UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1 to 

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007

or

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

For the transition period from __________ to __________

Commission file number: 01-31937

SHENGDATECH, INC.

(Exact name of registrant as specified in its charter)

Nevada	N/A
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Youth Pioneer Park

Taian Economic and Technological Development Zone

Tai’an City, Shandong Province 271000

People’s Republic of China

(Address of Principal Executive Offices)

(86-538) 856-0668

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act: None

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

Title of Each Class:	Name of Each Exchange on Which Registered
Common Stock, par value $.00001	The NASDAQ Stock Market LLC

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

Yes o No þ

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

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filed. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):

Yes o No þ

 The aggregate market value of the 30,139,540 shares of voting and non-voting common equity stock held by non-affiliates of the registrant was $160,342,353 as of June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on such date of $5.32 per share, as reported by The NASDAQ Stock Market, Inc.

As of March 14, 2008, there were 54,202,036 shares of common stock of ShengdaTech, Inc. outstanding.

Explanatory Note

This Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 initially filed with the Securities and Exchanged Commission on March 17, 2008 is being filed to correct some financial data and explanations including Management’s Discussion and Analysis of Financial Condition and Results of Operations and to restate the Consolidated Financial Statements.

SHENGDATECH, INC.

(A Nevada Corporation)

TABLE OF CONTENTS

		Page
	PART I
Item 1	Business	3
Item 1A	Risk Factors	13
Item 1B	Unresolved Staff Comments	24
Item 2	Properties	24
Item 3	Legal Proceedings	24
Item 4	Submission of Matters to a Vote of Security Holders	24
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6	Selected Financial Data	26
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	27
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8	Financial Statements and Supplementary Data	42
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	43
Item 9A	Controls and Procedures	43
Item 9B	Other Information	43
PART III
Item 10	Directors, Executive Officers and Corporate Governance	44
Item 11	Executive Compensation	46
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13	Certain Relationships and Related Transactions, and Director Independence	48
Item 14	Principal Accounting Fees and Services	48
PART IV
Item 15	Exhibits and Financial Statement Schedules

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PART I

Item 1. Business

Our Industry

Overview

We are engaged in developing, manufacturing and marketing nano precipitated calcium carbonate (“NPCC”), as well as manufacturing and marketing coal-based chemicals, including ammonium bicarbonate, liquid ammonia, methanol and melamine. The two operating businesses possess their own unique strategic direction and tactical plans respectively, as well as separate manufacturing operations, sales and distribution capabilities. We sell our chemical products to plants and farmers mainly through a direct sales force. Our NPCC products are sold through our sales and marketing staff. Geographic markets cover several provinces in North China, among which Shandong Province accounts for a large share of sales.

Nano Precipitated Calcium Carbonate

NPCC refers to ultra fine precipitated calcium carbonate with an average particle diameter of under 100 nano-meters for application as an additive in various products. Due to its special physical and chemical properties, NPCC has been widely applied in paper, paints, rubber and plastic industries. We currently supply NPCC products primarily to the tire and polyvinyl chloride (“PVC”) building materials industries while attempting to penetrate the paper and paint industries with several newly developed NPCC products.

Coal Based Chemicals

We manufacture coal based chemicals including ammonium bicarbonate, liquid ammonia, methanol and melamine. Ammonium bicarbonate is mainly used for nitrogenous fertilizers and methanol is used as raw materials of chemical products. Methanol is a chemical material and a clean alternative to fossil fuel. It is used in the chemical industry, pharmaceutical industry, light industry and textile industry. Melamine is the intermediate product of environment friendly resin.

Our Reorganization and Corporation Structure

In March of 2006, our company completed a reverse acquisition of Faith Bloom Limited, a British Virgin Islands company, as a result of which Faith Bloom became our wholly-owned subsidiary and is deemed to be the accounting acquiror of our company. In December of 2005, Faith Bloom completed a reorganization in which it acquired Shandong Haize Nano Co. Ltd. and Shandong Bangsheng Chemical Co. Ltd. as Faith Bloom’s wholly-owned subsidiaries. Except as expressly stated otherwise, all financial information contained in this Annual Report has been restated on a retroactive basis to present the reorganizations as though they had been in place for all periods presented. The functional currency of our operating subsidiaries in the PRC is the Chinese Yuan Renminbi (“CNY”); however, our consolidated financial statements have been expressed in United States Dollars (“USD”). The consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The consolidated statements of operations have been translated using the weighted average exchange rates prevailing during the operating periods of each statement. In addition, all share information contained in this prospectus gives effect to a one-for- two reverse split of our common stock effected in February 2006. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Reorganization” and Note 1 to our consolidated financial statements contained elsewhere in this prospectus for a more detailed description of these reorganizations.

