      capital
                                        
                                        
                                        20,623,655
                                        
                                        
                                        
                                        19,987,708Statutory
      reserves
                                        
                                        
                                        2,894,902
                                        
                                        
                                        
                                        2,894,902Retained
      earnings
                                        
                                        
                                        16,472,689
                                        
                                        
                                        
                                        19,136,577Accumulated
      other comprehensive income
                                        
                                        
                                        4,942,483
                                        
                                        
                                        
                                        4,717,121Total
      shareholders' equity
                                        
                                        
                                        44,952,899
                                        
                                        
                                        
                                        46,755,403Total
      liabilities and shareholders' equity
                                        
                                        $
                                        124,931,365
                                        
                                        
                                        $
                                        101,313,662





F-2





SHENGTAI
PHARMACEUTICAL, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)


FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008





2009
                
                
                2008SALES
      REVENUE, net
                
                $
                73,321,862
                
                
                $
                90,871,223COST
      OF SALES
                
                
                65,799,486
                
                
                
                70,613,757GROSS
      PROFIT
                
                
                7,522,376
                
                
                
                20,257,466RESEARCH
      AND DEVELOPMENT EXPENSE
                
                
                365,689
                
                
                
                -SELLING,
      GENERAL AND  ADMINISTRATIVE EXPENSES
                
                
                8,607,560
                
                
                
                7,390,623INCOME
      (LOSS) FROM OPERATIONS
                
                
                (1,450,873
                )
                
                
                12,866,843OTHER
      (EXPENSE) INCOME:Equity
      in income of unconsolidated affiliate
                
                
                251,539
                
                
                
                272,239Other
      income
                
                
                695,728
                
                
                
                584,749Other
      expense
                
                
                (357,407
                )
                
                
                (391,858
                )Interest
      expense and other charges
                
                
                (1,945,778
                )
                
                
                (2,447,608
                )Interest
      income
                
                
                142,903
                
                
                
                171,948Other
      expense, net
                
                
                (1,213,015
                )
                
                
                (1,810,530
                )INCOME
      (LOSS) BEFORE PROVISION FOR INCOME TAXES
                
                
                (2,663,888
                )
                
                
                11,056,313PROVISION
      FOR INCOME TAXES
                
                
                -
                
                
                
                645,988NET
      INCOME (LOSS)
                
                
                (2,663,888
                )
                
                
                10,410,325OTHER
      COMPREHENSIVE INCOME:Foreign
      currency translation adjustments
                
                
                225,362
                
                
                
                3,890,123COMPREHENSIVE
      INCOME (LOSS)
                
                $
                (2,438,526
                )
                
                $
                14,300,448EARNINGS
      (LOSS) PER SHAREBasic
                
                $
                (0.14
                )
                
                $
                0.55Diluted
                
                $
                (0.14
                )
                
                $
                0.52WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
                
                
                19,139,394
                
                
                
                18,993,789Diluted
                
                
                19,139,394
                
                
                
                19,874,486







F-3





SHENGTAI
PHARMACEUTICAL, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY


FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008





Common stock
                    
                    
                    
                    
                    
                    Retained earnings
                    
                    
                    Accumulated otherPaid-in
                    
                    
                    Statutory
                    
                    
                    
                    
                    
                    comprehensiveShares
                    
                    
                    Par value
                    
                    
                    capital
                    
                    
                    reserves
                    
                    
                    Unrestricted
                    
                    
                    income
                    
                    
                    TotalsBALANCE,
      June 30, 2007
                    
                    
                    18,875,000
                    
                    
                    $
                    18,875
                    
                    
                    $
                    19,163,549
                    
                    
                    $
                    1,735,484
                    
                    
                    $
                    9,885,670
                    
                    
                    $
                    826,998
                    
                    
                    $
                    31,630,576Exercised
      warrants
                    
                    
                    219,805
                    
                    
                    
                    220
                    
                    
                    
                    506,523
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    506,743Option
      issued to employees
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    317,636
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    317,636Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10,410,325
                    
                    
                    
                    
                    
                    
                    
                    10,410,325Adjustment
      to statutory reserve
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,159,418
                    
                    
                    
                    (1,159,418
                    )
                    
                    
                    
                    
                    
                    
                    -Foreign
      currency translation adjustments
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,890,123
                    
                    
                    
                    3,890,123BALANCE,
      June 30, 2008
                    
                    
                    19,094,805
                    
                    
                    $
                    19,095
                    
                    
                    $
                    19,987,708
                    
                    
                    $
                    2,894,902
                    
                    
                    $
                    19,136,577
                    
                    
                    $
                    4,717,121
                    
                    
                    $
                    46,755,403Option
      issued to employees
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    635,272
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    635,272Exercise
      of warrants
                    
                    
                    75,000
                    
                    
                    
                    75
                    
                    
                    
                    675
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    750Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,663,888
                    )
                    
                    
                    
                    
                    
                    
                    (2,663,888
                    )Adjustment
      to statutory reserve
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -Foreign
      currency translation adjustments
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    225,362
                    
                    
                    
                    225,362BALANCE,
      June 30, 2009
                    
                    
                    19,169,805
                    
                    
                    $
                    19,170
                    
                    
                    $
                    20,623,655
                    
                    
                    $
                    2,894,902
                    
                    
                    $
                    16,472,689
                    
                    
                    $
                    4,942,483
                    
                    
                    $
                    44,952,899









F-4





SHENGTAI
PHARMACEUTICAL, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
YEARS ENDED JUNE 30, 2009 AND 2008





2009
                            
                            
                            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                            
                            $
                            (2,663,888
                            )
                            
                            $
                            10,410,325Adjustments
      to reconcile net income (loss) to cashprovided
      by (used in) operating activities:Depreciation
                            
                            
                            5,588,306
                            
                            
                            
                            2,964,678Amortization
                            
                            
                            53,963
                            
                            
                            
                            57,254Bad
      debt expense
                            
                            
                            503,693
                            
                            
                            
                            93,557Stock
      option expense
                            
                            
                            635,272
                            
                            
                            
                            317,636(Gain)
      loss on building and equipment disposal
                            
                            
                            160,233
                            
                            
                            
                            (169,726
                            )Gain
      on disposal of land use right
                            
                            
                            (530,509
                            )
                            
                            
                            -Equity
      in income of unconsolidated investment
                            
                            
                            (329,562
                            )
                            
                            
                            (603,261
                            )Amortization
      of discount on installment payment for purchase of
    equipment
                            
                            
                            638,245
                            
                            
                            
                            822,102Amortization
      of discount on capital lease obligation
                            
                            
                            530,864
                            
                            
                            
                            -Changes
      in operating assets and liabilities:Accounts
      receivable
                            
                            
                            218,874
                            
                            
                            
                            (1,127,048
                            )Notes
      receivable
                            
                            
                            (613,496
                            )
                            
                            
                            (2,274,840
                            )Other
      receivables
                            
                            
                            614,460
                            
                            
                            
                            1,994,157Inventories
                            
                            
                            (1,155,705
                            )
                            
                            
                            (304,476
                            )Prepayments
                            
                            
                            99,428
                            
                            
                            
                            (165,981
                            )Accounts
      payable
                            
                            
                            (2,964,113
                            )
                            
                            
                            (7,730,549
                            )Accounts
      payable - related party
                            
                            
                            (280,603
                            )
                            
                            
                            (320,156
                            )Accrued
      liabilities
                            
                            
                            (28,923
                            )
                            
                            
                            (781,690
                            )Other
      payable
                            
                            
                            148,284
                            
                            
                            
                            185,488Customer
      deposit
                            
                            
                            671,213
                            
                            
                            
                            (74,646
                            )Taxes
      payable
                            
                            
                            (2,583,421
                            )
                            
                            
                            2,201,518Net
      cash (used in) provided by operating activities
                            
                            
                            (1,287,385
                            )
                            
                            
                            5,494,342CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from building and equipment disposal
                            
                            
                            5,173,910
                            
                            
                            
                            139,163Acquisition
      of plant and equipment
                            
                            
                            (4,944,308
                            )
                            
