**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 (Mark
        One)
 
 x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934.
 
 FOR
        THE
        QUARTERLY PERIOD ENDED DECEMBER 31, 2007
  o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934.
 
 For
        the
        transition period from ____________ to ______________
 
 Commission
        File Number 0-51312
 
 SHENGTAI
        PHARMACEUTICAL, INC.
 (Exact
        name of small business issuer as specified in its charter)
  DELAWARE
              
              54-2155579(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  No.)
 
 CHANGDA
        ROAD EAST, DEVELOPMENT DISTRICT,
 CHANGLE
        COUNTY, SHANDONG,
 PEOPLE’S
        REPUBLIC OF CHINA 262400
 (Address
        of principal executive offices)
 
 011-86-536-6295728
 (Issuer's
        telephone number)
  Indicate
        by check mark whether the issuer (1) filed all reports required to be filed
        by
        Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
        12 months (or for such shorter period that the registrant was required to
        file
        such reports), and (2) has been subject to such filing requirements for the
        past
        90 days. Yes x No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filers” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
        accelerated filer o   Accelerated
        filer o   Non-accelerated
        filer 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
  Indicate
        by check mark whether the registrant has filed all documents and reports
        required to be filed by Sections 12, 13 or 15(d) of the Securities Act of
        1934
        subsequent to the distribution of securities under a plan confirmed by a
        court. Yes o No o
  APPLICABLE
        ONLY TO CORPORATE SSUERS
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date: 19,069,805 shares of Common Stock,
        $.001 par value, were outstanding as of January 22, 2008.
 
 
  **PART
        I - FINANCIAL INFORMATION**
  **Item
        1.**  **Financial
        Statements.**
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          BALANCE SHEETS
 AS
          OF
          DECEMBER 31, 2007 AND JUNE 30, 2007
 
 December 31,
                
                June 30,2007
                
                2007(Unaudited)ASSETSCURRENT
                    ASSETS:Cash
                
                $
                1,046,004
                
                $
                6,420,439Restricted
                    cash
                
                
                1,885,500
                
                
                5,628,500Accounts
                    receivable, net of allowance for doubtful accounts of $319,887
                    and
                    $431,178 as of December 31, and June 30, 2007,
                    respectively
                
                
                6,345,988
                
                
                5,779,967Notes
                    receivable
                
                
                1,799,285
                
                
                984,675Other
                    receivables
                
                
                2,155,536
                
                
                3,484,484Other
                    receivables - related parties
                
                
                -
                
                
                2,491,656Other
                    receivables - shareholder
                
                
                -
                
                
                1,229,625Loan
                    to related party
                
                
                -
                
                
                657,500Inventories
                
                
                4,474,855
                
                
                4,449,267Prepayments
                
                
                631,130
                
                
                140,376Total
                    current assets
                
                
                18,338,298
                
                
                31,266,489PLANT
                    AND EQUIPMENT, net
                
                
                38,350,904
                
                
                30,178,074OTHER
                    ASSETS:Investment
                    in Changle Shengshi Redian Co., Ltd.
                
                
                3,188,822
                
                
                2,675,678Loan
                    to related party - non-current
                
                
                411,300
                
                
                394,500Prepayments
                    - non-current
                
                
                12,640,708
                
                
                7,429,371Intangible
                    assets - land use right, net of accumulated amortization
                
                
                2,193,801
                
                
                1,816,021Total
                    other assets
                
                
                18,434,631
                
                
                12,315,570Total
                    assets
                
                $
                75,123,833
                
                $
                73,760,133LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                $
                3,408,140
                
                $
                3,807,997Accounts
                    payable - related party
                
                
                935,077
                
                
                949,992Notes
                    payable - banks
                
                
                1,371,000
                
                
                8,942,000Short
                    term loans
                
                
                15,697,950
                
                
                18,870,250Accrued
                    liabilities
                
                
                164,386
                
                
                229,643Other
                    payable
                
                
                1,937,205
                
                
                1,526,903Employee
                    loans
                
                
                1,785,196
                
                
                596,516Employee
                    loan - officer
                
                
                36,963
                
                
                -Third
                    party loan
                
                
                2,160,193
                
                
                318,274Customer
                    deposit
                
                
                1,258,155
                
                
                796,228Long
                    term loan - current maturity
                
                
                397,590
                
                
                381,350Taxes
                    payable
                
                
                3,856,304
                
                
                2,048,932Total
                    current liabilities
                
                
                33,008,159
                
                
                38,468,085LONG
                    TERM LIABILITIESOther
                    payable - noncurrent
                
                
                3,183,858
                
                
                3,661,472Total
                    long term liabilities
                
                
                3,183,858
                
                
                3,661,472Total
                    liabilities
                
                
                36,192,017
                
                
                42,129,557COMMITMENTS
                    AND CONTINGENCIES
                
                
                -
                
                
                -SHAREHOLDERS'
                    EQUITY:Preferred
                    stock, $0.001 par value, 5,000,000 shares authorized, no shares
                    issued and
                    outstanding
                
                
                -
                
                
                -Common
                    stock, $0.001 par value, 100,000,000 shares authorized, 19,069,805
                    and
                    18,875,000 shares issued and outstanding as of December
                    31, and June 30, 2007, respectively
                
                
                19,070
                
                
                18,875Paid-in
                    capital
                
                
                19,669,847
                
                
                19,163,549Statutory
                    reserves
                
                
                1,735,484
                
                
                1,735,484Retained
                    earnings
                
                
                15,267,766
                
                
                9,885,670Accumulated
                    other comprehensive income
                
                
                2,239,649
                
                
                826,998Total
                    shareholders' equity
                
                
                38,931,816
                
                
                31,630,576Total
                    liabilities and shareholders' equity
                
                $
                75,123,833
                
                $
                73,760,133
  The
          accompanying notes are an integral part of this statement.
  -
              1
              -
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
          THE
          THREE AND SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
 (UNAUDITED)
 
 Three months ended
                
                Six months endedDecember 31,
                
                December 31,2007
                
                2006
                
                2007
                
                2006SALES
                    REVENUE
                
                $
                24,954,288
                
                $
                12,310,489
                
                $
                44,327,357
                
                $
                22,909,810COST
                    OF SALES
                
                
                19,086,274
                
                
                9,237,442
                
                
                33,865,306
                
                
                17,397,319GROSS
                    PROFIT
                
                
                5,868,014
                
                
                3,073,047
                
                
                10,462,051
                
                
                5,512,491SELLING,
                    GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                1,814,376
                
                
                958,077
                
                
                3,510,931
                
                
                1,929,945INCOME
                    FROM OPERATIONS
                
                
                4,053,638
                
                
                2,114,970
                
                
                6,951,120
                
                
                3,582,546OTHER
                    (EXPENSE) INCOME:Earnings
                    on equity investment
                
                
                977
                
                
                17,683
                
                
                149,756
                
                
                22,207Non-operating
                    income
                
                
                69,962
                
                
                38,369
                
                
                109,709
                
                
                97,163Non-operating
                    expense
                
                
                (26,495
                )
                
                (2,783
                )
                
                (203,844
                )
                
                (2,783
                )Interest
                    expense and other charges
                
                
                (519,417
                )
                
                (351,223
                )
                
                (935,881
                )
                
                (368,638
                )Interest
                    income
                
                
                32,243
                
                
                15,678
                
                
                98,404
                
                
                43,645Other
                    (expense), net
                
                
                (442,730
                )
                
                (282,276
                )
                
                (781,856
                )
                
                (208,406
                )INCOME
                    BEFORE PROVISION FOR INCOME TAXES
                
                
                3,610,908
                
                
                1,832,694
                
                
                6,169,264
                
                
                3,374,140PROVISION
                    FOR INCOME TAXES
                
                
                481,323
                
                
                243,723
                
                
                787,168
                
                
                301,138NET
                    INCOME
                
                
                3,129,585
                
                
                1,588,971
                
                
                5,382,096
                
                
                3,073,002OTHER
                    COMPREHENSIVE INCOME:Foreign
                    currency translation adjustments
                
                
                140,556
                
                
                246,971
                
                
                1,412,651
                
                
                246,971COMPREHENSIVE
                    INCOME
                
                $
                3,270,141
                
                $
                1,835,942
                
                $
                6,794,747
                
                $
                3,319,973EARNINGS
                    PER SHAREBasic
                
                $
                0.17
                
                $
                0.16
                
                $
                0.28
                
                $
                0.30Diluted
                
                $
                0.15
                
                $
                0.16
                
                $
                0.27
                
                $
                0.30WEIGHTED
                    AVERAGE NUMBER OF SHARESBasic
                
                
                18,961,992
                
                
                10,125,000
                
                
                18,918,496
                
                
                10,125,000Diluted
                
                
                20,296,006
                
                
                10,125,000
                
                
                20,000,956
                
                
                10,125,000
  The
          accompanying notes are an integral part of this statement.
  -
              2
              -
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF SHAREHOLDERS' EQUITY
 
 Capital
                
                Retained earnings
                
                Accumulated otherCommon stock
                
                Paid-in
                
                contribution
                
                Statutory
                
                
                
                comprehensiveShares
                
                Par value
                
                capital
                
                receivable
                
                reserves
                
                Unrestricted
                
                income
                
                TotalsBALANCE,
                    June 30, 2006
                
                
                10,125,000
                
                $
                10,125
                
                $
                3,915,871
                
                $
                (1,925,996
                )
                $
                1,001,088
                
                $
                3,470,940
                
                $
                185,402
                
                $
                6,657,430Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3,073,002
                
                
                
                
                
                3,073,002Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                246,971
                
                
                246,971BALANCE,
                    December 31, 2006 (Unaudited)
                
                
                10,125,000
                
                $
                10,125
                
                $
                3,915,871
                
                $
                (1,925,996
                )
                $
                1,001,088
                
                $
                6,543,942
                
                $
                432,373
                
                $
                9,977,403Issuance
                    of common stock
                
                
                8,750,000
                
                
                8,750
                
                
                15,247,678
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                15,256,428Capital
                    contribution received
                
                
                
                
                
                
                
                
                
                
                
                1,925,996
                
                
                
                
                
                
                
                
                
                
                
                1,925,996Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,076,124
                
                
                
                
                
                4,076,124Adjustment
                    to statutory reserve
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                734,396
                
                
                (734,396
                )
                
                
                
                
                -Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                394,625
                
                
                394,625BALANCE,
                    June 30, 2007
                
                
                18,875,000
                
                $
                18,875
                
                $
                19,163,549
                
                $
                -
                
                $
                1,735,484
                
                $
                9,885,670
                
                $
                826,998
                
                $
                31,630,576Exercised
                    warrants
                
                
                194,805
                
                
                195
                
                
                506,298
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                506,493Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,382,096
                
                
                
                
                
                5,382,096Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,412,651
                
                
                1,412,651BALANCE,
                    December 31, 2007 (Unaudited)
                
                
                19,069,805
                
                $
                19,070
                
                $
                19,669,847
                
                $
                -
                
                $
                1,735,484
                
                $
                15,267,766
                
                $
                2,239,649
                
                $
                38,931,816
  The
            accompanying notes are an integral part of this statement.
  -
                3
                -
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 FOR
          THE
          SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
 (UNAUDITED)
 
 2007
                
                2006CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income
                
                $
                5,382,096
                
                $
                3,073,002Adjustments
                    to reconcile net income to cash provided by operating
                    activities:Depreciation
                
                
                1,187,166
                
                
                802,766Amortization
                
                
                23,820
                
                
                21,159Allowance
                    for bad debts
                
                
                -
                
                
                718Gain
                    on equipment disposal
                
                
                (90,098
                )
                
                -Loss
                    on disposal of land use right
                
                
                5,954
                
                
                -Earnings
                    on equity investment
                
                
                (149,757
                )
                
                (22,207
                )Change
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (311,689
                )
                
                (1,042,970
                )Notes
                    receivable
                
                
                (772,571
                )
                
                (569,932
                )Other
                    receivables
                
                
                1,186,223
                
                
                (975
                )Other
                    receivables - related party
                
                
                2,531,257
                
                
                (502,261
                )Other
                    receivables - shareholder
                
                
                1,254,248
                
                
                -Inventories
                
                
                159,692
                
                
                (393,469
                )Prepayments
                
                
                (472,365
                )
                
                (139,392
                )Prepayments
                    - related party
                
                
                -
                
                
                (39,024
                )Accounts
                    payable
                
                
                (1,668,080
                )
                
                896,568Accounts
                    payable - related party
                
                
                (293,176
                )
                