On April 4, 2006, we formed Shanxxi Haize Nano-Material Co., Ltd., a wholly-owned subsidiary in Shanxxi, China to run the new NPCC facility in Shanxxi.

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On January 3, 2007, we amended our articles of incorporation to change the name of our company from Zeolite Exploration Company to ShengdaTech, Inc.

Market Opportunity

The Markets for NPCC

China began to research and manufacture NPCC products in the early 1980’s. The total output has increased due to an increase in demand. With continued research and development in the application of NPCC, we believe demand for NPCC will increase.

We believe the fastest growing area for NPCC will be in the tire and PVC building material market. We believe that our NPCC products provide highly effective fillers and additives for tires and PVC building materials. NPCC products are ultra fine and pure, and its particle size and crystal shape can be controlled effectively in the production process. NPCC is highly compatible with rubber if modified by a surface coating agent. It fills the spatial structure in rubber and enhances the property of rubber products. It can be used solely as a filler which has a reinforcing effect, and it also can be applied with other fillers such as precipitated calcium carbonate, argil and titanium oxide for reinforcement, filling, and improving the process and property of products, and reducing rubber content. NPCC can partially substitute some expensive materials such as titanium oxide and silicon dioxide.

When modified with a surface coating agent, NPCC becomes oleophilic and hydrophobic. The surface coating agents for plastics include fatty acid and a coupling agent, and they are compatible with organic substances. As a result, the modified NPCC can be used to fill in plastics such as PVC to increase their glossiness. Applying modified NPCC to plastics has many positive effects such as increased strength, heat resistance and dimension stabilization. More importantly, such application reduces cost substantially. In addition, the oleophilic and hydrophobic traits of modified NPCC can improve the property of tires, increasing wear resistance. Modified NPCC can be used as a substitute for more expensive additives such as titanium oxide and silicon dioxide.

China has become a large tire producing country due to the rapid and tremendous growth in its domestic automobile industry and its status as an international manufacturing center. According to a report by China Economic Daily dated October 10, 2005, China’s total tire output was 239,000,000 units in 2004 which represents a 18.7% increase from 2003. From 1999 to 2004 the average annual growth in tire output was 15%. Currently, we are the only Chinese manufacturer of NPCC that is able to supply the tire market. Consequently, we believe that the tire market will continue to be one of the growing markets for our NPCC products.

China’s PVC building materials market is also growing substantially as a result of China’s continuing urbanization drive and growing real estate market. We anticipate the demand for PVC building materials will continue to grow. We expect that the PVC building materials market will continue to be one of the growing markets for our NPCC products.

With China’s continuing urbanization and its growing investment in the auto industry, the demand for oil based paints has increased. NPCC products are also used in water based paints, paper and ink. With the application of NPCC products expanding as result of China’s economic growth, we believe our NPCC products will find increased use in these markets.

The Markets for our Coal Based Chemicals

According to a report in China Petro-Chemical Journal, dated February 15, 2006, the agricultural sector in China makes extensive use of chemical fertilizers, consisting of approximately 1/3 of the world’s total consumption. Of this amount, about 70% is nitrogenous fertilizers. According to China Statistics Almanac dated December 31, 2004, in 2004, the national total output of synthetic ammonia fertilizers was 42,222,000 metric tons, a 14.6% increase over the total output in 2003.

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Methanol is a major raw material chemical next to ethylene, propylene and benzene. Since 2002, the price of methanol has risen due to the large demand. However, the price began to fluctuate as much as 30% in 2005 due to competition and cost of raw materials. The price of methanol dropped sharply in 2005 due to a supply surge and experienced an increase of 10% in 2006 because of the large domestic demand using methanol as a gasoline additive as well as the demand from its downstream products. China’s melamine market has grown but China’s melamine production capacity has grown even faster. Consequently, its supply exceeds demand at the present time.

