**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 MARCH 31, 2008




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, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-accelerated
      filer  ̈ Smaller
      reporting company x





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











APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS




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**


SHENGTAI
      PHARMACEUTICAL INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      MARCH 31, 2008 AND JUNE 30, 2007





ASSETS
 
 March
                  31,
              
              June
                  30,2008
              
              2007(Unaudited)CURRENT
                  ASSETS:Cash
              
              $
              3,229,336
              
              $
              6,420,439Restricted
                  cash
              
              
              2,490,000
              
              
              6,128,500Accounts
                  receivable, net of allowance for doubtful accounts of
                  $350,618and
                  $431,178 as of March 31, 2008 and June 30, 2007,
                  respectively
              
              
              7,530,395
              
              
              5,779,967Notes
                  receivable
              
              
              567,571
              
              
              984,675Other
                  receivables
              
              
              1,416,761
              
              
              2,984,484Other
                  receivables - related parties
              
              
              -
              
              
              2,491,656Other
                  receivables - shareholder
              
              
              -
              
              
              1,229,625Loan
                  to related party
              
              
              -
              
              
              657,500Inventories
              
              
              6,222,975
              
              
              4,449,267Prepayments
              
              
              805,641
              
              
              140,376Total
                  current assets
              
              
              22,262,679
              
              
              31,266,489PLANT
                  AND EQUIPMENT, net
              
              
              41,998,981
              
              
              30,178,074OTHER
                  ASSETS:Investment
                  in Changle Shengshi Redian Co., Ltd.
              
              
              3,395,183
              
              
              2,675,678Loan
                  to related party - non-current
              
              
              428,400
              
              
              394,500Prepayments
                  - non-current
              
              
              17,979,164
              
              
              7,429,371Intangible
                  assets - land use right, net of accumulated amortization
              
              
              2,272,278
              
              
              1,816,021Total
                  other assets
              
              
              24,075,025
              
              
              12,315,570Total
                  assets
              
              $
              88,336,685
              
              $
              73,760,133
 
 LIABILITIES
        AND SHAREHOLDERS' EQUITY
 
 CURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              5,224,288
              
              $
              3,807,997Accounts
                  payable - related parties
              
              
              507,612
              
              
              949,992Notes
                  payable - banks
              
              
              4,284,000
              
              
              8,942,000Short
                  term loans
              
              
              21,934,080
              
              
              18,870,250Accrued
                  liabilities
              
              
              135,731
              
              
              229,643Other
                  payable
              
              
              2,407,234
              
              
              1,526,903Employee
                  loans
              
              
              1,651,578
              
              
              596,516Employee
                  loan - officer
              
              
              52,572
              
              
              -Third
                  party loan
              
              
              421,776
              
              
              318,274Dividends
                  payable
              
              
              
              
              
              -Customer
                  deposit
              
              
              1,181,468
              
              
              796,228Long
                  term loan - current maturity
              
              
              414,120
              
              
              381,350Taxes
                  payable
              
              
              4,625,019
              
              
              2,048,932Total
                  current liabilities
              
              
              42,839,478
              
              
              38,468,085LONG
                  TERM LIABILITIESOther
                  payable - noncurrent
              
              
              2,965,162
              
              
              3,661,472Total
                  long term liabilities
              
              
              2,965,162
              
              
              3,661,472Total
                  liabilities
              
              
              45,804,640
              
              
              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 ofMarch
                  31, 2008 and June 30, 2007, respectively
              
              
              19,070
              
              
              18,875Additional
                  paid-in capital
              
              
              19,828,665
              
              
              19,163,549Statutory
                  reserves
              
              
              1,735,484
              
              
              1,735,484Retained
                  earnings
              
              
              17,154,919
              
              
              9,885,670Accumulated
                  other comprehensive income
              
              
              3,793,907
              
              
              826,998Total
                  shareholders' equity
              
              
              42,532,045
              
              
              31,630,576Total
                  liabilities and shareholders' equity
              
              $
              88,336,685
              
              $
              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 NINE MONTHS ENDED MARCH 31, 2008 AND 2007


(UNAUDITED)





Three
                  months ended
              
              Nine
                  months endedMarch
                  31,
              
              March
                  31,2008
              
              2007
              
              2008
              
              2007SALES
                  REVENUE
              
              $
              20,701,577
              
              $
              12,563,088
              
              $
              65,028,934
              
              $
              35,472,898COST
                  OF SALES
              
              
              16,220,665
              
              
              9,297,002
              
              
              50,085,971
              
              
              26,694,321GROSS
                  PROFIT
              
              
              4,480,912
              
              
              3,266,086
              
              
              14,942,963
              
              
              8,778,577SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              1,603,932
              
              
              1,059,579
              
              
              5,114,863
              
              
              2,989,524INCOME
                  FROM OPERATIONS
              
              
              2,876,980
              
              
              2,206,507
              
              
              9,828,100
              
              
              5,789,053OTHER
                  (EXPENSE) INCOME:Earnings
                  on equity investment
              
              
              43,070
              
              
              83,182
              
              
              192,826
              
              
              105,389Non-operating
                  income
              
              
              67,451
              
              
              1,704
              
              
              177,160
              
              
              98,867Non-operating
                  expense
              
              
              (96,191
              )
              
              (18
              )
              
              (300,035
              )
              
              (2,801
              )Interest
                  expense and other charges
              
              
              (738,634
              )
              
              (323,688
              )
              
              (1,674,515
              )
              
              (692,326
              )Interest
                  income
              
              
              55,697
              
              
              42,396
              
              
              154,101
              
              
              86,041Other
                  (expense), net
              
              
              (668,607
              )
              
              (196,424
              )
              
              (1,450,463
              )
              
              (404,830
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              2,208,373
              
              
              2,010,083
              
              
              8,377,637
              
              
              5,384,223PROVISION
                  FOR INCOME TAXES
              
              
              321,220
              
              
              216,990
              
              
              1,108,388
              
              
              518,128NET
                  INCOME
              
              
              1,887,153
              
              
              1,793,093
              
              
              7,269,249
              
              
              4,866,095OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustments
              
              
              1,554,258
              
              
              130,758
              
              
              2,966,909
              
              
              377,729COMPREHENSIVE
                  INCOME
              
              $
              3,441,411
              
              $
              1,923,851
              
              $
              10,236,158
              
              $
              5,243,824EARNINGS
                  PER SHAREBasic
              
              $
              0.10
              
              $
              0.18
              
              $
              0.38
              
              $
              0.48Diluted
              
              $
              0.10
              
              $
              0.18
              
              $
              0.36
              
              $
              0.48WEIGHTED
                  AVERAGE NUMBER OF SHARESBasic
              
              
              19,069,805
              
              
              10,125,000
              
              
              18,967,857
              
              
              10,125,000Diluted
              
              
              19,845,195
              
              
              10,125,000
              
              
              19,959,689
              
              
              10,125,000


The
        accompanying notes are an integral part of this statement.