                (412,070
                )Accrued
                    liabilities
                
                
                (150,906
                )
                
                43,689Other
                    payable
                
                
                (313,162
                )
                
                299,581Customer
                    deposit
                
                
                417,062
                
                
                398,934Payable
                    - officer
                
                
                31,145
                
                
                -Taxes
                    payable
                
                
                1,671,334
                
                
                33,746Net
                    cash provided by operating activities
                
                
                9,628,193
                
                
                2,447,863CASH
                    FLOWS FROM INVESTING ACTIVITIES:Acquisition
                    of equity investment
                
                
                -
                
                
                (898,150
                )Purchase
                    plant and equipment
                
                
                (28,455
                )
                
                (415,524
                )Proceeds
                    from equipment disposal
                
                
                34,733
                
                
                -Additions
                    to construction in progress
                
                
                (5,865,225
                )
                
                (7,553,156
                )Acquisition
                    of land use right
                
                
                (317,183
                )
                
                (10,677
                )Purchase
                    of software program
                
                
                (5,343
                )
                
                -Advances
                    on plant and equipment purchase
                
                
                (5,226,396
                )
                
                -Loan
                    repayment from related party
                
                
                667,950
                
                
                -Loan
                    to related party - non-current
                
                
                -
                
                
                (723,205
                )Net
                    cash used in investing activities
                
                
                (10,739,919
                )
                
                (9,600,712
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Decrease
                    in restricted cash
                
                
                3,842,060
                
                
                28,071Borrowings
                    on notes payable - banks
                
                
                1,335,900
                
                
                7,055,930Payments
                    on notes payable - banks
                
                
                (9,084,120
                )
                
                (7,084,000
                )Borrowings
                    on short term loans
                
                
                3,566,853
                
                
                13,168,650Payments
                    on short term loans
                
                
                (7,440,963
                )
                
                (4,946,150
                )Borrowings
                    on employee loans
                
                
                1,271,112
                
                
                -Payments
                    on employee loans
                
                
                (137,616
                )
                
                -Borrowings
                    on third party loan
                
                
                1,781,556
                
                
                -Payments
                    on long term loans
                
                
                -
                
                
                (885,500
                )Cash
                    proceeds from issuance of common stock
                
                
                506,493
                
                
                -Dividend
                    paid to shareholders
                
                
                -
                
                
                (393,257
                )Net
                    cash (used in) provided by financing activities
                
                
                (4,358,725
                )
                
                6,943,744EFFECTS
                    OF EXCHANGE RATE CHANGE IN CASH
                
                
                96,016
                
                
                9,228DECREASE
                    IN CASH
                
                
                (5,374,435
                )
                
                (199,877
                )CASH,
                    beginning of period
                
                
                6,420,439
                
                
                502,457CASH,
                    end of period
                
                $
                1,046,004
                
                $
                302,580
 
 The
          accompanying notes are an integral part of this statement.
  -
              4
              -
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31, 2007
 (UNAUDITED)
 
 **Note
          1 – Organization background and principal activities**
 
 Shengtai
          Pharmaceutical Inc, (the “Company”), formerly known as West Coast Car Company
          was incorporated in March 2004 in the State of Delaware.
 
 On
          May
          15, 2007, the Company entered into a share exchange agreement (the “Share
          Exchange Agreement”) with the shareholders of Shengtai Holding Inc. (“SHI”).
          Pursuant to the Share Exchange Agreement, Qingtai Liu and Chenghai Du,
          shareholders of all the issued and outstanding shares of common stock of
          SHI,
          exchanged all SHI’s common stock for 9,125,000 newly-issued shares of the
          Company. As a result of the Share Exchange Agreement and the Share Purchase
          Agreement, the Company acquired all of the outstanding capital stock of
          SHI.
          Because SHI owns 100% of Weifang Shengtai Pharmaceutical Co., Ltd (hereinafter
          known as “Weifang Shengtai”), Weifang Shengtai is now an indirect wholly-owned
          subsidiary of the Company. For accounting purposes, the acquisition of
          SHI has
          been treated as a recapitalization of SHI with SHI as the acquirer. The
          historical financial statements prior to May 15, 2007 are those of
          SHI.
 
 In
          addition, on May 15, 2007, the Company entered into and consummated a share
          purchase agreement (the “Share Purchase Agreement”) with nineteen accredited
          investors (the “Purchasers”). Pursuant to the Share Purchase agreement, the
          Purchasers purchased from the Company an aggregate of 8,750,000 shares
          of common
          stock and 4,375,000 attached warrants for $2.00 per share (or an aggregate
          purchase price of $17,500,000) and for total net proceeds of $15,256,428.
          The
          exercise price of the warrants $2.60 per share and the term of the warrants
          is
          five years.
  In
          conjunction with this Share Purchase Agreement, Mr. Qingtai Liu, the controlling
          stockholder and chief executive officer, placed an aggregate 5,000,000
          shares of
          common stock in an escrow account held with Tri-State Title & Escrow, LLC
          upon closing of the Share Purchase Agreement. Pursuant to the Share Purchase
          Agreement, one half of the escrowed shares are to be released to the Purchasers
          on a pro-rated basis if the audited consolidated financial statements of
          the
          Company prepared in accordance with US generally accepted accounting principles
          (GAAP) do not reflect at least after-tax net income of at least $7,000,000
          or
          fully diluted earnings per share of $0.33 for the fiscal year ended June
          30,
          2007; and if the audited consolidated financial statements of the Company
          prepared in accordance with US GAAP do not reflect at least an after-tax
          net
          income of $9,000,000 or fully diluted earnings per share of $0.43 for the
          fiscal
          year ending June 30, 2008, the second half of the escrow shares will be
          distributed on a pro-rated basis to the Purchasers. The Company determined
          that
          the threshold for the year ended June 30, 2007 has been met.
 
 SHI
          was
          incorporated in the state of New Jersey on February 27, 2006. The Company,
          through its Chinese subsidiary, **** Weifang
          Shengtai, manufactures and distributes raw drug materials (glucose, dehydrate
          glucose) and drug supplements (starch, dextrin, polyacrylic acid
          resin).
 
 Weifang
          Shengtai was established in Changle County, Weifang City, Shandong Province,
          People’s Republic of China on February 4, 1999. Mr. Qingtai Liu and his
          management team were the original shareholders.
  -
              5
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
 On
          December 25, 2003, Bio-One Corporation (referred to as “Bio-One”), a Nevada
          corporation signed a joint venture agreement with Weifang Shengtai. Pursuant
          to
          the Joint Venture Agreement, Bio-One acquired a 51% interest in Weifang
          Shengtai
          for $2,000,000 cash, to fund its share of the registered capital, and 2,090,000
          shares of Bio-One’s Series A preferred stock to the former shareholders of
          Weifang Shengtai. Weifang Shengtai’s business term was for 20 years with
          registered capital of $3,920,000. Bio-One paid its $2,000,000 contribution
          in
          2004. The original shareholders contributed a total of $1,920,000 between
          1999
          and 2004.
 
 On
          April
          19, 2006, pursuant to a shareholders’ resolution, 37 Chinese shareholders of
          Weifang Shengtai transferred their 17.95% interest in Weifang Shengtai
          to Mr.
          Qingtai Liu for RMB 5,628,880 ($703,610). On June 3, 2006, the equity exchange
          was approved by the local branch of the Ministry of Commerce (MOC) in
          Weifang.
 
 On
          June
          20, 2006, SHI signed an agreement to acquire a 100% ownership in Weifang
          Shengtai from Bio-One Corporation which owned a 51% interest in Weifang
          Shengtai
          and Mr. Qingtai Liu who owned the remaining 49% interest. Mr. Qingtai Liu,
          a
          founding shareholder of Weifang Shengtai, sold his 49% interest in Weifang
          Shengtai to SHI for RMB 15 million (approximately $1,925,996), this amount
          was
          paid in May 2007. Bio-One sold its 51% interest in Weifang Shengtai to
          SHI for
          $1,000,000 in cash and the return of 4,180,000 Series A preferred shares
          of
          Bio-One owned by Mr. Qingtai Liu. Weifang Shengtai became a wholly foreign
          owned
          entity or “WFOE” and obtained the approval of the local branch of the Ministry
          of Commerce (MOC) in the City of Weifang on June 21, 2006. The business
          term is
          20 years starting on February 10, 2004 when Bio-One acquired its 51% in
          Weifang
          Shengtai. In accordance with laws governing foreign acquisitions of a Chinese
          registered company, SHI contributed the $1,925,996 as required. As a result
          of
          this transaction, SHI exercised control over Weifang Shengtai.
 
 On
          May
          26, 2007, Weifang Shengtai increased its registered capital from $3,920,000
          to
          $15,000,000. In May and June 2007, SHI contributed $11,080,000 towards
          the
          additional registered capital. This transaction was approved by the local
          branch
          of the MOC in the City of Weifang and the Company obtained a new business
          license on July 16, 2007.
 
 **Note
          2 – Summary of significant accounting policies**
 
 The
          reporting entity
 
 The
          consolidated financial statements of Shengtai Pharmaceutical Inc. and
          Subsidiaries reflect the activities of the parent and its wholly owned
          subsidiaries SHI and Weifang Shengtai. The purchase of SHI has been accounted
          for as a reverse acquisition and a recapitalization. The assets and liabilities
          of SHI were transferred at historical cost under the equity structure of
          the
          Company due to the reverse acquisition on May 15, 2007. The consolidated
          financial statements have been presented as if the acquisition occurred
          at June
          30, 2006.
  -
              6
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  Basis
          of presentation
 
 The
          accompanying consolidated financial statements have been prepared in accordance
          with accounting principles generally accepted in the United States of America. In
          the
          opinion of management, the accompanying balance sheet, and related interim
          statements of income, stockholders’ equity and cash flows include all
          adjustments, consisting only of normal recurring items. All
          material inter-company transactions and balances have been eliminated in
          the
          consolidation.
 
 Foreign
          currency translation
 
 The
          reporting currency of the Company is the US dollar. The Company uses their
          local
          currency, Renminbi (RMB), as their 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 unified exchange rate as quoted
          by
          the People’s Bank of China at the end of the period. Translation adjustments
          resulting from this process are included in accumulated other comprehensive
          income in the statement of shareholders’ equity. Transaction gains and losses
          that arise from exchange rate fluctuations on transactions denominated
          in a
          currency other than the functional currency are included in the results
          of
          operations as incurred.
 
 Translation
          adjustments amounted to $2,239,649 and $826,998 as of December 31, 2007
          and June
          30, 2007, respectively. Assets and liabilities were translated at 7.29
          RMB and
          7.60 RMB to $1.00 USD at December 31, 2007 and June 30, 2007, respectively.
          The
          equity accounts were stated at their historical rate. The average translation
          rates applied to income statement for the six months ended December 31,
          2007 and
          2006 were 7.49 RMB and 7.90 RMB to $1.00 USD. Cash flows are also translated
          at
          average translation rates for the period; therefore, amounts reported on
          the
          statement of cash flows will not necessarily agree with changes in the
          corresponding balances on the balance sheet.
 
 Revenue
          recognition
 
 The
          Company recognizes revenue when the goods are delivered title has passed,
          pricing is fixed and collection is reasonably assured. Sales revenue represents
          the invoiced value of goods, net of a value-added tax (VAT). Most of
          the  Company’s
          products sold in the PRC are subject to a Chinese value-added tax at a
          rate of
          17% of the gross sales price or at a rate approved by the Chinese local
          government, except that 13% VAT applies to our products of corn plumules.
          This
          VAT may be offset by VAT paid by the Company on raw materials and other
          materials included in the cost of producing their finished product and
          certain
          freight expenses.
 
 Shipping
          and handling
 
 Shipping
          and handling costs related to costs of goods sold are included in selling,
          general and administrative costs. Shipping and handling costs amounted
          to
          $1,935,875 and $1,097,916 for the six months ended December 31, 2007 and
          2006,
          respectively. Shipping and handling costs related to costs of goods sold
          amounted to $1,188,561 and $501,563 for the three months ended December
          31, 2007
          and 2006.
  -
              7
              -
  SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  Use
          of
          estimates
 
 The
          preparation of financial statements in conformity with generally accepted
          accounting principles of the United States of America requires management
          to
          make estimates and assumptions that affect the amounts reported in the
          consolidated financial statements and accompanying notes. For example,
          management estimates potential losses on outstanding receivables. Management
          believes that the estimates utilized in preparing its financial statements
          are
          reasonable and prudent. Actual results could differ from these
          estimates.
 
