**UNITED
      STATES**




**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**





**FORM
      10-Q**





**(Mark
      One)**


x
            
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**
              **For
                the quarterly period ended September 30,
                2008**





o
            
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**
              **For
                the transition period from _______ to
                _______**





**Commission
      file number: 000-51972**





**SHENGKAI
      INNOVATIONS, INC.**


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




**Florida**
            **11-3737500**(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer identification No.)




**NO.
      27, WANG GANG ROAD**


**JIN
      NAN (SHUANG GANG) ECONOMIC AND TECHNOLOGY DEVELOPMENT AREA**


**TIANJIN,
      PEOPLE’S REPUBLIC OF CHINA**


(Address
      of principal executive offices)





**(8622)
      2858-8899**


(Registrant’s
      telephone number, including area code)




**SOUTHERN
      SAUCE COMPANY, INC.**


(Former
      name, former address and former fiscal year, if changed since last
      report)




Indicate
      by check mark whether the issuer (1) filed all reports required to be filed
      by
      Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
      shorter period that the Registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days.
      Yes x No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o (Do not check if a
                smaller reporting company)
            Smaller
                reporting company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.): Yes o **** No
x




**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**


**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS:**





Check
      whether the registrant filed all documents and reports required to be filed
      by
      Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities
      under a plan confirmed by a court. Yes o    No
o




**APPLICABLE
      ONLY TO CORPORATE ISSUERS:**





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: 22,112,500 shares of common stock, $.001
      par
      value, were outstanding as of November 3, 2008.


1




**TABLE
      OF CONTENTS**





PagePART
                IItem
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            4Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            10Item
                4T.
            Controls
                and Procedures
            10PART
                IIItem
                1.
            Legal
                Proceedings
            10Item
                1A.
            Risk
                Factors
            10Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            10Item
                3.
            Defaults
                Upon Senior Securities
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            11Item
                5.
            Other
                Information
            11Item
                6.
            Exhibits
            11SIGNATURES
            12


2




**PART
      I - FINANCIAL INFORMATION**




**Item
              1.**
            **Financial
                Statements**




**SHENGKAI
      INNOVATIONS, INC.**




**(FORMERLY
      KNOWN AS SOUTHERN SAUCE COMPANY, INC.)**




**FINANCIAL
      STATEMENTS**




**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**




**(Stated
      in US dollars)(Unaudited)**


3




**SHENGKAI
      INNOVATIONS, INC.**


**(FORMERLY
      KNOWN AS SOUTHERN SAUCE COMPANY, INC.)**




CONTENTS
              
              PAGESREPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              
              
              F-1CONSOLIDATED
                  BALANCE SHEETS
              
              
              F-2
                  - F-3CONSOLIDATED
                  STATEMENTS OF INCOME
              
              
              F-4CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS’ EQUITY
              
              
              F-5CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
              
              
              F-6
                  - F-7NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
              
              
              F-8
                  - F-25


**ALBERT
                WONG & CO.**
              CERTIFIED
                PUBLIC ACCOUNTANTS
              7th
                Floor, Nan Dao Commercial Building
              359-361
                Queen’s Road Central
              Hong
                Kong
              Tel
                : 2851 7954
              Fax:
                2545 4086
              
              **ALBERT
                WONG**
              B.Soc.,
                Sc., ACA., LL.B.,
              CPA(Practising)





The
      board
      of directors and shareholders of


Shengkai
      Innovations, Inc.


(Formerly
      Known As Southern Sauce Company, Inc.)




**Report
      of Independent Registered Public Accounting Firm**




We
      have reviewed the accompanying interim consolidated balance sheets, and the
      related consolidated statements of income, stockholders’ equity and cash flows
      of Shengkai
      Innovations, Inc. and
      consolidated subsidiaries as of September 30, 2008 and 2007, and for the
      three-month period then ended. These interim financial information statements
      are the responsibility of the company's management.




We
      conducted our review in accordance with standards established by the Public
      Company Accounting Oversight Board (United States). A review of interim
      financial information consists principally of applying analytical procedures
      and
      making inquiries of persons responsible for financial and accounting matters.
      It
      is substantially less in scope than an audit conducted in accordance with
      generally accepted auditing standards, the objective of which is the expression
      of an opinion regarding the financial statements taken as a whole. Accordingly,
      we do not express such an opinion.




Based
      on our review, we are not aware of any material modifications that should be
      made to the accompanying interim financial statements for them to be in
      conformity with accounting principles generally accepted in the United States
      of
      America.




/s/
                  Albert Wong & Co.Hong
                  Kong, China
              Albert
                  Wong & Co.November
                  11, 2008
              Certified
                  Public Accountants
  F-1




**SHENGKAI
                INNOVATIONS, INC.**
              **(F.K.A.
                SOUTHERN SAUCE COMPANY, INC.)****CONSOLIDATED
                BALANCE SHEETS****AS
                AT SEPTEMBER 30, 2008 AND JUNE 30, 2008****(Stated
                in US Dollars)**





Note
            
            September
                30, 2008
            
            June
                30, 2008(Unaudited)
            
            (Audited)**ASSETS**Current
                assetsCash
                and cash equivalents
            
            
            
            
            $
            28,653,683
            
            $
            21,313,484Pledged
                deposits
            
            4
            
            
            548,832
            
            
            500,000Trade
                receivables
            
            
            
            
            
            3,820,811
            
            
            3,596,318Notes
                receivable
            
            
            
            
            
            14,588
            
            
            8,732Other
                receivables
            
            5
            
            
            21,884
            
            
            19,791Deposits
                and prepaid expenses
            
            
            
            
            
            380,907
            
            
            2,543Advances
                to suppliers
            
            
            
            
            
            265,109
            
            
            12,350Inventories
            
            6
            
            
            1,209,698
            
            
            725,327Total
                current assets
            
            
            
            
            $
            34,915,512
            
            $
            26,178,545Property,
                plant and equipment, net
            
            7
            
            
            2,547,838
            
            
            2,523,062Intangible
                assets, net
            
            8
            
            
            6,525,039
            
            
            6,699,932Deposits
                on purchase of computer system
            
            15
            
            
            4,376,303
            
            
            4,365,668**TOTAL
                ASSETS**
            
            
            
            
            $
            48,364,692
            
            $
            39,767,207**LIABILITIES
                  AND****STOCKHOLDERS’
                  EQUITY**Current
                liabilitiesNotes
                payable
            
            
            
            
            $
            63,419
            
            $
            -Accounts
                payable
            
            
            
            
            
            1,346,482
            
            
            938,483Advances
                from customers
            
            
            
            
            
            136,183
            
            
            29,852Other
                payables
            
            9
            
            
            656,163
            
            
            549,626Accruals
            
            
            
            
            
            146,021
            
            
            116,673Income
                tax payable
            
            
            
            
            
            1,025,869
            
            
            951,031Total
                current liabilities
            
            
            
            
            $
            3,374,137
            
            $
            2,585,665**TOTAL
                LIABILITIES**
            
            
            
            
            $
            3,374,137
            
            $
            2,585,665Commitments
                and contingencies
            
            15
            
            $
            -
            
            $
            -





See
      accompanying notes to consolidated financial statements




F-2




**SHENGKAI
                INNOVATIONS, INC.****(F.K.A.
                SOUTHERN SAUCE COMPANY, INC.)****CONSOLIDATED
                BALANCE SHEETS (Continued)****AS
                AT SEPTEMBER 30, 2008 AND JUNE 30, 2008****(Stated
                in US Dollars)**




Note
              
              September
                  30, 2008
              
              June
                  30, 2008(Unaudited)
              
              (Audited)**STOCKHOLDERS’
                  EQUITY**Preferred
                  stock - $0.001 par value 15,000,000 share authorized ; 7,887,368
                  and
                  5,915,526 shares issued and outstanding as of September 30, 2008
                  and June
                  30, 2008 respectively
              
              10
              
              $
              7,887
              
              $
              5,916Common
                  stock - $0.001 par value 50,000,000 shares authorized; 22,112,500
                  shares issued and outstanding as of September 30, 2008 and June
                  30, 2008
              
              11
              
              
              22,113
              
              
              22,113Additional
                  paid-in capital
              
              11
              
              
              30,666,631
              
              
              23,494,626Statutory
                  reserves
              
              
              
              
              
              2,875,066
              
              
              2,875,066Retained
                  earnings
              
              
              
              
              
              8,823,434
              
              
              8,257,303Accumulated
                  other comprehensiveIncome
              
              
              
              
              
              2,595,424
              
              
              2,526,518$
              44,990,555
              
              $
              37,181,542**TOTAL
                    LIABILITIES AND****STOCKHOLDERS’
                    EQUITY**
              
              
              
              
              $
              48,364,692
              
              $
              39,767,207


See
      accompanying notes to consolidated financial statements


F-3




**SHENGKAI
                INNOVATIONS****,
                INC.****(F.K.A.
                SOUTHERN SAUCE COMPANY, INC.)****CONSOLIDATED
                STATEMENTS OF INCOME****FOR
                THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
                2007****(Stated
                in US Dollars)****(Unaudited)**





Three
                months ended September 30,Note
            
            2008
            
            2007Net
                revenues
            
            
            
            
            $
            9,197,247
            
            $
            6,605,357Cost
                of sales
            
            
            
            
            
            (3,607,574
            )
            
            (2,689,587
            )Gross
                profit
            
            
            
            
            $
            5,589,673
            
            $
            3,915,770Operating
                expenses:Selling
            
            
            
            
            
            (870,837
            )
            
            (458,988
            )General
                and administrative
            
            
            
            
            
            (596,486
            )
            
            (366,377
            )Operating
                income
            
            
            
            
            $
            4,122,350
            
            $
            3,090,405Other
                income
            
            
            
            
            
            7,316
            
            
            -Other
                expense
            
            
            