                            
                            (14,517,157
                            )Proceeds
      from disposal of land use right
                            
                            
                            879,000
                            
                            
                            
                            -Acquisition
      of intangible assets
                            
                            
                            (493,350
                            )
                            
                            
                            (296,893
                            )Repayments
      on loan to related party
                            
                            
                            -
                            
                            
                            
                            4,590,136Installment
      payment on equipment purchase
                            
                            
                            (2,048,070
                            )
                            
                            
                            (1,913,875
                            )Net
      cash used in investing activities
                            
                            
                            (1,432,818
                            )
                            
                            
                            (11,998,626
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Increase
      in restricted cash
                            
                            
                            (24,939,882
                            )
                            
                            
                            (524,140
                            )Borrowings
      on notes payable - banks
                            
                            
                            43,276,100
                            
                            
                            
                            11,703,650Principal
      payments on notes payable - banks
                            
                            
                            (19,045,000
                            )
                            
                            
                            (10,739,820
                            )Borrowings
      on short term loans
                            
                            
                            27,102,500
                            
                            
                            
                            21,383,257Principal
      payments on short term loans
                            
                            
                            (24,216,450
                            )
                            
                            
                            (19,758,515
                            )Borrowings
      on employee loans
                            
                            
                            35,772
                            
                            
                            
                            1,458,353Principal
      payments on employee loans
                            
                            
                            (693,242
                            )
                            
                            
                            (778,444
                            )Borrowings
      on employee loan - officer
                            
                            
                            194,611
                            
                            
                            
                            53,605Borrowings
      on third party loan
                            
                            
                            38,179
                            
                            
                            
                            3,139,855Principal
      payments on third party loan
                            
                            
                            (432,704
                            )
                            
                            
                            (2,868,909
                            )Principal
      payments on long term loan
                            
                            
                            -
                            
                            
                            
                            (399,301
                            )Proceeds
      from issuance of common stock
                            
                            
                            -
                            
                            
                            
                            506,743Cash
      proceeds from warrants exercised
                            
                            
                            750
                            
                            
                            
                            -Payment
      on capital lease obligation
                            
                            
                            (232,935
                            )
                            
                            
                            -Net
      cash provided by financing activities
                            
                            
                            1,087,699
                            
                            
                            
                            3,176,334EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                            
                            
                            6,374
                            
                            
                            
                            313,117DECREASE
      IN CASH
                            
                            
                            (1,626,130
                            )
                            
                            
                            (3,014,833
                            )CASH,
      beginning of year
                            
                            
                            3,405,606
                            
                            
                            
                            6,420,439CASH,
      end of year
                            
                            $
                            1,779,476
                            
                            
                            $
                            3,405,606SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest, net of capitalized interest
                            
                            $
                            1,674,768
                            
                            
                            $
                            1,901,531Cash
      paid for income taxes
                            
                            $
                            1,134,656
                            
                            
                            $
                            14,809Non-cash
      investing and financing activities -Acquisition
      of land use right in exchange for other receivable
                            
                            $
                            -
                            
                            
                            $
                            692,304Acquisition
      of plant and equipment through assets other than plant and
      equipment
                            
                            $
                            -
                            
                            
                            $
                            3,366,350Reclassification
      of advances on equipment purchase to plant and equipment upon receipt of
      purchase
                            
                            $
                            -
                            
                            
                            $
                            7,793,173Acquisition
      of plant and equipment through liabilities
                            
                            $
                            -
                            
                            
                            $
                            12,141,833Acquisition
      of equipment through capital lease
                            
                            $
                            5,127,500
                            
                            
                            $
                            -









F-5





SHENGTAI
PHARMACEUTICAL, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30,
2009





Note
1 - Organization background and principal activities





Shengtai
Pharmaceutical, Inc. (the “Company”), was incorporated in March 2004 in the
State of Delaware. The Company, through its direct and indirect subsidiaries,
manufactures and distributes pharmaceutical raw materials (e.g., glucose,
dehydrated glucose) and drug supplements (e.g., starch, dextrin, polyacrylic
acid resin). The Company’s primary business operations are conducted in the
People’s Republic of China (“PRC”).





Note
2 - Summary of significant accounting policies





The reporting
entity





The
consolidated financial statements of Shengtai Pharmaceutical Inc. and
Subsidiaries reflect the activities of the parent and its wholly-owned
subsidiaries Shengtai Holding, Inc. (“SHI”), incorporated in the State of New
Jersey, and Weifang Shengtai Pharmaceutical Co., Ltd. (“Weifang Shengtai”),
incorporated in Shandong Province, PRC.





Basis of
presentation





The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and have been consistently applied. All material inter-company transactions and
balances have been eliminated in consolidation.





Use of
estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and 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. The significant estimates made in the preparation
of the Company’s consolidated financial statements relate to the assessment of
the carrying values of accounts receivable and inventory. Actual results could
be materially different from these estimates upon which the carrying values
were based.





Foreign currency
translation





The
reporting currency of the Company is the U.S. dollar. The Company uses the
Chinese Renminbi (“RMB”) as its functional currency. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency
Translation,” results of operations and cash flows are translated at average
exchange rates during the period, and assets and liabilities are translated at
the unified exchange rates at the balance sheet dates, and equity is
translated at the historical exchange rates. As a result, amounts related to
assets and liabilities reported on the statements of cash flows will not
necessarily agree with changes in the corresponding accounts on the balance
sheets. Translation adjustments resulting from this process are included in
accumulated other comprehensive income in the statements of shareholders’
equity. Translation 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.












F-6





Assets
and liabilities were translated at 6.83 RMB and 6.85 RMB to $1.00 at June 30,
2009 and 2008, respectively. The average translation rates applied to
consolidated statements of operations and cash flows for the years ended June
30, 2009 and 2008 were 6.83 RMB, and 7.26 RMB to $1.00 U.S. dollar,
respectively.





Revenue
recognition





The
Company recognizes revenue when the goods are delivered, title has passed,
pricing is fixed, and collection is reasonably assured. Sales revenue represents
the invoiced value of goods, net of value-added tax (“VAT”), and estimated
returns of product from customers. Most of the Company’s products sold in the
PRC are subject to a VAT rate of 17% of the gross sales price or at a rate
approved by the Chinese local government. This VAT may be offset by VAT paid by
the Company on raw materials and other materials included in the cost of
producing their finished products and certain freight expenses. We allow our
customers to return products only if our product is later determined by us to be
ineffective. Based on our historical experience, product returns have been
insignificant throughout all of our product lines. Therefore, we do not estimate
deductions or allowance for sales returns. Sales returns are taken against
revenue when products are returned from customers. Sales are presented net of
any discounts given to customers.





Shipping and
handling





Shipping
and handling costs related to costs of goods sold are included in selling,
general and administrative expenses. For the years ended June 30, 2009, and
2008, shipping and handling costs amounted to $3,047,289, and $3,097,843
respectively.





Research and
development





Research
and development costs are expensed as incurred.  These costs consist
primarily of cost of materials used and salaries paid for the development of the
Company’s products. Research and development costs amounted to $365,689 and $0
for the years ended June 30, 2009 and 2008 respectively.





Financial
instruments





SFAS 107,
“Disclosures about Fair Value of Financial Instruments,” defines financial
instruments and requires disclosure of the fair value of those instruments. SFAS
157, “Fair Value Measurements,” adopted July 1, 2008, 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 and
payables, including 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, their expected realization and, if
applicable, the stated rate of interest is equivalent to rates currently
available. The three levels are defined as follows:





o
            Level
      1: inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





o
            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.





o
            Level
      3: inputs to the valuation methodology are unobservable and significant to
      the fair value.









F-7





The
Company did not identify any assets or liabilities that are required to be
presented on the balance sheet at fair value in accordance with SFAS
157.





