XOTC:SGTI Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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, 2012

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______________ to _____________

 

Commission file number: 000-51312

 

SHENGTAI PHARMACEUTICAL, INC.

 (Exact name of registrant as specified in its charter)

 

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

 

 Changda Road East, Development District,

Changle County, Shandong, The People’s Republic of China

 

 

262400

(Address of principal executive offices)   (Zip Code)

 

011-86-536-2188831

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant (1) has filed 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 ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x  No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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¨    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 Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes   ¨  No  ¨

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of May 11, 2012, there are 9,584,912 shares of $0.001 par value common stock issued and outstanding.

 

 
 

  

INDEX

 

    Page
     
PART I. Financial Information (Unaudited)  
     
  Item 1.  Financial Statements. 3
     
  Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations. 25
     
  Item 3.  Quantitative and Qualitative Disclosures About Market Risk. 33
     
  Item 4.  Controls and Procedures. 33
     
PART II. Other Information  
     
  Item 1.  Legal Proceedings. 34
     
  Item 1A. Risk Factors. 34
     
  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 34
     
  Item 3.  Defaults Upon Senior Securities. 34
     
  Item 4.  Mine Safety Disclosures. 34
     
  Item 5.  Other Information. 34
     
  Item 6.  Exhibits. 35

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

   

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

 

   March 31,   June 30, 
   2012   2011 
ASSETS          
           
CURRENT ASSETS:          
Cash & cash equivalents  $7,375,864   $4,051,349 
Restricted cash   11,988,029    8,972,600 
Accounts receivable, net of allowance for doubtful accounts of $1,889,215 and $1,506,470,respectively   9,021,416    8,580,973 
Notes receivable   1,847,695    2,815,726 
Other receivables   1,867,222    8,359,103 
Inventories   26,500,466    13,016,399 
Prepayments and other assets   1,475,820    2,296,982 
Total current assets   60,076,513    48,093,131 
           
PLANT AND EQUIPMENT, net   80,824,243    77,029,157 
           
CONSTRUCTION IN PROGRESS   1,379,440    4,693,018 
           
EQUITY INVESTMENT   11,207,770    9,132,725 
           
ADVANCE FOR CONSTRUCTION   794,625    2,039,929 
           
INTANGIBLE ASSETS, NET   3,286,698    3,251,214 
           
Total assets  $157,569,289   $144,239,174 
           
LIABILITIES AND STOCKHOLDERS EQUITY          
           
CURRENT LIABILITIES:          
Accounts payable  $7,565,770   $9,508,512 
Accounts payable and accrued liabilities - related party   969,128    943,779 
Notes payable - banks   16,740,029    11,447,800 
Short term bank loans   60,922,211    48,094,740 
Accrued liabilities   471,441    917,464 
Other payable   1,680,144    2,642,598 
Employee loans   295,130    261,938 
Other payable - officer   37,033    36,285 
Customer deposit   5,181,193    8,954,841 
Taxes payable   1,537,280    1,809,093 
Total current liabilities   95,399,357    84,617,050 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' EQUITY:          
Preferred stock, $0.001 par value, 2,500,000 shares authorized, no shares issued and outstanding    -    - 
Common stock, $0.001 par value, 50,000,000 shares authorized, 9,584,912 shares issued and outstanding   9,585    9,585 
Additional paid-in capital   21,917,499    21,553,499 
Statutory reserves   4,200,399    4,068,822 
Retained earnings   26,933,971    26,148,801 
Accumulated other comprehensive income   9,108,476    7,841,417 
Total stockholders' equity   62,169,931    59,622,124 
           
Total liabilities and stockholders' equity  $157,569,289   $144,239,174 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

3
 

 

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME 

(Unaudited)

 

   THREE MONTHS ENDED MARCH 31   NINE MONTHS ENDED MARCH 31 
   2012   2011   2012   2011 
                 
NET SALES  $39,803,608   $41,686,161   $122,792,481   $125,375,589 
                     
COST OF SALES   34,371,199    35,258,900    109,933,994    107,029,421 
                     
GROSS PROFIT   5,432,409    6,427,261    12,858,487    18,346,168 
                     
SELLING, GENERAL AND  ADMINISTRATIVE EXPENSES   3,321,269    2,491,968    8,500,346    7,175,162 
                     
INCOME FROM OPERATIONS   2,111,140    3,935,292    4,358,141    11,171,005 
                     
OTHER INCOME (EXPENSE) :                    
Earnings on equity investment   279,176    145,111    586,067    376,244 
Non-operating income   9,721    18,344    762,704    95,955 
Non-operating expense   (42,230)   (74,914)   (55,955)   (276,766)
Interest expense and other charges   (2,214,124)   (785,351)   (4,448,501)   (2,336,043)
Interest income   8,692    4,682    152,883    76,716 
Other income (expense) , net   (1,958,765)   (692,129)   (3,002,802)   (2,063,895)
                     
INCOME BEFORE PROVISION FOR INCOME TAXES   152,375    3,243,164    1,355,338    9,107,111 
                     
PROVISION FOR INCOME TAXES   54,122    937,985    438,591    2,462,382 
                     
NET INCOME   98,253    2,305,177    916,748    6,644,729 
                     
OTHER COMPREHENSIVE ITEMS:                    
Foreign currency translation adjustments   387,548    153,180    1,267,059    1,744,861 
                     
COMPREHENSIVE INCOME  $485,801   $2,458,357    2,183,807   $8,389,590 
                     
EARNINGS PER SHARE                    
Basic and diluted  $0.01   $0.24   $0.10   $0.69 
                     
WEIGHTED AVERAGE NUMBER OF SHARES                    
Basic and diluted   9,584,912    9,584,912    9,584,912    9,584,912 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4
 

 

SHENGTAI PHARMACEUTICAL INC. AND SUBSIDIARIES

 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   NINE MONTHS ENDED MARCH 31 
   2012   2011 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $916,748   $6,644,729 
Adjustments to reconcile net income to cash (used in) provided by operating activities:          
Depreciation   5,975,092    5,336,701 
Amortization   44,533    42,103 
Bad debt (reduction) provision   344,745    1,031,396 
Share based compensation to employees   -    183,480 
Earnings on equity investment   (586,067)   (376,244)
Loss on equipment disposal   -    112,354 
Change in operating assets and liabilities:          
Accounts receivable   (578,618)   (3,089,170)
Notes receivable   1,029,493    580 
Other receivables   6,630,677    333,225 
Inventories   (13,198,821)   (2,037,695)
Prepayments and other assets   871,121    (3,816,540)
Accounts payable and accrued liabilities   (6,540,386)   (4,766,881)
Accounts payable and accrued liabilities - related party   (2,172)   804,432 
Other payable   (1,019,554)   (328,935)
Customer deposit   (3,965,165)   2,358,568 
Taxes payable   (313,292)   139,180 
Net cash (used in) provided by operating activities   (10,391,666)   2,571,283 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Increase in equity investment   (1,260,000)   - 
Purchase plant and equipment   (1,227)   (778,845)
Additions to construction in progress   (93,605)   (3,854,359)
Increase in land use right   (2,497)   - 
Advances for construction   1,286,740    - 
Loan to related party - non-current   -    (855,385)
Net cash used in investing activities   (70,589)   (5,488,589)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Decrease in restricted cash   (3,015,429)   10,164,504 
Borrowings on notes payable - banks   16,644,915    7,340,200 
Principal payments on notes payable - banks   (11,655,000)   (16,178,400)
Borrowings on short term bank loans   67,428,994    (14,186,060)
Principal payments on short term loans   (55,818,165)   18,979,660 
Borrowings on employee loans   31,500    106,733 
Principal payments on employee loans   (4,725)   (234,615)
Borrowings on long term loans   -    4,799,292 
Payments on long term loans   -    (4,799,292)
Payment on capital lease obligation   -    (5,757,404)
           
Net cash provided by financing activities   13,612,090    234,617 
           
EFFECTS OF EXCHANGE RATE CHANGE IN CASH   174,680    797,971 
           
INCREASE DECREASE IN CASH & CASH EQUIVALENTS   3,324,516    (1,884,719)
           
CASH & CASH EQUIVALENTS, beginning of year   4,051,349    4,121,541 
           
CASH & CASH EQUIVALENTS, end of year  $7,375,864   $2,236,822 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
Cash paid during the year for:          
Interest paid  $3,267,775   $1,409,316 
Income taxes paid  $714,177   $1,719,891 
           
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:          
Decrease of other receivable for acquisition of plant and equipment  $23,108   $- 
Transfers of construction in progress-related inventory to plant and equipment  $225,548   $- 
Acquisition of plant and equipment on credit on account  $4,278,025   $- 
Non-cash long term prepayment transferring into construction in progress   -    2,374,374 
Completion of construction-in-progress (transferred to plant and equipment)  $7,737,709   $2,617,116 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5
 

 

SHENGTAI PHARMACEUTICAL, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 - Organization principal activities

 

Shengtai Pharmaceutical, Inc, the "Company,” was incorporated in March 2004 in the State of Delaware. The Company, through its subsidiaries, manufactures and distributes glucose and starch as pharmaceutical raw materials, other starch products and other glucose products such as corn meals, food and beverage glucose and dextrin. The Company's business operations are conducted in the People's Republic of China, the "PRC.”