            
            
            -
            
            
            (13
            )Interest
                income
            
            
            
            
            
            22,846
            
            
            2,643Income
                before income taxes
            
            
            
            
            $
            4,152,512
            
            $
            3,093,035Income
                taxes
            
            12
            
            
            (1,026,195
            )
            
            (1,023,979
            )Net
                income
            
            
            
            
            $
            3,126,317
            
            $
            2,069,056Basic
                earnings per share before dividend
            
            13
            
            $
            0.141
            
            $
            0.101Basic
                earnings per share after dividend
            
            13
            
            $
            0.026
            
            $
            0.101Diluted
                earnings per share after dividend
            
            13
            
            $
            0.019
            
            $
            0.101Basic
                weighted average share outstanding
            
            13
            
            
            22,122,500
            
            
            20,550,000Diluted
                weighted average share outstanding
            
            13
            
            
            29,999,868
            
            
            20,550,000





See
      accompanying notes to consolidated financial statements


F-4





**SHENGKAI
                INNOVATIONS****,
                INC.****(F.K.A.
                SOUTHERN SAUCE COMPANY, INC.)****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY****FOR
                THE YEAR ENDED JUNE 30, 2008 AND THREE MONTHS ENDED SEPTEMBER 30,
                2008****(Stated
                in US Dollars)****(Unaudited)**




Common
                    stock
                
                
                
                Additional
                
                
                
                
                
                Accumulated
                  otherNumber
                  of
                    share
                
                Amount
                
                Preferred
                  stock
                
                paid-in
                  capital
                
                Statutory
                  reserves
                
                Retained
                  earnings
                
                comprehensive
                  income
                
                TotalBalance,
                    July 1, 2007
                
                
                20,550,000
                
                $
                20,550
                
                $
                -
                
                $
                10,452,168
                
                $
                1,665,187
                
                $
                7,122,377
                
                $
                1,155,685
                
                $
                20,415,967Reduction
                    of registered capital of a subsidiary
                
                
                -
                
                
                -
                
                
                -
                
                
                (8,662,637
                )
                
                -
                
                
                -
                
                
                -
                
                
                (8,662,637
                )Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                10,087,039
                
                
                -
                
                
                10,087,039Reverse
                    acquisition
                
                
                1,562,500
                
                
                1,563
                
                
                -
                
                
                243,777
                
                
                -
                
                
                -
                
                
                -
                
                
                245,340Proceeds
                    from shares issued in private placement, net of transaction costs of
                    $1,275,000
                
                
                -
                
                
                -
                
                
                5,916
                
                
                13,719,084
                
                
                -
                
                
                -
                
                
                -
                
                
                13,725,000Appropriations
                    to statutory reserves
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,209,879
                
                
                (1,209,879
                )
                
                -
                
                
                -Dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                7,742,234
                
                
                -
                
                
                (7,742,234
                )
                
                -
                
                
                -Foreign
                    currency  translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,370,833
                
                
                1,370,833Balance,
                    June 30, 2008
                
                
                22,112,500
                
                $
                22,113
                
                $
                5,916
                
                $
                23,494,626
                
                $
                2,875,066
                
                $
                8,257,303
                
                $
                2,526,518
                
                $
                37,181,542Balance,
                    July 1, 2008
                
                
                22,112,500
                
                $
                22,113
                
                $
                5,916
                
                $
                23,494,626
                
                $
                2,875,066
                
                $
                8,257,303
                
                $
                2,526,518
                
                $
                37,181,542Net
                    income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                3,126,317
                
                
                -
                
                
                3,126,317Proceeds
                    from shares issued in private placement, net of transaction costs
                    of
                    $386,210
                
                
                -
                
                
                -
                
                
                1,971
                
                
                4,611,819
                
                
                -
                
                
                -
                
                
                
                
                
                4,613,790Dividends
                
                
                -
                
                
                -
                
                
                -
                
                
                2,560,186
                
                
                -
                
                
                (2,560,186
                )
                
                -
                
                
                -Foreign
                      currency translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                68,906
                
                
                68,906Balance,
                    September 30, 2008
                
                
                22,112,500
                
                $
                22,113
                
                $
                7,887
                
                $
                30,666,631
                
                $
                2,875,066
                
                $
                8,823,434
                
                $
                2,595,424
                
                $
                44,990,555


See
      accompanying notes to consolidated financial statements




F-5





**SHENGKAI
                INNOVATIONS****,
                INC.****(F.K.A.
                SOUTHERN SAUCE COMPANY, INC.)****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****FOR
                THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
                2007****(Stated
                in US Dollars)(Unaudited)**





Three
                months ended September 30,2008
            
            2007Cash
                flows from operating activitiesNet
                income
            
            $
            3,126,317
            
            $
            2,069,056Depreciation
            
            
            41,441
            
            
            37,203Amortization
            
            
            191,276
            
            
            173,179Adjustments
                to reconcile net income to netcash
                provided by operating activities:Trade
                receivables
            
            
            (215,801
            )
            
            (257,921
            )Notes
                receivable
            
            
            (5,836
            )
            
            -Other
                receivables
            
            
            (2,046
            )
            
            (7,385
            )Deposits
                and prepaid expenses
            
            
            922
            
            
            32,633Advances
                to suppliers
            
            
            (252,809
            )
            
            86,297Inventories
            
            
            (482,758
            )
            
            (67,251
            )Notes
                payable
            
            
            63,440
            
            
            (33,329
            )Accounts
                payable
            
            
            405,842
            
            
            329,267Advances
                from customers
            
            
            106,293
            
            
            45,425Other
                payables
            
            
            105,232
            
            
            (437,880
            )Accruals
            
            
            29,073
            
            
            (501
            )Income
                tax payable
            
            
            72,544
            
            
            190,564Net
                cash provided by operating activities
            
            $
            3,183,130
            
            $
            2,159,357Cash
                flows from investing activitiesPurchase
                of property, plant and equipment
            
            $
            (60,076
            )
            $
            (69,374
            )Payment
                of deposit of computer system
            
            
            -
            
            
            (1,981,752
            )Deposit
                for land use right auction
            
            
            (379,400
            )
            
            -Amounts
                due from directors and shareholders
            
            
            -
            
            
            (68,337
            )Increase
                in pledged deposits
            
            
            (48,847
            )
            
            -Net
                cash used in investing activities
            
            $
            (488,323
            )
            $
            (2,119,463
            )Cash
                flows from financing activitiesProceeds
                  from stock issued, net of transaction costs of
                  $386,210
            
            $
            4,613,790
            
            $
            -Net
                cash provided by financing activities
            
            $
            4,613,790
            
            $
            -





See
      accompanying notes to consolidated financial statements





F-6




**SHENGKAI
                INNOVATIONS****,
                INC.****(F.K.A.
                SOUTHERN SAUCE COMPANY, INC.)****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(****Continued)****FOR
                THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
                2007****(Stated
                in US Dollars)(Unaudited)**





Three
                months ended September 30,2008
            
            2007Net
                cash and cash equivalents sourced
            
            $
            7,308,597
            
            $
            39,894Effect
                  of foreign currency translation on cash and cash
                  equivalents
            
            
            31,602
            
            
            24,392Cash
                and cash equivalents-beginning of year
            
            
            21,313,484
            
            
            1,691,476Cash
                and cash equivalents-end of year
            
            $
            28,653,683
            
            $
            1,755,762





Supplementary
                cash flow information:Interest
                received
            
            $
            22,846
            
            $
            2,643Tax
                paid
            
            
            953,651
            
            
            833,415




See
      accompanying notes to consolidated financial statements


F-7




**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**1.**
              **ORGANIZATION
                  AND****PRINCIPAL
                  ACTIVITIES**





Shengkai
      Innovations Inc. (the Company) was incorporated in the State of Florida on
      December 8, 2004. Prior to June 9, 2008 the company has only nominal operations
      and assets.





On
      June
      9, 2008, the Company executed a reverse-merger with Shen Kun International
      Limited (“Shen Kun”) by an exchange of shares whereby the Company issued
      20,550,000 common shares at $0.001 par value in exchange for all Shen Kun
      shares.





The
      exchange transaction was accounted for as a reverse acquisition in accordance
      with Statements of Financial Accounting Standards (“SFAS”) No. 141. “Business
      Combinations”. For financial reporting purposes, this transaction is classified
      as a recapitalization of the Company and the historical financial statements
      of
      Shen Kun. The accompanying audited consolidated financial statements were
      retroactively adjusted to reflect the effects of the recapitalized. The
      1,562,500 shares of Shengkai Innovations, Inc. outstanding prior to the stock
      exchange transaction were accounted for at the net book value at the time of
      the
      transaction, which was a deficit of $62,206 .
      Accordingly, the consolidated statements of income include the results of
      operations of Tianjin Shengkai Industrial Technology Development Co., Ltd from
      the acquisition date through September 30, 2008, and 2007.





Shen
      Kun
      formed Sheng Kai (Tianjin) Ceramic Valves Co., Ltd. (“SK Ceramic Valves” or
“WFOE”), which entered into a series of agreements with Tianjin Shengkai
      Industrial Technology Development Co., Ltd (“Shengkai”) including but not
      limited to consigned management, technology service, loan, exclusive purchase
      option, equity pledge, etc. The agreements were entered on May 30, 2008. As
      a
      result of entering the abovementioned agreements, WFOE deem to control Shengkai
      as a Variable Interest Entity as required by FASB Interpretation No. 46 (revised
      December 2003) Consolidated of Variable Interest Entities, and Interpretation
      of
      ARB No. 51.  In
      connection with the reverse merger transaction, on June 11, 2008 the Company
      sold 5,915,526 Units for aggregate gross proceeds of $15,000,000, at a price
      of
      $2.5357 per Unit. Each Unit consists of one share of the Company’s Series A
      Convertible Preferred Stock, par value $0.001 per share (the “Preferred
      Shares”), convertible into one share of common stock, par value $0.001 per share
      (the “common stock”), and one Series A Warrant to purchase common stock equal to
      120% of the number of shares of common stock issuable upon conversion of the
      Preferred Shares (“Warrant”). Additionally, on July 18, 2008, the Company sold
      1,971,842 Units for aggregate gross proceeds of $5,000,000, at a price of
      $2.5357 per Unit. Each Unit consists of one Preferred Share, convertible into
      one share of common stock, par value $0.001 per share (the “common stock”), and
      one Warrant to purchase common stock equal to 120% of the number of shares
      of
      common stock issuable upon conversion of the Preferred Shares.