-
          2
          -





SHENGTAI
      PHARMACEUTICAL INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY




Additional
              
              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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,866,095
              
              
              
              
              
              4,866,095Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              377,729
              
              
              377,729BALANCE,
                  March 31, 2007 (Unaudited)
              
              
              10,125,000
              
              $
              10,125
              
              $
              3,915,871
              
              $
              (1,925,996
              )
              $
              1,001,088
              
              $
              8,337,035
              
              $
              563,131
              
              $
              11,901,254Issuance
                  of common stock
              
              
              8,750,000
              
              
              8,750
              
              
              15,247,678
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,256,428Capital
                  contribution received
              
              
              
              
              
              
              
              
              
              
              
              1,925,996
              
              
              
              
              
              
              
              
              
              
              
              1,925,996Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,283,031
              
              
              
              
              
              2,283,031Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              734,396
              
              
              (734,396
              )
              
              
              
              
              -Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              263,867
              
              
              263,867BALANCE,
                  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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,269,249
              
              
              
              
              
              7,269,249Option
                  issued to employees
              
              
              
              
              
              
              
              
              158,818
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              158,818Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,966,909
              
              
              2,966,909BALANCE,
                  March, 2008 (Unaudited)
              
              
              19,069,805
              
              $
              19,070
              
              $
              19,828,665
              
              $
              -
              
              $
              1,735,484
              
              $
              17,154,919
              
              $
              3,793,907
              
              $
              42,532,045




The accompanying notes are an integral part of this
      statement.


-
          3
          -





SHENGTAI
      PHARMACEUTICAL INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      NINE MONTHS ENDED March 31, 2008 AND 2007


(UNAUDITED)





2008
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              7,269,249
              
              $
              4,866,095Adjustments
                  to reconcile net income to cashprovided
                  by operating activities:Depreciation
              
              
              2,076,992
              
              
              1,295,570Amortization
              
              
              38,263
              
              
              31,992Allowance
                  for bad debts
              
              
              16,558
              
              
              53,445Gain
                  on equipment disposal
              
              
              (91,480
              )
              
              -Gain
                  on disposal of land use right
              
              
              (24,783
              )
              
              -Compensation
                  expense for options issued to employees
              
              
              158,818
              
              
              -Earnings
                  on equity investment
              
              
              (192,826
              )
              
              (105,389
              )Change
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,108,695
              )
              
              (2,401,163
              )Notes
                  receivable
              
              
              380,411
              
              
              147,315Other
                  receivables
              
              
              1,987,660
              
              
              473,493Other
                  receivables - related parties
              
              
              2,570,100
              
              
              (575,729
              )Other
                  receivables - shareholder
              
              
              1,273,495
              
              
              (20,900
              )Inventories
              
              
              (1,404,996
              )
              
              (1,175,968
              )Prepayments
              
              
              (620,451
              )
              
              87,447Prepayments
                  - related parties
              
              
              -
              
              
              (746,328
              )Accounts
                  payable
              
              
              (595,474
              )
              
              2,756,521Accounts
                  payable - related parties
              
              
              (1,252,106
              )
              
              (467,190
              )Accrued
                  liabilities
              
              
              (568,922
              )
              
              169,404Accrued
                  liabilities - related party
              
              
              482,160
              
              
              -Other
                  payable
              
              
              362,035
              
              
              105,702Other
                  payable- equipment purchase
              
              
              (1,241,003
              )
              
              -Other
                  payable- discount on equipment purchase
              
              
              626,370
              
              
              -Customer
                  deposit
              
              
              297,543
              
              
              1,128,506Taxes
                  payable
              
              
              2,261,984
              
              
              316,605Net
                  cash provided by operating activities
              
              
              12,700,902
              
              
              5,939,428CASH
                  FLOWS FROM INVESTING ACTIVITIES:Acquisition
                  of equity investment
              
              
              -
              
              
              (904,043
              )Purchases
                  of plant and equipment
              
              
              (154,262
              )
              
              (497,603
              )Proceeds
                  from equipment disposal
              
              
              35,266
              
              
              -Additions
                  to construction in progress
              
              
              (7,725,153
              )
              
              (11,697,698
              )Acquisition
                  of land use right
              
              
              (324,031
              )
              
              (10,747
              )Purchase
                  of software program
              
              
              (5,426
              )
              
              -Advances
                  on plant and equipment purchase
              
              
              (9,876,385
              )
              
              (1,069,809
              )Loan
                  repayment from related party
              
              
              678,200
              
              
              -Proceed
                  from land use right disposal
              
              
              30,826
              
              
              -Net
                  cash used in investing activities
              
              
              (17,340,965
              )
              
              (14,179,900
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Decrease
                  (increase) in restricted cash
              
              
              3,407,360
              
              
              (1,518,640
              )Borrowings
                  on notes payable - banks
              
              
              5,425,600
              
              
              12,959,405Payments
                  on notes payable - banks
              
              
              (10,579,920
              )
              
              (11,431,445
              )Borrowings
                  on short term loans
              
              
              12,750,160
              
              
              17,100,419Payments
                  on short term loans
              
              
              (11,380,196
              )
              
              (7,550,669
              )Borrowings
                  on employee loans
              
              
              1,412,554
              
              
              627,960Payments
                  on employee loans
              
              
              (459,082
              )
              
              (378,336
              )Borrowings
                  on employee loan - officer
              
              
              45,187
              
              
              -Borrowings
                  on third party loan
              
              
              2,898,529
              
              
              -Payments
                  on third party loan
              
              
              (2,826,195
              )
              
              -Payments
                  on long term loans
              
              
              -
              
              
              (1,334,641
              )Cash
                  proceeds from issuance of common stock
              
              
              506,493
              
              
              -Dividend
                  paid to shareholders
              
              
              -
              
              
              (395,838
              )Net
                  cash provided by financing activities
              
              
              1,200,490
              
              
              8,078,215EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              248,470
              
              
              14,494DECREASE
                  IN CASH
              
              
              (3,191,103
              )
              
              (147,763
              )CASH,
                  beginning of period
              
              
              6,420,439
              
              
              502,457CASH,
                  end of period
              
              $
              3,229,336
              
              $
              354,694




The accompanying notes are an integral part of this
      statement.