Stock-based
compensation





The
Company records stock-based compensation expense pursuant to SFAS 123R, “Share
Based Payment.” The Company uses the Black-Scholes option pricing model which
requires the input of highly complex and subjective variables including the
expected life of options granted and the Company’s expected stock price
volatility over a period equal to or greater than the expected life of the
options. Because changes in the subjective assumptions can materially affect the
estimated value of the Company’s employee stock options, it is management’s
opinion that the Black-Scholes option pricing model may not provide an accurate
measure of the fair value of the Company’s employee stock options. Although the
fair value of employee stock options is determined in accordance with SFAS 123R
using an option pricing model, that value may not be indicative of the fair
value observed in a willing buyer/willing seller market
transaction.





Stock-based
compensation expense is recognized based on awards expected to vest, and there
were no estimated forfeitures as the Company has a short history of issuing
options. SFAS 123R requires forfeitures to be estimated at the time of grant and
revised in subsequent periods, if necessary, if actual forfeitures differ from
those estimates.





Earnings per
share





The
Company reports earnings per share in accordance with the provisions of SFAS No.
128 (“SFAS 128”), "Earnings Per Share." SFAS 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
excludes dilution and 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.





The
following is a reconciliation of the basic and diluted earnings per share
computation for the years ended June 30, 2009 and 2008:




2009
                              
                              
                              2008N
      Net income (loss) for earnings per share
                              
                              $
                              (2,663,888
                              )
                              
                              $
                              10,410,325Weighted
      average shares used in basic computation
                              
                              
                              19,139,394
                              
                              
                              
                              18,993,789Diluted
      effect of warrants
                              
                              
                              -
                              
                              
                              
                              880,697Weighted
      average shares used in diluted computation
                              
                              
                              19,139,394
                              
                              
                              
                              19,874,486Earnings
      (loss) per share:Basic
                              
                              $
                              (0.14
                              )
                              
                              $
                              0.55Diluted
                              
                              $
                              (0.14
                              )
                              
                              $
                              0.52





At June
30, 2009, no warrants or stock options were included the calculation of diluted
earnings per share due to the Company incurring a net loss for the year. At June
30, 2008, all outstanding warrants were included in the calculation of diluted
earnings per share.












F-8





Cash and cash
equivalents





The
Company considers all highly liquid investments with original maturities of
three months or less to be cash and cash equivalents.





Restricted
cash





The
Company, through its bank agreement (See Note 6 - Notes payable -
banks), is required to keep certain amounts on deposit that are subject
to withdrawal restrictions. These amounts were $31,730,382 and $6,763,500 as of
June 30, 2009 and 2008, respectively.





In
accordance with the Escrow Agreement and the Share Purchase Agreement by and
among Shengtai Holding, Inc., West Coast Car Company, Chinamerica Fund LLP, and
Tri-State Title & Escrow, LLC (the “Escrow Agent”), the Company was required
to deposit with the Escrow Agent $5,500,000 immediately on the Closing Date of
the Share Purchase Agreement. This fund can only be disbursed when certain
criteria are met. As of June 30, 2009 and June 30, 2008, the undisbursed amounts
were $203,582 and $198,000, respectively, and these are included in restricted
cash in the consolidated balance sheets.





Accounts
receivable





In the
normal course of business, the Company extends credit to its customers without
requiring collateral or other security interests. Each quarter, management
reviews its accounts receivable to identify collectability with specific
customers in order to estimate the allowance for potentially uncollectible
amounts. The Company estimates this allowance based on the aging of the accounts
receivable, historical collection experience, and other relevant factors, such
as changes in the economy and the imposition of regulatory requirements that can
have an impact on the industry. These factors continuously change, and can have
a material impact on collections and the Company’s estimation process. Accounts
receivable are charged off against allowances after collection efforts prove
unsuccessful. Subsequent cash recoveries are recognized as income in the period
when they occur.





The
activities in the allowance for doubtful accounts for trade accounts receivable
is as follows for the years ended June 30, 2009 and 2008:





2009
                    
                    
                    2008Beginning
      allowance for doubtful accounts
                    
                    $
                    440,701
                    
                    
                    $
                    431,178Additions
      charged to bad debt expense
                    
                    
                    503,693
                    
                    
                    
                    93,557Write-off
      charged against allowance
                    
                    
                    –
                    
                    
                    
                    (129,130
                    )Foreign
      currency translation adjustments
                    
                    
                    1,813
                    
                    
                    
                    45,096Ending
      allowance for doubtful accounts
                    
                    $
                    946,207
                    
                    
                    $
                    440,701





Concentrations of
risk





The
Company's operations are carried out in the PRC. Accordingly, the Company's
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy. The Company's operations in the PRC are subject to
specific considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks associated
with, among others, the political, economic and legal environments and foreign
currency exchange. The Company's results may be adversely affected by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among others.












F-9





Management
believes the credit risk on bank deposits is limited because the counterparties
are banks with high credit-ratings assigned by international credit-rating
agencies, or state-owned banks in China. Cash includes cash on hand and demand
deposits in accounts maintained with state-owned banks within the PRC and the
United States. Certain financial instruments, which subject the Company to
concentration of credit risk, consist of cash. The Company maintains cash
deposits in financial institutions that exceed the amounts insured by the U.S.
government. Balances at financial institutions or state owned banks within the
PRC are not covered by insurance. Non-performance by these institutions could
expose the Company to losses for amounts in excess of insured balances. At June
30, 2009 and 2008, the Company’s bank balances including restricted cash
exceeded government insured limits by approximately $32,880,229 and $10,175,000,
respectively. The Company has not experienced nonperformance by these
institutions.





The
Company’s concentrations of credit risk also relate to trade accounts receivable
and accounts payable. There were no customers that individually comprised 10% or
more of the revenues for the years ended June 30, 2009 and 2008, or trade
accounts receivable as of June 30, 2009, and 2008. There were no vendors that
individually comprised 10% or more of the Company’s total purchase for the year
ended June 30, 2009. For the year ended June 30, 2008, two vendors accounted for
approximately 23% of the Company’s total purchases. As of June 30, 2008,
accounts payable for these vendors amounted to $362,807.





For
export sales, management frequently requires significant down payments or letter
of credit prior to shipment. For these sales, the Company maintains export
credit insurance to protect against the risk that the overseas customers may
default on settlement.





The
following table summarizes financial information for the years ended June 30,
2009, and 2008, concerning the Company’s revenues based on geographic
area:





2009
                        
                        
                        2008RevenueChina
                        
                        $
                        63,358,429
                        
                        
                        $
                        81,160,283International
                        
                        
                        9,963,433
                        
                        
                        
                        9,710,940Total
                        
                        $
                        73,321,862
                        
                        
                        $
                        90,871,223





Inventories





Inventories
are stated at the lower of cost (weighted average basis) or market and consist
of the following as of June 30, 2009 and 2008:




2009
                    
                    
                    2008Raw
      materials
                    
                    $
                    1,523,654
                    
                    
                    $
                    1,409,577Work-in-progress
                    
                    
                    1,709,595
                    
                    
                    
                    1,688,161Finished
      goods
                    
                    
                    2,982,458
                    
                    
                    
                    1,941,540Total
                    
                    $
                    6,215,707
                    
                    
                    $
                    5,039,278





The
Company reviews its inventory periodically for possible obsolescence or to
determine if any reserves are necessary. As of June 30, 2009 and 2008, the
Company determined that no reserves were necessary.












F-10





Prepayments





Prepayments
represent partial payments or deposits for inventory purchases.





Plant and
equipment





Plant and
equipment are stated at cost less accumulated depreciation. Additions and
improvements to property and equipment accounts are recorded at cost.
Maintenance, repairs, and minor renewals are charged directly to expense as
incurred. Major additions and betterments to property and equipment accounts are
capitalized. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets with 3% residual value.





Estimated
useful lives of the assets are as follows:





Estimated Useful LifeBuildings
      and improvements
                
                
                5-20
                
                yearsMachinery
      and equipment
                
                
                5-10
                
                yearsAutomobile
      facilities
                
                
                5-10
                
                yearsElectronic
      equipment
                
                
                5-7
                
                years





Long-lived
assets of the Company are reviewed at least annually or more often if
circumstances dictate, to determine whether their carrying value has become
impaired. The Company considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. The Company
also re-evaluates the periods of depreciation to determine whether subsequent
events and circumstances warrant revised estimates of useful lives. As of June
30, 2009, the Company expects these assets to be fully recoverable.