 

Note 2 – Accounting policies

 

Accounting principles

 

In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 Company’s 2011 Form 10-K filed on October 7, 2011 with the U.S. Securities and Exchange Commission.

 

Principles of consolidation

 

The consolidated financial statements of Shengtai Pharmaceutical, Inc. and its subsidiaries reflect the activities of the parent and its wholly-owned subsidiaries Shengtai Holding, Inc., “SHI,” and Weifang Shengtai Pharmaceutical Co., Ltd., “Weifang Shengtai.” All material inter-company transactions and balances have been eliminated in consolidation.

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

6
 

 

Reclassification

 

Certain reclassification has been made to the previous year’s financial statements to conform to current year presentation.

 

Recently issued accounting pronouncements

 

In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance will be effective for us beginning July 1, 2012.

 

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us beginning July 1, 2012 and will have financial statement presentation changes only.

  

In December 2011, the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods beginning after January 1, 2013.

 

Note 3 – Earnings per share

 

Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method.  Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

 

7
 

 

The components of basic and diluted earnings per share consisted of the following:

 

   Three months ended
March 31,
 
   2012   2011 
         
Net income for earnings per share  $98,253   $2,305,177 
Weighted average shares used in basic and diluted computation   9,584,912    9,584,912 
Earnings per share, basic and diluted:  $0.01   $0.24 

 

   Nine months ended
March 31,
 
   2012   2011 
Net income for earnings per share  $916,748   $6,644,729 
Weighted average shares used in basic and diluted computation   9,584,912    9,584,912 
Earnings per share, basic and diluted:  $0.10   $0.69 

  

The Company’s warrants and stock options were not included in the calculation of diluted earnings per share for the three and nine months ended March 31, 2012 and 2011 as the effect would be anti-dilutive.

 

Note 4 - Concentrations of risk

 

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

 

The cash deposits in U.S. financial institutions exceed the amounts insured by the U.S. government. Balances at financial institutions or state owned banks within the PRC are not covered by insurance. Non-performance by these institutions could expose the Company to losses for amounts in excess of insured balances. At March 31, 2012 and June 30, 2011, the Company’s bank balances with the banks and cash in hand in PRC amounted to $19,361,089 and $13,017,076, respectively, which are uninsured and subject to credit risk. The Company has not experienced nonperformance by these institutions.

 

For the nine months ended March 31, 2012 and 2011, there were no customers that individually comprised 10% or more of the Company’s total revenues.

 

There was one customer,Weifang Century-light Industry Co.,Ltd. that individually comprised 10.51% or $4,183,028 of the Company’s total revenues for the three months ended March 31, 2012.

 

For the three and nine months ended March 31, 2011, there were no customers that individually comprised 10% or more of the Company’s total revenues.

   

There were no one vendor that individually comprised 10% or more of the Company’s total purchase for the three and nine months ended March 31, 2012 and 2011, respectively

   

For export sales, the Company frequently requires significant down payments or letter of credit from its customers prior to shipment. During the year, the Company maintained export credit insurance to protect the Company against the risk that the overseas customers may default on settlement.

 

8
 

 

The following table summarizes financial information for Company’s revenues based on geographic area:

 

   Three months ended 
   March 31 
   2012   2011 
Revenue          
China  $33,198,462   $30,296,415 
International   6,605,146    11,389,746 
Total  $39,803,608   $41,686,161 

 

   Nine months ended 
   March 31 
   2012   2011 
Revenue          
China  $101,089,984   $99,795,115 
International   21,702,497    25,580,474 
Total  $122,792,481   $125,375,589 

 

Note 5 - Restricted cash

 

The Company through its bank agreements is required to keep certain amounts on deposit that are subject to withdrawal restrictions. These amounts were $11,988,029 and $8,972,600 as of March 31, 2012 and June 30, 2011, respectively.

 

 

9
 

 

Note 6 - Other receivables

 

Other receivables include receivables from unrelated parties for transactions other than sales. Other receivables amounted to $1,867,222 and $8,359,103 as of March 31, 2012 and June 30, 2011, respectively.

 

The other receivables include Company's advances to employees to purchase corn of $982,080 and $6,961,500 as of March 31,2012 and June 30, 2011, respectively. These are advances to its purchasing department employees as purchase advances for corn purchases. This amount is 100% secured by the personal assets of Company’s CEO as the guarantee extended by him.

 

As of March 31, 2012, the other receivables balance includes a loan to unrelated third party in the amount of $316,800. The loan will be returned in July bearing interest rate of 0.15% per month. 

 

Note 7 - Inventories

 

Inventories are stated at the lower of cost (weighted average basis) or market and consisted of the following:

 

   March 31,   June 30, 
   2012   2011 
Raw materials  $3,302,545   $2,539,104 
Work-in-progress   11,465,543    3,203,585 
Finished goods   11,732,378    7,273,710 
Total  $26,500,466   $13,016,399 

 

The Company reviews its inventory periodically for possible obsolete goods or to determine if any reserves are necessary. As of March 31, 2012, the Company has determined that no reserves are necessary.

  

Note 8 - Prepayments and other assets

 

Prepayments and other assets mainly represent partial payments or deposits for inventory and equipment and other purchases and services. As of March 31, 2012, prepayments mainly represent partial payments or deposits for repairing parts, decorating fee, monitoring system, consulting services, gardening fee, and other fees.

 

10
 

 

Note 9 - Plant and equipment and construction-in-progress

 

Plant and equipment and construction-in-progress consisted of the following:

 

   March 31,
  2012
   June 30,
2011
 
Buildings  $39,480,714   $38,354,966 
Machinery and equipment   78,366,555    69,170,960 
Automobile   804,277    736,800 
Electronic equipment   789,109    611,950 
Construction-in-progress   1,379,440    4,693,018 
Total   120,820,095    113,567,694 
Accumulated depreciation and amortization   (38,616,412)   (31,845,519)
Plant and equipment, net and construction-in-progress  $82,203,683   $81,722,175 

 

Construction-in-progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. No depreciation is provided for construction-in-progress until such time as the assets are completed and placed into service. Depreciation expense for the three months ended March 31, 2012 and 2011 amounted to $2,108,906 and $1,776,286, respectively. Depreciation expense for the nine months ended March 31, 2012 and 2011 amounted to $5,975,092 and $5,336,701, respectively. Interest costs totaling $17,903 and $252,909 were capitalized into construction-in-progress for the three months ended March 31, 2012 and 2011, respectively. Interest costs totaling $133,118 and $675,480 were capitalized into construction-in-progress for the nine months ended March 31, 2012 and 2011, respectively.