-
          4
          -




SHENGTAI
        PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
        TO
        THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
        31,
        2008
 (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, t he
        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 acquired 8,750,000 shares of common stock and 4,375,000 attached
        warrants for $2.00 per unit (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 shares in escrow 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
 MARCH
          31,
          2008
 (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 issued 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.
 
 Management
        has included all normal recurring adjustments considered necessary to give
        a
        fair presentation of operating results for the periods presented. Interim
        results are not necessarily indicative of results for a full year. The
        information included in this Form 10-Q should be read in conjunction with
        information included in the 2007 annual report filed on Form 10-K.
 
 -6-
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (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, shareholders’ 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 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 $3,793,907 as of March 31, 2008 and $826,998 as of
        June
        30, 2007. Assets and liabilities were translated at 7.00 RMB and 7.60 RMB
        to
        $1.00 at March 31, 2008 and June 30, 2007, respectively. The equity accounts
        were stated at their historical cost. The average translation rates applied
        to
        income statement for the nine months ended March 31, 2008 and 2007 were 7.37
        RMB
        and 7.85 RMB to $1.00. 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 expenses. Shipping and handling costs amounted
        to
        $2,647,833 and $1,479,144 for the nine months ended March 31, 2008 and 2007,
        respectively. Shipping and handling costs related to costs of goods sold
        amounted to $768,076 and $350,952 for the three months ended March 31, 2008
        and
        2007.
 
 -7-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (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 used in preparing its financial statements are
        reasonable and prudent. Actual results could differ from these
        estimates.
 
 Stock-based
        compensation
 
 The
        Company records stock based compensation expense pursuant to FAS 123R. The
        Company estimates the fair value of the award using the Black-Scholes Option
        Pricing Model. Under FAS 123R, the Company’s expected volatility assumption is
        based on the historical volatility of Company’s stock. The expected life
        assumption is primarily based on historical exercise patterns and employee
        post-vesting termination behavior. The risk-free interest rate for the expected
        term of the option is based on the U.S. Treasury yield curve in effect at
        the
        time of grant.
 
 Stock
        compensation expense is recognized based on awards expected to vest, and
        there
        were no estimated forfeitures as the Company has a short history of issuing
        options. FAS 123R requires forfeitures to be estimated at the time of grant
        and
        revised in subsequent periods, if necessary, if actual forfeitures differ
        from
        those estimates.
 
 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 f inancial
        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 March 31, 2008 and
        June
        30, 2007 amounted to $4,772,232 and $12,052,823 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
 MARCH
          31,
          2008
 (UNAUDITED)
 The
        following is a reconciliation of the basic and diluted earnings per share
        computation for the three and nine months ended March
        31,
        2008 and 2007 :
 
 Three
                  months ended March 31,2008
              
              2007(Unaudited)
              
              (Unaudited)Net
                  income for earnings per share
              
              $
              1,887,153
              
              $
              1,793,093Weighted
                  average shares used in basic computation
              
              
              19,069,805
              
              
              10,125,000Diluted
                  effect of warrants
              
              
              775,390
              
              
              -Weighted
                  average shares used in diluted computation
              
              
              19,845,195
              
              
              10,125,000Earnings
                  per shareBasic
              
              $
              0.10
              
              $
              0.18Diluted
              
              $
              0.10
              
              $
              0.18
 
 Nine
                  months ended March 31,2008
              
              2007(Unaudited)
              
              (Unaudited)Net
                  income for earnings per share
              
              $
              7,269,249
              
              $
              4,866,095Weighted
                  average shares used in basic computation
              
              
              18,967,857
              
              
              10,125,000Diluted
                  effect of warrants
              
              
              991,832
              
              
              -Weighted
                  average shares used in diluted computation
              
              
              19,959,689
              
              
              10,125,000Earnings
                  per shareBasic
              
              $
              0.38
              
              $
              0.48Diluted
              
              $
              0.36
              
              $
              0.48
 At
        March
        31, 2008, 4,598,945,shares of outstanding warrants were included in the three
        and nine months ended March 31, 2008 calculation of diluted earnings per
        share.
        At March 31, 2007, no shares of outstanding warrants were included in the
        three
        and nine months ended March 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 March 31, 2008
        and
        June 30, 2007, these amounts totaled $2,187,947 and $5,628,500,
        respectively.
 
 
 -9-
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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. These funds can only be disbursed after certain criteria are met.
        As
        of March 31, 2008 and June 30, 2007, the amount not disbursed was $348,000
        and
        $500,000, respectively, and this balance is classified under restricted cash
        in
        the Company’s consolidated balance sheets.
 
 Accounts
        receivable
 
 In
        the
        normal course of business, the Company extends unsecured credit to its
        customers. Accounts receivable outstanding at March 31, 2008 and June 30,
        2007
        amounted to $7,881,013 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 for doubtful account is recorded
        in
        the period of the related sales. The Company’s existing reserve is consistent
        with its historical experience and considered adequate by
        management.
 
 The
        activity in the allowance for doubtful accounts for trade accounts receivable
        for the periods ended March 31, 2008 and June 30, 2007 is as
        follows:
 
 Nine
                  months ended
              
              Year
                  endedMarch
                  31, 2008
              
              June
                  30, 2007(Unaudited)Beginning,
                  allowance for doubtful accounts
              
              $
              431,178
              
              $
              357,970Additions
                  charged to bad debt expense
              
              
              16,558
              
              
              271,602Write-off
                  charged against the allowance
              
              
              (135,044
              )
              
              (217,838
              )Foreign
                  currency translation adjustments
              
              
              37,926
              
              
              19,444Ending,
                  allowance for doubtful accounts
              
              $
              350,618
              
              $
              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 nine months ended March 31, 2008 and 2007, the top ten
        customers accounted for 35% and 33%, respectively, of total sales. Account
        receivable from these customer amounted to $1,259,827 and $928,238 as of
        March
        31, 2008 and 2007.
 
 
 -10-
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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 North America and Western Europe. These include risks include
        the
        political, economic and legal environments as well as restrictions on 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.
 