New Market Segments We Are Targeting

While maintaining our lead and expanding our market share in the tire and PVC building materials markets, we plan to enter into more new industries in 2008, including polypropylene/polyethylene, silicon adhesive, water paint, paper, etc. and generating sales in the oil based paints market, we are targeting the paper industry and the oil based paints industry.

The first new market segment we are targeting is the paper making market. The papermaking industry will be one of the developing markets for NPCC. China’s paper making industry has entered into a stage of growth. NPCC products are particularly suitable for making newsprint and coated paper. The estimated total output of newsprint in 2005 was around 3.9 million metric tons, a 20% increase over 2004. We successfully developed a NPCC product for paper and received trial orders in Q4, 2007.

The second new market we are targeting is the paints and ink market. NPCC products are widely used in the paints industry. We have succeeded in introducing our NPCC to the water based paints market and received a small amount of orders, averaging 200 tons per month, China’s consumption of oil based paints has grown due to the growing auto industry. We are conducting research in this area.

The third new market is the polypropylene and polyethylene market. Plastic building materials are generally adopted in the construction and building industry and chemical pipelines industry. Our NPCC products are not only widely used in PVC industries, we also aims at the high standards plastic building materials, which have a similar market price to or 10% higher than that of PVC. We have recently finished the polypropylene and polyethylene sample testing.

Our Business

Overview

We are engaged in the business of manufacturing, marketing and selling of a variety of NPCC products and coal based chemicals for use in various applications. We convert limestone into NPCC by a proprietary method. The unique chemical and physical attributes make NPCC a valuable ingredient in tire, paints, PVC building materials and other industries. We are also engaged in the manufacture and sale of coal based chemical products, namely, ammonium bicarbonate, liquid ammonia, melamine and methanol. We market and sell the coal based products mainly as chemical fertilizers and raw materials for the production of organic and inorganic chemical products, including formaldehyde and pesticides.

Our company owns the only exclusive NPCC development and research lab in China. It is located in Pudong, Shanghai and its excellent working environment has attracted intelligent and excellent NPCC researchers and scholars. Currently there are thirteen staff working in this lab, including one professor, one senior engineer, six doctorates, and five masters. They engaged primarily in furthering NPCC related technologies. We believe that our development and research team will enable us to obtain more technological improvements, which will allow us to offer cost-effective and high-quality NPCC products. We recently developed new NPCC products for paper , paints, coatings, polypropylene and polyethylene industries. We began to receive orders from the paper and paints manufacturers in 2007. We expect to ship our NPCC products to the polypropylene and polyethylene market gradually in the first half of 2007.

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We deliver our chemical products directly to our customers, including manufacturers and distributors of agrochemicals. We operate sales liaison offices in three major cities in China mainly for the sale and marketing of our NPCC products. The majority of our income is generated from the sale of our NPCC products for the tire and PVC building materials industries and coal-based chemicals for the use of agriculture and other chemical manufacturers. Our current growth strategy includes expanding our production capacity to meet demand, increasing our product line, intensifying our research and development efforts to gain advantages in cost and quality and increasing our marketing effort both domestically and abroad.

We believe we are one of the leading Chinese manufacturers of NPCC products. In fiscal year 2004, we estimate that we manufacture 10% of the total NPCC products in China. Our products have been sold primarily in Shandong and other parts of northern China. We believe we are the only Chinese NPCC manufacturer that has successfully marketed our products to the tire industry, which gives us the ability to maintain high-margins. Due to its special physical and chemical properties that are compatible with a variety of products, we are also marketing NPCC products to the paper, paints, rubber, and plastics industries.

Our Competitive Strengths

We believe we have the following competitive strengths:

· Cutting-edge technology. We adopted the high gravity precipitation technology in our current manufacturing process in our facilities in Tai’an. Although there are five licensees of the technology developed by Beijing University of Chemical Technology, we are the only licensee that has been successful in commercializing this technology, which enables us to produce higher-quality NPCC products and yield a higher percentage of nano particles. In our new facilities recently completed in Shaanxi, we employ the membrane-dispersion technology co-developed with Qinghua University and exclusively owned by us. This advanced technology enables us to manufacture NPCC products of even higher quality and at lower cost. We believe we are one of the few companies that utilize this advanced technology worldwide.