 

Note 10 - Equity investment

 

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 and additional contributions made and distributions received. The Company recognizes a loss if it is determined that other than temporary decline in the value of investment exists. On September 16, 2003, Weifang Shengtai entered into a joint venture partnership with Weifang City Investment Company and Changle Century Sun Paper Industry Co., Ltd, “Changle Paper,” and formed Changle Shengshi Redian Co., Ltd, "Changle Shengshi.”  Changle Shengshi was incorporated in Weifang City, Shandong Province, the PRC. Changle Shengshi's principal activity is to produce and sell electricity and steam to Weifang Shengtai and Changle Paper for the use of their own production. Weifang Shengtai owns 20% of Changle Shengshi and the Company accounts for this 20% investment under the equity method of accounting.

 

11
 

 

Summarized financial information of Changle Shengshi is as follows:

 

   March 31,   June 30, 
   2012   2011 
Current assets  $62,650,529   $45,545,505 
Non-current assets   77,556,260    71,950,385 
Total assets  $140,206,789   $117,495,890 
           
Current liabilities  $86,258,590   $63,492,149 
Non-current liabilities   519,843    17,457,647 
Stockholders' equity   53,428,356    36,546,094 
Total liabilities and stockholders' equity  $140,206,789   $117,495,890 

 

During the nine months ended March 31, 2012, the Company increased investment in Changle Shengshi by 8,000,000 RMB (approximately $1.27 million). Changle Paper increased its investment proportionately, which resulted in the Company’s 20% investment in the investee.

 

Note 11 - Advance for construction

 

Advances amounted to $794,625 and $2,039,929 as of March 31, 2012 and June 30 2011, respectively. Advances for construction are paid to unrelated parties, interest free, and with no collateral and no guarantee.

 

Note 12 - Intangible assets

 

Intangible assets consisted of the following:

 

   March 31, 
2012
   June 30, 
2011
 
Land use rights  $3,711,721   $3,625,020 
Less: accumulated amortization   (431,563)   (378,696)
Land use rights, net   3,280,158    3,246,324 
           
Software   10,888    8,181 
Less: accumulated amortization   (4,347)   (3,291)
Software, net   6,540    4,890 
Total intangible assets, net  $3,286,698   $3,251,214 

 

Intangible assets are primarily comprised of land use rights, which are pledged as collateral for certain bank loans. The Chinese government owns all land in the PRC. However, the government grants "land use rights" for terms ranging from 20 to 50 years. The Company amortizes the cost of land use rights over the usage terms using the straight-line method.

  

12
 

 

Intangible assets are reviewed at least annually and more often if circumstances dictate, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2012, the Company determined that there had been no impairment. For the three months ended March 31,2012 and 2011, amortization expenses for these intangible assets are amounted to $14,992 and $14,154, respectively. For the nine months ended March 31,2012 and 2011, amortization expenses for these intangible assets are amounted to $44,533 and $42,103, respectively.

 

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

 

Years ended March 31,  Amount 
2012  $56,000 
2013   56,000 
2014   56,000 
2015   56,000 
2016   56,000 
Thereafter   3,006,698 
Total  $3,286,698 

  

Note 13 - 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 standard value added tax rate is 17% of the gross sales price; however, for the Company’s corn, the VAT rate is 13%. A credit is available whereby VAT paid on the purchases of semi-finished products, raw materials used in the production of the Company's finished products, and payment of freight expenses can be used to offset the VAT due on sales of the finished products.

 

VAT on sales and VAT on purchases amounted to $10,158,980 and $11,398,566, respectively, for the three month ended March 31, 2012. VAT on sales and VAT on purchases amounted to $ 4,963,530 and $5,237,092, respectively, for the three months ended March 31, 2011. VAT on sales and VAT on purchases amounted to $ 21,235,227 and $23,139,314, respectively, for the nine month ended March 31, 2012. VAT on sales and VAT on purchases amounted to $ 15,919,087 and $16,013,780, respectively, for the nine months ended March 31, 2011. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the Chinese government. VAT taxes are not impacted by the income tax holiday in the PRC.

 

13
 

 

Note 14 - Notes payable

 

Notes payable represents arrangements with various banks for payments to suppliers, which are normally due within one year. However, these notes can typically be renewed with the banks on an annual basis. As of March 31,2012 and June 30, 2011, the Company’s notes payables consisted of the following:

 

   March 31,   June 30, 
   2012   2011 
Bank of China, due various dates form June 2012 to August 2012, and restricted cash required 100% of loan amount, guaranteed by an unrelated third party.  $3,877,949   $3,094,000 
           
Sheng Development Bank, due September 2012, and restricted cash required 100% of loan amount, guaranteed by an unrelated third party.   3,168,000    3,403,400 
           
Weifang Bank, due August 2012, and restricted cash required 50% of loan amount, guaranteed by an unrelated third party.   6,336,000    4,950,400 
           
China Merchants Bank, due July 2012, and restricted cash required 100% of loan amount, guaranteed by an unrelated third party.   190,080    - 
           
Zhongxin Bank, due September 2012, and restricted cash required 50% of loan amount, guaranteed by an unrelated third party.   3,168,000    - 
           
Total  $16,740,029   $11,447,800 

 

14
 

 

Note 15 - Short term bank loans

 

Short term bank loans represent amounts due to various banks that are normally due within one year. However, these loans can typically be renewed with the banks on an annual basis. As of March 31, 2012 and June 30, 2011, the Company’s short term bank loans consisted of the following:

  

   March31,
2012
   June 30,
2011
 
Loans from Bank of China, due various dates from April 2012 to February 2013; quarterly interest only payments; interest rates ranging from 6.56% to 7.544% per annum, guaranteed by an unrelated third party, unsecured.  $16,728,611   $20,094,040 
           
Loans from Industrial and Commercial Bank of China, due various dates from September 2012 to January 2013; monthly interest only payments; interest rates ranging from 6.56% to 7.216% per annum, guaranteed by an unrelated third party and certain collateral, unsecured.   9,028,800    10,983,700 
           
Loan from Agriculture Bank of China, due from September 2012 to November 2012; monthly interest only payments; interest rates ranging from 6.56% to 7.22% per annum, guaranteed by an unrelated third party, unsecured.   6,336,000    4,641,000 
           
Loan from Qingdao Bank, due June 2012, monthly interest only payments; interest rates ranging from 6.56% to 7.544% per annum, guaranteed by an unrelated third party, unsecured.   2,376,000    3,094,000 
           
Loan from Shenzhen Development Bank, due September 2012, monthly interest only payments; interest rate of 6.06% per annum, guaranteed by an unrelated third party, unsecured.   3,484,800    3,403,400 
           
Loan from China Merchants Bank, due April 2012, monthly interest only payments; interest rate ranging from 6.1% to 7.93% per annum, secured by certain properties.   1,584,000    3,094,000 
           
Loan from Zhongxin Bank, due March 2013, monthly interest only payments; interest rate ranging from 6.56% to 7.872% per annum, guaranteed by certain collateral, unsecured   1,584,000    1,237,600 
           
Loan from Bank of Communications, due August 2012, monthly interest only payments; interest rates ranging from 6.56% to 7.544% per annum, guaranteed by an unrelated third party, unsecured   4,752,000    - 
           
Loan from China Construction Bank, due from April 2012 to August 2012, monthly interest only payments; interest rate ranging from 6.1% to 7.32% per annum, guaranteed by certain collateral, unsecured   11,880,000    - 
           
Loan from Minsheng Bank, due October 2012, monthly interest only payments; interest rates ranging from 6.56% to 8.528% per annum, guaranteed by an unrelated third party, unsecured   3,168,000    1,547,000 
Total  $60,922,211   $48,094,740 

 

15
 

 

Short term bank loan interest expenses, net of capitalized interest amounted to $1,762,443 and $555,318 for the three months ended March 31,2012 and 2011, respectively. Short term bank loan interest expenses amounted to $3,505,656 and $2,229,477 for the nine months ended March 31, 2012 and 2011, respectively.

  

Note 16 - Employee loans

 

From time to time, the Company borrows money from certain employees for cash flow purposes. These loans accrue interest at 9.6%, do not require collateral, and the principal is due upon demand. Interest expense related to these loans were approximately $7,413 and $6,543 for the three months ended March 31, 2012 and 2011, respectively. Interest expense related to these loans were approximately $20,659 and $20,135 for the nine months ended March 31, 2012 and 2011, respectively. 