 Financial
          instruments
 
 Statement
          of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
          Value of Financial Instruments” requires disclosure of the fair value of
          financial instruments held by the Company. SFAS 107 defines the fair value
          of
          financial instruments as the amount at which the instrument could be exchanged
          in a current transaction between willing parties. The Company considers
          the
          carrying amount of cash, accounts receivable, notes receivable,
          other **** receivables,
          prepayments, accounts payable, other payable, accrued liabilities, customer
          deposits, tax payable, and loans to approximate their fair values because
          of the
          short period of time between the origination of such instruments and their
          expected realization and their current market rate of interest.
 
 Cash
          and concentration of risk
 
 Cash
          includes cash on hand and demand deposits in accounts maintained with
          state-owned banks within the People’s Republic of China and the United States of
          America. Certain financial instruments, which subject the Company to
          concentration of credit risk, consist of cash. The Company maintains cash
          balances at financial institutions which, from time to time, may exceed
          Federal
          Deposit Insurance Corporation insured limits for the banks located in the
          Unites
          States. Balances at financial institutions or state owned banks within
          the PRC
          are not covered by insurance. Total cash (including restricted cash balances)
          in
          banks at December 31, 2007 and June 30, 2007 amounted to $2,991,134 and
          $12,129,924, respectively of which $100,000 is covered by insurance. 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.
 
 Earnings
          per share
 
 The
          Company reports earnings per share in accordance with the provisions of
          SFAS No.
          128, "Earnings Per Share." SFAS No. 128 requires presentation of basic
          and
          diluted earnings per share in conjunction with the disclosure of the methodology
          used in computing such earnings per share. Basic earnings per share excludes
          dilution and is computed by dividing income available to common stockholders
          by
          the weighted average common shares outstanding during the period. Diluted
          earnings per share takes into account the potential dilution that could
          occur if
          securities or other contracts to issue common stock were exercised and
          converted
          into common stock.
  -
              8
              -
  SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  The
          following is a reconciliation of the basic and diluted earnings per share
          computation for the three and six months ended December 31, 2007 and
          2006:
  Three months ended December 31,2007
                
                2006(Unaudited)
                
                (Unaudited)Net
                    income for earnings per share
                
                $
                3,129,585
                
                $
                1,588,971Weighted
                    average shares used in basic computation
                
                
                18,961,992
                
                
                10,125,000Diluted
                    effect of warrants
                
                
                1,334,014
                
                
                -Weighted
                    average shares used in diluted computation
                
                
                20,296,006
                
                
                10,125,000Earnings
                    per shareBasic
                
                $
                0.17
                
                $
                0.16Diluted
                
                $
                0.15
                
                $
                0.16
  Six months ended December 31,2007
                
                2006(Unaudited)
                
                (Unaudited)Net
                    income for earnings per share
                
                $
                5,382,096
                
                $
                3,073,002Weighted
                    average shares used in basic computation
                
                
                18,918,496
                
                
                10,125,000Diluted
                    effect of warrants
                
                
                1,082,460
                
                
                -Weighted
                    average shares used in diluted computation
                
                
                20,000,956
                
                
                10,125,000Earnings
                    per shareBasic
                
                $
                0.28
                
                $
                0.30Diluted
                
                $
                0.27
                
                $
                0.30
 
 At
          December 31, 2007 and 2006, all outstanding warrants were included in the
          three
          and six months ended December 31, 2007 calculation of diluted earnings per
          share.
 
 Restricted
          cash
 
 The
          Company through its bank agreements is required to keep certain amounts
          on
          deposit that are subject to withdrawal restrictions. As of December 31,
          2007 and
          June 30, 2007, these amounts were $1,885,500 and $5,628,500,
          respectively.
 
 Under
          the
          Escrow Agreement and the Share Purchase Agreement signed by Shengtai Holding
          Inc., West Coast Car Company, Chinamerica Fund LP, and Tri-State Title
&
Escrow, LLC (the “Escrow Agent”), the Company was required to deposit with the
          Escrow Agent $5,500,000 immediately on the Closing Date of the Share Purchase
          Agreement. This fund can only be disbursed until certain criteria are met.
          As of
          December 31, 2007 and June 30, 2007, the amount not disbursed was $348,000
          and
          $500,000, respectively, and this balance is classified under other receivables
          in the Company’s consolidated balance sheets.
  -
              9
              -
  SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  Accounts
          receivable
 
 In
          the
          normal course of business, the Company extends unsecured credit to its
          customers. Accounts receivable, outstanding at December 31, 2007 and June
          30,
          2007 amounted to $6,665,875 and $6,211,145, respectively. Management reviews
          its
          accounts receivable on a regular basis to determine if the allowance for
          doubtful accounts is adequate. An estimate of uncollectible accounts is
          made to
          the allowance for doubtful accounts when management believes collection
          of the
          full amount is in doubt. Known bad debts are written off against allowance
          for
          doubtful accounts when identified.
 
 The
          activity in the allowance for doubtful accounts for trade accounts receivable
          for the periods ended December 31, 2007 and June 30, 2007 is as
          follows:
 
 Six months ended
                
                Year endedDecember 31, 2007
                
                June 30, 2007(Unaudited)Beginning,
                    allowance for doubtful accounts
                
                $
                431,178
                
                $
                357,970Additions
                    charged to bad debt expense
                
                
                -
                
                
                271,602Write-off
                    charged against the allowance
                
                
                (126,334
                )
                
                (217,838
                )Foreign
                    currency translation adjustments
                
                
                15,043
                
                
                19,444Ending,
                    allowance for doubtful accounts
                
                $
                319,887
                
                $
                431,178
 
 Concentrations
          of risk
 
 Management
          believes the credit risk on bank deposits is limited because the counterparties
          are banks with high credit-ratings assigned by international credit-rating
          agencies, or state-owned banks in China. The Company has never experienced
          any
          losses in such accounts and believes it is not exposed to any significant
          risks
          on its cash in bank accounts, either in the People’s Republic of China or in the
          United States.
 
 The
          Company’s concentrations of credit risk are primarily in trade accounts
          receivable. Management conducts credit evaluations of customers but generally
          has not required collateral or other security interests when granting credit.
          Management estimates uncollectible accounts based primarily on the age
          of the
          receivables but also when payment problems with specific customers are
          identified. For the six months ended December 31, 2007 and 2006, the top
          ten
          customers accounted for 25% and 21%, respectively, of total sales.
 
 For
          export sales, management frequently requires significant down payments
          or letter
          of credit prior to shipment. During the year, the Company maintains export
          credit insurance to protect against the risk that the overseas customers
          may
          default on settlement.
 
 The
          Company's operations are carried out in the PRC. Accordingly, the Company's
          business, financial condition and results of operations may be influenced
          by the
          political, economic and legal environments in the PRC, and by the general
          state
          of the PRC's economy. The Company's operations in the PRC are subject to
          specific considerations and significant risks not typically associated
          with
          companies in the North America and Western Europe. These include risks
          associated with, among others, the political, economic and legal environments
          and foreign currency exchange. The Company's results may be adversely affected
          by changes in governmental policies with respect to laws and regulations,
          anti-inflationary measures, currency conversion and remittance abroad,
          and rates
          and methods of taxation, among other things.
  -
              10
              -
  SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  Inventories
 
 Inventories
          are stated at the lower of cost or market using the weighted average basis
          and
          consists of the following:
 December 31,
                    2007
                  
                  June 30,
                    2007(Unaudited)Raw
                      materials
                  
                  $
                  944,574
                  
                  $
                  2,297,901Work-in-progress
                  
                  
                  1,091,731
                  
                  
                  1,130,900Finished
                      goods
                  
                  
                  2,438,550
                  
                  
                  1,020,466Total
                  
                  $
                  4,474,855
                  
                  $
                  4,449,267
  The
          Company reviews its inventory periodically for possible obsolete goods
          and to
          determine if any reserves are necessary. As of December 31, 2007 and June
          30,
          2007, management determined no reserves necessary.
 
 Plant
          and equipment
 
 Plant
          and
          equipment are stated at cost less accumulated depreciation. Depreciation
          is
          computed using the straight-line method over the estimated useful lives
          of the
          assets with 3% residual value. Depreciation expense for the six months
          ended
          December 31, 2007 and 2006 amounted to $1,187,166 and $802,766, respectively.
          Depreciation expense for the three months ended December 31, 2007 and 2006
          amounted to $500,513 and $360,664, respectively.
 
 Estimated
          useful lives of the assets are as follows:
 Estimated Useful LifeBuildings
                      and improvements
                  
                  5-20
                      YearsMachinery
                      and equipment
                  
                  5-10
                      YearsAutomobile
                      facilities
                  
                  5-10
                      YearsElectronic
                      equipment
                  
                  5-7
                      Years
  Construction
          in progress represents the costs incurred in connection with the construction
          of
          buildings or new additions to the Company’s plant facilities. No depreciation is
          provided for construction in progress until such time as the assets are
          completed and placed into service.
 
 Maintenance,
          repairs and minor renewals are charged directly to expenses as incurred.
          Major
          additions and betterment to property and equipment are capitalized.
 
 Long-lived
          assets of the Company are reviewed periodically or more often if circumstances
          dictate, to determine whether carrying values have become impaired. The
          Company
          considers assets to be impaired if the carrying value exceeds the future
          projected cash flows from related operations. The Company also re-evaluates
          the
          periods of depreciation to determine whether events and circumstances warrant
          revised estimates of useful lives. As of December 31, 2007, the Company
          expects
          these assets to be fully recoverable.
  -
              11
              -
  SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  Plant
          and
          equipment consists of the following:
 
 December 31,
                  2007
                
                June 30,
                  2007(Unaudited)Buildings
                    and improvements
                
                $
                5,792,751
                
                $
                5,272,190Machinery
                    and equipment
                
                
                34,926,778
                
                
                22,257,978Automobile
                    facilities
                
                
                524,767
                
                
                487,319Electronic
                    equipment
                
                
                329,474
                
                
                307,391Construction
                    in progress
                
                
                5,399,754
                
                
                9,055,482Total
                
                
                46,973,524
                
                
                37,380,360Accumulated
                    depreciation
                
                
                8,622,620
                
                
                7,202,286Total
                
                $
                38,350,904
                
                $
                30,178,074
 
 Interest
          costs totaling $286,060 and $391,949 was capitalized into construction
          in
          progress for the six months ended December 31, 2007 and 2006, respectively.
          Interest cost capitalized into construction in progress for the three months
          ended December 31, 2007 amounted to $93,513 and $234,513,
          respectively.
 
 Investment
          in Changle Shengshi Redian Co., Ltd.
 
 The
          Company entered into a joint venture partnership with Weifang City Investment
          Company and Changle Century Sun Paper Industry Co., Ltd on September 16,
          2003
          and formed Changle Shengshi Redian Co., Ltd (“Changle Shengshi”). Changle
          Shengshi was incorporated in Weifang City, Shandong Province, People’s Republic
          of China. Changle Shengshi’s principal activity is to produce and sell
          electricity and heat.
 
 On
          April
          12, 2005, the Company’s ownership percentage in Changle Shengshi was diluted
          from 30% to 20% as a result of an additional investment to Changle Shengshi
          by
          another party. The Company accounts for this investment under the equity
          method.
          Equity method investments are recorded at original cost and adjusted to
          recognize the Company’s proportionate share of the investee’s net income or
          losses, additional contributions made and distributions received and
          amortization of basis differences. The Company recognizes a loss if it
          is
          determined that other than temporary decline in the value of the investment
          exists.
  -
              12
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  Summarized
          financial information of Changle Shengshi is as follows:
 December 31,
                    2007
                  
                  June 30,
                    2007Current
                      assets
                  
                  $
                  4,707,712
                  
                  $
                  8,065,168Non-current
                      assets
                  
                  
                  26,094,726
                  
                  
                  23,027,549Total
                      assets
                  
                  
                  30,802,438
                  
                  
                  31,092,717Current
                      liabilities
                  
                  
                  10,717,907
                  
                  
                  14,137,526Non-current
                      liabilities
                  
                  
                  4,140,420
                  
                  
                  3,576,800Shareholders'
                      equity
                  
                  
                  15,944,111
                  
                  
                  13,378,391Total
                      liabilities and shareholders' equity
                  
                  $
                  30,802,438
                  
                  $
                  31,092,717
 Summarized
          financial information of Changle Shengshi for the six months ended is as
          follows:
 
 December 31,2007
                
                2006Net
                    sales
                
                $
                14,509,581
                
                $
                6,163,826Gross
                    profit
                
                $
                4,216,417
                
                $
                1,053,783Income
                    before taxes
                
                $
                3,444,249
                
                $
                524,037Net
                    income
                
                $
                1,959,781
                
                $
                411,472Company
                    share of income
                
                $
                391,956
                
                $
                82,294Elimination
                    of intercompany profit
                
                
                239,222
                
                
                60,087Company’s
                    share of net income
                
                $
                152,734
                
                $
                22,207
 
 Intangible
          assets
 
 All
          land
          in the People’s Republic of China is owned by the government. However, the
          government grants “land use rights” for terms ranging from 20 to 50 years. From
          March 2000 to June 2007, the Company acquired various land use rights for
          approximately $2,242,859. The Company obtained another land use right in
          July
          2007 for $314,500. The Company amortizes the cost of land use rights over
          their
          term of the agreement using the straight-line method.
 