Investment in unconsolidated
affiliate





Equity
method investments are recorded at original cost and adjusted to recognize the
Company’s proportionate share of the investee’s net income or loss, additional
contributions made and distributions received, and amortization of basis
differences. The Company recognizes a loss if it is determined that other than
temporary decline in the value of the investment exists.





Intangible
assets





Intangible
assets consist of the following:


June 30, 2009
                    
                    
                    June 30, 2008Land
      use rights
                    
                    $
                    3,346,110
                    
                    
                    $
                    3,688,326Less:
      accumulated amortization
                    
                    
                    (206,407
                    )
                    
                    
                    (652,761
                    )Land
      use rights, net
                    
                    
                    3,139,703
                    
                    
                    
                    3,035,565Software
                    
                    
                    7,325
                    
                    
                    
                    7,325Less:
      accumulated amortization
                    
                    
                    (1,438
                    )
                    
                    
                    (707
                    )Software,
      net
                    
                    
                    5,887
                    
                    
                    
                    6,618Total
      intangible assets, net
                    
                    $
                    3,145,590
                    
                    
                    $
                    3,042,183





Intangible
assets are primarily comprised of land use rights. All land in the PRC is owned
by the Chinese government. However, the government grants “land use rights” for
terms ranging from 20 to 50 years. From March 2000 to June 2007, the Company
acquired various land use rights for approximately $2,243,000. The Company
obtained another land use right in July 2007 for approximately $314,000. In
May 2008, the Company paid approximately $734,000 to a local government which
enabled the land use right to be classified from industrial use to commercial
use. From July 2008 to June 2009, the Company incurred additional costs relating
to various land use rights for approximately $480,520. The Company amortizes the
cost of land use rights over the usage terms using the straight-line
method.












F-11





In April
2009, the Company sold a land use right. At the time of the sale, the net book
value of the land use right was $348,491, and the sale price for the land use
right was $879,000, for a gain of approximately $530,509. As of June 30, 2009,
total proceeds had been received.





Intangible
assets are reviewed at least annually and more often if circumstances dictate,
to determine whether their carrying value has become impaired. The Company
considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. The Company also re-evaluates the
periods of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. As of June 30, 2009, the Company
determined that there had been no impairment. For the years ended June 30, 2009
and 2008, amortization expense relating to these intangible assets amounted to
$53,963 and $57,254 respectively.





The
following table consists of the expected amortization expenses for the next five
years and thereafter:


AmountYears
      ending June 30,2010
                
                $
                54,0002011
                
                
                54,0002012
                
                
                54,0002013
                
                
                54,0002014
                
                
                54,000Thereafter
                
                
                2,875,590Total
                
                $
                3,145,590





Income
taxes





The
Company accounts for income taxes in accordance with SFAS 109, “Accounting for
Income Taxes,” under the asset and liability method, and FASB Interpretation No.
48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”. Under SFAS 109,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Under SFAS 109, the effect on deferred
income taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recognized if it is more
likely than not that some portion, or all of, a deferred tax asset will not be
realized.  As of June 30, 2009 and 2008, the Company did not have any
deferred tax assets or liabilities, and as such, no valuation allowances were
recorded at June 30, 2009 and 2008.





FIN 48
clarifies the accounting and disclosure for uncertain tax positions and
prescribes a recognition threshold and measurement attribute for recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.





Under FIN
48, evaluation of a tax position is a two-step process. The first step is to
determine whether it is more-likely-than-not that a tax position will be
sustained upon examination, including the resolution of any related appeals or
litigation based on the technical merits of that position. The second step is to
measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should
be recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the more-likely-than-not
criteria should be de-recognized in the first subsequent financial reporting
period in which the threshold is no longer met.












F-12





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, and as a result the ultimate amount of tax liability may be
uncertain. However, the Company does not anticipate any events that would lead
to changes to these uncertainties.





Value Added
Tax





Enterprises
or individuals who sell products, engage in repair and maintenance or import
goods in the PRC are subject to a value added tax in accordance with Chinese
laws. The standard value added tax rate is 17% of the gross sales price,
however, for the Company’s corn plumules products, the VAT rate is 13%. A credit
is available whereby VAT paid on the purchases of semi-finished products, raw
materials used in the production of the Company’s finished products, and payment
of freight expenses can be used to offset the VAT due on sales of the finished
products.





VAT on
sales and VAT on purchases amounted to $9,888,662 and $9,189,800 respectively,
for the year ended June 30, 2009. For the year ended June 30, 2008, VAT on sales
and VAT on purchases amounted to $13,794,406 and $9,840,077, respectively. Sales
and purchases are recorded net of VAT collected and paid as the Company acts as
an agent for the Chinese government. VAT taxes are not impacted by the income
tax holiday in the PRC.





Guarantees





From time
to time, the Company guarantees the debt of others unrelated to the Company.
Pursuant to FIN 45, “Guarantor’s Accounting for and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others,” the
Company must record guarantees at the fair value of the expected future
payments. However, the Company estimates that it will not be required to make
any payments under these guarantees based on the past experience and the
financial condition of the companies to which the guarantees were
made.





Recent accounting
pronouncements





In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.” EITF 07-5 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
133 “Accounting for Derivatives and Hedging Activities” 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 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 warrants exercisable at strike prices denominated in any
currency other than the functional currency of the operating entity in the PRC
(Renminbi). Management is currently evaluating the impact of adoption of EITF
07-5 on the accounting for related warrants transactions.












F-13





On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 became effective on October 10, 2008, and its adoption did not have a
material impact on the Company’s consolodated financial position or results of
operations for the year ended June 30, 2009.





In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly”. FSP FAS 157-4 amends SFAS 157
and provides additional guidance for estimating fair value in accordance with
SFAS 157 when the volume and level of activity for the asset or liability have
significantly decreased and also includes guidance on identifying circumstances
that indicate a transaction is not orderly for fair value measurements. This FSP
shall be applied prospectively with retrospective application not permitted.
This FSP shall be effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. An entity early adopting this FSP must also early adopt FSP
FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments”. Additionally, if an entity elects to early adopt either FSP FAS
107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments” or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt
this FSP. The Company has determined that this new FSP did not have a material
impact on the consolidated financial statements.





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF 99-20, “Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to Be Held by a
Transferor in Securitized Financial Assets,” to make the other-than-temporary
impairments guidance more operational and to improve the presentation of
other-than-temporary impairments in the financial statements. This FSP will
replace the existing requirement that the entity’s management assert it has both
the intent and ability to hold an impaired debt security until recovery with a
requirement that management assert it does not have the intent to sell the
security, and it is more likely than not it will not have to sell the security
before recovery of its cost basis. This FSP provides increased disclosure about
the credit and noncredit components of impaired debt securities that are not
expected to be sold and also requires increased and more frequent disclosures
regarding expected cash flows, credit losses, and an aging of securities with
unrealized losses. Although this FSP does not result in a change in the carrying
amount of debt securities, it does require that the portion of an
other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP. The Company has determined
that this new FSP did not have a material impact on the consolidated financial
statements.





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS
No. 107 to require disclosures about fair value of financial instruments
not measured on the balance sheet at fair value in interim financial statements
as well as in annual financial statements. Prior to this FSP, fair values for
these assets and liabilities were only disclosed annually. This FSP applies to
all financial instruments within the scope of SFAS 107 and requires all entities
to disclose the method(s) and significant assumptions used to estimate the fair
value of financial instruments. This FSP shall be effective for interim periods
ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity may early adopt this FSP only if it
also elects to early adopt FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2. This
FSP does not require disclosures for earlier periods presented for comparative
purposes at initial adoption. In periods after initial adoption, this FSP
requires comparative disclosures only for periods ending after initial adoption.
The Company is currently evaluating the disclosure requirements of this new
FSP.