The
      Company, through its subsidiaries and Shengkai, (hereinafter, collectively
      referred to as “the Group”), is now in the business of manufacturing and selling
      of ceramic valves.




On
      October 23, 2008, the Company changed its name from Southern Sauce Company,
      Inc.
      to Shengkai Innovations Inc.


F-8


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**





*(a)*
              *Method
                  of accounting*





The
      Company maintains its general ledger and journals with the accrual method
      accounting for financial reporting purposes. The financial statements and notes
      are representations of management. Accounting policies adopted by the Company
      conform to generally accepted accounting principles in the United States of
      America and have been consistently applied in the presentation of financial
      statements.





*(b)*
            *Principles
                of consolidation*





The
      consolidated financial statements, which include the Company and its
      subsidiaries, are complied in accordance with generally accepted accounting
      principles in the United States of America. All significant inter-company
      accounts and transactions have been eliminated. The consolidated financial
      statements include 100% of assets, liabilities, and net income or loss of those
      wholly-owned subsidiaries.





The
      company owned the three subsidiaries since its reverse-merger on June 9, 2008.
      The detailed identities of the consolidating subsidiaries would have been as
      follows:





Name
                of subsidiaries
            
            Place
                of incorporation
            
            Attributable
                interestShen
                Kun International Limited
            
            British
                Virgin Islands
            
            100%Sheng
                Kai (Tianjin) Ceramic Valves Co., Ltd
            
            PRC
            
            100%*Tianjin
                  Shengkai Industrial Technology Development Co., Ltd
            
            PRC
            
            100%*Deemed
                variable interest entity member




*(c)*
            *Use
                of estimates*





The
      preparation of the financial statements in conformity with generally accepted
      accounting principles 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 periods. Management makes these estimates using the best
      information available at the time the estimates are made; however actual results
      could differ materially from those estimates.


F-9


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES (****Continued)**





*(d)*
            *Economic
                and political risks*





The
      Group’s operations are conducted in the PRC. Accordingly, the Company’s
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environment in the PRC, and by the general state
      of the PRC economy.




The
      Group’s operations in the PRC are subject to special 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 environment and foreign currency exchange. The
      Group’s results may be adversely affected by changes in the political and social
      conditions in the PRC, and by changes in governmental policies with respect
      to
      laws and regulations, anti-inflationary measures, currency conversion,
      remittances abroad, and rates and methods of taxation, among other
      things.





*(e)*
            *Pledged
                deposits*





Pledged
      deposits represent restricted cash of deposits on account to secure notes
      payable and deposit for investor and public relation affairs as at September
      30,
      2008 and deposit for investor and public relation affairs as at June 30,
      2008.





*(f)*
            *Property,
                plant and equipment*





Property,
      plant and equipment are carried at cost less accumulated depreciation.
      Depreciation is provided over their estimated useful lives, using the
      straight-line method. Estimated useful lives of the property, plant and
      equipment are as follows:





Buildings
            20
                - 40 yearsMachinery
                and equipment
            3
                -
                20 yearsOffice
                equipment
            3
                -
                10 yearsMotor
                vehicles
            10
                years




The
      cost
      and related accumulated depreciation of assets sold or otherwise retired are
      eliminated from the accounts and any gain or loss is included in the statement
      of income. The cost of maintenance and repairs is charged to income as incurred,
      whereas significant renewals and betterments are capitalized.





*(g)*
            *Intangible
                assets*





Intangible
      assets represent land use rights, patent rights and others in the PRC. Land
      use
      rights are carried at cost and amortized on a straight-line basis over the
      period of rights of 50 years commencing from the date of acquisition of
      equitable interest. Patent rights are carried at cost and amortized on a
      straight-line basis over the period of rights of 10 years commencing from the
      date of acquisition of equitable interest. Others are software costs which
      are
      carried at cost and amortized on a straight-line basis over the period of 6
      years.


F-10


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES (****Continued)**





*(h)*
            *Accounting
                for the impairment of long-lived
                assets*





The
      Group
      periodically evaluates the carrying value of long-lived assets to be held and
      used, including intangible assets subject to amortization, when events and
      circumstances warrant such a review, pursuant to the guidelines established
      in
      SFAS No. 144. The carrying value of a long-lived asset is considered impaired
      when the anticipated undiscounted cash flow from such asset is separately
      identifiable and is less than its carrying value. In that event, a loss is
      recognised based on the amount by which the carrying value exceeds the fair
      market value of the long-lived asset. Fair market value is determined primarily
      using the anticipated cash flows discounted at a rate commensurate with the
      risk
      involved. Losses on long-lived assets to be disposed of are determined in a
      similar manner, except that fair market values are reduced for the cost to
      dispose.





During
      the reporting periods, there was no impairment loss.





*(i)*
            *Inventories*





Inventories
      consist of finished goods, work in progress and raw materials, and are stated
      at
      the lower of cost or market value. Substantially all inventory costs are
      determined using the weighted average basis. Finished goods are comprised of
      direct materials, direct labor and an appropriate proportion of
      overhead.





*(j)*
            *Cash
                and cash equivalents*





The
      Company considers all highly liquid investments purchased with original
      maturities of three months or less to be cash equivalents. The Company maintains
      bank accounts in the PRC and Hong Kong. The Company does not maintain any bank
      accounts in the United States of America.





September
                30, 2008
            
            June
                30,2008Cash
                on hand
            
            $
            7,174
            
            $
            4,880Agricultural
                Bank of China
            
            
            421
            
            
            421Bank
                of China
            
            
            17,685
            
            
            12,888Industrial
                and Commercial Bank of China
            
            
            9,965,961
            
            
            8,317,060Industrial
                Bank Co. Ltd.
            
            
            7,447,361
            
            
            37,070Shanghai
                Pudong Development Bank
            
            
            11,199,628
            
            
            12,939,316The
                Hong Kong and Shanghai BankingCorporation
                Limited
            
            
            15,453
            
            
            1,849$
            28,653,683
            
            $
            21,313,484





F-11


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES (****Continued)**





*(k)*
            *Revenue
                recognition*





Revenue
      represents the invoiced value of goods sold recognized upon the delivery of
      goods to customers. Revenue is recognized when all of the following criteria
      are
      met:





-
      Persuasive evidence of an arrangement exists;


-
      Delivery has occurred or services have been rendered;


-
      The
      seller’s price to the buyer is fixed or determinable, and


-
      Collection is reasonably assured.





Net
      revenue is recognized when customer takes delivery and acceptance of products,
      the price is fixed or determinable as stated on sales contract, and the
      collectibility is reasonably assured.





*(l)*
            *Costs
                of sales*





Cost
      of
      sales consists primarily of direct material costs, direct labor cost, direct
      depreciation and related direct expenses attributable to the production of
      products. Written-down of inventory to lower of cost or market is also reflected
      in cost of revenues.





*(m)*
            *Advertising*





The
      Company expensed all advertising costs as incurred. Advertising expenses
      included in the selling expenses for the three months ended September 30, 2008
      and 2007 were nil and $19,885 respectively.





*(n)*
            *Research
                and development costs*





The
      Company expensed all research and development costs as incurred. Research and
      development expenses included in the general and administrative expenses for
      the
      three months ended September 30, 2008 and 2007 were $109,891 and $3,569
      respectively.





*(o)*
            *Retirement
                benefit plans*





The
      employees of the Company are members of a state-managed retirement benefit
      plan
      operated by the government of the PRC. The Company is required to contribute
      a
      specified percentage of payroll costs to the retirement benefit scheme to fund
      the benefits. The only obligation of the Company with respect to the retirement
      benefit plan is to make the specified contributions.





Retirement
      benefits in the form of contributions under defined contribution retirement
      plans to the relevant authorities are charged to the statements of income as
      incurred. The
      retirement benefit expenses included in and the general and administrative
      expenses for the three months ended September 30, 2008 and 2007 were $21,120
      and
      $3,771 respectively.


F-12


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES (****Continued)**





*(p)*
            *Income
                taxes*





The
      Group
      accounts for income taxes using an asset and liability approach and allows
      for
      recognition of deferred tax benefits in future years. Under the asset and
      liability approach, deferred taxes are provided for the net tax effects of
      temporary differences between the carrying amounts of assets and liabilities
      for
      financial reporting purposes and the amounts used for income taxes purposes.
      A
      valuation allowance is provided for deferred tax assets if it is more likely
      than not these items will either expire before the Group is able to realize
      their benefits, or that future realization is uncertain.





*(q)*
            *Foreign
                currency translation*





The
      accompanying financial statements are presented in United States dollars. The
      reporting currency of the Group is the U.S. dollar (USD). SK Ceramic Valves
      and
      Shengkai use its local currency, Renminbi (RMB), as its functional currency.
      Results of operations and cash flow are translated at average exchange rates
      during the period, and assets and liabilities are translated at the end of
      period exchange rates. Translation adjustments resulting from this process
      are
      included in accumulated other comprehensive income in stockholders’ equity.
      Transaction gains and losses that arise from exchange rate fluctuations from
      transactions denominated in a currency other than the functional currency are
      included in the results of operations as incurred.