 On
          June
          30, 2007 the Company sold land use right at an auction due to relocation
          in one
          of the Company’s manufacturing plants. The net book value of the land use right
          sold amounted to $306,984. The gross proceeds from the sales of the land
          use
          rights were $1,998,685. This
          balance is classified under other receivables in the Company’s consolidated
          balance sheets. As of December 31, 2007 $685,500 had been received. As
          receivable balance is from local government, the Company believes there
          is no
          collectibility issue.
 
 Intangible
          assets of the Company are reviewed periodically, or more often if circumstances
          dictate, to determine whether their carrying value has become impaired.
          Management considers assets to be impaired if the carrying value exceeds
          the
          future projected cash flows from related operations. Management also
          re-evaluates the periods of amortization to determine whether subsequent
          events
          and circumstances warrant revised estimates of useful lives. As of December
          31,
          2007, the Company expects these assets to be fully recoverable.
  -
              13
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
  At
          December 31, 2007 and June 30, 2007, accumulated amortization amounted
          to
          $122,809 and $96,299, respectively. Total amortization expense for the
          six
          months ended December 31, 2007 and 2006 amounted to $23,820 and $21,159,
          respectively. Amortization expense for the three months ended December
          31, 2007
          and 2006 amounted to $12,011 and $10,657, respectively.
 
 Income
          taxes
 
 The
          Company reports income taxes under SFAS 109 which requires the recognition
          of
          deferred income tax liabilities and assets for the expected future tax
          consequences of temporary differences between income tax basis and financial
          reporting basis of assets and liabilities. Provision for income taxes consist
          of
          taxes currently due plus deferred taxes. There are no deferred tax amounts
          at
          December 31, 2007 and June 30, 2007.
 
 The
          charge for taxation is based on the results for the year as adjusted for
          items,
          which are non-assessable or disallowed. It is calculated using tax rates
          that
          have been enacted or substantively enacted by the balance sheet
          date.
 
 Deferred
          tax is accounted for using the balance sheet liability method in respect
          of
          temporary differences arising from differences between the carrying amount
          of
          assets and liabilities in the financial statements and the corresponding
          tax
          basis used in the computation of assessable tax profit. In principle, deferred
          tax liabilities are recognized for all taxable temporary differences, and
          deferred tax assets are recognized to the extent that it is probably that
          taxable profit will be available against which deductible temporary differences
          can be utilized.
 
 Deferred
          tax is calculated using tax rates that are expected to apply to the period
          when
          the asset is realized or the liability is settled. Deferred tax is charged
          or
          credited in the income statement, except when it is related to items credited
          or
          charged directly to equity, in which case the deferred tax is also dealt
          with in
          equity.
 
 Deferred
          tax assets and liabilities are offset when they related to income taxes
          levied
          by the same taxation authority and the Company intends to settle its current
          ax
          assets and liabilities on a net basis.
 
 The
          Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
          Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
          benefit only if it is “more likely than not” that the tax position would be
          sustained in a tax examination, with a tax examination being presumed to
          occur.
          The amount recognized is the largest amount of tax benefit that is greater
          than
          50% likely of being realized on examination. For tax positions not meeting
          the
“more likely than not” test, no tax benefit is recorded. FIN 48 also provides
          guidance on derecognition, classification, interest and penalties, accounting
          in
          interim periods, disclosures, and transition. The adoption had no affect
          on the
          Company’s financial statements.
 
 The
          Company’s operations are subject to income and transaction taxes in the United
          States and in the PRC jurisdictions. Significant estimates and judgments
          are
          required in determining the Company’s worldwide provision for income taxes. Some
          of these estimates are based on interpretations of existing tax laws or
          regulations. The ultimate amount of tax liability may be uncertain as a
          result.
  -
              14
              -
  SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2007
 (UNAUDITED)
 The
            Company does not anticipate any events which could cause change to these
            uncertainties.
 
 The
            Company is subject to taxation in the U.S. and in the PRC jurisdictions.
            There
            are no ongoing examinations by taxing authorities at this time. The years
            2005
            to 2007 remain subject to examination by the United States tax authorities.
            The
            year 2007 remain subject to examination by the PRC tax authorities.
 
 Value
            Added Tax
 
 Enterprises
            or individuals who sell products, engage in repair and maintenance or
            import and
            export goods in the PRC are subject to a value added tax in accordance
            with
            Chinese laws. The value added tax standard rate is 17% of the gross sales
            price,
            except that 13% VAT applies to our products of corn plumules. A credit
            is
            available whereby VAT paid on the purchases of semi-finished products,
            raw
            materials used in the production of the Company’s finished products, and payment
            of freight expenses can be used to offset the VAT due on sales of the
            finished
            product.
 
 VAT
            on
            sales and VAT on purchases amounted to $6,616,628 and $5,079,511 for
            the six
            months ended December 31, 2007, and $3,543,233 and $3,201,727 for the
            six months
            ended December 31, 2006, respectively. Sales and purchases are recorded
            net of
            VAT collected and paid as the Company acts as an agent for the government.
            VAT
            taxes are not impacted by the income tax holiday. VAT on sales and VAT
            on
            purchases amounted to $3,756,399 and $2,647,096 for the three months
            ended
            December 31, 2007, and $1,920,544 and $1,740,191 for the three months
            ended
            December 31, 2006, respectively. Sales and purchases are recorded net
            of VAT
            collected and paid as the Company acts as an agent for the government.
            VAT taxes
            are not impacted by the income tax holiday.
 
 Guarantees
 
 From
            time
            to time, the Company guarantees the debt of others. Pursuant to Financial
            Accounting Standards Board Interpretation 45, “Guarantor’s Accounting for and
            Disclosure Requirements for Guarantees, Including Indirect Guarantees
            of
            Indebtedness to Others,” the Company records guarantees at the fair value of the
            expected future payments. Management estimates they will not be required
            to make
            any payments under these guarantees based on past experience and the
            financial
            condition of the companies (See note 8).
 
 Recently
            issued accounting pronouncements
 
 In
            September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
            which
            addresses the measurement of fair value by companies when they are required
            to
            use a fair value measure for recognition or disclosure purposes under
            GAAP. SFAS
            No. 157 provides a common definition of fair value to be used throughout
            GAAP
            which is intended to make the measurement of fair value more consistent
            and
            comparable and improve disclosures about those measures. SFAS No. 157
            will be
            effective for an entity's financial statements issued for fiscal years
            beginning
            after November 15, 2007. The Company is currently evaluating the effect
            SFAS No.
            157 will have on its consolidated financial statements.
  -
                15
                -
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
          31 ,
          2007
 (UNAUDITED)
  In
          February 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued
          Statement of Financial Accounting Standards (‘‘SFAS’’) No. 159, The Fair Value
          Option for Financial Assets and Financials Liabilities — Including an Amendment
          of FASB Statement No. 115. This standard permits measurement of certain
          financial assets and financial liabilities at fair value. If the fair value
          option is elected, the unrealized gains and losses are reported in earnings
          at
          each reporting date. Generally, the fair value option may be elected on
          an
          instrument-by-instrument basis, as long as it is applied to the instrument
          in
          its entirety. The fair value option election is irrevocable, unless a new
          election date occurs. SFAS No. 159 requires prospective application and
          also
          establishes certain additional presentation and disclosure requirements.
          The
          standard is effective as of the beginning of the fiscal year that begins
          after
          November 15, 2007. The Company is currently evaluating the provisions
          of SFAS No. 159 to determine the potential impact, if any, the adoption
          will
          have on the Company’s financial statements.
 
 **Note
          3 - Supplemental disclosure of cash flow information**
 
 Income
          taxes paid for the six months ended December 31, 2007 and 2006 amounted
          to
          $13,560 and $65,027, respectively.
 
 Interest
          paid for the six months ended December 31, 2007 and 2006 amounted to $788,221
          and $500,771, respectively.
 
 **Note
          4 – Related party transactions**
 
 In
          connection with the Company’s purchase of Mr. Qingtai Liu’s 49% interest in
          Weifang Shengtai as described in Note 1, and the 17.95% ownership interest
          transfer transaction from the 37 Chinese original shareholders of Weifang
          Shengtai (“Original Shareholders”) to Mr. Qingtai Liu on April 19, 2006, Mr.
          Qingtai Liu has assumed the liabilities of the Original Shareholders’ capital
          contribution and is entitled to contribute this amount as capital contribution
          to the Company. On December 20, 2007 Mr. Qingtai Liu has fully repaid the
          remaining balance of $1,229,625.
 
 The
          Company’s utilities are partially provided by Changle Shengshi, a related party,
          as described in Note 2 under the caption “Investment in Changle Shengshi Redian
          Co., Ltd”. The Company had a total of $935,077 and $949,992 of accounts payable
          due to Changle Shengshi at December 31, 2007 and June 30, 2007, respectively.
          The utilities expense amounted to $4,035,084 and $1,399,190 for the six
          months
          ended December 31, 2007 and 2006, respectively. The utilities expense for
          the
          three months ended December 31, 2007 and 2006 amounted to $1,966,318 and
          $777,069, respectively.
  -
              16
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
  The
          Company loaned money to Changle Shengshi and entered into two loan contracts
          as
          follows:
 December 31,
                    2007
                  
                  June 30,
                    2007(Unaudited)Due
                      on November 19, 2007, unsecured, 7.95% interest rate per
                      annum
                  
                  $
                  -
                  
                  $
                  657,500Due
                      on September 14, 2009, unsecured, 7.6% interest rate per
                      annum
                  
                  
                  411,300
                  
                  
                  394,500$
                  411,300
                  
                  $
                  1,052,000
  The
          Company also loaned money to Changle Shengshi in June 2007, for temporary
          cash
          flow needs. This transaction is recurring in nature. The Company does not
          charge
          interest on these receivables and it is due on demand. As of June 30, 2007,
          total receivable due from Changle Shengshi was $1,499,207. This balance
          was
          repaid by Changle Shengshi in July 2007.
 
 For
          business convenience, the Company purchased starch from Shouguang Shengtai
          Starch Co. Ltd. (“Shouguang Shengtai”), of which Mr.
          Qingtai Liu, the Company’s chief executive officer, owns 40%. Since
          the
          Company initiated production of starch, no more purchases were made from
          Shouguang Shengtai. Prepayment balance is reclassified to other receivable
          -
          related party as the balance is to be refunded. Balance as of December
          31, 2007
          and June 30, 2007 was $0 and $992,449, respectively. Total related party
          purchases from Shouguang
          Shengtai for the
          six months ended December 31, 2007 and 2006 amounted to $0 and $7,110,940,
          respectively, which represents approximately 0% and 46% of the Company’s
          purchase of raw materials for the six months ended December 31, 2007 and
          2006,
          respectively. Purchases for the three months ended December 31, 2007 and
          2006
          amounted to $0 and $2,235,833, respectively, which represents approximately
          0%
          and 27% of the Company’s purchase of raw material for the three months ended
          December 31, 2007 and 2006.
 
 The
          following table summarizes other receivable – related party as of December 31,
          2007 and June 30, 2007 are as follows:
 December 31,
                    2007
                  
                  June 30,
                    2007(Unaudited)Changle
                      Shengshi Redian Co., Ltd
                  
                  $
                  -
                  
                  $
                  1,499,207Shouguang
                      Shengtai Starch Co. Ltd
                  
                  
                  -
                  
                  
                  992,449$
                  -
                  
                  $
                  2,491,656
 
 **Note
          5 – Prepayments**
 
 Prepayments
          represent partial payments or deposits on inventory purchases and amounted
          to
          $631,130 and $140,376 as of December 31, 2007 and June 30, 2007,
          respectively.
 