   

Note 17 - Income taxes

 

Our effective tax rates were approximately 25.51% and 27.04% for the nine months ended March 31, 2012 and 2011, respectively. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to the fact that our operations are carried out in foreign jurisdictions, which are subject to lower income tax rates.

 

Note 18 - Commitments and contingent liabilities

 

Guarantees

 

As of March 31, 2012, the Company had guaranteed loans on behalf of three unrelated parties. The Company is obligated to perform under the guarantee if those guarantee companies fail to pay principal and interest payments when due. The maximum potential amount of future undiscounted payments under the guarantee is $8.34 million for those guarantee companies, including accrued interest. However, the guarantees given by the Company have been fully secured by their CEO’s personal assets. The Company has not recorded a liability for the guarantee because management estimates that those companies are current in their payment obligations, and the likelihood of the Company having to make payments under the guarantee is remote.

 

16
 

 

Details of guarantee amounts to unrelated parties as of March 31, 2012 are as follows:

 

   Short Term 
Company  Bank Loans 
     
Yuanli Chemical Engineering Inc.  $4,752,000 
Qingdao Shizhan Technology Co., Ltd   1,584,000 
Weifang Century-Light Industry Co., Ltd   1,584,000 
Total  $7,920,000 

 

As of March 31, 2012, Weifang Century-Light Industry Co., Ltd and Yuanli Chemical Engineering Inc. guaranteed $6,652,800 and $4,752,000 for the Company, respectively.

 

Litigation

 

In April 2012, several law firms announced investigation of the Company in connection with the receipt of a going private proposal from Chairman and Chief Executive Officer Mr. Liu to acquire common stock at $1.65 per share in cash. To the best of our knowledge, no actions have been filed against the Company or its current officers and directors as of the date of this quarterly report. 

 

Note 19 - Stockholders’ equity

 

On November 9, 2010, the Company effected a 1-for-2 reverse stock split of its issued and outstanding shares of Common Stock; reducing the number of its authorized shares of Common Stock and Preferred Stock by the same reverse stock split ratio.  The reverse stock split and the reduction of the number of authorized shares of Common Stock and Preferred Stock were authorized by the stockholders of the Company at its annual general meeting of stockholders held on October 26, 2010. As of November 12, 2010, the outstanding and issued shares were approximately 9,584,912 shares (prior to the reverse stock split, the number outstanding was 19,169,805), before rounding up fractional shares.  The authorized number of shares of Common Stock was reduced from 100,000,000 to 50,000,000, and the authorized number of shares of Preferred Stock was reduced from 5,000,000 to 2,500,000.  These financial statements have been adjusted retroactively to reflect the reverse stock split.

  

In connection with the 1-for-2 reverse stock split, all outstanding warrants and options will have 1-for-2 reverse split with the exercise price doubled.

 

17
 

 

Warrants

 

On May 15, 2007, in connection with the Share Purchase Agreement, the Company issued 2,187,500 warrants, "Investor Warrants,” which carry an exercise price of $5.20 and a 5-year term. The Investor Warrants are callable if the Company's shares trade at or above $16.00 per share for 20 consecutive trading days and underlying shares are registered for resale. The Investor Warrants contain standard adjustment provisions upon stock dividend, stock split, stock combination, recapitalization, and a change of control transaction. During the year ended June 30, 2008, a total of 97,403 warrants were exercised by three stockholders.

 

Also in connection with the Share Purchase Agreement, the Company issued 109,375 warrants, "Placement Agent Warrants,” to Brill Securities, the Placement Agent. These Placement Agent Warrants have the same terms as the Investor Warrants. These warrants were issued on August 8, 2007.

 

Concurrent with the offering related to the Share Purchase Agreement, the Company issued 37,500 warrants to Chinamerica Fund, LLP and 12,500 warrants to Jeff Jenson, collectively, the "Lead Investor Warrants,” to compensate Chinamerica Fund LLP as the lead investor and Jeff Jenson in assisting in providing the shell company, West Coast Car Company. These Lead Investor Warrants have the same terms as the Investor Warrants except that they have an exercise price of $0.02 per share. In June 2008, Jeff Jenson exercised the 12,500 warrants issued to him. In November 2008, Chinamerica Fund, LLP exercised the 37,500 warrants issued to the fund.

 

All Investor Warrants, Placement Agent Warrants and Lead Investor Warrants meet the conditions for equity classification pursuant to ASC 815 (formerly SFAS 133, "Accounting for Derivatives") and ASC 815 (formerly EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock").  Therefore, these warrants were classified as equity and accounted for as common stock issuance cost.

 

   Warrants 
Outstanding
   Warrants 
Exercisable
   Weighted
Average
Exercise
Price
   Average 
Remaining 
Contractual
Life
 
Outstanding, June 30, 2010   2,199,473    2,199,473   $5.20    2.22 
                     
Granted   -    -    -    - 
Forfeited   -    -    -    - 
Exercised   -    -    -    - 
Outstanding, June 30, 2011   2,199,473    2,199,473    5.20    1.22 
                     
Granted   -    -    -    - 
Forfeited   -    -    -    - 
Exercised   -    -    -    - 
Outstanding, March 31,2012   2,199,473    2,199,473   $5.20    0.25 

  

18
 

 

Stock options

 

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

 

On May 14, 2008, the Company granted 250,000 stock options and 80,000 non-qualified stock options pursuant to the Stock Incentive Plan. All options have an exercise price of $6.68, which was the closing price on the date of grant, and expire five years after the date of grant. All options vest over a period of three years on a quarterly basis from the date of grant.

 

The Company uses the Black-Scholes option pricing model which was developed for use in estimating the fair value of options. Option pricing models require the input of highly complex and subjective variables, including the expected life of options granted and the Company's expected stock price volatility over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can materially affect the estimated value of the Company's employee stock options, it is management's opinion that the Black-Scholes option valuation model may not provide an accurate measure of the fair value of the Company's employee stock options and that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

 

The assumptions used in calculating the fair value of options granted in 2008 using the Black-Scholes option pricing model are as follows:

 

Weighted average risk-free interest rate   3.22%
      
Expected term   4 years 
      
Expected volatility   146%
      
Expected dividend yield   0%
      
Weighted average grant-date fair value per option  $6.68 

 

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

 

19
 

 

On June 1, 2010, the Company hired two directors, Mr. Yaojun Liu and Mr. Fei He. In the Employment Agreements entered into on June 1, 2010 between the Company and each director, the Company granted each director an option to purchase 40,000 shares of common stock of the Company. The shares vest over 3 years annually starting June 1, 2010 and terminate on the third anniversary of the date of issuance of this option. The Company valued the shares at $5.20 per share. The fair values of stock options granted to the two directors were estimated at the date of grant amounting $165,611 using the Black-Scholes option-pricing model with the following assumptions:

  

Weighted average risk-free interest rate   2.79%
      
Expected term   3 years 
      
Expected volatility   133%
      
Expected dividend yield   0%
      
Weighted average grant-date fair value per option  $3.00 

 

The stock option activity was as follows for the year ended June 30, 2011 and nine months ended March 31, 2012:

 

   Options
outstanding
   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value
 
Outstanding, June 30, 2010   342,500   $5.95    $ 
                
Granted   80,000    5.20    160,000 
                
Forfeited   (167,500)   5.35    - 
                
Exercised   -    -    - 
                
Outstanding, June 30, 2011   255,000    5.95    1,274,500 
                
Granted   -    -    - 
                
Forfeited   (40,000)   5.20    - 
                
Exercised   -    -    - 
                
Outstanding, March 31,2012   215,000   $6.40   $1,118,500 

 

20
 

 

Following is a summary of the status of options outstanding at March 31, 2012:

 

Average Exercise
Price
   Outstanding
Options
   Average Remaining Contractual Life   Average Exercise
Price
   Exercisable
Options
 
$6.40    215,000    4.29   $6.58    188,333 

 

Compensation expense from stock options recognized for the three and nine months ended March 31,2012 were $0 and $0, respectively. Compensation expense from stock options recognized for the three and nine months ended March 31, 2011 were $0 and $183,480, respectively. As of March 31, 2012, there is $55,204 estimated expense with respect to unvested stock-based awards yet to be recognized as an expense over the employee's remaining weighted average service period.