 Inventories
 
 Inventories
        are stated at the lower of cost (weighted average basis) or market and consist
        of the following:
  March
                  31, 2008
              
              June
                  30, 2007(Unaudited)Raw
                  materials
              
              $
              2,110,273
              
              $
              2,297,901Work-in-progress
              
              
              1,469,412
              
              
              1,130,900Finished
                  goods
              
              
              2,643,290
              
              
              1,020,466Total
              
              $
              6,222,975
              
              $
              4,449,267
 
 The
        Company reviews its inventory periodically for possible obsolete goods in
        order
        to determine if any reserves are necessary. As of March 31, 2008 and June
        30,
        2007, management determined no reserves were necessary.
 
 Plant
        and equipment and depreciation
 
 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.
 
 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.
 
 -11-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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 March 31, 2008, the Company expects
        these assets to be fully recoverable.
 
 Plant
        and
        equipment consist of the following:
 
 March
                  31, 2008
              
              June
                  30, 2007(Unaudited)Buildings
                  and Improvements
              
              $
              6,258,427
              
              $
              5,272,190Machinery
                  and equipment
              
              
              36,459,236
              
              
              22,257,978Automobile
                  facilities
              
              
              546,741
              
              
              487,319Electronic
                  equipment
              
              
              343,172
              
              
              307,391Construction
                  in progress
              
              
              8,290,131
              
              
              9,055,482Total
              
              
              51,897,707
              
              
              37,380,360Accumulated
                  depreciation
              
              
              9,898,726
              
              
              7,202,286Total
              
              $
              41,998,981
              
              $
              30,178,074
 
 Depreciation
        expense for the nine months ended March 31, 2008 and 2007 amounted to $2,076,992
        and $1,295,570, respectively. Depreciation expense for the three months ended
        March 31, 2008 and 2007 amounted to $889,826 and $492,804,
        respectively.
 
 Interest
        costs totaling $413,928 and $572,687 were capitalized into construction in
        progress for the nine months ended March 31, 2008 and 2007,
        respectively . Interest
        cost capitalized into construction in progress for the three months ended March
        31,
        2008 and 2007 amounted to $127,868 and $180,738, 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.
 
 -12-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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.
 
 Summarized
        financial information of Changle Shengshi is as follows:
 
 March
                  31, 2008
              
              June
                  30, 2007(Unaudited)Current
                  assets
              
              $
              6,579,106
              
              $
              8,065,168Non-current
                  assets
              
              
              26,995,842
              
              
              23,027,549Total
                  assets
              
              $
              33,574,948
              
              $
              31,092,717Current
                  liabilities
              
              $
              12,286,475
              
              $
              14,137,526Non-current
                  liabilities
              
              
              4,312,560
              
              
              3,576,800Shareholders'
                  equity
              
              
              16,975,913
              
              
              13,378,391Total
                  liabilities and shareholders' equity
              
              $
              33,574,948
              
              $
              31,092,717
 
 Summarized
        financial information of Changle Shengshi for the nine months ended is as
        follows:
 
 March
                  31, 2008
              
              March
                  31, 2007(Unaudited)
              
              (Unaudited)Net
                  sales
              
              $
              22,590,696
              
              $
              11,576,040Gross
                  profit
              
              $
              5,211,473
              
              $
              2,198,452Income
                  before taxes
              
              $
              4,021,604
              
              $
              1,319,949Net
                  income
              
              $
              2,432,468
              
              $
              1,091,431Company
                  share of income
              
              $
              486,494
              
              $
              218,286Elimination
                  of intercompany profit
              
              
              272,206
              
              
              112,897Company’s
                  share of net income
              
              $
              214,288
              
              $
              105,389
 
 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.
 
 -13-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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 totaled $306,984. The sales price for the sale of the land use rights
        was
        $1,998,685. As
        of
        March 31, 2008, total proceeds had been received.
 
 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 March
        31,
        2008, the Company expects these assets to be fully recoverable.
 
 At
        March
        31, 2008 and June 30, 2007, accumulated amortization amounted to $167,007
        and
        $96,299, respectively. Total amortization expense for the nine months ended
        March 31, 2008 and 2007 amounted to $36,278 and $31,992, respectively.
        Amortization expense for the three months ended March 31, 2008 and 2007 amounted
        to $14,443 and $10,833, 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 payable plus deferred taxes. There are no deferred tax amounts
        at March 31, 2008 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 recorded
        against 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
        tax
        assets and liabilities on a net basis.
 
 -14-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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.
 
 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 $10,071,774 and $7,909,022 for the
        nine
        months ended March 31, 2008, and $5,544,690 and $4,772,785 for the nine months
        ended March 31, 2007, 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 $3,455,146 and $2,829,511 for the three months ended March 31,
        2008,
        and $2,001,457 and $1,571,058 for the three months ended March 31, 2007,
        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).
 
 -15-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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.
 
 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 effect SFAS
        No. 159 will have on its consolidated financial statements.
 
 In
        December 2007, the Securities and Exchange Commission (“ ***SEC*** ”)
        issued
        Staff Accounting Bulletin No. 110 (“ ***SAB
        110*** ”).
        SAB
        110 amends and replaces Question 6 of Section D.2 of Topic 14, *Share-Based
        Payment* of
        the
        Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14
        expresses the views of the staff regarding the use of the “simplified” method in
        developing an estimate of expected term of “plain vanilla” share options and
        allows usage of the “simplified” method for share option grants prior to
        December 31, 2007. SAB 110 allows public companies which do not have
        historically sufficient experience to provide a reasonable estimate to continue
        use of the “simplified” method for estimating the expected term of “plain
        vanilla” share option grants after December 31, 2007. We currently use the
“simplified” method to estimate the expected term for share option grants as we
        do not have enough historical experience to provide a reasonable estimate.
        We
        will continue to use the “simplified” method until we have enough historical
        experience to provide a reasonable estimate of expected term in accordance
        with
        SAB 110. SAB 110 is effective for the Company on January 1, 2008.
 
 **Note
        3 - Supplemental disclosure of cash flow information**
 
 Income
        taxes paid for the nine months ended March 31, 2008 and 2007 amounted to
        $14,494
        and $93,936, respectively.
 
 -16-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 Interest
        paid net of capitalized amounts for the nine months ended March 31, 2008
        and 2007 amounted to $990,105 and $413,037, 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 $507,612 and $949,992 of accounts payable
        due to Changle Shengshi at March 31, 2008 and June 30, 2007, respectively.
        The
        utilities expense amounted to $5,516,287 and $2,308,729 for the nine months
        ended March 31, 2008 and 2007, respectively. The utilities expense for the
        three
        months ended March 31, 2008 and 2007 amounted to $1,481,203 and $909,539,
        respectively.
 