 Prepayments
          – non-current represent partial payments or deposits on plant and equipment
          purchases and amounted to $12,640,708 and $7,429,371 as of December 31,
          2007 and
          June 30, 2007, respectively.
  -
              17
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 **Note
            6 – Debt**
 
 Short
          term loans
 
 Short
          term loans represent amounts due to various banks which are normally due
          within
          one year, and these loans can be renewed with the banks. The
          Company’s short
          term bank loans consisted of the follow ing:
 December 31,
                    2007
                  
                  June 30,
                    2007(Unaudited)Loan
                      from Bank of China, due various dates from January to August
                      2008. Monthly
                      interest only payments ranging from 7.313% to 7.668% per annum,
                      guaranteed
                      by unrelated third party and secured by properties
                  
                  $
                  10,213,950
                  
                  $
                  10,993,400Loan
                      from Industrial and Commercial Bank of China, due various dates
                      from
                      January to August 2008 monthly interest only payments ranging
                      from 7.956%
                      to 8.892% per annum, guaranteed by unrelated third party and
                      secured by
                      properties
                  
                  
                  2,742,000
                  
                  
                  3,945,000Loan
                      from Agriculture Bank of China, Due various dates from November
                      to
                      December of 2007. Monthly interest only payments ranging from
                      7.956% to
                      8.568% per annum, Guaranteed by unrelated third party and secured
                      by
                      properties
                  
                  
                  -
                  
                  
                  1,959,350Loan
                      from Communication Bank, due July 2007. Monthly interest only
                      payments
                      7.2% per annum, guaranteed by unrelated third party
                  
                  
                  -
                  
                  
                  1,972,500Loan
                      from Commercial Bank, due July 2008. Monthly interest only
                      payments at
                      8.019% per annum, guaranteed by unrelated third party.
                  
                  
                  1,371,000
                  
                  
                  -Loan
                      from ShangHai PuFa Bank, due October 2008. Monthly interest
                      only payments
                      at 8.384% per annum, guaranteed by unrelated third party
                  
                  
                  1,371,000Total
                  
                  $
                  15,697,950
                  
                  $
                  18,870,250
  -
              18
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 Notes
          payable - banks
 
 Notes
          payable represent amounts due to various banks which are normally due within
          one
          year, and these notes can be renewed with the banks. The Company’s notes
          payables consisted of the following:
 December 31,
                    2007
                  
                  June 30,
                    2007(Unaudited)Bank
                      of China, due in October 2007, restricted cash required 50%
                      of loan
                      amount, guaranteed by unrelated third party
                  
                  $
                  -
                  
                  $
                  4,997,000Industrial
                      and Commercial Bank of China, due in February 2008, restricted
                      cash
                      required 50% of loan amount, guaranteed by unrelated third
                      party
                  
                  
                  1,371,000
                  
                  
                  3,945,000Total
                  
                  $
                  1,371,000
                  
                  $
                  8,942,000
  -
              19
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 Employee
          loans
 
 The
          Company has borrowed monies from certain employees to fund the Company’s
          operations. The loans bear interest at 7.2% for the first six months then
          10.8%
          thereafter and the principal is due upon demand. Employee loans amounted
          to
          $1,785,196 and $596,516 as
          of
          December 31, 2007 and June 30, 2007, respectively.
 
 Employee
          loans - officer
 
 The
          Company has borrowed monies from Mr. Qingtai Liu to fund the Company’s
          operations. The loans bear interest at 7.2% for the first six month then
          10.8%
          there after and the principal is due upon demand. Employee loans from officer
          amounted to $36,963 and $0 as
          of
          December 31, 2007 and June 30, 2007, respectively.
 
 Third
          party loan
 
 The
          Company borrowed money from an unrelated individual for use in operations.
          The
          loan bears 7.2% interest and the principal is due upon demand. Balance
          of the
          loan as of December 31, 2007 and June 30, 2007 amounted to $2,160,193 and
          $318,274, respectively.
 
 Long
          term loan – current maturity
 
 Long
          term
          loan – current maturity represent amounts due to various banks and other outside
          parties which are normally due within one year consisted of the
          following:
 December
                      31,
                    2007
                  
                  June
                      30,
                    2007(Unaudited)Agricultural
                      Credit Union, interest at 7.84% per annum, due May 2008
                  
                  $
                  397,590
                  
                  $
                  381,350Total
                  
                  
                  397,590
                  
                  
                  381,350
  -
              20
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
  Current
          maturities for the next five years are follows:
 AmountJune
                      30, 2008
                  
                  $
                  397,590Thereafter
                  
                  $
                  -
  Interest
          expense net of amounts capitalized into construction in progress for the
          six
          months ended December 31, 2007 and 2006 on all debt amounted to $886,021
          and
          $322,833, respectively. Interest capitalized totaled $286,060 and $391,949
          for
          the six months ended December 31, 2007 and 2006, respectively . Interest
          expense net of amounts capitalized into construction in progress for the
          three
          months ended December 31, 2007 and 2006 on all debt amounted to $494,413
          and
          $305,418, respectively. Interest capitalized totaled $93,513 and $234,295
          for
          the three months ended December 31, 2007 and 2006, respectively .
 
 **Note
          7 – Income taxes**
 
 The
          Company is governed by the Income Tax Law of the People’s Republic of China
          (PRC) concerning Foreign Investment Enterprises and Foreign Enterprises
          and
          various local income tax laws (the Income Tax Laws). Under the Income Tax
          Laws,
          foreign investment enterprises (FIE) generally are subject to an income
          tax at
          an effective rate of 33% (30% state income taxes plus 3% local income taxes)
          on
          income as reported in their statutory financial statements after appropriate
          tax
          adjustments unless the enterprise is located in specially designated regions
          of
          cities for which more favorable effective tax rates apply. Upon approval
          by the
          PRC tax authorities, FIE's scheduled to operate for a period of 10 years
          or more
          and engaged in manufacturing and production may by exempt from income taxes
          for
          two years, commencing with their first profitable year of operations, after
          taking into account any losses brought forward from prior years, and thereafter
          with a 50% exemption for the next three years.
 
 In
          February 2004, the Company became a Sino-foreign joint venture. In August
          2004,
          the state government granted the Company income tax exemptions as follows:
          100%
          exemption for the first 2 years from September 2004 to August 2006 and
          50%
          exemption for the third to fifth years from September 2006 to August 2009.
          In
          addition, the Company is located in a Special Economic Zone and the PRC
          tax
          authority has offered a special income tax rate of 24% for the company.
          With the
          approval of the local government, the Company is subject to income tax
          at a
          reduced rate of 12% from September 2006 to August 2008 after the two-year
          24%
          exemption for income taxes until its exemption and reduction periods expire
          in
          August 2008.
 
 Beginning
          January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace existing
          laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).
 
 The
          key
          changes are:
 
 a.
                The
                    new standard EIT rate of 25% will replace the 33% rate currently
                    applicable to both DES and FIEs, except for High Tech companies
                    who pay a
                    reduced rate of 15%;
 
 b.
                Companies
                    established before March 16, 2007 will continue to enjoy tax
                    holiday
                    treatment approved by local government for a grace period of
                    the next 5
                    years or until the tax holiday term is completed, whichever is
                    sooner.
  -
              21
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 The
          Company’s subsidiary, Weifang Shengtai, was established before March 16, 2007
          and therefore is qualified to continue to be taxes at the reduced tax rate
          as
          described above. Starting from January 1, 2008 the company will be subject
          to
          25% income tax according to the newly issued income tax regulation.
 
 During
          the six months ended December 31, 2007 and 2006, the provision for income
          taxes
          was $787,168 and $301,138, respectively. Income tax provision for the three
          months ended December 31, 2007 and 2006 amounted to $481,323 and $243,723,
          respectively.
 
 The
          following table reconciles the U.S. statutory rates to the Company’s effective
          tax rate for the years ended June 30:
 
 2007
                
                2006(Unaudited)
                
                (Unaudited)U.S.
                    Statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recognized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                33.0
                
                
                33.0China
                    income tax exemption
                
                
                (21.0
                )
                
                (33.0
                )Total
                    provision for income taxes
                
                
                12.0
                %
                
                -
                %
  The
          estimated tax savings due to the tax exemption for the six months ended
          December
          31, 2007 and 2006 amounted to $1,377,544 and $894,451, respectively. The
          net
          effect on basic earnings per share if the income tax had been applied would
          decrease basic earnings per share for the six months ended December 31,
          2007 and
          2006 by $0.07 and $0.09, respectively. The net effect on diluted earnings
          per
          share if the income tax had been applied would decrease diluted earnings
          per
          share for the six months ended December 31, 2007 and 2006 by $0.07 and
          $0.09,
          respectively. The estimated tax savings due to the tax exemption for the
          three
          months ended December 31, 2007 and 2006 amounted to $842,315 and $462,038,
          respectively. The net effect on basic earnings per share if the income
          tax had
          been applied would decrease basic earnings per share for the three months
          ended
          December 31, 2007 and 2006 by $0.04 and $0.05, respectively. The net effect
          on
          diluted earnings per share if the income tax had been applied would decrease
          diluted earnings per share for the three months ended December 31, 2007
          and 2006
          by $0.04 and $0.05, respectively.
  -
              22
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 Taxes
          payable
 
 Taxes
          payable consisted of the following:
 December 31,
                    2007
                  
                  June 30,
                    2007(Unaudited)VAT
                      payable
                  
                  $
                  2,052,942
                  
                  $
                  1,273,390Individual
                      income tax withheld
                  
                  
                  1,199
                  
                  
                  1,316Income
                      tax payable
                  
                  
                  1,791,532
                  
                  
                  764,827Housing
                      property tax payable
                  
                  
                  8,222
                  
                  
                  7,306Others
                  
                  
                  2,409
                  
                  
                  2,093Total
                  
                  $
                  3,856,304
                  
                  $
                  2,048,932
 
 **Note
          8 – Commitments and Contingent liabilities**
 
 Guarantees
 
 As
          of
          December 31, 2007, the Company guaranteed $9.7 million of short term loans
          for
          unrelated parties. The Company is obligated to perform under the guarantee
          if
          these parties failed to pay principal and interest payments when due. Including
          accrued interest, the maximum potential amount of future undiscounted payments
          under the guarantee is $10.3 million. The company did not record a liability
          for
          the guarantee because management believes the likelihood of that the Company
          will have to pay is remote. Detail of guarantee amount to the unrelated
          parties
          as of December 31, 2007 is as follows:
  Short
                      TermCompany
                  
                  Bank
                      LoansChang
                      Le Century Sun Paper Industry Co.
                  
                  $
                  2,879,100Shangdong
                      Kuangji Group Inc.
                  
                  
                  6,855,000Total
                  
                  $
                  9,734,100
  **Note
          9 – Shareholders’ equity**
 
 On
          May
          15, 2007, the Company entered into and consummated a share purchase agreement
          (the “Share Purchase Agreement”) with nineteen accredited investors (the
“Purchasers”). Pursuant to the Share Purchase agreement, the Purchasers
          purchased an aggregate of 8,750,000 shares of common stock and 4,375,000
          warrants for $2.00 per share for an aggregate purchase price of $17,500,000
          and
          net proceeds of $15,256,428. In
          connection with the offering, the Company paid a placement fee equal to
          12% of
          gross proceeds in cash totaling $2,100,000 and issued 218,750 warrants.
 
 Warrants
 
 Concurrent
          with the private placement, the Company issued 4,375,000 warrants with
          an
          exercise price at $2.60 per share (“Investor Warrants”) to investors. These
          warrants issued to the new investors have a 5-year term and shall be callable
          by
          the Company if the Company’s shares trade at $8.00 for 20 consecutive trading
          days and underlying shares are registered for resale. The warrants contain
          a
          standard adjustment provisions upon stock dividend, stock split, stock
          combination, recapitalization and a change of control transaction.
  -
              23
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 The
          Company also issued 218,750 warrants with exercise price at $2.60 (“Placement
          Agent Warrants”) to Brill Securities, inc., the exclusive placement agent. These
          warrants have the same terms as the Investor Warrants. These warrants were
          issued on August 8, 2007.
 
 Concurrent
          with the offering, the Company issued Chinamerica Fund, LP 75,000 warrants
          and
          Jeff Jenson 25,000 warrants (collectively as “Lead Investor Warrants”) to
          compensate the former as lead investor and the latter in assisting in providing
          the shell of West Coast Car Company. These warrants have the same term
          as the
          Investor Warrant except with an exercise price of $0.01 per share.
 