 

Reversal of officer's compensation

 

The Company's CEO agreed to give up his accrued salaries of $210,000 since April 2010. And the Company's CFO agreed to give up his accrued salaries of $154,000 since March 2010. The total accrued salaries amounting to $364,000 was reversed by increasing additional paid in capital.

 

Note 20 - Statutory reserves

 

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

 

Surplus reserve fund

 

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC’s accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of any dividends to stockholders. For the three months ended March 31, 2012 and 2011, the Company transferred $16,236 and $297,206 to this reserve. For the nine months ended March 31, 2012 and 2011, the Company transferred $131,577 and $754,525 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 stockholders 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.

 

21
 

 

Pursuant to the Company’s articles of incorporation, the Company is to appropriate 10% of its net profits as statutory surplus reserve up to $7,500,000. As of March 31, 2012 the Company had appropriated to the statutory reserve approximately $4,200,000.

 

Enterprise fund

 

The enterprise fund may be used to acquire fixed assets or to increase the working capital to expand production and operations of the Company. No minimum contribution is required and the Company has not made any contribution to this fund as of March 31, 2012.

 

Note 21 - Retirement benefit plans

 

Regulations in the PRC require the Company to contribute to a defined contribution retirement plan for the benefit of all permanent employees. The Company is required to make contributions to the state retirement plan at 15% to 20% of the monthly base salaries of all current permanent employees. The PRC government is responsible for the administration and benefit liability to retired employees. For the three months ended March 31, 2012 and 2011, the Company made contributions in the amounts of $128,378 and $107,032, respectively, to the Company’s retirement plan. For the nine months ended March 31, 2012 and 2011, the Company made contributions in the amounts of $403,242 and $276,038, respectively, to the Company’s retirement plan.

 

Note 22 - Related party transactions

 

The Company’s utilities (electricity and steam) are mostly provided by Changle Shengshi. As of March 31, 2012 and June 30, 2011, the Company’s accounts payable due to Changle Shengshi was $969,128 and $943,779, respectively, which related to a portion of the Company’s utilities being provided by Changle Shengshi. The Company’s transaction amounts with Changle Shengshi amounted to approximately $4,293,313 and $4,121,249 for the three months ended March 31, 2012 and 2011, respectively. The Company’s transaction amounts with Changle Shengshi amounted to approximately $11,626,034 and $11,291,527 for the nine months ended March 31, 2012 and 2011, respectively.

 

22
 

 

From time to time, the Company borrows money from Qingtai Liu, the Company’s CEO and President, for cash flow purposes of the Company. The loans do not require collateral and the principal is due upon demand. Before January 1, 2009, the interest rate was at 7.2% for the first nine months, and then 10.8% thereafter until the full principal amounts are paid by the Company. After January 1, 2009, the interest rate was changed to 7.2% for the loan period. Employee loan from officer amounted to $37,033 and $36,285 as of March 31, 2012 and June 30, 2011, respectively. Interest expense related to this loan was approximately $700 and $0 for the three months ended March 31, 2012 and 2011, respectively. Interest expense related to this loan was approximately $2,000 and $0 for the nine months ended March 31,2012 and 2011, respectively.

 

As of March 31, 2012, the other receivable includes Company's advances of $982,080 to its purchasing department employees as purchase advances for corn purchases. This amount is secured by the personal assets of CEO as per guarantee extended by him.

 

Reversal of officer's compensation

 

The Company's CEO agreed to give up his accrued salaries of $210,000 since April 2010. And the Company's CFO agreed to give up his accrued salaries of $154,000 since March 2010. The total accrued salaries amounting to $364,000 was reversed against additional paid in capital.

 

Note 23 - Subsequent events

 

In April 2012, the Company obtained a short term bank loan of $3,326,400 from Industrial and Commercial Bank of China, due January 2013; monthly interest only payments; interest rates of 7.216% per annum, guaranteed by certain collateral, and unsecured.

 

In April 2012, the Company obtained a short term bank loan of $3,326,400 from China Construction Bank, due March 2013; monthly interest only payments; interest rates of 6.56% per annum, guaranteed by certain collateral, and unsecured.

 

In April 2012, the Company obtained a short term bank loan of $3,960,000 from China Construction Bank, due October 2012; monthly interest only payments; interest rates of 6.71% per annum, guaranteed by certain collateral, and unsecured.

 

In April 2012, the Company obtained a short term bank loan of $6,652,800 from Bank of China, due October 2012; quarterly interest only payments; interest rates of 6.10% per annum, guaranteed by certain collateral, and unsecured.

 

In April 2012, the Company obtained a short term bank loan $3,168,000 from China Merchants Bank, due April 2013; monthly interest only payments; interest rates ranging from 6.56% to 7.544% per annum, guaranteed by certain collateral, and unsecured.

 

23
 

 

In April 2012, the Company has paid back $950,400 short term bank loan from Bank of China.

 

In April 2012, the Company has paid back $3,343,811 short term bank loan from Bank of China.

 

In April 2012, the Company has paid back $1,584,000 short term bank loan from China Merchants Bank.

 

In April 2012, the Company has paid back $3,960,000 short term bank loan from China Construction Bank.

 

On April 17, 2012, the Company’s Board of Directors received a preliminary, non-binding proposal (“Proposal”) from its Chairman and Chief Executive Officer, Mr. Qingtai Liu ("Mr. Liu"). Pursuant to the Proposal, Mr. Liu intends to acquire all of the outstanding shares of the Company's common stock not currently owned by him and his affiliates in a going private transaction (“Acquisition”) at a proposed price of $1.65 per share in cash. The Acquisition is intended to be financed with a combination of debt financing and equity financing. There is currently no arrangement between Mr. Liu and any stockholders of the Company or potential source of debt or equity financing and Mr. Liu has no commitment with respect to the Acquisition or any other transactions under the Proposal.

 

A special committee of independent directors (“Special Committee”) was formed on April 24, 2012 to consider the Proposal. No decision has been made by the Special Committee as of the date hereof and there is no assurance that any definitive offer will be made, that any agreement will be executed or that a transaction will be approved or consummated.

 

24
 

 

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 financial condition and results of operations of Shengtai Pharmaceutical, Inc., the ("Company”) and should be read in conjunction with the Company’s 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 the Company’s future expectations, contain projections of the Company’s future results of operation or financial condition or state other “forward-looking" information. The Company believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is 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 the Company’s actual results to differ materially from the expectations the Company describes in its 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 the Company’s 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, the ("PRC”), WeifangShengtai Pharmaceutical Co., Ltd. (“WeifangShengtai”), a leading manufacturer and supplier of pharmaceutical grade glucose in the PRC. We believe that we are a market leader and preferred domestic supplier of pharmaceutical grade glucose. We estimate that we have about over 30% market share in Mainland China. We also manufacture glucose, cornstarch and other products for the food and beverage industry.

 

The Company’s cornstarch production facility has a maximum capacity of 400,000 tons per year.  The facility allows us to use self-produced cornstarch to produce glucose and to be able to ensure the adequacy and quality of the cornstarch we use. Since cornstarch is produced on our premises, we are able to eliminate costs to ship the cornstarch to our glucose production facility, thus resulting in lower manufacturing costs.

 

We have been improving dextrose anhydrous and animal feeds production lines and building an additional warehouse to store purchased corn. The warehouse was completed in October 2011 and can be used to store an additional 14,000 tons of corn. As a result, we have successfully expanded our corn storage from 36,000 tons to 50,000 tons from October 2010 to October 2011. Because corn prices have been increasing since 2009, the expansion of our warehousing capacity will allow us to store more corn and better control the cost of production.