The
      PRC
      government imposes significant exchange restrictions on fund transfers out
      of
      the PRC that are not related to business operations. These restrictions have
      not
      had a material impact on the Group because it has not engaged in any significant
      transactions that are subject to the restrictions.





The
      exchange rates used to translate amounts in RMB into USD for the purposes of
      preparing the consolidated financial statements were as follows:





September
                30, 2008Balance
                sheet
            RMB
                6.85510 to US$1.00Statement
                of income
            RMB
                6.85292 to US$1.00June
                30, 2008Balance
                sheet
            RMB
                6.87180 to US$1.00Statement
                of income
            RMB
                7.29063 to US$1.00September
                30, 2007Balance
                sheet
            RMB
                7.51760 to US$1.00Statement
                of income
            RMB
                7.56910 to US$1.00




The
      RMB
      is not freely convertible into foreign currency and all foreign exchange
      transactions must take place through authorized institutions. No representation
      is made that the RMB amounts could have been, or could be, converted into US$
      at
      the rates used in translation.




F-13




**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES (****Continued)**





*(r)*
            *Cash
                and concentration of risk*





Cash
      includes cash on hand and demand deposits in bank accounts maintained within
      PRC. Total cash in the banks at September 30, 2008 and June 30, 2008 amounted
      to
      $28,646,509 and $21,308,604 respectively. The Company has not experienced any
      losses in such accounts and believes it is not exposed to any risks on its
      cash
      in bank accounts.





*(s)*
            *Statutory
                reserves*





As
      stipulated by the PRC’s Company Law and as provided in the SK Ceramic Valves,
      and Shengkai’s Articles of Association, SK Ceramic Valves, and Shengkai’s net
      income after taxation can only be distributed as dividends after appropriation
      has been made for the following:





(i)
            Making
                up cumulative prior years’ losses, if
                any;


(ii)
            Allocations
                to the “Statutory surplus reserve” of at least 10% of income after tax, as
                determined under PRC accounting rules and regulations, until the
                fund
                amounts to 50% of the Company's registered capital, which is restricted
                for set off against losses, expansion of production and operation
                or
                increase in registered capital;


(iii)
            Allocations
                of 5-10% of income after tax, as determined under PRC accounting
                rules and
                regulations, to the Company's “Statutory common welfare fund”, which is
                restricted for capital expenditure for the collective benefits of
                the
                Company's employees; and


(iv)
            Allocations
                to the discretionary surplus reserve, if approved in the shareholders’
                general meeting.





On
      December 31, 2003, Shengkai established a statutory surplus reserve as well
      as a
      statutory common welfare fund and commenced to appropriate 10% and 5%,
      respectively of the PRC net income after taxation to these reserves. The
      amounts included in the statutory reserves were surplus reserve of $2,875,066
      as
      of September 30, 2008 and June 30, 2008.





*(t)*
            *Comprehensive
                income*





Comprehensive
      income is defined to include all changes in equity except those resulting from
      investments by owners and distributions to owners. Among other disclosures,
      all
      items that are required to be recognized under current accounting standards
      as
      components of comprehensive income are required to be reported in a financial
      statement that is presented with the same prominence as other financial
      statements. The Company’s current component of other comprehensive income is the
      foreign currency translation adjustment.


F-14


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES (****Continued)**





*(u)*
            *Recent
                accounting pronouncements*




In
      December 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standard (“SFAS”) No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160
      establishes accounting and reporting standards for the noncontrolling interest
      in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. As such, the Company is required to
      adopt these provisions at the beginning of the fiscal year ended December 31,
      2009. The Company is currently evaluating the impact of SFAS 160 on its
      consolidated financial statements but does not expect it to have a material
      effect





In
      December 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standard (“SFAS”) No. 141(R), "Business Combinations”. SFAS
      141(R) establishes principles and requirements for how the acquirer recognizes
      and measures in its financial statements the identifiable assets acquired,
      the
      liabilities assumed, an any noncontrolling interest in the acquiree, recognizes
      and measures the goodwill acquired in the business combination or a gain from
      a
      bargain purchase, and determines what information to disclose to enable users
      of
      the financial statements to evaluate the nature and financial effects of the
      business combination. SFAS 141(R) is effective for fiscal years, and interim
      periods within those fiscal years, beginning on or after December 15, 2008.
      As
      such, the Company is required to adopt these provisions at the beginning of
      the
      fiscal year ended December 31, 2009. The Company is currently evaluating the
      impact of SFAS 141(R) on its consolidated financial statements but does not
      expect it to have a material effect.





In
      March
      2008, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standard (“SFAS”) No. 161 “Disclosures about Derivative Instruments
      and Hedging Activities”. SFAS 161 is intended to improve financial reporting
      about derivative instruments and hedging activities by requiring enhanced
      disclosures to enable investors to better understand their effects on an
      entity’s financial position, financial performance, and cash flows. It is
      effective for financial statements issued for fiscal years and interim periods
      beginning after November 15, 2008, with early application encouraged. The
      Company is currently evaluating the impact of SFAS 161 on its consolidated
      financial statements but does not expect it to have a material
      effect.





In
      May
      2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
      Accounting Principles. SFAS 162 identifies the sources of accounting principles
      and the framework for selecting the principles to be used in the preparation
      of
      financial statements of nongovernmental entities that are presented in
      conformity with GAAP. SFAS 162 directs the GAAP hierarchy to the entity, not
      the
      independent auditors, as the entity is responsible for selecting accounting
      principles for financial statements that are presented in conformity with GAAP.
      SFAS 162 is effective 60 days following the SEC's approval of the Public Company
      Accounting Oversight Board amendments to remove the GAAP hierarchy from the
      auditing standards. SFAS 162 is not expected to have a material impact on the
      Company’s financial statements.


F-15


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**3.**
            **CONCENTRATIONS
                OF CREDIT RISK AND MAJOR
                CUSTOMERS**





Financial
      instruments which potentially expose the Group to concentrations of credit
      risk, consists
      of cash and trade receivables as of September 30, 2008 and June 30, 2008. The
      Group performs ongoing evaluations of its cash position and credit evaluations
      to ensure sound collections and minimize credit losses exposure.




As
      of
      September 30, 2008 and June 30, 2008, almost the Group’s bank deposits were
      conducted with banks in the PRC where there is currently no rule or regulation
      mandated on obligatory insurance of bank accounts. A minimal bank deposit was
      maintained with the bank in Hong Kong.




For
      the
      three months ended September 30, 2008 and 2007, nearly all of the Group’s sales
      were generated from the PRC. In addition, nearly all accounts receivable as
      of
      September 30, 2008 and June 30, 2008, also arose in the PRC.




The
      maximum amount of loss exposure due to credit risk that the Group would bear
      if
      the counter parties of the financial instruments failed to perform represents
      the carrying amount of each financial asset in the balance sheet.




Normally
      the Group does not require collateral from customers or debtors.




For
      the
      three months ended September 30, 2008, and 2007, there was no customer who
      accounts for 10% or more of the Group’s revenue.




Details
      of customer account for 10% or more of the Group’s trade receivables were as
      follows:




September
                30, 2008
            
            June
                30, 2008Customer
                A
            
            $
            -
            
            $
            851,262Customer
                B
            
            
            -
            
            
            772,723Customer
                C
            
            
            -
            
            
            415,440CustomerD
            
            
            516,125
            
            
            -CustomerE
            
            
            412,368
            
            
            -




**4.**
            **PLEDGED
                DEPOSITS**





Pledged
      deposits were restricted cash of
      deposits on account to secure notes payables and deposit for investor and public
      relation affairs.




F-16





**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**5.**
            **OTHER
                RECEIVABLES**





Other
      receivables comprise the followings:





September
                30, 2008
            
            June
                30, 2008Disbursement
                and advances to employee
            
            $
            10,943
            
            $
            -Tender
                deposits
            
            
            10,941
            
            
            10,623Sundry
            
            
            -
            
            
            9,168$
            21,884
            
            $
            19,791




**6.**
            **INVENTORIES**





Inventories
      comprise the followings:





September
                30, 2008
            
            June
                30, 2008Finished
                goods
            
            $
            307,440
            
            $
            298,411Work
                in process
            
            
            153,303
            
            
            15,264Raw
                materials
            
            
            748,955
            
            
            411,652$
            1,209,698
            
            $
            725,327


F-17
  **SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**7.**
            **PROPERTY,
                PLANT AND EQUIPMENT, NET**




Property,
      plant and equipment, net comprise the followings:




September
                30, 2008
            
            June
                30, 2008At
                costBuildings
            
            $
            2,047,899
            
            $
            2,042,921Machinery
                and equipment
            
            
            636,447
            
            
            631,830Office
                equipment
            
            
            148,206
            
            
            135,637Motor
                vehicles
            
            
            415,538
            
            
            369,897$
            3,248,090
            
            $
            3,180,285Less:
                accumulated depreciation
            
            
            (700,252
            )
            
            (657,223
            )$
            2,547,838
            
            $
            2,523,062





Depreciation
      expenses included in the cost of sales for the three months ended September
      30,
      2008 and 2007 were $27,379 and $22,300 respectively; and in the general and
      administrative expenses for the three months ended September 30, 2008 and 2007
      were $14,062 and $14,903 respectively.


F-18


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**8.**
            **INTANGIBLE
                ASSETS, NET**





Intangible
      assets, net comprise the followings:





September
                30, 2008
            
            June
                30, 2008Land
                use rights, at cost
            
            $
            890,990
            
            $
            888,825Less:
                accumulated amortization
            
            
            (288,894
            )
            
            (283,748
            )$
            602,096
            
            $
            605,077Patent
                rights, at costs
            
            $
            7,439,716
            
            $
            7,421,636Less:
                accumulated amortization
            
            
            (1,524,411
            )
            
            (1,335,167
            )$
            5,915,305
            
            $
            6,086,469Others,
                at costs
            
            $
            19,883
            
            $
            19,835Less:
                accumulated amortization
            
            
            (12,245
            )
            
            (11,449
            )$
            7,638
            
            $
            8,386$
            6,525,039
            
            $
            6,699,932





Amortization
      expenses included in the general and administrative expenses for the three
      months ended September 30, 2008 and 2007 were $191,276 and $173,179
      respectively.