 The
        Company loaned money to Changle Shengshi and entered into two loan contracts
        as
        follows:
  March
                    31, 2008
                
                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
                
                
                428,400
                
                
                394,500$
                428,400
                
                $
                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”), a company owned 40% by Mr.
        Qingtai Liu, the Company’s chief executive officer. Since
        the
        Company initiated production of starch, no more purchases were made from
        Shouguang Shengtai. Balance as of March 31, 2008 and June 30, 2007 was $0
        and
        $992,449, respectively. Total related party purchases from Shouguang
        Shengtai for the
        nine months ended March 31, 2008 and 2007 amounted to $0 and $12,839,488,
        respectively, which represents approximately 0% and 53% of the Company’s
        purchase of raw materials for the nine months ended March 31, 2008 and 2007,
        respectively. Purchases for the three months ended March 31, 2008 and 2007
        amounted to $0 and $5,728,548, respectively, which represents approximately
        0%
        and 19% of the Company’s purchase of raw material for the three months ended
        March 31, 2008 and 2007.
 
 -17-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 The
        following table summarizes other receivable - related parties as of March
        31,
        2008 and June 30, 2007 are as follows:
  March
                  31, 2008
              
              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
        $805,641 and $140,376 as of March 31, 2008 and June 30, 2007,
        respectively.
 
 Prepayments
        - non-current represent partial payments or deposits on plant and equipment
        purchases and amounted to $17,979,164 and $7,429,371 as of March 31, 2008
        and
        June 30, 2007, respectively.
 
 **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:
 
 March
                  31, 2008
              
              June
                  30, 2007(Unaudited)Loan
                  from Bank of China, due various dates from April 2008 to March
                  2009.
                  Monthly interest-only payments with interest rates ranging from
                  7.313% to
                  8.964% per annum, guaranteed by unrelated third party and secured
                  by
                  properties
              
              $
              13,366,080
              
              $
              10,993,400Loan
                  from Industrial and Commercial Bank of China, due various dates
                  from April
                  2008 to January 2009 monthly interest-only payments with interest
                  rates
                  ranging from 8.307% to 8.964% per annum, guaranteed by unrelated
                  third
                  party and secured by properties
              
              
              3,570,000
              
              
              3,945,000Loan
                  from Agriculture Bank of China, Due various dates from April 2008
                  to
                  February 2009. Monthly interest-only payments with interest at
                  8.964% per
                  annum, Guaranteed by unrelated third party and secured by
                  properties
              
              
              2,142,000
              
              
              1,959,350Loan
                  from Communication Bank, due July 2007. Monthly interest-only payments
                  at
                  7.2% per annum, guaranteed by unrelated third party,
                  unsecured
              
              
              -
              
              
              1,972,500Loan
                  from Commercial Bank, due July 2008. Monthly interest-only payments
                  at
                  8.019% per annum, guaranteed by unrelated third party,
                  unsecured
              
              
              1,428,000
              
              
              -Loan
                  from ShangHai PuFa Bank, due October 2008. Monthly interest-only
                  payments
                  at 8.384% per annum, guaranteed by unrelated third party,
                  unsecured
              
              
              1,428,000Total
              
              $
              21,934,080
              
              $
              18,870,250
  -18-
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 Notes
        payable - banks
 
 Notes
        payable - banks 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:
  March
                    31,
                  2008
                
                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, $1,428,000 due in August 2008,
                    $2,856,000
                    due in September 2008, restricted cash required 50% of loan amount,
                    guaranteed by unrelated third party
                
                
                4,284,000
                
                
                3,945,000Total
                
                $
                4,284,000
                
                $
                8,942,000
 
 Employee
        loans
 
 -19-


SHENGTAI
      PHARMACEUTICAL INC. AND SUBSIDIARIES


NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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
        $1,651,578 and $596,516 as
        of March 31, 2008 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 months then
        10.8%
        thereafter and the principal is due upon demand. Employee loans from officer
        amounted to $52,572 and $0 as
        of March 31, 2008 and June 30, 2007, respectively. Interest expense paid
        is
        immaterial on these loans.
 
 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 March 31, 2008 and June 30, 2007 amounted to $421,776 and $318,274,
        respectively.
 
 Long
        term loan - current maturity
 
 Long
        term
        loan - current maturity represents amounts due to various banks and other
        outside parties which are normally due within one year consisted of the
        following:
 
 March
                  31, 2008
              
              June
                  30, 2007(Unaudited)Agricultural
                  Credit Union, interest at 7.84% per annum, due May 2008
              
              $
              414,120
              
              $
              381,350Total
              
              
              414,120
              
              
              381,350
 
 The
        remaining long term loan balance is expected to be repaid by May
        2008.
 
 Interest
        expense net of amounts capitalized into construction in progress for the
        nine
        months ended March 31, 2008 and 2007 on all debt amounted to $1,533,256 and
        $606,285, respectively. Interest expense net of amounts capitalized into
        construction in progress for the three months ended March 31, 2008 and 2007
        on
        all debt amounted to $647,235 and $283,452, 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.
 
 -20-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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 2009 after the two-year
        24%
        exemption for income taxes until its exemption and reduction periods expire
        in
        August 2009.
 
 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.
 
 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 until the tax holiday term is completed. Starting on September
        1, 2009, the company will be subject to 25% income tax according to the newly
        issued income tax regulation.
 
 During
        the nine months ended March 31, 2008 and 2007, the provision for income taxes
        was $1,108,388 and 518,128, respectively. Income tax provision for the three
        months ended March 31, 2008 and 2007 amounted to $321,220 and $216,990,
        respectively.
 
 The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the nine months ended March 31, 2008 and 2007:
 
 2008
              
              2007(Unaudited)
              
              (Unaudited)U.S.
                  Statutory rates
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recognized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              25.0
              
              
              33.0China
                  income tax exemption
              
              
              (12.0
              )
              
              (23.4
              )Total
                  provision for income taxes
              
              
              13.0
              %
              
              9.6
              %
 The
        estimated tax savings due to the tax exemption for the nine months ended
        March
        31, 2008 and 2007 amounted to $1,699,248 and $1,258,666, respectively. The
        net
        effect on basic earnings per share if the income tax had been applied would
        decrease basic earnings per share for the nine months ended March 31, 2008
        and
        2007 by $0.09 and $0.12, respectively. The net effect on diluted earnings
        per
        share if the income tax had been applied would decrease diluted earnings
        per
        share for the nine months ended March 31, 2008 and 2007 by $0.09 and $0.12,
        respectively. The estimated tax savings due to the tax exemption for the
        three
        months ended March 31, 2008 and 2007 amounted to $321,704 and $364,215,
        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
        March 31, 2008 and 2007 by $0.02 and $0.04, 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 March 31, 2008 and
        2007 by
        $0.02 and $0.04, respectively.
 