F-14





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events,”
which is effective for interim or annual financial periods ending after June 15,
2009. SFAS No. 165 establishes general standards of accounting and disclosure of
events that occur after the balance sheet but before financial statements are
issued or are available to be issued.  Management is required to
evaluate subsequent events through the date that financial statements are issued
and disclose the date through which subsequent events have been evaluated. SFAS
No. 165 was adopted for the year ended June 30, 2009. Subsequent events have
been evaluated through September 28, 2009, the date the consolidated financial
statements were issued as further discussed in EITF Topic No. D-86.





In June
2009, the FASB issued SFAS 166, “Accounting for
Transfers of Financial Assets — an amendment of FASB Statement No. 140”(“FAS 166”),
which requires entities to provide more information regarding sales of
securitized financial assets and similar transactions, particularly if the
entity has continuing exposure to the risks related to transferred financial
assets. SFAS 166 eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets and
requires additional disclosures. SFAS 166 is effective for fiscal years
beginning after November 15, 2009. The Company is currently assessing the impact
of the standard on its consolidated financial statements.





In June
2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R),”
which modifies how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. SFAS 167 clarifies that the determination of whether a company is
required to consolidate an entity is based on, among other things, an entity’s
purpose and design and a company’s ability to direct the activities of the
entity that most significantly impact the entity’s economic performance. SFAS
167 requires an ongoing reassessment of whether a company is the primary
beneficiary of a variable interest entity. SFAS 167 also requires additional
disclosures about a company’s involvement in variable interest entities and any
significant changes in risk exposure due to that involvement. SFAS 167 is
effective for fiscal years beginning after November 15, 2009. The Company is
currently assessing the impact of the standard on its consolidated financial
statements





In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards
CodificationTM
and the Hierarchy of Generally
Accepted Accounting Principles a Replacement of FASB Statement No. 162”(“SFAS 168”). This Standard establishes the FASB Accounting Standards
CodificationTM (the
“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. The Codification does not
change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. The Codification is effective for interim and
annual periods ending after September 15, 2009, and as of the effective date,
all existing accounting standard documents will be superseded. The Codification
is effective in the third quarter of 2009, and accordingly, the Quarterly Report
on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public
filings will reference the Codification as the sole source of authoritative
literature.





Reclassifications





Certain
prior period amounts have been reclassified to conform to the current period
presentation with no impact on the previously reported net income or cash
flows.





Note
3 - Plant and equipment





Plant and
equipment consist of the following at June 30, 2009 and 2008:












F-15





2009
                      
                      
                      2008Buildings
      and improvements
                      
                      $
                      21,612,750
                      
                      
                      $
                      6,343,954Machinery
      and equipment
                      
                      
                      62,209,134
                      
                      
                      
                      37,239,847Automobile
      facilities
                      
                      
                      519,560
                      
                      
                      
                      562,039Electronic
      equipment
                      
                      
                      446,399
                      
                      
                      
                      368,550Construction-in-progress
                      
                      
                      -
                      
                      
                      
                      36,373,688Total
                      
                      
                      84,787,843
                      
                      
                      
                      80,888,078Accumulated
      depreciation
                      
                      
                      (15,407,827
                      )
                      
                      
                      (10,945,057
                      )Plant
      and equipment, net
                      
                      $
                      69,380,016
                      
                      
                      $
                      69,943,021





Construction-in-progress
represents the costs incurred in connection with the construction of buildings
or new additions to the Company’s plant facilities. No depreciation is provided
for construction-in-progress until such time as the assets are completed and
placed into service. Depreciation expense for the years ended June 30, 2009 and
2008 amounted to $5,588,306 and $2,964,678 respectively. Interest costs totaling
$1,205,040 and $598,953 were capitalized into construction-in-progress for the
years ended June 30, 2009 and 2008, respectively.





Note
4 - Investment in unconsolidated affiliate





On
September 16, 2003, the Company entered into a joint venture partnership with
Weifang City Investment Company and Changle Century Sun Paper Industry Co., Ltd,
and formed Changle Shengshi Redian Co., Ltd (“Changle Shengshi”). Changle
Shengshi was incorporated in Weifang City, Shandong Province, PRC. Changle
Shengshi’s principal activity is to produce and sell electricity and heat. The
Company accounts for this 20% investment under the equity method of
accounting.





Summarized
financial information of Changle Shengshi is as follows as of June 30, 2009 and
2008:





2009
                      
                      
                      2008Current
      assets
                      
                      $
                      12,116,940
                      
                      
                      $
                      14,117,813Non-current
      assets
                      
                      
                      34,455,506
                      
                      
                      
                      27,231,806Total
      assets
                      
                      
                      46,572,446
                      
                      
                      
                      41,349,619Current
      liabilities
                      
                      
                      24,818,492
                      
                      
                      
                      20,333,700Non-current
      liabilities
                      
                      
                      1,992,400
                      
                      
                      
                      2,976,360Shareholders'
      equity
                      
                      
                      19,761,554
                      
                      
                      
                      18,039,559Total
      liabilities and shareholders' equity
                      
                      $
                      46,572,446
                      
                      
                      $
                      41,349,619





Summarized
financial information of Changle Shengshi is as follows for the years ended June
30, 2009, and 2008:




2009
                                
                                
                                2008Net
      sales
                                
                                $
                                43,607,856
                                
                                
                                $
                                31,653,752Gross
      profit
                                
                                
                                4,449,815
                                
                                
                                
                                6,247,654Income
      before taxes
                                
                                
                                2,187,939
                                
                                
                                
                                4,571,573Net
      income
                                
                                $
                                1,647,808
                                
                                
                                $
                                3,016,305Company’s
      share of income
                                
                                
                                329,562
                                
                                
                                
                                603,261Elimination
      of intercompany profit
                                
                                
                                (78,023
                                )
                                
                                
                                (331,022
                                )Company's
      share of net income
                                
                                $
                                251,539
                                
                                
                                $
                                272,239












F-16





Note
5 - Related party transactions





The
Company’s utilities are partially provided by Changle Shengshi. (See Note 4). As
of June 30, 2009 and 2008, the Company’s accounts payable due to Changle
Shengshi was $437,112 and $714,776, respectively, which related to a portion of
the Company’s utilities being provided by Changle Shengshi. The Company’s
utilities expense amounted to approximately $8,612,090, and $9,852,000 for the
years ended June 30, 2009, and 2008 respectively.





As of
June 30, 2009 and 2008, the Company’s receivables from a loan contract with
Changle Shengshi were as follows:





June 30, 2009
                    
                    
                    June 30, 2008Due
      on September 14, 2009, unsecured, 7.60% interest rate per
      annum
                    
                    $
                    439,500
                    
                    
                    $
                    437,700Total
                    
                    $
                    439,500
                    
                    
                    $
                    437,700





This
amount was not collected as of June 30, 2009. The Company has the right to apply
the balance to the future utilities purchases from this party.





Note
6 - Debt





Short term
loans





Short
term loans represent amounts due to various banks which are normally due within
one year, and these loans can be renewed with the banks. As of June 30, 2009 and
2008, the Company’s short term bank loans consisted of the
following:




2009
                    
                    
                    2008Loans
      from Bank of China, due various dates from January 2009 to June 2010;
      monthly interest only payments; interest rates ranging from 5.0445% to
      5.31% per annum, secured by certain properties.
                    
                    $
                    13,185,000
                    
                    
                    $
                    13,656,240Loans
      from Industrial and Commercial Bank of China, due various dates from
      January 2009 to April 2010; monthly interest only payments; interest rates
      are 6.372% per annum, guaranteed by an unrelated third party and secured
      by certain properties.
                    
                    
                    6,592,500
                    
                    
                    
                    3,895,530Loan
      from Agriculture Bank of China, due June 2010; monthly interest only
      payments; interest rate of 5.841% per annum, guaranteed by an unrelated
      third party, unsecured
                    
                    
                    2,930,000
                    
                    
                    
                    2,188,500Loan
      from Xingye Bank, due October 2009; monthly interest only payments;
      interest rate of 7.9695% per annum, guaranteed by an unrelated third
      party, unsecured.
                    