**9.**
            **OTHER
                PAYABLES**





Other
      payables comprise the followings:





September
                30, 2008
            
            June
                30, 2008Commission
                payables
            
            $
            262,297
            
            $
            180,291Retention
                money for construction
            
            
            13,907
            
            
            -Sundry
                PRC taxes payables
            
            
            372,003
            
            
            352,521Sundry
            
            
            7,956
            
            
            16,814$
            656,163
            
            $
            549,626


F-19
  **SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**10.**
            **PREFERRED
                STOCK AND WARRANTS**





On
      June
      11, 2008, the Company sold 5,915,526 shares of Series A Preferred Stock and
      various stock purchase warrants for cash consideration totaling $15 million
      dollars (the “June 2008 Financing”). The exercise price, expiration date and
      number of share eligible to be purchased with the warrants are summarized in
      the
      following table:





Series
                of warrant
            Number
                of shares
            Exercise
                price
            Contractual
                termSeries
                A
            7,098,632
            $3.52
            5.0
                years




The
      Series A preferred stock has liquidation rights senior to common stock and
      to
      any other class or series of stock issued by the Company not designated as
      ranking senior to or pari passu with the Series A Preferred Share. In the event
      of a liquidation of the Company, holders of Series A preferred stock are
      entitled to receive a distribution equal to $2.5357 per share of Series A
      preferred stock prior to any distribution to the holders of common stock or
      any
      other stock that ranks junior to the Series A Preferred Shares. The Preferred
      Shareholders are not entitled to dividends unless paid to Common Shareholders.
      Any dividend paid will have the same record and payment date and terms as the
      dividend payable to the Common Stock. The Series A preferred stock will
      participate based on their respective as-if conversion rates if the Company
      declares any dividends. Holders of Series A Preferred Shares also have voting
      rights required by applicable law and the relevant number of votes shall be
      equal to the number of shares of Common Stock issuable upon conversion of Series
      A Preferred Shares. At any time, the Preferred Stock is convertible into 1
      share
      of Common Stock adjusted from time to time to the Conversion Rate. The
      Conversion Rate is computed as the Liquidation Preference Amount ($2.5357 per
      share) divided by the Conversion Price. The Conversion Price is initially
      $2.5357 per share but can adjust for anti-dilution.





The
      Warrants were issued at an exercise price of $3.52 per share. The exercise
      price
      can adjust for dilutive events. The Warrants are immediately exercisable.
      However, if after exercise the holder would become a holder of greater than
      9.9%
      of common stock they cannot exercise without filing a waiver with the company.
      The waiver is required to be filed 61 days prior to exercise and by filing
      the
      waiver the restriction is removed. (Since the company is required to accept
      the
      waiver this restriction is not considered significant in valuing the warrant.)
      The Warrants expire 5 years from the date of issuance. The Warrants are freely
      transferable upon registration. The Warrants are subject to the same
      Registration Rights Agreement as that of the Preferred Stock. If a registration
      statement providing for the resale of the Common Stock issued upon exercise
      of
      the Warrant is not declared effective after 180 days after the issuance date,
      the Warrants can be cashless exercised. Also, the Warrants have Buy-in Rights
      similar to those of the Preferred Stock.


F-20


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**10.**
            **PREFERRED
                STOCK AND WARRANTS
                (Continued)**





The
      gross
      proceeds of the transaction were $15 million. The proceeds from the transaction
      were allocated to the Series A preferred stock, warrants and beneficial
      conversion feature based on the relative fair value of the securities. The
      Company evaluated whether a relative fair value approach or residual fair value
      approach was more appropriate given the terms and accounting treatment related
      to the financial instruments involved. Given that the Warrants will not be
      classified as a liability, the relative fair value method was used. The Warrants
      were first valued using the Black-Scholes valuation model. The Company valued
      the Warrants at issuance at $1.84 per warrant with the following assumptions:
      common stock fair market value of $2.55, expected life of 5 year, volatility
      of
      100% and an interest rate of 4.5%.





The
      Company recognized a beneficial conversion feature discount on the Series A
      preferred stock at its intrinsic value, which was the fair value of the common
      stock at the commitment date for the Series A preferred stock investment, less
      the effective conversion price but limited to the $15 million of proceeds
      received from the sale. The Company recognized the $7.8 million beneficial
      conversion feature in the equity as a transfer from retained earnings to
      additional paid in capital as dividends in the accompanying consolidated
      financial statements on the date of issuance of the Series A preferred shares
      since the Series A preferred shares were convertible at the issuance
      date.





On
      July 18, 2008 the Company sold
      1,971,842 shares of Series A Preferred Stock and various stock purchase warrants
      for cash consideration totaling $5 million dollars (the “July 2008 Financing”).
      The exercise price, expiration date and number of share eligible to be purchased
      with the warrants are summarized in the following table:





Series
                of warrant
            Number
                of shares
            Exercise
                price
            Contractual
                termSeries
                A
            2,366,211
            $3.52
            5.0
                years




The
      Series A preferred stock has liquidation rights senior to common stock and
      to
      any other class or series of stock issued by the Company not designated as
      ranking senior to or pari passu with the Series A Preferred Share. In the event
      of a liquidation of the Company, holders of Series A preferred stock are
      entitled to receive a distribution equal to $2.5357 per share of Series A
      preferred stock prior to any distribution to the holders of common stock or
      any
      other stock that ranks junior to the Series A Preferred Shares. The Preferred
      Shareholders are not entitled to dividends unless paid to Common Shareholders.
      Any dividend paid will have the same record and payment date and terms as the
      dividend payable to the Common Stock. The Series A preferred stock will
      participate based on their respective as-if conversion rates if the Company
      declares any dividends. Holders of Series A Preferred Shares also have voting
      rights required by applicable law and the relevant number of votes shall be
      equal to the number of shares of Common Stock issuable upon conversion of Series
      A Preferred Shares. At any time, the Preferred Stock is convertible into 1
      share
      of Common Stock adjusted from time to time to the Conversion Rate. The
      Conversion Rate is computed as the Liquidation Preference Amount ($2.5357 per
      share) divided by the Conversion Price. The Conversion Price is initially
      $2.5357 per share but can adjust for anti-dilution.


F-21
  **SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**10.**
            **PREFERRED
                STOCK AND WARRANTS
                (Continued)**





The
      Warrants were issued at an exercise price of $3.52 per share. The exercise
      price
      can adjust for dilutive events. The Warrants are immediately exercisable.
      However, if after exercise the holder would become a holder of greater than
      9.9%
      of common stock they cannot exercise without filing a waiver with the company.
      The waiver is required to be filed 61 days prior to exercise and by filing
      the
      waiver the restriction is removed. (Since the company is required to accept
      the
      waiver this restriction is not considered significant in valuing the warrant.)
      The Warrants expire 5 years from the date of issuance. The Warrants are freely
      transferable upon registration. The Warrants are subject to the same
      Registration Rights Agreement as that of the Preferred Stock. If a registration
      statement providing for the resale of the Common Stock issued upon exercise
      of
      the Warrant is not declared effective after 180 days after the issuance date,
      the Warrants can be cashless exercised. Also, the Warrants have Buy-in Rights
      similar to those of the Preferred Stock.





The
      gross
      proceeds of the transaction were $5 million. The proceeds from the transaction
      were allocated to the Series A preferred stock, warrants and beneficial
      conversion feature based on the relative fair value of the securities. The
      Company evaluated whether a relative fair value approach or residual fair value
      approach was more appropriate given the terms and accounting treatment related
      to the financial instruments involved. Given that the Warrants will not be
      classified as a liability, the relative fair value method was used. The Warrants
      were first valued using the Black-Scholes valuation model. The Company valued
      the Warrants at issuance at $1.84 per warrant with the following assumptions:
      common stock fair market value of $2.55, expected life of 5 year, volatility
      of
      100% and an interest rate of 4.5%.





The
      Company recognized a beneficial conversion feature discount on the Series A
      preferred stock at its intrinsic value, which was the fair value of the common
      stock at the commitment date for the Series A preferred stock investment, less
      the effective conversion price but limited to the $5 million of proceeds
      received from the sale. The Company recognized the $2.6 million beneficial
      conversion feature in the equity as a transfer from retained earnings to
      additional paid in capital as dividends in the accompanying consolidated
      financial statements on the date of issuance of the Series A preferred shares
      since the Series A preferred shares were convertible at the issuance
      date.





In
      connection with the June 2008 Financing and the July 2008 Financing, in the
      event of the Company’s failure to timely convert, additional damages would
      become due. In the event the Company does not have sufficient shares or is
      prohibited by law or regulation, then the holder can require cash redemption.
      The redemption price would equal 130% of the Liquidation Preference Amount
      plus
      additional amounts based on the difference between the bid prices on the
      conversion date and the date the Company has sufficient shares. The holder
      can
      also void the conversion or exercise its Buy-in Rights. The Buy-in-Rights
      entitle the holder to be protected in the case that the Company is unable to
      deliver the shares upon conversion while the holder has transacted to sell
      such
      underlying shares to a third party. In addition, in the event of a merger,
      consolidation or similar capital reorganization (prior to conversion) the
      holders can request to be redeemed at 110% of liquidation value.