 -21-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 Taxes
        payable
 
 Taxes
        payable consisted of the following:
 
 March
                  31, 2008
              
              June
                  30, 2007(Unaudited)VAT
                  payable
              
              $
              2,509,391
              
              $
              1,273,390Individual
                  income tax withheld
              
              
              14,454
              
              
              1,316Income
                  tax payable
              
              
              2,091,481
              
              
              764,827Housing
                  property tax payable
              
              
              9,693
              
              
              7,306Others
              
              
              -
              
              
              2,093Total
              
              $
              4,625,019
              
              $
              2,048,932
 
 **Note
        8 - Commitments and Contingent liabilities**
 
 Guarantees
 
 As
        of
        March 31, 2008, the Company guaranteed $8.1 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. The
        maximum potential amount of future undiscounted payments under the guarantee
        is
        $8.7 million including accrued interest. 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 March 31, 2008 is as follows:
 
 Company
              
              Short
                  Term Bank LoansChang
                  Le Century Sun Paper Industry Co.
              
              $
              999,600Shangdong
                  Kuangji Group Inc.
              
              
              7,140,000Total
              
              $
              8,139,600
 
 **Note
        9 - Shareholders’ equity**
 
 On
        May 15, 2007, the Company entered into a share purchase agreement (the “Share
        Purchase Agreement”) with nineteen accredited investors (the “Purchasers”).
        Pursuant to the Share Purchase Agreement, the Purchasers acquired 8,750,000
        shares of common stock and 4,375,000 warrants for $2.00 per unit for $17,500,000
        (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.
 
 -22-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 Warrants
 
 The
        4,375,000 warrants (“Investor Warrants”) carry an exercise price of $2.60 and a
        5-year term. They are callable 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.
 
 The
        Company also issued 218,750 warrants (“Placement Agent Warrants”) to Brill
        Securities, the 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
              
              AverageAverage
              
              RemainingWarrants
                  Outstanding
              
              Warrants
                  Exercisable
              
              Exercise
                Price
              
              Contractual
                LifeOutstanding,
                  June 30, 2007
              
              
              4,475,000
              
              
              4,475,000
              
              $
              2.54
              
              
              4.13Granted
              
              
              218,750
              
              
              218,750
              
              
              2.60
              
              
              3.63Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              194,805
              
              
              194,805
              
              
              2.60
              
              
              -Outstanding,
                  March 31, 2008
              
              
              4,498,945
              
              
              4,498,945
              
              $
              2.54
              
              
              3.38
 
 Stock
        options
 On
          January 4, 2008, the Company adopted “Shengtai Pharmaceutical, Inc. 2007 Stock
          Incentive Plan” (the “Stock Incentive Plan”).
 
 On
          May
          14, 2008, the Company granted 500,000 stock options and 160,000 non-qualified
          stock options pursuant to the Stock Incentive Plan. All options have an
          exercise
          price of $3.34, which is the closing price on the date of grant, and expire
          five
          years after the date of grant. All options vest over a period of three
          years
          from the date of grant.
 
 -23-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 The
        assumptions used in calculating the fair value of options granted using the
        Black-Scholes option- pricing model are as follows:
 
 Risk-free
                  interest rate
              3.22%Expected
                  life of the options
              4 yearExpected
                  volatility
              146%Expected
                  dividend yield
              0%
 The
            volatility of the Company’s common stock was estimated by management based on
            the historical volatility of the Company’s common stock, the risk free interest
            rate was based on Treasury Constant Maturity Rates published by the U.S.
            Federal
            Reserve for periods applicable to the estimated life of the options,
            and the
            expected dividend yield was based on our current and expected dividend
            policy.
            The value of the options was based on the Company’s common stock price on the
            date the options were granted.
  The
        stock
        option activity was as follows:
 
 Options
                  outstanding
              
              Weighted
                  Average Exercise Price
              
              Aggregate
                  Intrinsic ValueOutstanding,
                  June 30, 2007
              
              
              -
              
              
              -
              
              
              -Granted
              
              
              660,000
              
              $
              3.34
              
              $
              -ForfeitedExercisedOutstanding
                  March 31, 2008
              
              
              660,000
              
              $
              3.34
              
              $
              -
 
 Following
        is a summary of the status of options outstanding at March 31,
        2008:
  Outstanding
                  Options
              Exercisable
                  OptionsExercise
                  Price
              
              Outstanding
                  Options
              
              Average
                  Remaining Contractual Life
              
              Average
                  Exercise Price
              
              Exercisable
                  Options$
              3.34
              
              660,000
              
              4.83
              $
              3.34
              
              --
 
 Compensation
        expense recognized for the nine and three months ended March 31, 2008 was
        $158,818.
 
 **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.
 
 -24-
 
 SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 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.
 
 The
        transfer to this reserve must be made before distribution of any dividends
        to
        shareholders. For the nine months ended March 31, 2008 and 2007, 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 nine
        months ended March
        31,
        2008 and 2007, the Company made pension con tribution s
        in the
        amount of  $139,073
        and $151,821, respectively. For
        the three
        months ended March
        31,
        2008 and 2007, the Company made pension con tribution s
        in the
        amount of  $47,558
        and $37,118, respectively.
 
 **Note
        12 - Revenue by geographic area**
 
 The
        following table summarized financial information for the nine and three months
        ended March 31, 2008 and 2007 concerning the Company’s revenues based on
        geographic area:
 
 For
        the
        nine months ended,
  March
                  31, 2008
              
              March
                  31, 2007Revenue
              
              (Unaudited)
              
              (Unaudited)China
              
              $
              58,498,996
              
              $
              32,363,834International
              
              
              6,529,938
              
              
              3,109,064Total
              
              $
              65,028,934
              
              $
              35,472,898
 
 
 -25-
  SHENGTAI
          PHARMACEUTICAL INC. AND SUBSIDIARIES
 
 NOTES
          TO
          THE CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2008
 (UNAUDITED)
 For
        the
        three months ended,
  March
                  31, 2008
              
              March
                  31, 2007Revenue
              
              
              (Unaudited
              )
              
              (Unaudited
              )China
              
              $
              18,693,577
              
              $
              11,468,189International
              
              
              2,008,000
              
              
              1,094,899Total
              
              $
              20,701,577
              
              $
              12,563,088
 
 **Note
        13 - Subsequent event**
 
 Short
        term loans
 
 Loan
        amount due to Bank of China in April 2008 amounted to $856,800 was subsequently
        repaid in April 2008. Subsequent to the balance sheet date, the Company has
        loan
        from Bank of China and Industrial and Commercial Bank of China at $856,800
        and
        $428,400, respectively.
 