                    
                    1,465,000
                    
                    
                    
                    -Loan
      from Commercial Bank, fully paid in June 2009
                    
                    
                    -
                    
                    
                    
                    1,459,000Loan
      from ShangHai PuDong Development Bank, due November 2009; monthly
      interest-only payments; interest rate of 6.66% per annum, guaranteed by an
      unrelated third party, unsecured.
                    
                    
                    1,465,000
                    
                    
                    
                    1,459,000Total
                    
                    $
                    25,637,500
                    
                    
                    $
                    22,658,270












F-17





The loans
from Bank of China and Commercial Bank of China are secured by buildings and
improvements, and land use rights with carrying values as follows:





June 30, 2009Buildings
      and improvements
                    
                    $
                    16,712,192Land
      use rights
                    
                    
                    2,580,495Total
                    
                    $
                    19,292,687





Notes payable -
banks





Notes
payable represent amounts due to various banks which are normally due within one
year, and these notes can be renewed with the banks. As of June 30, 2009 and
2008, the Company’s notes payables consisted of the following:





2009
                  
                  
                  2008China
      Agriculture Bank, due in August 2009, 0.05% transaction fee, restricted
      cash required 100% of loan amount, guaranteed by an unrelated third party.
                  
                  $
                  1,465,000
                  
                  
                  $
                  -Shanghai
      PuDong Development Bank, due in October 2009, 0.05% transaction fee,
      restricted cash required 100% of loan amount, guaranteed by an unrelated
      third party.
                  
                  
                  1,465,000
                  
                  
                  
                  -Bank
      of China, due on various dates from November 2009 to April 2010, 0.05%
      transaction fee, and restricted cash required 100% of loan amount,
      guaranteed by an unrelated third party.
                  
                  
                  23,440,000
                  
                  
                  
                  729,500Industrial
      and Commercial Bank of China, due on various dates from August to October
      2009, 0.05% transaction fee, restricted cash required 50% of loan amount,
      guaranteed by an unrelated third party.
                  
                  
                  7,383,600
                  
                  
                  
                  4,377,000Industrial
      and Commercial Bank of China, due in August 2009, 0.05% transaction fee,
      restricted cash required 100% of loan amount, guaranteed by an unrelated
      third party.
                  
                  
                  1,465,000
                  
                  
                  
                  -Shenzhen
      Development Bank, fully paid in December 2008.
                  
                  
                  -
                  
                  
                  
                  4,377,000Shenzhen
      Development Bank, fully paid in December 2008.
                  
                  
                  -
                  
                  
                  
                  1,459,000Total
                  
                  $
                  35,218,600
                  
                  
                  $
                  10,942,500





Employee
loans





From time
to time, the Company borrows monies from certain employees for cash flow
purposes of the Company. These loans do not require collateral, and the
principal is due upon demand. Before January 1, 2009, the interest rate was at
7.2% for the first six months, and then 10.8% thereafter until the full
principal amounts are paid by the Company. After January 1, 2009, the interest
rate was changed to 7.2% for the loan period. Employee loans amounted to
$730,502 and $1,382,287 as of June 30, 2009 and June 30, 2008, respectively.
Interest expense related to these loans amounted to $107,503 and $105,672 for
the years ended June 30, 2009, and 2008, respectively.





Employee loan -
officer





From time
to time, the Company borrows monies from Qingtai Liu, The Company’s CEO and
President for cash flow purposes of the Company. The loan does not require
collateral and the principal is due upon demand. Before January 1, 2009, the
interest rate was at 7.2% for the first six months, and then 10.8% thereafter
until the full principal amounts are paid by the Company. After January 1, 2009,
the interest rate was changed to 7.2% for the loan period. Employee loan from
officer amounted to $248,415 and $53,605 as of June 30, 2009 and June 30, 2008,
respectively. Interest expense related this loan was de minimis for the years
ended June 30, 2009 and 2008.












F-18





Third party
loan





From time
to time, the Company borrows money from an unrelated individual for use in
operations. The loan does not require collateral. Before January 1, 2009, the
interest rate was at 7.2% for the first six months, and then 10.8% thereafter
until the full principal amounts are paid by the Company. After January 1, 2009,
the interest rate was changed to 7.2% for the loan period. The principal is due
upon demand. Balance on this loan as of June 30, 2009 and 2008 was $248,336 and
$640,228, respectively. Interest expense related this loan was de minimis for
the years ended June 30, 2009 and 2008.





Interest





Total
interest expense, net of capitalized interest, for the years ended June 30,
2009, and 2008 on all debt, amounted to $1,545,720 and $1,901,531 respectively.
Interest capitalized into construction-in-progress totaled $1,205,040 and
$598,953 for the years ended June 30, 2009 and 2008, respectively.





Note
7 - Income taxes





Before
January 1, 2008, the Company is governed by the Income Tax Law of the PRC
concerning Foreign Investment Enterprises (“FIEs”) and Foreign Enterprises and
various local income tax laws (the “Income Tax Laws”). Under the Income Tax
Laws, FIEs are generally subject to an effective income tax of 33% (30% state
income taxes plus 3% local income taxes) on income as reported in their
statutory financial statements after appropriate tax adjustments, unless the
enterprise is located in specially designated regions of cities for which more
favorable effective tax rates apply.





In
February 2004, the Company became a Sino-foreign joint venture. In August 2004,
the state government granted the Company income tax exemptions as follows: 100%
exemption for the first two years from September 2004 to August 2006, and 50%
exemption for three years from September 2006 to August 2009. In addition, the
Company is located in a Special Economic Zone and the PRC tax authority has
offered it with a special income tax rate of 24%. With the approval of the local
government, the Company is subject to income taxes at a reduced rate of 12% from
September 2006 to August 2009, after the two-year 24% exemption for income taxes
until its exemption and reduction periods expire in August 2009.





Beginning
on January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the
existing laws for Domestic Enterprises (“DES”) and Foreign Investment
Enterprises.





The key
changes were:





a.
            The
      new standard EIT rate of 25% will replace the 33% rate currently
      applicable to both DES and FIEs, except for High Tech companies who pay a
      reduced rate of 15%;





b.
            Companies
      established before March 16, 2007, will continue to enjoy tax holiday
      treatment approved by local government for a grace period of the next five
      years or until the tax holiday term is completed, whichever is
      sooner.





The
Company’s subsidiary, Weifang Shengtai was established before March 16, 2007,
and therefore is qualified to continue to be taxed at the reduced rate as
described above until the tax holiday term is completed. Starting on September
1, 2009, the Company will be subject to a 25% income tax rate pursuant to the
new income tax laws.












F-19





For the
years ended June 30, 2009 and 2008 provision for income taxes was $0, and
$645,988 respectively,





The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the years ended June 30:


2009
                        
                        
                        2008U.S.
      statutory rates
                        
                        
                        34.0
                        %
                        
                        
                        34.0
                        %Foreign
      income not recognized in the U.S.
                        
                        
                        (34.0
                        )
                        
                        
                        (34.0
                        )China
      income taxes
                        
                        
                        25.0
                        
                        
                        
                        29.0China
      income tax exemption
                        
                        
                        (13.0
                        )
                        
                        
                        (17.0
                        )Other
      items (a)
                        
                        
                        (12.0
                        )
                        
                        
                        (6.0
                        )Applicable
      income tax rate
                        
                        
                        (0.0
                        )%
                        
                        
                        6.0
                        %





(a)  For
the year ended June 30, 2009, the Company incurred losses before income taxes
and therefore no provision for income taxes are recorded.  For year
ended June 30, 2008, the Company’s effective tax rate was 12.0%.  The
Company received special tax credits from the local government due to government
enforced regulation.  In addition, income before income taxes includes
losses from non-Chinese entities, which are not deductible.  After
excluding the special tax credits and adjusting the non-Chinese entities losses,
the Company’s effective rate was equivalent to the effective rate in
China.