Further,
      if the Company fails to obtain a listing on NASDAQ or the American Exchange,
      then 1,000,000 shares of common stock of the company will be given to the
      investors. The company is accounting for these penalties in accordance with
      FAS
      5 - Accounting for Contingencies, whereby the penalty will not be recorded
      as a
      liability until and if it is probable the penalty will be incurred. No penalty
      has been recorded in the accompanying consolidated financial statements for
      this
      instance.


F-22


**SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**11.**
            **CAPITALIZATION**





As
      a
      result of the Group’s reverse-merger on June 9, 2008, the Group’s capital
      structure has been changed. The number of common stock was 22,112,500 after
      reverse-merger. The common stock is $22,113 with additional paid-in capital
      $30,666,631 and $23,494,626 as at September 30, 2008 and June 30, 2008
      respectively. The new capital structure was retroactively restated in the
      consolidated balance sheet as of September 30, 2007.





**12.**
            **INCOME
                TAXES**





The
      Company is registered in the State of Florida and which conducts all of its
      business through its PRC subsidiaries, is not subject to any income tax. The
      subsidiaries are SK Ceramic Valves and Shengkai (see note 1).





SK
      Ceramic Valves, and Shengkai, being registered in the PRC, are subject to PRC’s
      Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income
      Taxes (“EIT”) is generally imposed at 25% since January 1, 2008.





A
      reconciliation between the income taxes computed at the U.S. statutory rate
      and
      the Group’s provision for income tax is as follows:





For
                the three months ended September 30,2008
            
            2007U.S.
                statutory rate
            
            
            34
            %
            
            34
            %Foreign
                income not recognized in the U.S.
            
            
            (34
            %)
            
            (34
            %)PRC
                EIT
            
            
            25
            %
            
            33
            %Provision
                for income taxes
            
            
            25
            %
            
            33
            %





The
      PRC
      EIT rate was changed to 25% from 33% since January 1, 2008.





Income
      before income tax expenses of $4,152,512, and $3,093,035 for the three months
      ended September 30, 2008, and 2007 respectively, was attributed to subsidiaries
      with operations in China. Income tax expense related to China income for the
      three months ended September 30, 2008, and 2007 are $1,026,195, and $1,023,979
      respectively.





The
      Group uses the asset and liability method, where deferred tax assets and
      liabilities are determined based in the expected future tax consequences of
      temporary differences between the carrying amounts of assets and liabilities
      for
      financial and income tax reporting purposes. There are no material temporary
      differences and therefore no deferred tax asset or liabilities as at September
      30, 2008 and 2007.


F-23
  **SHENGKAI
      INNOVATIONS** **,
      INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**13.**
            **EARNINGS
                PER SHARE**





The
      calculation of the basic and diluted earnings per share attributable to the
      common stock holders is based on the following data:




For
                  the three months ended September 30,Earnings:
              
              2008
              
              2007Net
                  income for the period
              
              $
              3,126,317
              
              $
              2,069,056Non-Cash
                  Dividends on convertible preferred stock
              
              
              (2,560,186
              )
              
              -Earnings
                    for the purpose of basic earnings per share
              
              $
              566,131
              
              $
              2,069,056Effect
                  of dilutive potential common stock
              
              
              -
              
              
              -Earnings
                  for the purpose of dilutiveearnings
                  per share
              
              $
              566,131
              
              $
              2,069,056Number
                  of shares:Weighted
                  average number of common stock for the purpose of basic earnings
                  per
                  share
              
              
              22,112,500
              
              
              20,550,000Effect
                  of dilutive potential common stock-
                  conversion of convertible preferred stock
              
              
              7,887,368
              
              
              -Weighted
                  average number of common stock for the purpose of dilutive earnings
                  per
                  share
              
              
              29,999,868
              
              
              20,550,000Earnings
                  per share:Basic
                  earnings per share before dividend
              
              $
              0.141
              
              $
              0.101Basic
                  earnings per share after dividend
              
              $
              0.026
              
              $
              0.101Dilutive
                  earnings per share after dividend
              
              $
              0.019
              
              $
              0.101
 F-24
  **SHENGKAI
        INNOVATIONS** **,
        INC.**


**(F.K.A.
      SOUTHERN SAUCE COMPANY, INC.)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


**(Stated
      in US Dollars)(Unaudited)**





**14.**
            **FAIR
                VALUE OF FINANCIAL
                INSTRUMENTS**





The
      fair
      value of a financial instrument is the amount at which the instrument could
      be
      exchanged in a current transaction between willing parties. The carrying amounts
      of financial assets and liabilities, such as cash and cash equivalents, trade
      receivables, other receivables, accounts payable, and other payables,
      approximate their fair values because of the short maturity of these instruments
      and market rates of interest available to the Group.





**15.**
            **COMMITMENTS
                AND CONTINGENCY**





The
      Company entered into an agreement with a technology development company to
      purchase a computer system in improving the quality of ceramic valve production
      (the Computer System) during the third quarter of 2007. The Company expected
      the
      Computer System would be delivered within 2 years and the total costs were
      $8,752,608 (RMB 60,000,000) as at September 30, 2008. The Company had already
      paid $4,376,303 (RMB30,000,000) and $4,365,668 (RMB30,000,000) as at September
      30, 2008 and June 30, 2008 respectively for the Computer System. The Company
      committed to pay the balance during next twelve months.





**16.**
            **SEGMENT
                INFORMATION**





The
      Group
      is principally engaged in one segment of the manufacturing and selling of
      ceramic valve in the PRC. Nearly
      all revenues are generated in PRC and nearly all identifiable assets of the
      Group are located in the PRC. Accordingly, no segmental analysis is presented.





**17.**
            **SUBSEQUENT
                EVENTS**





The
      Company successfully won a bid on a land use right over a plot of land
      approximately 43,566.3 square meters in size in October 2008. The land is
      located in Tianjin, China and the bid price will be about $1.8 million (RMB12.6
      million). The Company is requested to settle the price before the end of 2008
      and subject to three months extension if certain approvals from the relevant
      government bureau for the land use right are delayed. The purpose of the land
      auction is for expansion of production capacity.





F-25




**Item
              2.**
            **Management’s
                Discussion and Analysis or Plan of
                Operation**




**Cautionary
      Notice Regarding Forward-Looking Statements**




In
      this
      quarterly report, references to “Shengkai,” “SKII,” “the Company,” “we,” “us,”
and “our” refer to Shengkai Innovations, Inc.





We
      make
      certain forward-looking statements in this report. Statements concerning our
      future operations, prospects, strategies, financial condition, future economic
      performance (including growth and earnings), demand for our services, and other
      statements of our plans, beliefs, or expectations, including the statements
      contained under the captions “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations,” “Business,” as well as captions elsewhere
      in this document, are forward-looking statements. In some cases these statements
      are identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,”
“may,” “should,” “will,” “would,” and similar expressions. We intend such
      forward-looking statements to be covered by the safe harbor provisions contained
      in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)
      and in Section 21E of the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”). The forward-looking statements we make are not guarantees of
      future performance and are subject to various assumptions, risks, and other
      factors that could cause actual results to differ materially from those
      suggested by these forward-looking statements. Because such statements are
      subject to risks and uncertainties, actual results may differ materially from
      those expressed or implied by the forward-looking statements. Indeed, it is
      likely that some of our assumptions will prove to be incorrect. Our actual
      results and financial position will vary from those projected or implied in
      the
      forward-looking statements and the variances may be material. You are cautioned
      not to place undue reliance on such forward-looking statements. These risks
      and
      uncertainties, together with the other risks described from time to time in
      reports and documents that we file with the SEC should be considered in
      evaluating forward-looking statements.




The
      nature of our business makes predicting the future trends of our revenue,
      expenses, and net income difficult. Thus, our ability to predict results or
      the
      actual effect of our future plans or strategies is inherently uncertain. The
      risks and uncertainties involved in our business could affect the matters
      referred to in any forward-looking statements and it is possible that our actual
      results may differ materially from the anticipated results indicated in these
      forward-looking statements. Important factors that could cause actual results
      to
      differ from those in the forward-looking statements include, without limitation,
      the following:





·
            the
                effect of political, economic, and market conditions and geopolitical
                events;


·
            legislative
                and regulatory changes that affect our
                business;


·
            the
                availability of funds and working
                capital;


·
            the
                actions and initiatives of current and potential
                competitors;


·
            investor
                sentiment; and


·
            our
                reputation.




We
      do not
      undertake any responsibility to publicly release any revisions to these
      forward-looking statements to take into account events or circumstances that
      occur after the date of this report. Additionally, we do not undertake any
      responsibility to update you on the occurrence of any unanticipated events
      which
      may cause actual results to differ from those expressed or implied by any
      forward-looking statements.




The
      following discussion and analysis should be read in conjunction with our
      consolidated financial statements and the related notes thereto as filed with
      the SEC and other financial information contained elsewhere in this
      Report.




**Overview**




We
      were
      incorporated in Florida on December 8, 2004 and have since undergone a change
      in
      business. In October 2008, our shareholders approved our name change from
“Southern Sauce Company, Inc.” to “Shengkai Innovations, Inc.”





As
      a
      result of the reverse merger, financing and related transactions described
      in our current report on Form 8-K/A filed with the SEC on June 23, 2008, the
      Company ceased to be a shell company and became a holding company for entities
      that, through contractual relationships, control the business of Shengkai
      Industrial Technology Development Co., Ltd, a company organized under the laws
      of the PRC that designs, manufactures and sells ceramic valves. Because Shengkai
      Industrial Technology Development Co., Ltd.’s operations are the only
      significant operations of the Company and its affiliates, this discussion and
      analysis focuses on the business results of Shengkai Industrial Technology
      Development Co., Ltd., comparing its results in the three months ended September
      30, 2008 to the three months ended September 30, 2007.