 Stock
        option
 
 On
        April
        30, 2008, the Company hired Ms. Yiru Shi as Chief Financial Officer of the
        Company. Ms. Shi’s compensation is set forth in an employment agreement between
        Ms. Shi and the Company. Under that agreement, Ms. Shi is to be employed
        by the
        Company for three years, and is to receive compensation consisting of the
        following: (i) a salary of $108,000 per year; (ii) options (or warrants) to
        purchase 50,000 shares of common stock of the company at a strike price (or
        exercise price) of $3.30 per share each time the Company completes a financing
        transaction; (iii) if at the end of three years she has not received stock
        options (or warrants) to purchase at least 150,000 shares of common stock
        of the
        Company, the difference between 150,000 and the number of such options (or
        warrants) she has received; and (iv) in the discretion of management, additional
        shares as a bonus.
   -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 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 nine months ended March 31,2008, we produced a total of approximately
        66,964
        metric tons of glucose, and our sales for pharmaceutical grade glucose and
        other
        glucose products were $26 million, or 40.28% 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.
 
 Our
        new
        cornstarch production facility, which has a maximum capacity to produce 240,000
        metric tons of cornstarch per year, was fully 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 nine months ended March 31,2008, we produced a total of 127,511.91 metric
        tons of cornstarch, of which 44,943.56 metric tons were used to satisfy our
        own
        glucose production needs. Some excess cornstarch was then sold to outside
        customers, resulting in 33.72% 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 in house, we
        are
        able to eliminate shipping costs to transport the cornstarch to our glucose
        production facility and operating costs resulting in lower manufacturing
        costs.
  -27-
  
 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, mostly 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. Chinese leaders worried that industrial
        demand for corn would raise the corn price and the government was 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 amount 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. Constituted approximately 26% of
        our
        total sales revenues for the nine months ended March 31, 2008.
 
 During
        the nine months ended March 31, 2008, we expanded our manufacturing of
        Avermectins, which were a veterinary medicine derived from glucose. We have
        greatly improved the efficiencies of Avermectins production over the past
        year.
        The monthly capacity has increased, resulting in monthly capacity increasing
        from 700-800 kilograms to approximately 1000 kilograms. At the same time,
        we
        have increased yield coefficient from 90% to 93%. We believe that Avermectins
        production will eventually become a substantial product line 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 is 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.
 
 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
        we have only a short production history with this product, we cannot predict
        future profitability.
 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.
 
 It
        is our
        understanding that better living standards would 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. The
        strong
        growth in the PRC pharmaceutical industry will also help increase the selling
        prices of our major products, and enhance our revenues and increase our gross
        profit margins.
  -28-
  
 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.
 
 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 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
        cGMP (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 striving 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.
  -29-
  
 We
        continue to strengthen our domestic sales network, which presently covers
        almost
        all provinces of mainland China except 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 witnessed a modest increase of global sales during the nine
        months
        ended March 31, 2008. 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 seventy countries. Our international
        sales comprised approximately 10.04% of our total sales revenues during the
        nine
        months ended March 31, 2008, slightly higher 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 strive 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 nine months ended March 31, 2007, Weifang Xingda
        Feed Co. Ltd, our largest customer, accounted for 5.16% of our total sales
        revenues; and Double Crane Pharmaceutical Co. Ltd, our largest pharmaceutical
        glucose customer, accounted for 1.38% of our total sales revenues. Our top
        ten
        customers accounted for only 34.92% for our total sales for the nine months
        ended March 31, 2008, as compared to 33.09% for the same period last
        year.
 
 Management
        is not aware of any adverse trends that would materially affect our market
        and
        financial position. We will continue to identify and pursue innovative products
        and technology to our increase market share and optimize our cost structure.
        Barring unforeseen circumstances, we anticipate continued growth in our sales.
        Our ability to meet increased customer demand and stay profitable will however
        still depend on factors such as our production capacity and working
        capital.
  **Results
        of Operations**
  **Three
        Months Ended March 31, 2008 Compared with Three Months Ended March 31,
        2007**
 
 *The
        following table shows our operating results for the three months ended March
        31,
        2007 and 2008* .
 
 **Three
                  months**
                **ended**
                **March
                  31, 2008**
              
              **Three
                  months**
                **ended**
                **March
                  31, 2007**Sales
                  Revenue
              
              
              20,701,577
              
              
              12,563,088Costs
                  of Goods Sold
              
              
              16,220,665
              
              
              9,297,002Gross
                  Profit
              
              
              4,480,912
              
              
              3,266,086Sales,
                  General and Administrative Expenses
              
              
              1,603,932
              
              
              1,059,579Operating
                  Income
              
              
              2,876,980
              
              
              2,206,507Other Income
                  (Expense)
              
              
              (668,607
              )
              
              (196,424
              )Income
                  before Income Taxes
              
              
              2,208,373
              
              
              2,010,083Provision
                  for Income Taxes
              
              
              321,220
              
              
              216,990Net
                  income
              
              
              1,887,153
              
              
              1,793,093
 
  -30-
  Sales
        revenue for the three months ended March 31, 2008 was $20,701,557, an increase
        of $8,138,489, or 64.78% compared with the corresponding period in 2007.
        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 March 31, 2008 was $16,220,665, an
        increase of $6,923,663, or 74.47% compared with the corresponding period
        in
        2007. The increase in cost of goods sold is primarily resulted from the increase
        in sales of our products and the increase of the raw material.
 
 Gross
        profit for the three months ended March31, 2008 was $4,480,912, an increase
        of
        $1,214,826, or 37.20% compared with the corresponding period in 2007. 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 on some product lines.
 
 Gross
        profit margin for the three months ended March 31, 2008 was 21.65%, a decrease
        from 26.00% for the same period in 2007. This four percentage points decrease
        of
        overall gross profit margin was principally due to the increase price of
        raw
        material, and our increased sales of cornstarch, a product with lower profit
        margin.
 