The
estimated tax savings due to the tax exemption for the years ended June 30, 2009
and 2008 amounted to $0, and $1,468,820 respectively. The net effect on basic
earnings per share if income taxes had been applied would decrease basic
earnings per share for the years ended June 30, 2009 and 2008 by $0.00 and
$0.08, respectively. The net effect on diluted earnings per share if income
taxes had been applied would decrease diluted earnings per share for the years
ended June 30, 2009 and 2008 by $0.00 and $0.07 respectively.





Shengtai
Pharmaceutical, Inc. and Shengtai Holding, Inc. were incorporated in the United
States and have incurred estimated accumulated net operating losses of
$2,041,765 as of June 30, 2009 and $673,212 for income tax purposes for the year
ended June 30, 2009 respectively.  The estimated net operating loss
carry forwards for United States income taxes amounted to $694,197 which may be
available to reduce future years’ taxable income. These carry forwards will
expire, if not utilized, from 2026 through 2029.  Management believes
that the realization of the benefits from these losses appears uncertain due to
the Company’s limited operating history and continuing losses for United States
income tax purposes.  Accordingly, the Company has provided a 100%
valuation allowance on the deferred tax benefit to reduce the asset to
zero.  The net change in the valuation allowance for the period ended
June 30, 2009 was $228,892 and the valuation allowance as of June 30, 2009
amounted to $694,197.





The
Company has cumulative undistributed earnings of foreign subsidiaries of
approximately $21,355,907 as of June 30, 2009, is included in consolidated
retained earnings and will continue to be indefinitely reinvested in
international operations.  Accordingly, no provision has been made for U.S.
deferred taxes related to future repatriation of these earnings, nor is it
practicable to estimate the amount of income taxes that would have to be
provided if the Company concluded that such earnings will be remitted in the
future.





Taxes
payable





Taxes
payable consisted of the following as of June 30, 2009 and 2008:












F-20





2009
                    
                    
                    2008VAT
      payable
                    
                    $
                    1,622,859
                    
                    
                    $
                    3,049,000Individual
      income tax withheld
                    
                    
                    423
                    
                    
                    
                    767Income
      tax payable
                    
                    
                    387,299
                    
                    
                    
                    1,518,278Housing
      property tax payable
                    
                    
                    10,098
                    
                    
                    
                    9,903Others
                    
                    
                    46,199
                    
                    
                    
                    53,304Total
      taxes payable
                    
                    $
                    2,066,878
                    
                    
                    $
                    4,631,252





Note
8 - Shareholders’ equity





Stock
issuance





For the
years ended June 30, 2009 and 2008, 75,000 and 219,805 share of warrants were
exercised and converted, respectively, to the Company’s common
stock.





Warrants





On May
15, 2007, in connection with the Share Purchase Agreement, the 4,375,000
warrants (“Investor Warrants”) carry an exercise price of $2.60 and a 5-year
term. The Investor Warrants are callable if the Company’s shares trade at or
above $8.00 per share for 20 consecutive trading days and underlying shares are
registered for resale. The Investor Warrants contain standard adjustment
provisions upon stock dividend, stock split, stock combination,
recapitalization, and a change of control transaction. During the year ended
June 30, 2008, total of 194,805 warrants were exercised from three
shareholders.





Also in
connection with the Share Purchase Agreement, the Company issued 218,750
warrants (“Placement Agent Warrants”) to Brill Securities, the Placement Agent.
These Placement Agent Warrants have the same terms as the Investor Warrants.
These warrants were issued on August 8, 2007.





Concurrent
with the offering related to the Share Purchase Agreement, the Company issued
75,000 warrants to Chinamerica Fund, LLP and 25,000 warrants to Jeff Jenson
(collectively as “Lead Investor Warrants”) to compensate Chinamerica Fund LLP as
the lead investor and for Jeff Jenson in assisting in providing the shell
of West Coast Car Company. These warrants have the same terms as the Investor
Warrants except with an exercise price of $0.01 per share. In June 2008, Jeff
Jenson exercised the 25,000 warrants issued to him. In November 2008,
Chinamerica Fund, LLP exercised the 75,000 warrants issued to the
fund.





All
Investor Warrants, Placement Agent Warrants, and Lead Investor Warrants meet the
conditions for equity classification pursuant to SFAS No. 133 “Accounting for
Derivatives” and EITF 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock.” Therefore,
these warrants were classified as equity and accounted for as common stock
issuance cost.





Warrants
                                                                    Outstanding
                                                                  
                                                                  
                                                                  Warrants
                                                                    Exercisable
                                                                  
                                                                  
                                                                  Weighted
                                                                    Average
                                                                    Exercise
                                                                    Price
                                                                  
                                                                  
                                                                  Average
                                                                    Remaining
                                                                    Contractual
                                                                    LifeOutstanding,
      June 30, 2007
                                                                  
                                                                  
                                                                  4,475,000
                                                                  
                                                                  
                                                                  
                                                                  4,475,000
                                                                  
                                                                  
                                                                  $
                                                                  2.54
                                                                  
                                                                  
                                                                  
                                                                  4.87Granted
                                                                  
                                                                  
                                                                  218,750
                                                                  
                                                                  
                                                                  
                                                                  218,750
                                                                  
                                                                  
                                                                  
                                                                  2.60
                                                                  
                                                                  
                                                                  
                                                                  5.00Forfeited
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Exercised
                                                                  
                                                                  
                                                                  219,805
                                                                  
                                                                  
                                                                  
                                                                  219,805
                                                                  
                                                                  
                                                                  
                                                                  2.31
                                                                  
                                                                  
                                                                  
                                                                  -Outstanding,
      June 30, 2008
                                                                  
                                                                  
                                                                  4,473,945
                                                                  
                                                                  
                                                                  
                                                                  4,473,945
                                                                  
                                                                  
                                                                  
                                                                  2.54
                                                                  
                                                                  
                                                                  
                                                                  3.88Granted
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Forfeited
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -Exercised
                                                                  
                                                                  
                                                                  75,000
                                                                  
                                                                  
                                                                  
                                                                  75,000
                                                                  
                                                                  
                                                                  
                                                                  0.01
                                                                  
                                                                  
                                                                  
                                                                  -Outstanding,
      June 30, 2009
                                                                  
                                                                  
                                                                  4,398,945
                                                                  
                                                                  
                                                                  
                                                                  4,398,945
                                                                  
                                                                  
                                                                  $
                                                                  2.60
                                                                  
                                                                  
                                                                  
                                                                  2.97











F-21





Stock
options





On
January 4, 2008, the Company adopted “Shengtai Pharmaceutical, Inc. 2007 Stock
Incentive Plan” (the “Stock Incentive Plan”). The Company believes that such
awards better align the interests of its employees with those of its
shareholders. Option awards are generally granted with an exercise price equal
to the fair value of the Company’s stock at the date of grant.





On May
14, 2008, the Company granted 500,000 stock options and 160,000 non-qualified
stock options pursuant to the Stock Incentive Plan. All options have an exercise
price of $3.34, which is the closing price on the date of grant, and expire five
years after the date of grant. All options vest over a period of three years on
a quarterly basis from the date of grant.





The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option pricing model are as follows:





Weighted
      average risk-free interest rate
                  
                  
                  3.22
                  %Expected
      term
                  
                  4
      yearsExpected
      volatility
                  
                  
                  146
                  %Expected
      dividend yield
                  
                  
                  0
                  %Weighted
      average grant-date fair value per option
                  
                  $
                  3.34





The
volatility of the Company’s common stock was estimated by management based on
the historical volatility; the risk free interest rate was based on Treasury
Constant Maturity Rates published by the U.S. Federal Reserve for periods
applicable to the estimated life of the options; and the expected dividend yield
was based on the current and expected dividend policy. The fair value of the
options was based on the Company’s common stock price on the date the options
were granted. SFAS 123R allows use of the “simplified” method to determine the
term when other information is not available. Because the Company does not have
sufficient applicable history of employee stock options activity, the Company
uses the simplified method to estimate the life of the options by taking the sum
of the vesting period and the contractual life and then calculating the midpoint
which is the estimated term of the options.