 

During the nine months ended March 31, 2012, we used internally 116,900 metric tons of cornstarch to satisfy our own glucose production needs. The excess cornstarch was or will be sold to outside customers in the pharmaceutical, food and beverage and other industries. Cornstarch sales amounted to $33.75 million and accounted for 27.49% of our total net sales for the nine months ended March 31, 2012. Our business may be severely affected by movements in the commodity markets. Corn is the principal raw material for our cornstarch and the price of cornstarch as a commodity tends to follow the price of corn. Beginning September 2008, corn prices began decreasing due to large corn harvests. However, by July 2009, corn prices began to increase. This trend continued into fiscal year 2012. Corn prices for the nine months ended March 31, 2012 were approximately 13.01% higher than for the same period in 2011. While it is hard to accurately predict the trend of corn prices, we remain focused on improving our pricing ability and maintaining a stable profit.  

 

25
 

   

The Chinese government has been increasing its effort in controlling corn prices. We believe that these government efforts will continue to have mixed effects on our operations. Stable corn prices will help maintain the availability of raw materials and tend to stabilize our gross profit margin over time, although market and economic conditions may have negative effects on our operations.

 

During the nine months ended March 31, 2012, we sold a total of 98,563 metric tons of glucose, and our sales of pharmaceutical grade glucose and other glucose products were $56.47 million, or 45.98% of our net sales. During the three months ended March 31, 2012, we sold a total of 31,329 metric tons of glucose, and our sales of pharmaceutical grade glucose and other glucose products were $17.36 million, or 43.62% of our net sales.

 

In addition to our pharmaceutical glucose and cornstarch products, we also produce other products such as dextrin, corn embryo, fibers, and protein power, which are used for pharmaceutical, food and beverages, and other production purposes. The net sales generated from these products were $10.22 million and $32.58 million, and constituted approximately 25.67% and 26.53% of our total net sales for the three and nine months ended March 31, 2012, respectively.

 

We believe that production capacity and product quality are key factors in maintaining and improving our competitive position and enhancing our long-term competitiveness. As a result, we emphasize (i) product quality control, (ii) enhancement of operating efficiency and employee competence, (iii) expansion of geographical coverage and diversification of customer base and (iv) expansion of our production capacity utilization.

 

We have a three-tier quality control system and a well-equipped quality inspection center to ensure timely detection and reprocessing of non-conforming products.

 

Our glucose production facility passed GMP inspection and our facilities and many of our products are fully certified for GMP, ISO9001,ISO22000 and HACCP international quality standards and globally certified Halal, Kosher and NON-GMO IP.

 

Our sales network presently covers almost all provinces of Mainland China except the Tibet Autonomous Region.

 

For the nine months ended March 31, 2012, we exported products to around 49 countries, with the Netherlands, Korea and Thailand, being the leading importers. For the nine months ended March 31, 2012, our international sales comprised approximately 17.67% of our total net sales. During the same period in 2011, our international sales comprised approximately 20.40% of our total net sales. For the three months ended March 31, 2012, our international sales comprised approximately 16.59% of our total net sales. During the same period in 2011, our international sales comprised approximately 27.32% of our total net sales. Glucose, cornstarch, and other products equal 60.75%, 0.54%, and 38.70% of the total exporting sales for the three months ended March 31, 2012, respectively. Glucose, cornstarch, and other products equal 47.61%, 0.33%, and 52.05% of the total exporting sales for the nine months ended March 31, 2012, respectively. Glucose, cornstarch, and other products occupies 59.55%, 7.42%, and 33.03% of the total exporting sales for the three months ended March 31, 2011, respectively. Glucose, cornstarch, and other products equal 66.42%, 3.35%, and 30.23% of the total exporting sales for the nine months ended March 31, 2011, respectively.

 

26
 

  

Our target customers are drug makers, medical supply companies, medical supply exporters and food and beverage companies. We constantly strive to broaden and diversify our customer base. We believe that a broader customer base will mitigate our reliance on certain major customers. We believe that 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, 2012, our top ten customers accounted for 33.74% of our total net sales. For the three months ended March 31, 2012, our top ten customers accounted for 41.95% of our total net sales.

 

Below is list of customers who account for more than 5% of our net sales.

 

Three months ended March 31,2012

 

Customer Name  AR   Sales   % 
Weifang Century-light Industry Co.,Ltd  $2,707,120   $4,183,028    10.51%
Shandong Kaixiang biological chemical Co., LTD  $(21,422)  $2,528,079    6.35%
Qingdao Shizhan Technology Co.,Ltd  $(507,261)  $2,464,322    6.19%

 

Results of Operations

 

Three Months Ended March 31, 2012 Compared with Three Months Ended March 31,2011

 

The following table shows our operating results for the three months ended March 31, 2012 and 2011:

 

   Three months
Ended
March 31,
2012
   Three months
Ended
March 31,
2011
 
Net Sales  $39,803,608   $41,686,161 
Cost of Sales   34,371,199    35,258,900 
Gross Profit   5,432,409    6,427,261 
Selling, General and Administrative Expenses   3,321,269    2,491,968 
Income From Operations   2,111,140    3,935,293 
Other (Expense), Net   (1,958,765)   (692,129)
Income Before Provision For Income Taxes   152,375    3,243,162 
Provision For Income Taxes   54,122    937,985 
Net Income  $98,253   $2,305,177 

 

The following table shows the breakdown of production and sales by product categories, and between self-use by WeifangShengtai and the sales of cornstarch to third parties, for the three months ended March 31, 2012 and 2011:

 

Products   Metric Tons
Three months
ended
March 31, 2012
    Metric Tons
Three months
ended
March 31, 2011
    Net Sales (%)
Three months
ended
March 31, 2012
    Net Sales (%)
Three months
ended
March 31, 2011
 
                         
Glucose–Sales     31,329       30,197     $ 17,363,009(43.62 )%   $ 16,479,475 (39.53 )%
                                 
Cornstarch-Self use     39,899(57.37 )%     37,694(51.67 )%                
Cornstarch-Sales     29,651(42.63 )%     35,263(48.33 )%   $ 12,223,288(30.71 )%   $ 13,969,076 (33.51 )%
                                 
Total Cornstarch     69,550(100 )%     72,957(100 )%                
Other Sales     25,754             $ 10,217,311(25.67 )%   $ 11,237,610 (26.96 )%
Total Sales                   $ 39,803,608(100 )%   $ 46,686,161(100 )%

 

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Net sales for the three months ended March 31, 2012 were $39,803,608, a decrease of $ 1,882,553 or 4.52%, compared with the same period in 2011. The decrease in net sales primarily resulted from decreased sales quantities for the three months ended March 31, 2012, compared to the same period last year. For the three months ended March 31, 2012 compared to the same period last year, the quantity of our glucose products sold increased about 3.75%, while the average unit selling price of our glucose products decreased about 3.51%. For the three months ended March 31, 2012 compared to the same period last year, the quantity of our cornstarch products sold decreased about 15.92%, while the average unit selling price of our cornstarch products decreased about 0.94%. For the three months ended March 31, 2012 compared to the same period last year, the quantity of our other products sold decreased about 19.09%, while the average unit selling price of our other products increased about 5.73%. The increased unit selling prices are caused by the increased raw material cost during the quarter ended March 31, 2012 compared to the same period last year. The sales quantity decreased mainly because of competition in the market of cornstarch and other products.

 

Net sales from exports for the three months ended March 31, 2012 decreased approximately 42.01 % compared with the same period in 2011. The decrease is mainly attributable to the decreased sales quantities during the three months ended March 31, 2012 compared to the same period last year. The sales quantity decreased mainly because of a decrease in demand during the three months ended March 31, 2012.

 

Cost of sales for the three months ended March 31, 2012 was $34,371,199, a decrease of $887,701 or 2.52%, compared with the same period in 2011. The decrease in cost of sales was mainly due to the decrease of sales offset by the increase in the price of corn, our main raw material.

 

Gross profit for the three months ended March 31, 2012 was $5,432,409, a decrease of $994,852 or 15.48%, compared with the same period in 2011. The decrease of gross profit is mainly because the unit selling prices of our products did not increase as fast as the corn prices. Gross profit margin for the three months ended March 31, 2012 was 13.65%, a decrease from 15.42% for the same period in 2011. The reason for the decrease of gross profit margin is mainly because the price of corn, our main raw material, increased approximately 10.06% for the three months ended March 31, 2012 compared to the same period last year whereas the average selling prices did not increase as much. The Company believes that the market is taking its time to respond to the increased corn prices and will reach a more profitable price level in the near future. At the same time, the Company believes that the Company’s actions to improve gross profit margin, such as expanding raw material storage facilities to reduce the impact of fluctuation on the price of our raw materials, will benefit us in maintaining our profitability.