4




**Statements of Operation Data**





The
      following selected statement of operations data contains statement of operations
      data and balance sheet data of Shengkai, the entity through which we operate
      our
      business, for the three months ended September 30, 2008 and 2007. The statement
      of operations data and balance sheet data were derived from the audited
      financial statements. Such financial data should be read in conjunction with
      the
      financial statements and the notes to the financial statements starting on
      page
      F-1 and with the section entitled “Results of Operations” below.




Three months ended September 30,2008
              
              2007Net
                  revenues
              
              $
              9,197,247
              
              $
              6,605,357Cost
                  of sales
              
              
              (3,607,574
              )
              
              (2,689,587
              )Gross
                  profit
              
              $
              5,589,673
              
              $
              3,915,770Operating
                  expenses:Selling
              
              
              (870,837
              )
              
              (458,988
              )General
                  and administrative
              
              
              (596,486
              )
              
              (366,377
              )Operating
                  income
              
              $
              4,122,350
              
              $
              3,090,405Other
                  income
              
              
              7,316
              
              
              -Other
                  expense
              
              
              -
              
              
              (13
              )Interest
                  income
              
              
              22,846
              
              
              2,643Income
                  before income taxes
              
              $
              4,152,512
              
              $
              3,093,035Income
                  taxes
              
              
              (1,026,195
              )
              
              (1,023,979
              )Net
                  income
              
              $
              3,126,317
              
              $
              2,069,056
  **Balance Sheet Data**


September 30,
                2008
            
            June
                30, 2008(Unaudited)
            
            (Audited)Cash
                and cash equivalents
            
            $
            28,653,683
            
            $
            21,313,484Working
                capital
            
            
            31,541,375
            
            
            23,592,880Total
                assets
            
            
            48,364,692
            
            
            39,767,207Total
                liabilities
            
            
            3,374,137
            
            
            2,585,665Total
                shareholders’ equity
            
            
            44,990,555
            
            
            37,181,542




**Results
      of Operations**





**THE
      THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THE THREE MONTHS ENDED
      SEPTEMBER 30, 2008**




**Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**




The
      following discussion of the financial condition and results of operation of
      the
      Company for the three months ended September 30, 2008 and 2007 should be read
      in
      conjunction with the selected financial data, the financial statements and
      the
      notes to those statements that are included elsewhere in this registration
      statement. Our discussion includes forward-looking statements based upon current
      expectations that involve risks and uncertainties, such as our plans,
      objectives, expectations and intentions. Actual results and the timing of events
      could differ materially from those anticipated in these forward-looking
      statements as a result of a number of factors, including those set forth under
      the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and
      Business sections in this registration statement. We use terms such as
“anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions
      to identify forward-looking statements.




5


**General**





Shengkai,
      the entity through which we run our operations, is a prominent ceramic valve
      manufacturer. We have more than 14 years of experience and possess a unique
      method for creating ceramic valves.





We
      believe that Shengkai is the one of the few ceramic valve manufacturers in
      the
      world with research and development, engineering, and production capacity for
      structural ceramics. Shengkai’s product categories include a broad range of
      valves in all industries that are sold throughout China, to North America,
      and
      other countries in the Asia-Pacific region. Totaling over 300 customers,
      Shengkai became a supplier of the CPCC in 2005 and a member of the PetroChina
      supply network in 2006, after a six-year application process.




**Results
      of Operations**




***Comparison
      of the Three Months Ended September 30, 2008 and 2007***





Revenue





Revenue
      for the three months ended September 30, 2008 was $9,197,247 , an increase
      of $
      2,591,890 or 39.2% from $6,605,357 for the comparable period in 2007.
      Approximately 91.2% of our source of revenue came from customers in the electric
      power, petrochemical and chemical for the past three months. The electric power
      industry was still the significant market to our revenue, contributing
      approximately76.6% of total revenue for the three months ended September 30,
      2008. Revenue from the electric power industry was approximately $7.0 million
      for the three monthsended September 30, 2008, an increase of approximately
      $2.0
      million or 40.0% from approximately $5.0 million for the comparable period
      in
      2007. The increase was primarily attributable to the broadening of our customer
      base. Revenue from the petrochemical and chemical industry, our biggest
      potential market, was approximately $1.4 million for the three monthsended
      September 30, 2008, an increase of approximately $0.9 million or 180 %
      from
      approximately $0.5 million for the comparable period in 2007. Revenue from
      other
      industries, including the aluminum and metallurgy industries, was approximately
      $0.8 million for the three monthsended September 30, 2008, a decrease of
      approximately $0.3 million or 27.3% from approximately $1.1 million for the
      comparable period in 2007.





At
      present we are experiencing a deficiency of production capacity to meet demand
      for our products. We are in the progress to expand our production capacity
      after
      external financing from two private placements in June and July
      2008.





Gross
      Profit





Gross
      profit for the three monthsended September 30, 2008 was $5,589,673, an increase
      of $1,673,903 or 42.7% compared to $3,915,770 for the comparable period in
      2007.
      The increase was primarily attributable to the increase in sales. The gross
      profit margin for the three months ended September 30, 2008 also slightly
      increased to 60.8% from 59.3% for the comparable period in 2007. Due to the
      deficiency of production capacity, we had restricted the minimum yield of some
      sales contracts.





Selling
      Expenses





Selling
      expenses for the three monthsended September 30, 2008 was $870,837, an increase
      of $411,849 or 89.7%, from $458,988 for the comparable period in 2007. The
      major
      selling expense was commission paid to the agents for introducing customers
      to
      us, which was approximately $0.7 million for the three months ended September
      30, 2008, an increase of approximately $0.3 million or 75% from approximately
      $0.4 million for the three months ended September 30, 2007. Another major
      selling expense was exhibition expenses for expanding our customer base, which
      was $80,028 for the three months ended September 30, 2008, an increase of
      $70,660from $9,368for the three months ended September 30,
      2007.




6




General
      and Administrative Expenses





General
      and administrative expenses for the three months ended September 30, 2008 were
      $596,486, an increase of $230,109 or 62.8% compared to $366,377for the
      comparable period in 2007. The increase was primarily attributable to increases
      in research and development, from $3,569 to $109,891over the comparable periods
      of 2007 and 2008, an increase of $106,322 or 2979%. Another reason was the
      increase in the expenses related to financing activities of private placement,
      including lawyer and auditor charges.





Interest
      expense




There
      was
      no interest expense for the year ended June 30, 2008. There was no short or
      long
      term loan remained outstanding for the three months ended September 30, 2008.





Income
      Tax Expenses





Income
      tax for the three months ended September 30, 2008 was $1,026,195, a slight
      increase of 0.2% or $2,216from $1,023,979 for the comparable period in 2007.
      The
      increase was primarily attributable to the increase in sales. We incurred this
      increase in spite of the PRC government’s decrease of the Enterprise Income Tax
      rate from 33% to 25% since January 1, 2008, which reduced income tax expenses
      by
      nearly $0.3 million from those expenses that would have been incurred if the
      previous tax rate was applied.





**Liquidity
      and Capital Resources**





Cash
      and Cash Equivalents




Our
      cash
      and cash equivalents as at the beginning of the three months ended September
      30,
      2008 was $21,313,484 and increased to $28,653,683 by the end of the period,
      an
      increase of $7,340,199 or 34.4%. The net change in cash and cash
      equivalents represented an increase of $7,275,913 or 11318% from $64,286 for
      the
      comparable period in 2007. The increase was primarily attributable to an
      increase in cash provided by financing activities.




Net
      cash provided by operating activities





Net
      cash
      provided by operating activities was $3,183,130 for the three months ended
      September 30, 2008, an increase of $1,023,773 or 47.4% from $2,159,357 for
      the
      comparable period in 2007 primarily due to an increase of net profits from
      operations.





Net
      cash used in investing activities





Net
      cash
      used in investing activities was $488,323 for the three months ended September
      30, 2008, compared to $2,119,463 for the three months ended September 30, 2007,
      a decrease of $1,631,140 or 77%. The company paid approximately $2 million
      (RMB15 million) for the deposit of computer system in the three months ended
      September 30, 2007.




Net
      cash used in financing activities





Net
      cash
      provided by financing activities was $4,613,790 for the three months ended
      September 30, 2008. There was no cash provided by financing activities for
      the
      same period in 2007. The company completed the second private placement in
      July
      2008.





Trends




We
      are not aware of any trends, events or uncertainties that have or are reasonably
      likely to have a material impact on our short-term or long-term liquidity.




7




Capital
      Expendiures




In
        October 2008, we successfully won a bid on a land use right over a plot of
        land
        approximately 43,566.3 square meters in size. The land is located in Tianjin,
        China and the bid price will be about $1.8 million (RMB12.6 million). The
        Company is requested to settle the price before the end of calendar year
        2008,
        subject to three months extension if certain approvals from the relevant
        government bureau for the land use right are delayed. The purpose of the
        land
        auction is for expansion of production capacity of our products including
        ceramic valves and ceramic parts. Such expansion of production capacity,
        once
        completed, would substantially increase our capital
        expenditures.




Inflation




We
      believe that inflation has not had a material or significant impact on our
      revenue or our results of operations.




**Contractual
      Obligations and Commitments**




We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our financial position, results of operations, and cash flows.




The
      following table summarizes our contractual obligations as of September 30,
      2008,
      and the effect these obligations are expected to have on our liquidity and
      cash
      flows in future periods.





**Totals**
            
            **Less Than**
              **1 Year**
            
            **1
                to 3**
              **Years**
            
            **Thereafter**Capital
                expenditures (1)
            
            $
            4,376,303
            
            $
            4,376,303
            
            $
            -
            
            
            -




(1)
      Capital expenditure includes commitments for the purchase of computer systems
      and patent applications. See Note15 - Commitment and Contingency in the notes
      to
      the financial statements, included elsewhere in this report. The Company entered
      into an agreement with a technology development company to purchase a computer
      system in improving the quality of ceramic valve production (the “Company
      System”) on August 26, 2007. **** The
      Company expects the Computer System will be delivered within 2 years and the
      total costs were $8,752,608 (RMB60,000,000). As of September 30, 2008, the
      Company has already paid $4,376,303for the Computer System and is committed
      to
      pay the balance during next twelve months.