The stock
option activity was as follows for the year ended June 30, 2009:





Options
                      outstanding
                    
                    
                    Weighted
                      Average
                      Exercise Price
                    
                    
                    Aggregate
                      Intrinsic ValueOutstanding,
      June 30, 2007
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Granted
                    
                    
                    660,00
                    
                    
                    $
                    3.34
                    
                    
                    $
                    —Forfeited
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Exercised
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Outstanding,
      June 30, 2008
                    
                    
                    660,00
                    
                    
                    
                    3.34
                    
                    
                    
                    —Granted
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Forfeited
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Exercised
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Outstanding,
      June 30, 2009
                    
                    
                    660,000
                    
                    
                    $
                    3.34
                    
                    
                    $
                    —












F-22





Following
is a summary of the status of options outstanding at June 30, 2009:





Outstanding Options
                                      
                                      
                                      Exercisable OptionsAverage
                                        Exercise Price
                                      
                                      
                                      Outstanding Options
                                      
                                      
                                      Average Remaining
                                        Contractual Life
                                      
                                      
                                      Average
                                        Exercise Price
                                      
                                      
                                      Exercisable
                                        Options$
                                      3.34
                                      
                                      
                                      
                                      660,000
                                      
                                      
                                      
                                      3.87
                                      
                                      
                                      $
                                      3.34
                                      
                                      
                                      
                                      165,000





Compensation
expense from stock options recognized for the years ended June 30, 2009 and 2008
was $635,272 and $317,636, respectively. As of June 30, 2009, approximately
$952,914 of estimated expense with respect to unvested stock-based awards has
yet to be recognized and will be recognized as an expense over the employee’s
remaining weighted average service period of approximately 1.5
years.




Note
9 - Commitments and Contingencies





Guarantees





During
the year ended June 30, 2009, the Company guaranteed $7.3 million of short term
bank loans for an unrelated party, Shandong Kuangji Group, Inc. (“Shandong
Kuangji”). The Company is obligated to perform under the guarantee if Shandong
Kuangji fails to pay principal and interest payments when due. The maximum
potential amount of future undiscounted payments under the guarantee is $8.0
million including accrued interest. As of June 30, 2009, the Company did not
record a liability for the guarantee because Shandong Kuangji is current in its
payment obligations, and the likelihood of the Company having to make good on
the guarantee is remote. As of June 30, 2009, Shandong Kuangji’s outstanding
short term bank loan balance was $7,325,000.





During
the year ended June 30, 2009, the Company guaranteed $586,000 short term bank
loans and $2.2 million notes payable for an unrelated party, Weifang Yuanli
Huagong Inc. (“Yuanli”). The Company is obligated to perform under the guarantee
if Yuanli fails to pay principal and interest payments when due. The maximum
potential amount of future undiscounted payments under the guarantee is $2.8
million including accrued interest. As of June 30, 2009, the Company did not
record a liability for the guarantee because management believes Yuanli is
current in its payment obligations, and the likelihood of the Company having to
make good on the guarantee is remote. As of June 30, 2009, Yuanli’s outstanding
short term bank loan balance was $586,000 and outstanding notes payable was
$2,197,500.





The
Company guaranteed the debt for the unrelated parties because the Company will
use other parties to guarantee for the Company's debt from time to
time.





Litigation





In the
Company’s ordinary course of business, the Company may be subject to certain
legal proceedings. After review and consultation with the Company’s legal
counsel, management believes that the outcome of the legal matters will not have
a materially adverse effect on the consolidated results of operations or
consolidated financial position of the Company.









F-23





Note
10 - Statutory reserves





The laws
and regulations of the PRC require that before a Sino-foreign cooperative joint
venture enterprise distributes profits to its partners, it must first satisfy
all tax liabilities, provide for losses in previous years, and make allocations
in proportions determined at the discretion of the board of directors, after the
statutory reserves. The statutory reserves include the surplus reserve fund, and
the enterprise fund. These statutory reserves represent restricted retained
earnings.





Surplus reserve
fund





The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC’s accounting rules and regulations, to a statutory
surplus reserve fund until such reserve balance reaches 50% of the Company’s
registered capital. The transfer to this reserve must be made before
distribution of any dividends to shareholders. For the years ended June 30, 2009
and 2008, the Company transferred $0, and $1,159,418, to this reserve. The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.





Pursuant
to the Company’s articles of incorporation, the Company is to appropriate 10% of
its net profits as statutory surplus reserve up to $7,500,000. As June 30, 2009
the Company had appropriated to the statutory reserve approximately $2,900,000.
The Company plans to contribute $4,600,000 in the future.





Enterprise
fund





The
enterprise fund may be used to acquire fixed assets or to increase the working
capital to expand production and operations of the Company. No minimum
contribution is required and the Company has not made any contribution to this
fund as of June 30, 2009.





Note
11 – Sale Leaseback





Capital
lease





On
December 10, 2008, the Company entered into a sale leaseback arrangement and
sold part of its equipment to an unrelated third party for approximately
$5,127,500. The leaseback has been accounted for as a capital lease with the
same third party to lease the same equipment for 4 years, with total payments of
approximately $8,109,000 The title of the equipment will be transferred back to
the Company upon the last payment and after the third party receives a one time
payment of $43,950 from the Company. A one time processing fee of $51,275 was
paid by the Company related to this lease. A loss of $201,793 realized on this
transaction has been recognized in non-operating expense since the carrying
value of the equipment sold exceeded its fair value used as the sale price. The
minimum payments for the remaining lease term of 42 months from July 2009 to
December 2012 and are as follows.





Total
      lease payment
                          
                          $
                          7,875,840Less
      imputed interest
                          
                          
                          2,447,289Total
      capital lease obligation as of June 30, 2009
                          
                          
                          5,428,551Less
      current maturity
                          
                          
                          756,970Capital
      lease obligation – long term portion as of June 30, 2009
                          
                          $
                          4,671,581












F-24





Note
12 - Retirement benefit plans





Regulations
in the PRC require the Company to contribute to a defined contribution
retirement plan for the benefit of all permanent employees. The Company is
required to make contributions to the state retirement plan at 15% to 20% of the
monthly base salaries of all current permanent employees. The PRC government is
responsible for the administration and benefit liability to retired employees.
For the years ended June 30, 2009 and 2008, the Company made contributions in
the amounts of $395,354 and $308,399, respectively, to the Company’s retirement
plan.





Note
13 - Subsequent events





Short term
loans




In August
2009, the Company borrowed $1,025,500 from Industrial and Commercial Bank of
China, due May 2010, with monthly interest-only payments and interest rate at
5.841% per annum, secured by certain properties.




In
September 2009, the Company borrowed $1,465,000 from Agricultural Bank of China,
due September 2010, with monthly interest-only payments and interest rate at
5.841% per annum, secured by an unrelated third party.





Note
payable





In August
2009, the Company paid the outstanding amount of $4,395,000 to Industrial and
Commercial Bank of China, in satisfaction of its loan terms.




The
Company has performed an evaluation of subsequent events through September 28,
2009, which is the date the financial statements were
issued.









F-25





SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person on behalf of the registrant and in the
capacity and on the date indicated.




SHENGTAI
      PHARMACEUTICAL, INC.(Registrant)By:
                /s/
      Qingtai LiuQingtai
      LiuChief
      Executive Officer(Principal
      Executive Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.





Signature
                                
                                Title
                                
                                Date/s/
      Qingtai Liu
                                
                                Chief
      Executive Officer (Principal Executive
                                
                                September
      28, 2009Qingtai Liu
                                
                                Officer)
      and Director/s/
      Yiru Shi
                                
                                Chief Financial Officer (Principal Financial and
                                
                                September
      28, 2009Yiru
      Shi
                                
                                Accounting Officer)/s/
      Yongqiang Wang
                                
                                Director
                                
                                September
      28, 2009Yongqiang Wang/s/
      Wenbing Christopher Wang
                                
                                Director
                                
                                September
      28, 2009Wenbing
      Christopher Wang/s/
      Changxin Li
                                
                                Director
                                
                                September
      28, 2009Changxin Li/s/ Winfred Lee
                                
                                Director
                                
                                September
      28, 2009Winfred
      Lee





62