 

For the three months ended March 31, 2012, selling, general and administrative expenses were $3,321,269, an increase of $829,300 or 33.28%, compared to $2,491,968 for the three months ended March 31, 2011. The selling, general, and administrative expenses increased mainly due to increased shipping expenses caused by increased gas prices. The Company incurred $0 non-cash stock option expenses for the three months ended March 31, 2012 and 2011, respectively.

 

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Net income for the three months ended March 31, 2012 was $98,253, a decrease of $2,206,924, compared with $2,305,177 for the same period in 2011. The decrease in net income was primarily attributable to the decreased gross profit and increased interest expenses.

 

Nine Months Ended March 31, 2012 Compared with Nine Months Ended March 31,2011

 

The following table shows our operating results for the nine months ended March 31, 2012 and 2011:

 

   Nine months
Ended
March 31,
2012
   Nine months
Ended
March 31,
2011
 
Net Sales  $122,792,481   $125,375,589 
Cost of Sales   109,933,994    107,029,421 
Gross Profit   12,858,487    18,346,168 
Selling, General and Administrative Expenses   8,500,346    7,175,162 
Income From Operations   4,358,141    11,171,006 
Other Income (Expense), Net   (3,002,802)   (2,063,895)
Income Before Provision For Income Taxes   1,355,338    9,107,111 
Provision For Income Taxes   438,591    2,462,382 
Net Income  $916,748   $6,644,729 

 

The following table shows the breakdown of production and sales by product categories, and between self-use by WeifangShengtai and the sales of cornstarch to third parties, for the nine months ended March 31, 2012 and 2011:

 

Products   Metric Tons
Nine months ended
March 31,
2012
    Metric Tons
Nine months ended
March 31, 
2011
    Net Sales (%)
Nine months ended
March 31,
2012
    Net Sales (%)
Nine months ended
March 31, 
2011
 
                         
Glucose–Sales      98,563       102,520     $ 56,465,602(45.98 )%   $ 51,316,631 (40.93 )%
                                 
Cornstarch-Self use     116,900(59.30 )%     111,428(49.77 )%                
Cornstarch-Sales     80,242(40.70 )%     112,465(50.23 )%   $ 33,749,961(27.49 )%   $ 42,139,921 (33.61 )%
                                 
Total Cornstarch     197,142(100 )%     223,893 (100 )%                
Other Sales                   $ 32,576,917(26.53 )%   $ 31,919,037 (25.46 )%
Total Sales                   $ 122,792,481(100 )%   $ 125,375,589 (100 )%

  

Net sales for the nine months ended March 31, 2012 were $122,792,481, a decrease of $2,583,108 or 2.06%, compared with the same period in 2011. The decrease in net sales primarily resulted from decreased sales quantities for the nine months ended March 31, 2012, compared to the same period last year. For the nine months ended March 31, 2012 compared to the same period last year, the quantity of our glucose products sold decreased about 3.86%, while the average unit selling price of our glucose products increased about 8.86%. For the nine months ended March 31, 2012 compared to the same period last year, the quantity of our cornstarch products sold decreased about 28.65%, while the average unit selling price of our cornstarch products increased about 6.76%. For the nine months ended March 31, 2012 compared to the same period last year, the quantity of our other products sold decreased about 11.78%, while the average unit selling price of our other products increased about 9.77%. The increased unit selling prices are caused by the increased raw material cost during the quarter ended March 31, 2012 compared to the same period last year. The sales quantity was affected mainly because of lower market demand as well as the Company’s efforts to maintain a certain gross profit with the increased corn prices.

 

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Net sales from exports for the nine months ended March 31, 2012 decreased approximately 15.16% compared with the same period in 2011. The decrease is mainly attributable to the decreased sales quantities due to decreased demand for the nine months ended March 31, 2012 compared to the same period last year.

 

Cost of sales for the nine months ended March 31, 2012 was $109,933,994, an increase of $2,904,573, or 2.71%, compared with the same period in 2011. The increase in cost of sales was mainly due to the increase in the price of corn, our main raw material.

 

Gross profit for the nine months ended March 31, 2012 was $12,858,487, a decrease of $5,487,681 or 29.91%, compared with the same period in 2011. The decrease of gross profit is mainly because the unit selling prices of our products did not increase as fast as the corn prices. Gross profit margin for the nine months ended March 31, 2012 was 10.47%, a decrease from 14.63% for the same period in 2011. The reason for the decrease of gross profit margin is mainly because the price of corn, our main raw material, increased approximately 13.01% for the nine months ended March 31, 2012 compared to the same period last year where the average selling prices did not increase proportionally. The Company believes that the market is taking its time to respond to the increased corn prices and will reach a more profitable price level in the near future. At the same time, the Company believes that the Company’s actions to improve gross profit margin, such as expanding raw material storage facilities to reduce the impact of fluctuation on the price of our raw materials, will benefit us in maintaining our profitability.

 

For the nine months ended March 31, 2012, selling, general and administrative expenses were $8,500,346, an increase of $1,325,184 or 18.47%, compared to $7,175,162 for the nine months ended March 31, 2011. The selling, general, and administrative expenses increased mainly due to increased selling and general and administrative expenses caused by increased inventory loss. The Company incurred $0 and $183,480 non-cash stock option expenses for the nine months ended March 31, 2012 and 2011, respectively. The option expenses are included in selling, general and administrative expenses.

 

Net income for the nine months ended March 31, 2012 was $916,748, a decrease of $5,727,981, compared with $6,644,729 for the same period in 2011. The decrease in net income was primarily attributable to the decreased gross profit.

 

Liquidity and Capital Resources

 

Operating Activities

  

Net cash used in operating activities for the nine months ended March 31, 2012 was $10,391,666, an increase of 504.14%, or $12,962,949 compared with $2,571,283 provided by operating activities for the same period in 2011. The reasons for increased cash used in operating activities include less net income generated due to decreased net income caused by increased corn prices, more payments made to acquire inventories, increased accounts payable and accrued liabilities, and more fulfillment for customer deposit, offset by collection of advances to employees for corn purchases.

 

Investing Activities

 

Net cash used in investing activities for the nine months ended March 31, 2012 was $70,589, a decrease of 98.71%, or $5,418,000, compared with $5,488,589 used in investing activities for the same period in 2011. The decrease is due to less investment in progressing construction, plant and equipment, and an increase in equity investment during the nine months ended March 31, 2012 compared to the same period last year.

 

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Financing Activities

 

Net cash provided by financing activities for the nine months ended March 31, 2012 was $13,612,090, an increase of 5701.83%, or $13,377,473, compared with $234,617 provided by financing activities for the same period in 2011. The increase is due to increased restricted cash caused by increased notes payable during the nine months ended March 31, 2012 compared to the same period last year.

 

Loans

 

Other than the equity financing in 2008, our PRC operating subsidiary, WeifangShengtai financed its operations and capital expenditure requirements primarily through bank loans and operating income. WeifangShengtai had a total of $60,922,211 and $48,094,740 short term bank loans outstanding as of March 31, 2012 and June 30, 2011, respectively. The loans were secured by WeifangShengtai’s properties and accounts receivable. The terms of all these short term loans were all for one year. WeifangShengtai has never defaulted on any loans.  In addition, Weifang Shengtai had $16,740,029 and $11,447,800 in short-term notes due to the banks as of March 31, 2012 and June 30, 2011, respectively. These notes were due within one year and secured by 50% to 100% of the loan amount in restricted cash.  Some were guaranteed by unrelated third parties.

 

WeifangShengtai does not have any long term loans from local banks. The outstanding long-term loans, or the non-current portion of payables, and the non-current portion of capital lease obligation, which can be classified as long term liabilities, were $0 and $0, as of March 31, 2012 and June 30, 2011, respectively.