**Off
      Balance Sheet Arrangements**




None.




**Critical
      Accounting Policies and Estimates**




The
      financial statements are prepared in accordance with accounting principles
      generally accepted in the United States, which require us 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 periods. Management makes these estimates using the best information
      available at the time the estimates are made. However, actual results could
      differ materially from those estimates (See Note 2 in the Notes to Financial
      Statements).




*Revenue
      recognition*





Net
      revenue represents the invoiced value of goods sold recognized upon the delivery
      of goods to customers, net of value added tax (“VAT”), after allowances for
      returns and discounts and the value of services rendered. Revenue is recognized
      when the following four criteria are met: persuasive evidence of an arrangement
      exists, delivery has occurred, the selling price is fixed or determinable,
      and
      collectability is reasonably assured.




*Intangible
      assets*





Intangible
      assets represent land use rights, patent rights and other assets (such as use
      of
      software) in the PRC. Land use rights are carried at cost and amortized on
      a
      straight-line basis over the period of rights of 50 years commencing from the
      date of acquisition of equitable interest. Patent rights are carried at cost
      and
      amortized on a straight-line basis over the period of rights of 10 years
      commencing from the date of acquisition of equitable interest.




8




*Foreign
      currency translation*





The
      accompanying financial statements are presented in United States dollars. The
      functional currency of Shengkai is the Renminbi (RMB). The financial statements
      are translated into United States dollars from RMB at year-end exchange rates
      as
      to assets and liabilities and average exchange rates as to revenues and
      expenses. Capital accounts are translated at their historical exchange rates
      when the capital transactions occurred.




*New
      Financial Accounting Pronouncements*




In
      September 2007, the FASB issued SFAS 157, Fair Value Measurements, which defines
      fair value, establishes a framework for measuring fair value in generally
      accepted accounting principles, and expands disclosures about fair value
      measurements. SFAS 157 applies under other accounting pronouncements that
      require or permit fair value measurements, where fair value is the relevant
      measurement attribute. The standard does not require any new fair value
      measurements. SFAS 157 is effective for financial statements issued for fiscal
      year beginning after November 15, 2007, and interim periods within those fiscal
      years.





In
      September 2007, the SEC issued SAB No. 108, which provides guidance on the
      process of quantifying financial statement misstatements. In SAB No. 108, the
      SEC staff establishes an approach that requires quantification of financial
      statement errors, under both the iron-curtain and the roll-over methods, based
      on the effects of the error on each of the Company’s financial statements and
      the related financial statement disclosures. SAB No.108 is generally effective
      for annual financial statements in the first fiscal year ending after November
      15, 2007. The transition provisions of SAB No. 108 permits existing public
      companies to record the cumulative effect in the first year ending after
      November 15, 2007 by recording correcting adjustments to the carrying values
      of
      assets and liabilities as of the beginning of that year with the offsetting
      adjustment recorded to the opening balance of retained earnings.





In
      February 2007, FASB issued Statement of Financial Accounting Standards No.
      (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities - Including an Amendment of FASB Statement No. 115” (“SFAS 159”).
      SFAS 159 permits entities to choose to measure many financial instruments and
      certain other items at fair value. Entities that elect the fair value option
      will report unrealized gains and losses in earnings at each subsequent reporting
      date. The fair value option may be elected on an instrument-by-instrument basis,
      with a few exceptions. SFAS 159 also establishes presentation and disclosure
      requirements to facilitate comparisons between entities that choose different
      measurement attributes for similar assets and liabilities. The requirements
      of
      SFAS 159 are effective for our fiscal year beginning on October 1,
      2008.





In
      December 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standard (“SFAS”) No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160
      establishes accounting and reporting standards for the noncontrolling interest
      in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. As such, the Company is required to
      adopt these provisions at the beginning of the fiscal year ended December 31,
      2009. The Company is currently evaluating the impact of SFAS 160 on its
      consolidated financial statements but does not expect it to have a material
      effect.





In
      December 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standard (“SFAS”) No. 141(R), "Business Combinations”. SFAS
      141(R) establishes principles and requirements for how the acquirer recognizes
      and measures in its financial statements the identifiable assets acquired,
      the
      liabilities assumed, an any noncontrolling interest in the acquiree, recognizes
      and measures the goodwill acquired in the business combination or a gain from
      a
      bargain purchase, and determines what information to disclose to enable users
      of
      the financial statements to evaluate the nature and financial effects of the
      business combination. SFAS 141(R) is effective for fiscal years, and interim
      periods within those fiscal years, beginning on or after December 15, 2008.
      As
      such, the Company is required to adopt these provisions at the beginning of
      the
      fiscal year ended December 31, 2009. The Company is currently evaluating the
      impact of SFAS 141(R) on its consolidated financial statements but does not
      expect it to have a material effect.





In
      March
      2008, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standard (“SFAS”) No. 161 “Disclosures about Derivative Instruments
      and Hedging Activities”. SFAS 161 is intended to improve financial reporting
      about derivative instruments and hedging activities by requiring enhanced
      disclosures to enable investors to better understand their effects on an
      entity’s financial position, financial performance, and cash flows. It is
      effective for financial statements issued for fiscal years and interim periods
      beginning after November 15, 2008, with early application encouraged. The
      Company is currently evaluating the impact of SFAS 161 on its consolidated
      financial statements but does not expect it to have a material
      effect.




9




The
      management of the Company does not anticipate that the adoption of these three
      standards will have a material impact on these financial
      statements.


**Item
          3.** ****Quantitative
          and Qualitative Disclosures about Market Risk.****




N/A.




**Item
          4T.** ****Controls
          and Procedures.****




Our
      management is responsible for establishing and maintaining a system of
      disclosure controls and procedures (as defined in Rule 13a-15(e)) under the
      Exchange Act) that is designed to ensure that information required to be
      disclosed by the Company in the reports that we file or submit under the
      Exchange Act is recorded, processed, summarized and reported, within the time
      specified in the Commission's rules and forms. Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by an issuer in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the issuer's management, including its principal executive officer or
      officers and principal financial officer or officers, or persons performing
      similar functions, as appropriate to allow timely decisions regarding required
      disclosure.




Pursuant
      to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation
      with the participation of the Company’s management, including Wang Chen, the
      Company’s Chief Executive Officer (“CEO”), of the effectiveness of the Company’s
      disclosure controls and procedures (as defined under Rule 13a-15(e) under the
      Exchange Act) as of the three months ended September 30, 2008. Based upon that
      evaluation, the Company’s CEO concluded that the Company’s disclosure controls
      and procedures are effective to ensure that information required to be disclosed
      by the Company in the reports that the Company files or submits under the
      Exchange Act, is recorded, processed, summarized and reported, within the time
      periods specified in the SEC’s rules and forms, and that such information is
      accumulated and communicated to the Company’s management, including the
      Company’s CEO, as appropriate, to allow timely decisions regarding required
      disclosure.




**Changes
      in internal controls**




Our
      management, with the participation of our Chief Executive Officer, performed
      an
      evaluation as to whether any change in our internal controls over financial
      reporting occurred during the three months ended September 30, 2008. Based
      on
      that evaluation, our Chief Executive Officer concluded that no change occurred
      in the Company's internal controls over financial reporting during the three
      months ended September 30, 2008 that has materially affected, or is reasonably
      likely to materially affect, the Company's internal controls over financial
      reporting.





**PART
      II -** **OTHER
      INFORMATION**





**Item
      1.**  **Legal
      Proceedings.**





To
      our knowledge, there is no material litigation pending or threatened against
      us.





**Item
      1A. Risk Factors.**





N/A.





**Item
      2.**  **Unregistered
      Sale of Equity Securities and Use of Proceeds.**





None.





**Item
      3.**  **Defaults
      Upon Senior Securities**





To
      our knowledge, there are no material defaults upon senior securities.




10




**Item
      4.**  **Submission
      of Matters to a Vote of Securities Holders**





On
      September 15, 2008, a
      majority of shareholders ratified the approval by the Company’s board of
      directors to amend the Company’s Articles of Incorporation that
      would adopt a change in the Company’s name from Southern Sauce Company, Inc. to
      Shengkai Innovations Co., Ltd (the “Corporate Action”). In order to more fully
      comply with Florida laws and regulations related to changes in corporate names,
      on October 16, 2008, a majority of shareholders approved a modification to
      the
      Corporate Action that would amend the the Company’s Articles of Incorporation to
      adopt the new corporate name, “Shengkai Innovations, Inc.” The name change took
      effect October 23, 2008. In conjunction with the name change, effective October 23,
      2008, the Company’s common stock began trading on the Over The Counter Bulletin
      Board under the new symbol, “SKII.”





**Item
      5.**  **Other
      Information.**





Effective
      October 23, 2008, the Company changed its name from “Southern Sauce Company,
      Inc.” to “Shengkai Innovations, Inc.” and its ticker symbol from “SOSA.OB” to
“SKII.OB.”


**Item
        6. **Exhibits****




(a)
      Exhibits




31.1
            
            Certification
                Required Under Section 302 of Sarbanes-Oxley Act of
                2002.





32.1
            
            Certification
                Required Under Section 906 of Sarbanes-Oxley Act of
                2002.


11




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.





SHENGKAI
                INNOVATIONS, INC.Date:
                November 14, 2008
            By:
            /s/
              Wang ChenName:
                Wang ChenTitle:
                Chief Executive Officer and Director
              (principal
                executive officer, principalfinancial
                officer,
              and
                principalaccounting
                officer )


12