 All
          Investor Warrants, Placement Agent warrants, and Lead Investor Warrants
          meet the
          conditions for equity classification pursuant to FAS 133 “Accounting for
          Derivatives” and EITF 00-19, “Accounting for Derivative Financial Instruments
          Indexed to, and Potentially Settled in, a Company's Own Stock”. Therefore, these
          warrants were classified as equity and accounted as common stock issuance
          cost.
 Weighted
                  
                  AverageWarrants
                  
                  Warrants
                  
                  Average Exercise
                  
                  RemainingOutsanding
                  
                  Exercisable
                  
                  Price
                  
                  Contractual LifeOutstanding,
                      June 30, 2007
                  
                  
                  4,475,000
                  
                  
                  4,475,000
                  
                  $
                  2.54
                  
                  
                  4.63Granted
                  
                  
                  218,750
                  
                  
                  218,750
                  
                  
                  2.60
                  
                  
                  4.13Forfeited
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Exercised
                  
                  
                  194,805
                  
                  
                  194,805
                  
                  
                  2.60
                  
                  
                  -Outstanding,
                      December 31, 2007
                  
                  
                  4,498,945
                  
                  
                  4,498,945
                  
                  $
                  2.54
                  
                  
                  4.13
 **Note
          10 – Statutory reserves**
 
 The
          laws
          and regulations of the People’s Republic of China required that before a
          Sino-foreign cooperative joint venture enterprise distributes profits to
          its
          partners, it must first satisfy all tax **** liabilities,
          provide for losses in previous years, and make allocations, in proportions
          determined at the discretion of the board of directors, after the statutory
          reserve. The statutory reserves include the surplus reserve fund, and the
          enterprise fund. These statutory reserves represent restricted retained
          earnings.
 
 Surplus
          reserve fund
 
 The
          Company is required to transfer 10% of its net income, as determined in
          accordance with the PRC accounting rules and regulations, to a statutory
          surplus
          reserve fund until such reserve balance reaches 50% of the Company’s registered
          capital.
  -
              24
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
 The
          transfer to this reserve must be made before distribution of any dividends
          to
          shareholders. For the six months ended December 31, 2007 and 2006, the
          Company
          did not transfer any funds to this reserve. The surplus reserve fund is
          non-distributable other than during liquidation and can be used to fund
          previous
          years’ losses, if any, and may be utilized for business expansion or converted
          into share capital by issuing new shares to existing shareholders in proportion
          to their shareholding or by increasing the par value of the shares currently
          held by them, provided that the remaining reserve balance after such issue
          is
          not less than 25% of the registered capital.
 
 Enterprise
          fund
 
 The
          enterprise fund may be used to acquire fixed assets or to increase the
          working
          capital to expend on production and operation of the business. No minimum
          contribution is required and the Company has not made any contribution
          to this
          fund.
 
 **Note
          11 – Retirement benefit plans**
 
 Regulations
          in the People’s Republic of China require the Company to contribute to a defined
          contribution retirement plan for the
          benefit of all permanent employees .
          The
          Company is required to make contributions to the state retirement plan
          at 15% to
          20% of the monthly basic salaries of all permanent current employees. The
          PRC
          government is responsible for the benefit liability to these retired employees. For
          the six
          months ended December
          31, 2007 and 2006, the Company made pension con tribution s
          in the
          amount of  $121,516
          and $114,703, respectively. For
          the three
          months ended December
          31, 2007 and 2006, the Company made pension con tribution s
          in the
          amount of  $63,676
          and $45,322, respectively.
 
 **Note
          12 – Revenue by geographic area**
 
 The
          following table summarized financial information for the six and three
          months
          ended December 31, 2007 and 2006 concerning the Company’s revenues based on
          geographic area:
 
 For
          the
          six months ended,
  December 31,2007
                
                December 31,2006Revenue
                
                (Unaudited)
                
                (Unaudited)China
                
                $
                39,805,419
                
                $
                15,294,599International
                
                
                4,521,938
                
                
                7,615,211Total
                
                $
                44,327,357
                
                $
                22,909,810
 
 For
          the
          three months ended,
  December 31,2007
                
                December 31,2006Revenue
                
                (Unaudited)
                
                (Unaudited)China
                
                $
                22,630,330
                
                $
                11,204,103International
                
                
                2,323,958
                
                
                1,106,386Total
                
                $
                24,954,288
                
                $
                12,310,489
  -
              25
              -
 SHENGTAI
            PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
            TO
            THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31 ,
            2007
 (UNAUDITED)
  **Note
          13 – Subsequent event**
 
 The
          Company borrowed money from an unrelated third related party and temporarily
          classified in third party loan. Money was borrowed temporarily until the
          bank
          loans have been approved. The money was repaid in January of 2008 when
          bank loan
          was issued.
 
 Loan
          amount due to Bank of China and Industrial and Commercial Bank of China
          in
          January 2008 amounted to $356,460 and $1,371,000, respectively, was subsequently
          repaid in January 2008.
 
 STOCK
          OPTIONS
 
 On
          January 4, 2008 we granted options to purchase 660,000 shares of common
          stock
          under our 2007 Stock Incentive Plan, with an exercise price of $3.30 per
          share,
          which was the closing price of a share of our common stock on the Over
          The
          Counter Bulletin Board on the date of grant.
 
 -
              26
              -
  **Item
        2.**  **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations.**
  **Forward
        looking statements**
 
 The
        following is a discussion and analysis of the results of operations
        of Shengtai Pharmaceutical, Inc. (the "Company", "we", "our" or
        "us") and should be read in conjunction with our financial statements and
        related notes contained in this Quarterly Report on Form 10-Q. This Form
        10-Q
        contains forward looking statements that involve risks and uncertainties.
        You
        can identify these statements by the use of forward-looking words such as
        "may",
        "will", "expect", "anticipate", "estimate", "believe", "continue", or other
        similar words. You should read statements that contain these words carefully
        because they discuss our future expectations, contain projections of our
        future
        results of operation or financial condition or state other "forward-looking"
        information. We believe that it is important to communicate our future
        expectations to our investors. However, there may be events in the future
        that
        we are unable to accurately predict or control. Those events as well as any
        cautionary language in this Form 10-Q provide examples of risks,
        uncertainties and events that may cause our actual results to differ materially
        from the expectations we describe in our forward-looking statements. You
        should
        be aware that the occurrence of the events described in this Form 10-Q could
        have a material adverse effect on our business, operating results and financial
        condition. Actual results may differ materially from current expectations.
 
 **Overview**
 
 We
        are,
        through our wholly-owned subsidiary, Shengtai Holding Inc. and its wholly-owned
        subsidiary in the People’s Republic of China (“PRC”), Weifang Shengtai
        Pharmaceutical Co., Ltd., a leading manufacturer and supplier of pharmaceutical
        grade glucose in the PRC. We also manufacture glucose, cornstarch and other
        glucose-related products for the Chinese market.
 
 During
        the six months ended December 31, 2007, we produced a total of approximately
        34,633 metric tons of glucose, and our sales for pharmaceutical grade glucose
        and other glucose products were $17.6 million, or approximately 40% of our
        revenues. Because we ceased glucose production in our old facility in downtown
        Changle at the beginning of second quarter, the amount of glucose produced
        was
        lower than the corresponding period last year.
  -
            27 -
  Our
        new
        cornstarch production facility, which has a maximum capacity to produce 240,000
        metric tons of cornstarch per year, was completed at the end of October
        2007. This new facility is close to our existing glucose production plant
        and new glucose production complex that is currently near completion of
        construction.
 
 During
        the six months ended December 31, 2007, we produced a total of 88,914 metric
        tons of cornstarch, of which 31,174 metric tons were used to satisfy our
        own
        glucose production needs. Some excess cornstarch was then sold to outside
        customers, resulting in approximately 33.5% of our total sales revenue. Although
        cornstarch had a lower gross profit margin than glucose, we nevertheless
        increased its production which generated necessary working capital and funds
        for
        construction of our new glucose complex. We believe that once we complete
        the
        upgrade of our existing facilities and complete our new glucose production
        complex in the first half of calendar 2008, we will utilize more cornstarch
        internally for the production of pharmaceutical glucose and other higher
        value-added products.
 
 The
        principal raw material for pharmaceutical glucose is cornstarch. By using
        the
        products from our own cornstarch production facilities, we can ensure their
        quality and consistency. Also, because cornstarch is produced inhouse, we
        are
        able to eliminate shipping costs to transport the cornstarch to our glucose
        production facility resulting in lower manufacturing costs.
 
 Corn
        is
        the principal raw materials for our cornstarch. Since mid-2007 food prices
        have
        been climbing at double-digit annual inflation rates in China, principally
        due
        to the shortages of pork and grain. Recently Chinese regulators reiterated
        publicly that they intended to control the development of industrial use
        of
        corn, such as the conversion of corn into ethanol. We believe that Chinese
        leaders are concerned that industrial demand for corn will raise corn prices
        and
        the government is determined to curb the use of corn for fuel.
 
 At
        the
        same time, since December 11, 2007, Chinese regulators have been selling
        corn
        reserves to the open market on a weekly basis for approximately $240 per
        metric
        ton.
 
 Management
        believes that stable corn prices will help maintain the availability of our
        raw
        materials, and therefore, stabilize our gross profit margin. We consider
        these
        government policies have had and will continue to have positive effects on
        our
        operations.
 
 In
        addition to our pharmaceutical glucose series of products and cornstarch,
        we also produce significant amounts of other non-medicinal but glucose or
        cornstarch related products such as syrup, starch, dextrin, corn embryo,
        fibers,
        protein powders Avermectins, and sodium gluconate, which are used for food,
        beverage and other industrial purposes. The sales revenues generated from
        these
        products were approximately 5.9 times of those last year, and constituted
        approximately 26.6% of our total sales revenues for the six months ended
        December 31, 2007.
  -
            28 -
  During
        the six months ended December 31, 2007, we expanded our manufacturing of
        Avermectins, which were a veterinary medicine derived from glucose. We have
        greatly improved our efficiency in Avermectins production over the past year.
        Monthly capacity has increased from 700-800 kilograms to approximately 1000
        kilograms. At the same time, we have increased yield coefficients from 90%
        to
        93%. As a result, the unit cost has been reduced approximately 13.3%. We
        believe
        that Avermectins production will eventually become a substantial product
        line
        for us due to its high market demand and considerable gross profit margin.
        However, we currently do not generate material profits from this product
        due to
        the small amounts we produce, which are not yet sufficient to cover the
        associated overhead costs. In order to achieve economies of scale and
        profitability, we believe we will need to produce approximately 100 metric
        tons
        per year.
 
 At
        the
        end of June 2007, we set up a new product line to manufacture sodium gluconate.
        This non-corrosive, non-toxic and highly pure gluconate is gaining popularity
        as
        a chelating agent in the PRC and is widely used in pharmaceutical, construction
        and chemical industries. Sodium gluconate is widely used as a retarder of
        cement
        in the construction industry. It efficiently prevents commercial cement from
        concreting and agglomerating during transportation. It is also used as a
        surface
        cleaning agent of steel, a professional cleaning agent of glass bottles,
        and an
        antiscale and corrosion inhibitor. Accordingly, we are targeting construction
        companies as our end customers since real estate construction is a booming
        sector in the PRC economy.
 
 Because
        of its seasonality, we temporarily suspended its production in November 2007
        but
        expect to continue in late February 2008. Because we have only a short
        production history with this product, we cannot predict future profitability.
        However, during our production, gross profit margins were approximately
        30%.
 
 Management
        strongly believes that through manufacturing innovative products to meet
        market
        demand, we would be able to command better profit margins, diversify our
        product
        lines and minimize our operating risks.
 
 We
        believe that better living standards may lead to higher consumption of our
        products in the PRC. The robust and continuing economic growth, the rising
        purchasing power of domestic market, as well as the public awareness of quality
        health care products, are all drivers in the demand for our products. We
        also
        believe that the strong growth in the PRC pharmaceutical industry can increase
        the selling prices of our major products, and enhance our revenues and increase
        our gross profit margins.
 
 We
        believe that production capacity and product quality are key factors in
        entrenching our market leadership position and to accomplishing our long
        term competitiveness. As a result, we have been placing emphasis on (i) product
        quality control, (ii) enhancement of operating efficiency and employee
        competence, (iii) expansion of geographical coverage and diversification
        of
        customer base, and (iv) new product development.
  -
            29 -
  Our
        rate
        of quality output (output conforming to pharmaceutical-grade glucose product
        specifications) is maintained at 100%. We have a three-tier quality control
        system and a well equipped quality inspection center to ensure timely detection
        and then reprocessing of non-conforming products.
 