 

Guarantees

 

We have guaranteed certain borrowings of other unrelated third parties including short term bank loans, lines of credit and bank notes. The total guaranteed amounts were $7,920,000 and $7,735,000 as of March 31, 2012 and June 30, 2011. Some unrelated third parties have guaranteed approximately $11,404,800 and $11,138,400 of our debt, as of March 31, 2012 and June 30, 2011, respectively.

 

Future Cash Commitments and Needs

 

The Company estimates the need for capital to run new production facilities. The exact amount will be determined based on both the market demand for the Company’s products and the time needed for these facilities to run at full capacity. The Company will carefully review its financial condition and consider financing with internally generated cash, bank loans or additional equity. The Company expects that its proceeds from operating cash flows and its cash balances, together with amounts available under its loans, will be sufficient to meet its anticipated liquidity needs for the next twelve months.

 

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 incorporated by reference herein. The following reflects the more critical accounting policies that currently affect our financial condition and results of operations.

 

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Revenue recognition

 

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

 

Use of estimates

 

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

 

Accounts receivable

 

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

 

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

 

Property and equipment

 

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

 

Foreign currency translation

 

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

 

32
 

  

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.

 

Recently Issued Accounting Pronouncements

 

In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance will be effective for us beginning July 1, 2012.

 

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us beginning July 1, 2012 and will have financial statement presentation changes only.

 

In December 2011, the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods beginning after January 1, 2013.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Mr. Qingtai Liu, the Company’s Chief Executive Officer, and Mr. Yongqiang Wang, the Company’s current financial controller, have evaluated the effectiveness of the design and operation of the Company’s 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 which, among other things, identified personnel turnover in the areas concerned, mainly referring to our chief financial officer’s resignations during the last two years, the Company’s officers concluded that disclosure controls and procedures were not effective and was not adequately designed to ensure that the information required to be disclosed by the Company in the reports the Company submits 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 the Company’s chief executive officer and chief financial officer in a manner that allowed for timely decisions regarding required disclosure.

 

Notwithstanding the existence of such material weakness in our internal controls over financial reporting, our management, including our Chief Executive Officer, believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Management is committed to remediating the material weakness as quickly as possible. Additionally, and in recognition of immediate financial reporting needs, the Company intends to implement additional controls and procedures during the current fiscal year to continue to ensure timely and accurate financial reporting objectives. Such additional controls and procedures may include: The retention of a U.S. based CPA as Chief Financial Officer with U.S. GAAP experience and appropriate knowledge of internal controls over financial reporting, for purposes of appropriate oversight of the financial reporting process and continued training of the accounting staff; recruitment of additional personnel with relevant U.S. GAAP experience to enhance our financial reporting and internal control function; and retention of the services of a consultant for advisory services with respect to SOX 404 compliance.

 

33
 

  

Changes in Internal Control over Financial Reporting

   

During the quarter ended March 31, 2012, there has been no material change in internal control over financial reporting that has materially affected, or is reasonable likely to materially affect the Company’s 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.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On April 17, 2012, the Company’s Board of Directors received a preliminary, non-binding proposal (“Proposal”) from its Chairman and Chief Executive Officer, Mr. Qingtai Liu . Pursuant to the Proposal, Mr. Liu intends to acquire all of the outstanding shares of the Company's common stock not currently owned by him and his affiliates in a going private transaction (“Acquisition”) at a proposed price of $1.65 per share in cash. A special committee of independent directors (“Special Committee”) was formed on April 24, 2012 to consider the Proposal.

 

In April 2012, several law firms announced investigation of the Company in connection with the receipt of the Proposal. No actions have been filed against the Company or its current officers and directors as of May 11, 2012.

 

Item 1A. Risk Factors.

 

Not Applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.  Defaults upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not Applicable.

 

Item 5.  Other Information.

 

Not Applicable.

 

34
 

  

Item 6.  Exhibits.

 

Exhibit No.   Title of Document
     
3.1   Amended and Restated Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on March 10, 2004, as amended to date (incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-SB filed on September 26, 2005 in commission file number 000-51312).
     
3.2   Certificate of Amendment filed with Secretary of State of Delaware on November 9, 2010 (incorporated by reference to Exhibit 99.1 to the registrant's Form 8-K filed on November 12, 2010).
     
3.3   Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Form 10-SB filed on September 26, 2005 in commission file number 000-51312).
     
4.1   Form of Warrants to Investors (incorporated by reference to Exhibit 4.1 to the registrant’s Form 8-K filed on May 21, 2007 in commission file number 000-51312).
     
10.1   Share Exchange Agreement dated May 15, 2007 by and among the Company and Shengtai Holding, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed on May 21, 2007 in commission file number 000-51312).
     
10.2   Share Purchase Agreement dated as of May 15, 2007 between the Company and the Purchasers (incorporated by reference to Exhibit 10.2 to the registrant’s Form 8-K filed on May 21, 2007 in commission file number 000-51312).
     
10.3   Research and Development Agreement between Hebei University and Technology of the Company, dated December 8, 2010 (incorporated by reference to Exhibit 10.3 to the registrant’s Form 10-K filed on October 6, 2011 in commission file number 000-51312).
     
10.4   Employment Agreement between the Company and Qingtai Liu, dated July 8th , 2009 (incorporated by reference to Exhibit 10.4 to the registrant’s Form 10-K filed on October 6, 2011 in commission file number 000-51312).
     
10.5   Employment Agreement between the Company and Yongqiang Wang, dated September 1st, 2009 (incorporated by reference to Exhibit 10.3 to the registrant’s Form 10-K/A filed on April 9, 2012 in commission file number 000-51312).
     
10.6   2010 Addendum between the Company and Qingtai Liu, dated June 30, 2010 (incorporated by reference to Exhibit 10.3 to the registrant’s Form 10-K/A filed on April 9, 2012 in commission file number 000-51312).
     
10.7   2010 Addendum between the Company and Yongqiang Wang, dated June 30, 2010 (incorporated by reference to Exhibit 10.3 to the registrant’s Form 10-K/A filed on April 9, 2012 in commission file number 000-51312).
     
10.8   2011 Addendum between the Company and Qingtai Liu, dated June 30, 2011 (incorporated by reference to Exhibit 10.8 to the registrant’s Form 10-K/A filed on April 9, 2012 in commission file number 000-51312).
     
10.9   2011 Addendum between the Company and Qingtai Liu, dated June 30, 2011 (incorporated by reference to Exhibit 10.8 to the registrant’s Form 10-K/A filed on April 9, 2012 in commission file number 000-51312).
     
16.1   Letter dated October 20, 2009 from Moore Stephens Wurth Frazer and Torbet, LLP (incorporated by reference to Exhibit 16.1 to the registrant’s Form 8-K filed on October 21, 2009 in commission file number 000-51312).
     
21.1   List of subsidiaries of the registrant (incorporated by reference to Exhibit 21.1 to the registrant’s Form 8-K filed on May 21, 2007 in commission file number 000-51312).
     
31.1   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS XBRL Instance Document*
   
101.SCH  XBRL Taxonomy Extension Schema*
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase*
   
101.DEF XBRL Taxonomy Extension Definition Linkbase*
   
101.LAB XBRL Taxonomy Extension Label Linkbase*
   
101.PRE  XBRL Extension Presentation Linkbase*

 

*     The Exhibits attached to this Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

 

35
 

 

SIGNATURES

 

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

 

Date: May 15, 2012

 

  SHENGTAI PHARMACEUTICAL, INC.  
       
  By: /s/ Qingtai Liu  
    Qingtai Liu  
    Chief Executive Officer  
    (Principal Executive Officer)  
       
  By: /s/ Yongqiang Wang  
    Yongqiang Wang  
    Financial Controller  
    (Principal Financial Officer)  

 

36

XOTC:SGTI Quarterly Report 10-Q Filling

XOTC:SGTI Stock - Get Quarterly Report SEC Filing of XOTC:SGTI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:SGTI Quarterly Report 10-Q Filing - 3/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices Title |  Date |  Company |  Symbol |  Interest |  Popularity

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