 Selling,
        General and Administrative expenses for the three months ended March 31,
        2008
        was $1,603,932, an increase of $544,353, or 51.37% compared with the
        corresponding period in 2007. The increase in our Selling, General and
        Administrative expenses was the result of stock option issued in Janunary
        2008,
        the expansion of our production output and domestic sales network. Larger
        quantity of cornstarch also called for higher shipping costs.
  Net
        income for the three months ended March 31, 2008 was $1,887,153, an increase
        of
        94,060, or 5.25% compared with the corresponding period in 2007. The increase
        of
        net income was due to Sales increase.
  **Nine
        Months Ended March 31, 2008 Compared with Nine Months Ended March 31,
        2007**
 
 *The
        following table shows our operating results for the nine months ended March
        31,
        2007 and 2008* .
 
 **Nine
                  months**
                **ended**
                **March
                  31, 2008**
              
              **Nine
                  months**
                **ended**
                **March
                  31, 2007**Sales
                  Revenue
              
              
              65,028,934
              
              
              35,472,898Costs
                  of Goods Sold
              
              
              50,085,971
              
              
              26,694,321Gross
                  Profit
              
              
              14,942,963
              
              
              8,778,577Sales,
                  General and Administrative Expenses
              
              
              5,114,863
              
              
              2,989,524Operating
                  Income
              
              
              9,828,100
              
              
              5,789,053Other
                  Net Income (Expense)
              
              
              (1,450,463
              )
              
              (404,830
              )Income
                  before Income Taxes
              
              
              8,377,637
              
              
              5,384,223Provision
                  for Income Taxes
              
              
              1,108,388
              
              
              518,128Net
                  income
              
              
              7,269,249
              
              
              4,866,095
 
  -31-
  Sales
        revenue for the nine months ended March 31, 2008 was $65,028,934, an increase
        of
        $29,556,036, or 83.32% compared with the corresponding period in 2007.
 
 Production
        from our new cornstarch facility was the principal driver of our sales
        performance. Sales of the excess cornstarch to outside customers constituted
        33.72% of our total sales for these nine months. Higher product prices of
        our
        glucose products were also a driver of higher revenues. Unit prices for most
        of
        our glutose products increased an average of 0% from those in the same period
        last year. Unit prices for most of our corn starch products increased an
        average
        of 5.20% from those in the same period last year. Unit prices for most of
        our
        products other than glutose and corn starch decreased an average of 65% 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 $16.84 million, or 3.84 times of the number for the corresponding
        period last year.
 
 Costs
        of
        goods sold for the nine months ended March 31, 2008 was $50,085,971, an increase
        of $23,391,650, or 87.63% compared with the corresponding period in 2007.
        The
        increase in cost of goods sold primarily resulted from the increase in sales
        of
        our products.
 
 Gross
        profit for the nine months ended March 31, 2008 was $14,942,963, an increase
        of
        $6,164,386, or 70.22% compared with the corresponding period in 2007. 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. Production from our new cornstarch facility was the principal
        driver
        of the increase of the gross profit. Our corn starch products increased gross
        profit of $655,760 and our products other than glutose and corn starch products
        increased the gross profit of $4,714,169 for the nine months ended March
        31,
        2008 compared to the nine months ended March 31, 2007.
 Gross
        profit margin for the nine months ended March 31, 2008 was 22.98%, a slight
        decrease from 24.75% for the same period in 2007. 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 nine months ended March 31, 2008
        was
        $5,114,863, an increase of $2,125,339, or 71.09% compared with the corresponding
        period in 2007. 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 approximately $700,000 additional administrative
        expenses, such as legal fees, audit fees, stock compensation expenses 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.
  -32-
   Net
        income for the nine months ended March 31, 2008 was $7,269,249, an increase
        of
        $2,403,154, or 49.39% compared with the corresponding period in 2007. 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***
  **Nine
        Months Ended March 31, 2008 and 2007**
 
 Net
        cash
        provided by operating activities for the nine months ended March 31, 2008
        was
        $12,700,902, an increase of $6,761,474 from $5,939,428 provided in operating
        activities for the same period in 2007. 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 other
        receivables.
 
 ***Investing
        Activities***
 
 **Nine
        Months Ended March 31, 2008 and 2007**
 
 Net
        cash
        used in investing activities for the nine months ended March 31, 2008 was
        $17,340,965, compared to $14,179,900 used for the same period in 2007. 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 is approximately
        $23
        million. As of March 31, 2008, we have spent approximately $22.85 million
        on
        both 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 $7.62 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.
 
 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. The options are vested immediately
        and no option can be exercised more than 10 years from the grant
        date.
 On
          May
          14, 2008, the directors of the Company have unanimously determined, in
          their
          discretion of the Plan that such options do not comply with the intent
          of the
          Compensation Committee or with the purpose of Incentive Stock Options in
          that
          they do not provide for a gradual vesting of the options and therefore
          were
          defective. The directors desire to correct this error and defect and to
          assure
          that Incentive Stock Options granted by the Corporation shall be consistent
          with
          the Plan. All of the 660,000 options purported to be issued on January
          4, 2008
          are rescinded pursuant to the Stock Incentive Plan. The Company granted
          500,000
          stock options and 160,000 non-qualified stock options pursuant to the Stock
          Incentive Plan. All options are vested over a period of three years from
          the
          date of grant.
  -33-
   **Nine
        Months Ended March 31, 2008 and 2007**
  Net
        cash
        provided by financing activities for the nine months ended March 31, 2008
        was
        $1,200,490, compared to $8,078,215 provided for the same period in fiscal
        2007.
        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.
  **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 $21,934,080 and
        $18,870,250 short term bank loans outstanding as of March 31, 2008 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 $2,965,162 and $3,661,472 as of March 31, 2008, 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 $8,139,600 and $8,560,650
        as
        of March 31, 2008, and June 30, 2007, respectively.
  **Future
        cash commitments**
 
 We
        anticipate the need of $7.62 million as working capital to run the 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
        March 31, 2008, we have accumulated a total capital outlay of approximately
        $23
        million for the glucose manufacturing complex, including the cost for acquiring
        the land, construction of plant, and the purchase of new machinery and
        equipment.
  -34-
  
 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 $7.2 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.
  **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.
  -35-
  
 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.





-36-





**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 Ms. Yiru Shi, our Chief Financial
      Officer, evaluated the effectiveness of the design and operation of our
      disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Exchange Act, as of the end of the period covered by this Report.
      Based on that evaluation, our officers concluded that 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.




-37-




(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.




-38-





**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.
            
            
            
            
            
            *





-39-





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:
                May 15, 2008
            /s/ Qingtai
                LiuQingtai
                LiuChief Executive OfficerDated:
                May 15, 2008
            /s/Yiru
                ShiYiru
                Shi,Chief Financial Officer




-40-