 Recently
        some PRC national and local authorities carefully inspected our production
        lines
        and workshops, and then certified both the quality of our equipments and
        the
        safety of our production. Now all our production facilities have been fully
        certified GMP (Good Manufacturing Practice for Drugs), ISO9001 and HACCP.
        The
        State Food and Drug Administration certified our production facilities again
        and
        extended the production permit to October 2010. Recently CCIC Conformity
        Assessment Services Co. renewed our HACCP certificate. HACCP, or Hazard Analysis
        and Critical Control Points, is a systematic preventive approach to food
        and
        pharmaceutical safety which aims at identifying and eliminating or reducing
        the
        critical control points where risks might arise, rather than merely inspecting
        the finished products.
 
 At
        the
        same time, we have been seeking to get our products recognized by international
        authorities. Most of our products are also certified HALAL, KOSHER and IP
        GMO,
        which are recognized globally. We believe that helps our future expansion
        in
        oversea markets.
 
 Our
        production lines are vertically integrated. Our production facilities are
        all
        inter-connected by an enclosed pipeline system to enhance overall production
        efficiency, minimize waste of water and raw materials, and avoid production
        contamination. We constantly develop new production technology to recycle
        our
        waste water and byproducts. At the same time, we are improving overall
        production efficiency by analyzing and ameliorating inefficient production
        processes.
 
 In
        December 2006, the Changle local government negotiated with us to surrender
        the
        land use rights for our old factory in the downtown Changle for use in municipal
        construction. The land we occupied was 27,396 square meters. We purchased
        a
        bigger parcel of land in Changle Economic and Technology Development Zone
        with
        85,880 square meters as described below.
  After
        acquiring the land, we began to develop it and build a new glucose production
        complex with an anticipated production capacity of 120,000 tons per year.
        The
        new facility will be used to produce pharmaceutical grade glucose and other
        value-added glucose products. We plan to equip this complex with
        state-of-the-art machinery and technology, and employ strict quality control
        standards over it. We have already ordered the machinery and equipment for
        the
        glucose production complex and are training our employees to run it.
 
 We
        commenced construction in early July 2007 and anticipate that construction
        will
        be completed in the first half of calendar year 2008.
  -
            30 -
  We
        continue to strengthen our domestic sales network, which presently covers
        almost
        all provinces of mainland China except the Tibet Autonomous Region. We have
        established four representative offices in Chengdu, Guangzhou, Hangzhou and
        Nanchang to strengthen our domestic sales network. We believe that these
        offices
        help us to better interact with our customers, reinforce our sales force
        and
        improve our corporate image. Before the new glucose complex is put into use
        next
        year, the domestic market remains our focus and major customer
        base.
 
 At
        the
        same time, we had a modest increase of global sales during the six months
        ended
        December 31, 2007. We have been successful in exporting more dextrose anhydrate
        and pharmaceutical grade oral glucose during the reporting period. Currently
        we
        export to customers in over sixty countries. Our international sales comprised
        approximately 10.7% of our total sales revenues during the six months ended
        December 31, 2007, slightly lower than the percentage of the corresponding
        period last year, although the volume and dollar amount both
        increased.
  We
        are
        however cautious about our expanding international sales. China has been
        imposing more and more policies to discourage exports due to China’s trading
        surplus, especially those related to food and natural resources processing.
        Our
        international marketing team would carefully analyze our profitability by
        considering the effects of the gradual appreciation of *Renminbi* against
        the U.S. dollar and production costs before committing to such transactions.
 
 We
        constantly seek to broaden and diversify our customer base. We believe that
        a
        broader customer base will mitigate our reliance on certain customers. We
        also
        believe a broader market for our products can increase demand for our products,
        reduce our vulnerability to market changes, and provide additional areas
        of
        growth in the future. For the six months ended December 31, 2007, Weifang
        Xingda
        Feed Co. Ltd., our largest customer, accounted for 5.71% of our total sales
        revenues and Double Crane Pharmaceutical Co. Ltd, our largest pharmaceutical
        glucose customer, accounted for 1.33% of our total sales revenues. Our top
        ten
        customers accounted for only 32.0% for our total sales for the six months
        ended
        December 31, 2007, as compared to 28.0% for the same period last
        year.
 
 Management
        is not aware of any adverse trends that are likely to materially affect our
        market and financial position. We will seek to continue to identify and pursue
        innovative products and technology to our increase market share and optimize
        our
        cost structure. Although we can offer no assurance, we anticipate our current
        sales growth will continue for the remainder of this fiscal year. Our ability
        to
        meet increased customer demand and stay profitable will however still depend
        on
        factors such as our production capacity and working capital.
 
 -
            31 -
 
 **Results
        of Operations**
  **Three
        Months Ended December 31, 2007 Compared with Three Months Ended December
        31,
        2006**
 
 *The
        following table shows our operating results for the three months ended December
        31, 2006 and 2007* .
 
 **Three**
                **months**
                **ended**
                **December**
                **31, 2007**
              
              **Three**
                **months**
                **ended**
                **December**
                **31, 2006**Sales
                  Revenue
              
              
              24,954,288
              
              
              12,310,489Costs
                  of Goods Sold
              
              
              19,086,274
              
              
              9,237,442Gross
                  Profit
              
              
              5,868,014
              
              
              3,073,047Sales,
                  General and Administrative Expenses
              
              
              1,814,376
              
              
              958,077Operating
                  Income
              
              
              4,053,638
              
              
              2,114,970Other
                  Net Income (Expense)
              
              
              (442,730
              )
              
              (282,276
              )Income
                  before Income Taxes
              
              
              3,610,908
              
              
              1,832,694Provision
                  for Income Taxes
              
              
              481,323
              
              
              243,723Net
                  income
              
              
              3,129,585
              
              
              1,588,971
 
 Sales
        revenue for the three months ended December 31, 2007 was $24,954,288, an
        increase of $12,643,799, or 102.7% compared with the corresponding period
        in
        2006. The increased sales revenues were principally due to our cornstarch
        production, higher product prices, and the diversification of product lines
        and
        the expansion of sales of higher-value products.
 
 Costs
        of
        goods sold for the three months ended December 31, 2007 was $19,086,274,
        an
        increase of $9,848,832, or 106.6% compared with the corresponding period
        in
        2006. The increase in cost of goods sold primarily resulted from the increase
        in
        sales of our products.
 
 Gross
        profit for the three months ended December 31, 2007 was $5,868,014, an increase
        of $2,794,967, or 91% compared with the corresponding period in 2006. The
        increase in gross profit was principally attributable to the economies of
        scale
        resulting from the expansion of our production output and enhanced operating
        efficiencies. At the same time, we were able to pass on raw material cost
        increases to our customers.
 
 Gross
        profit margin for the three months ended December 31, 2007 was 23.5%, a decrease
        from 25.0% for the same period in 2006. This one and a half percentage point
        decrease of overall gross profit margin was principally due to our increased
        sales of cornstarch, a product with lower profit margins.
 
 Selling,
        General and Administrative expenses for the three months ended December 31,
        2007
        were $1,814,376, an increase of $856,299, or 89.4% compared with the
        corresponding period in 2006. The increase in our Selling, General and
        Administrative expenses was the result of the expansion of our production
        output
        and domestic sales network. Larger quantity of cornstarch also called for
        higher
        shipping costs.
  -
            32 -
  Net
        income for the three months ended December 31, 2007 was $3,129,585, an increase
        of $1,540,614, or 97% compared with the corresponding period in 2006. Generally,
        the increase in net income was due to the increase in our product prices,
        sales
        volume and the introduction of new products.
  **Six
        Months Ended December 31, 2007 Compared with Six Months Ended December 31,
        2006**
 
 *The
        following table shows our operating results for the six months ended December
        31, 2006 and 2007* .
 
 **Six months**
                **ended**
                **December**
                **31, 2007**
              
              **Six months**
                **ended**
                **December**
                **31, 2006**Sales
                  Revenue
              
              
              44,327,357
              
              
              22,909,810Costs
                  of Goods Sold
              
              
              33,865,306
              
              
              17,397,319Gross
                  Profit
              
              
              10,462,051
              
              
              5,512,491Sales,
                  General and Administrative Expenses
              
              
              3,510,931
              
              
              1,929,945Operating
                  Income
              
              
              6,951,120
              
              
              3,582,546Other
                  Net Income (Expense)
              
              
              (781,856
              )
              
              (208,406
              )Income
                  before Income Taxes
              
              
              6,169,264
              
              
              3,374,140Provision
                  for Income Taxes
              
              
              787,168
              
              
              301,138Net
                  income
              
              
              5,382,096
              
              
              3,073,002
 
 Sales
        revenue for the six months ended December 31, 2007 was $44,327,357, an increase
        of $21,417,547, or 93.5% compared with the corresponding period in 2006.
 
 Production
        from our new cornstarch facility was the principal driver of our sales
        performance. Sales of the excess cornstarch to outside customers constituted
        33.5% of our total sales for these six months. Higher product prices of our
        glucose products were also a driver of higher revenues. Unit prices for most
        of
        our products increased an average of 11% from those in the same period last
        year. Our efforts in diversifying product lines, as well as in expanding
        the
        sales of higher-value products, were also an important factor. Revenues from
        products other than glucose and cornstarch amounted $11.7 million, or 5.9
        times
        of the number for the corresponding period last year.
 
 Costs
        of
        goods sold for the six months ended December 31, 2007 was $33,865,306, an
        increase of $16,467,987, or 94.7% compared with the corresponding period
        in
        2006. The increase in cost of goods sold primarily resulted from the increase
        in
        sales of our products.
  -
            33 -
  Gross
        profit for the six months ended December 31, 2007 was $10,462,051, an increase
        of $4,949,560, or 89.8% compared with the corresponding period in 2006. The
        increase in gross profit was primarily attributable to the economies of scale
        resulting from the expansion of our production output and enhanced operating
        efficiency. Although product cost increased as a result of commodity price
        increases and other raw material price increases, the selling price was higher
        than the price increase of raw materials, thus making our gross profit higher.
 
 Gross
        profit margin for the six months ended December 31, 2007 was 23.6%, a slight
        decrease from 24.1% for the same period in 2006. Sales of excess cornstarch
        to
        outside customers resulted in lower profit margins, because the gross profit
        margin for cornstarch is much lower than the overall profit margins. We
        anticipate that our gross profit margin will gradually improve as we increase
        our glucose processing capacity and achieve greater economies of scale in
        the
        production of our new products in the coming months.
 
 Selling,
        General and Administrative expenses for the six months ended December 31,
        2007
        was $3,510,931, an increase of $1,580,986, or 81.9% compared with the
        corresponding period in 2006. The increase in our Selling, General and
        Administrative expenses was the result of the expansion of our production
        output
        and domestic sales network. We have also incurred additional administrative
        expenses, such as legal fees, audit fees, and investor relation expenses
        as a
        reporting company. Higher worker insurance requirements and environmental
        expenditures were also the causes of higher general and administrative expenses.
  Net
        income for the six months ended December 31, 2007 was $5,382,096, an increase
        of
        $2,309,094, or 75.1% compared with the corresponding period in 2006. Generally,
        the increase of net income was due to the increase in our operating efficiency,
        the increase in product prices and sales volume, as well as the introduction
        of
        new products.
 
 **Liquidity
        and Capital Resources**
 
 ***Operating
        Activities***
  **Six
        Months Ended December 31, 2007 and 2006**
 
 Net
        cash
        provided by operating activities for the six months ended December 31, 2007
        was
        $9,628,193, an increase of $7,180,330 from $2,447,863 provided in operating
        activities for the same period in 2006. As our existing operations have matured,
        they have been able to generate additional cash. The increase in net cash
        provided by operations was principally derived from the collection of
        receivables and advances from customers, as well as from other receivables.
  -
            34 -
  ***Investing
        Activities***
 
 **Six
        Months Ended December 31, 2007 and 2006**
 
 Net
        cash
        used in investing activities for the six months ended December 31, 2007 was
        $10,739,919, compared to $9,600,712 used for the same period in 2006. Most
        of
        the cash had been spent on the advances for the purchase of machinery and
        equipment for the new glucose manufacturing complex, as well as the associated
        construction.
 
 Our
        preliminary budget for constructing our new glucose complex was approximately
        $12 million. As of December 31, 2007, we spent approximately $15.9 million
        on
        construction and for the purchase of the machinery and equipment, taking
        into
        account the accelerated appreciation of the *Renminbi* against
        the US dollar and the increase in various costs due to the inflation from
        a
        robust PRC economy. After its completion, we anticipate the necessary working
        capital will be at least $6 million, based on the projected sales and ordinary
        business cycles. We anticipate that we will seek outside funding from banks
        or
        the equity markets in order to fund such capital requirements. There can
        be no
        assurance, however, that the necessary funds will be available to us, or,
        if
        available, that they will be available on acceptable terms.
  ***Financing
        Activities***
  ***Significant
        Events***
 
 On
        May
        15, 2007, we completed, at a price of $2 per share, a private placement of
        8,750,000 shares and 4,375,000 attached five year warrants to purchase our
        common stock at an exercise price of $2.60 per share, as adjusted. We received
        net proceeds of $15,256,428 from that offering.
  **Six
        Months Ended December 31, 2007 and 2006**
  Net
        cash
        used in financing activities for the six months ended December 31, 2007 was
        $4,358,725, compared to $6,943,744 provided for the same period in fiscal
        2006.
        We used part of the proceeds from our equity financing to repay our outstanding
        debt, both long term notes and short term debts, focusing on those with high
        interest rates or with less favorable terms. By lowering our debt to equity
        ratio, we believe we successfully enhanced our financial standing.
  In
        addition to building the new glucose manufacturing complex, as well as the
        acquisition of new machinery and equipment for our new plant, we plan to
        upgrade
        our existing glucose production facility by replacing our old machinery to
        produce more “complex” glucose products such as anhydrous glucose transfusion,
        monohydrate glucose transfusion and oral glucose.
 
 After
        the
        construction and the upgrade, we anticipate that at least 70% (up from current
        40%) of the cornstarch produced by the new cornstarch production plant will
        be
        used by us as raw material for the production of our glucose products. This
        upgrade will not only allow for increased production of higher grade glucose,
        but also facilitate the extension of our dextrose series of products. We
        anticipate that this will result in higher profit margins and greater
        revenues.
  -
            35 -
  **Loans**
 
 Before
        our equity financing, our PRC operating subsidiary, Weifang Shengtai financed
        its operations and capital expenditure requirements primarily through bank
        loans
        and operating income. Weifang Shengtai had a total of $15,697,950 and
        $18,870,250 short term bank loans outstanding as of December 31, and June
        30,
        2007, respectively. The loans were secured by Weifang Shengtai’s properties. The
        terms of all these short term loans were for one year. Weifang Shengtai has
        never defaulted on any of these loans.
 
 Weifang
        Shengtai also had non-current payables, which are classified as long term
        liabilities, of $3,183,858 and $3,661,472 as of December 31, and June 30,
        2007,
        respectively.
 
 We
        have
        focused on lowering our liabilities, short term or long term loans, in order
        to
        improve our financial position
 
 **Guarantees**
 
 We
        have
        guaranteed certain borrowings of other unrelated third parties including
        short
        term bank loans. The total guaranteed amounts were $9,734,100 and $8,560,650
        as
        of December 31, and June 30, 2007, respectively.
  **Future
        cash commitments**
 
 We
        anticipate the need for $6 million as working capital to run our new glucose
        complex. The exact amount would be determined based on both the market demand
        of
        our products and the time needed for this complex to run at full capacity.
 
 As
        of
        December 31, 2007, we expended approximately $15.9 million for the glucose
        manufacturing complex, including the cost for acquiring the land, construction
        of plant, and the purchase of new machinery and equipment.
 
 We
        also
        estimate that the upgrade of our existing glucose production facility will
        be
        completed in the first half of calendar 2008. We anticipate the necessary
        capital to be between $2 million and $3 million.
 
 A
        portion
        of our capital requirements will be funded from the cash generated by operations
        and the proceeds of our May 2007 private placement, and the remaining portion
        can be financed, as set forth above.
  -
            36 -
  **Critical
        Accounting Policies and Estimates**
 
 We
        have
        disclosed in the notes to our financial statements those accounting policies
        that we consider to be significant in determining our results of operations
        and
        our financial position which are incorporating by reference herein. We believe
        that the following reflect the more critical accounting policies that currently
        affect our financial condition and results of operations.
 
 ***Revenue
        recognition***
  We
        utilize the accrual method of accounting. Revenue is recognized when the
        products are delivered, title has passed, and collectibility is reasonably
        assured. Sales revenue represents the invoiced value of goods, net of
        value-added tax (VAT).
 
 ***Use
        of estimates***
 
 In
        preparing the consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America, management
        makes
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosures of contingent assets and liabilities at the dates
        of
        the financial statements, as well as the reported amounts of revenues and
        expenses during the reporting year. Significant estimates, required by
        management, include the recoverability of long-lived assets and the valuation
        of
        inventories. Actual results could differ from those estimates.
  ***Accounts
        Receivables***
 
 Accounts
        receivables are stated at net realizable value. Any allowance for doubtful
        accounts is established based on the management’s assessment of the
        recoverability of accounts and other receivables. Management reviews our
        accounts receivable on a regular basis to determine if the bad debt allowance
        is
        adequate. An estimate for doubtful accounts is made when collection of the
        full
        amount is no longer probable. Known bad debts are written off as incurred.
  ***Property
        and equipment***
 
 Property
        and equipment are stated at cost less accumulated depreciation. Depreciation
        is
        computed using straight-line method with a 3% residual value over the estimated
        useful lives of the assets.
 
 ***Foreign
        currency translation***
 
 Our
        functional currency is *Renminbi* (or
“RMB”). Foreign currency transactions are translated at the applicable rates of
        exchange in effect at the transaction dates. Monetary assets and liabilities
        denominated in foreign currencies at the balance sheet date are translated
        at
        the applicable rates of exchange in effect at that date. Revenues and expenses
        are translated at the average exchange rates in effect during the reporting
        period.
  -
            37 -
  Translation
        adjustments arising from the use of different exchange rates from period
        to
        period are included as a component of stockholders’ equity as “Accumulated Other
        Comprehensive Income”. Gains and losses resulting from foreign currency
        translations are included in Accumulated Other Comprehensive
        Income.
  **Item
        3. Quantitative and Qualitative Disclosures About Market
        Risk.**
 
 *Credit
        Risk* .
        We are
        exposed to credit risk from our cash at bank, fixed deposits and account
        receivables. The credit risk on cash at bank and fixed deposits is limited
        because the counterparts are recognized financial institutions. Account
        receivables are subject to credit evaluations. We periodically record a
        provision for doubtful collections based on an evaluation of the collectibility
        of account receivables by assessing, among other factors, the customer’s
        willingness or ability to pay, repayment history, general economic conditions
        and our ongoing relationship with the customers.
  *Country
        Risk.* Substantially
        all of our business, assets and operations are located and conducted in the
        PRC.
        While the PRC’s economy has experienced significant growth in the past twenty
        years, growth has been uneven, both geographically and among various sectors
        of
        the economy. The PRC government has implemented various measures to encourage
        economic growth and guide the allocation of resources. Some of these measures
        benefit the overall economy of the PRC, but may also have a negative effect
        on
        us. For example, our operating results and financial condition may be adversely
        affected by government control over capital investments or changes in
        regulations applicable to us. If there are any changes in any policy by the
        PRC
        government and our business is negatively affected as a result, then our
        financial results, including our ability to generate revenues and profits,
        will
        also be negatively affected.
 
 *Foreign
        Currency Risk.* Substantially
        all of our operations are conducted in the PRC. Our sales and purchases are
        conducted within the PRC in *Renminbi* .
        Conversion of *Renminbi* into
        foreign currencies is regulated by the People’s Bank of China through a unified
        floating exchange rate system. Although the PRC government has stated its
        intention to support the value of the *Renminbi* ,
        there
        can be no assurance that such exchange rate will not again become volatile
        or
        that the *Renminbi* will
        not
        devalue significantly against the U.S. dollar. Exchange rate fluctuations
        may
        adversely affect the value, in U.S. dollar terms, of our net assets and income
        derived from our operations in the PRC. In addition, the *Renminbi* is
        not
        freely convertible into foreign currency and all foreign exchange transactions
        must take place through authorized institutions.
 
 **Item
        4. Controls and Procedure**
 
 (a)
         Disclosure Controls and Procedures.
 
 Mr.
        Qingtai Liu, our Chief Executive Officer and Mr. Yizhao Zhang, our Chief
        Financial Officer, evaluated the effectiveness of the design and operation
        of
        our disclosure controls and procedures, as defined in Rules 13a-15(e) and
        15d-15(e) under the Exchange Act, as of the end of the period covered by
        this
        Report. Based on that evaluation, our officers concluded that our disclosure
        controls and procedures were effective and adequately designed to ensure
        that
        the information required to be disclosed by us in the reports we submit under
        the Exchange Act is recorded, processed, summarized and reported within the
        time
        periods specified in the applicable rules and forms and that such information
        was accumulated and communicated to our chief executive officer and chief
        financial officer, in a manner that allowed for timely decisions regarding
        required disclosure.
  -
            38 -
  (b)  Changes
        in Internal Control over Financial Reporting
 
 During
        the six months ended December 31, 2007, there has been no change in internal
        control over financial reporting that has materially affected, or is reasonably
        likely to materially affect our internal control over financial
        reporting.
  A
        control
        system, no matter how well conceived and operated, can provide only reasonable,
        not absolute, assurance that the objectives of the control systems are met.
        Because of the inherent limitations in all control systems no evaluation
        of
        controls can provide absolute assurance that all control issues, if any,
        within
        a company have been detected. Such limitations include the fact that human
        judgment in decision-making can be faulty and that breakdowns in internal
        control can occur because of human failures, such as simple errors or mistakes
        or intentional circumvention of the established process.
 
 **Other
        Information**
 
 The
        certifications of our Chief Executive Officer and Chief Financial Officer
        attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q
        include, in paragraph 4 of such certifications, information concerning our
        disclosure controls and procedures and internal controls over financial
        reporting. Such certifications should be read in conjunction with the
        information contained in this Item 4 for a more complete understanding of
        the
        matters covered by such certifications.
 
 PART
        II -
        OTHER INFORMATION.
 
 **Item
        1.**  **Legal
        Proceedings.**
 
 We
        know
        of no material, active, pending or threatened proceeding against us
        or our subsidiaries, nor are we, or any subsidiary, involved as a
        plaintiff or defendant in any material proceeding or pending
        litigation. ****
 
 **Item
        1A. Risk Factors.**
 
 There
        have been no material changes in our risk factors from those disclosed in
        our
        Annual Report on Form 10-K filed with the SEC on September 28,
        2007.
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds.**
 
 None.
 
 **Item
        3.**  **Defaults
        on Senior Securities.**
 
 Not
        Applicable.
 
 **Item
        4.**  **Submission
        of Matters to a Vote of Security Holders.**
 
 None.
 
 **Item
        5.**  **Other
        Information.**
 
 None.
  -
            39 -
  **Item
        6. Exhibits**
 
 (a)
              Exhibits
 
 Exhibit
                Number
              
              Exhibit Description
              
              Form
              
              Filing
                Date/period
                End
                  Date
              
              Filed -
                Furnished
                  Herewith*3.1
              
              Amended
                  and Restated Certificate of Incorporation
              
              Form
                  10-SB
              
              September 26, 20063.2
              
              By
                      Laws
              
              Form
                  10-SB
              
              September
                  26, 20064.1
              
              Form
                  of Warrants to Investors
              
              Form
                  8-K
              
              May
                  21, 200710.1
              
              Share
                  Exchange Agreement dated May 15, 2007 by and among the Company
                  and
                  Shengtai Holding, Inc.
              
              Form
                  8-K
              
              May
                  21, 200710.2
              
              Share
                  Purchase Agreement dated as of May 15, 2007 between the Company
                  and the
                  Purchasers
              
              Form
                  8-K
              
              May
                  21, 200710.3
              
              Shengtai
                  Pharmaceutical, Inc. 2007 Stock Incentive Plan
              
              Form
                  S-8
              
              January
                  30, 200831.1
              
              Certification
                  pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted
                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Qingtai
                  Liu;
              
              
              
              
              
              *31.2
              
              Certification
                  pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted
                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Yizhao
                  Zhang;
              
              
              
              
              
              *32.1
              
              Certification
                  pursuant to 18 U.S.C. 1350.
              
              
              
              
              
              *
 
 -
            40 -
  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.
  Shengtai
                  Pharmaceutical, Inc.
                (Registrant)Dated:
                  February 14, 2008
              
              /s/ Qingtai
                  LiuQingtai
                    LiuChief
                  Executive OfficerDated:
                  February 14, 2008
              
              /s/ Yizhao
                  ZhangYizhao
                    ZhangChief
                  Financial Officer
  -
            41 -