· Proprietary modification formulas. In cooperation with Qingdao University of Science and Technology, we developed our proprietary formulas for modifying NPCC products to suit a particular end product. With our formulas, we have developed NPCC products for tires, PVC plastics, papers, etc. We believe we are the only NPCC manufacturer that has successfully penetrated the tire industry. We also have successfully tested our NPCC products with some customers in the paint and paper industries.

· Strategic alliances with universities. We have had partnerships with various universities in China to develop new NPCC technologies and new NPCC products since the start of our NPCC business. We are working to renew our relationship with Qinghua University to conduct research in the application of NPCC .

· Greater capacity to meet the demand. We currently have a capacity of 130,000 metric tons per year. That makes us the one of the largest suppliers of NPCC in China. Most of our NPCC costumers engage in manufacturing tires, PVC plastic building materials and require a large amount of NPCC supply as much as 4000 metric tons per year. They need a supplier which can steadily supply NPCC in large quantities. Due to our capacity, we are in a better position to attract such customers.

· Stable, low-cost supply of limestone. The major raw material for our NPCC products is limestone. To insure a stable, low-cost, and high quality supply of limestone, we have built our new NPCC facility in Xianyang, Shaanxi, a location close to a mine which produces the highest quality limestone in the country. The close vicinity of the mine reduces our shipping cost for limestone. These advantages will enable us to manufacture high-quality NPCC products at a lower cost.

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· Superior Research and Development Capability. Our company owns the only exclusive NPCC development and research lab in China. It is located in Pudong, Shanghai and its excellent working environment has attracted intelligent and excellent NPCC researchers and scholars. Now there are thirteen Research and Development staff working in this lab with one professor, one senior engineer, five masters and six doctorates. They engaged primarily in furthering NPCC related technologies. We believe that our development and research team will enable us to obtain more technological improvements, which will allow us to offer cost-effective and high-quality NPCC products.

Our Strategy

Our primary business strategy is to capitalize on the rising demand of NPCC products and to concentrate on the development, manufacture and marketing of NPCC products. We strive to become the market leader of NPCC products in the world. At the same time, we will be opportunistic in expanding our coal-based chemical business by acquiring existing facilities or undertaking new coal-based chemical projects.

Expanding Our Capacity to Meet Demand

Our current NPCC production capacity is130,000 metric tons per year. To meet the expected rising demand for NPCC products of existing customers and potential new customers, we will continue to expand the NPCC capacity in our new facility in Shaanxi. We are adding 60,000 tons of NPCC production capacity which will be operational in March, 2008. By then, our total NPCC annual production capacity will reach 190,000 tons and we will be the largest NPCC manufacturer in China. We are also looking to expand our NPCC capacity further in 2008 and beyond and are in the process of selecting sites and procuring land and identifying sources of raw material supply.

Providing High Quality Products

We believe our products are of the highest quality. We are one of the five Chinese NPCC producing companies that use the ultra gravity manufacturing method developed by the Beijing University of Chemical Technology. However, among the five companies, we are the only one that has successfully integrated the ultra-gravity method with a distribution control system, which gives us the ability to maintain high quality NPCC products. Our NPCC products were ISO 9001 certified in 2003 and won accolades such as “Shandong Top Brand” in Q4, 2006. In addition, the membrane-dispersion technology jointly developed by us and Tsinghua University deployed for our new NPCC facility in Xianyang, Shanxxi provides us with an even more improved control over the quality of our NPCC products. This technology also enables a very stable production and high yield of nano particles. Our new NPCC products in Xianyang, Shanxxi is in the process of beingISO9001 certified. In addition, the lime stone used by our Xianyang facility is mined near the facility and is of very high quality.

Developing Cutting Edge Products Through Research and Development

Our research and development efforts are aimed at finding new varieties of products, improving existing products, improving existing product quality and reducing production costs. We believe we are the only NPCC manufacturer in China that supplies the tire industry due to the fact that we have developed our own proprietary technology for particle modification. This technology enables us to modify the property of a particular NPCC product so that it integrates well with, and improves the general property of, a particular end product to which the NPCC product serves as an additive. We have also jointly developed a new proprietary membrane-dispersion based technology for the manufacture of high-quality NPCC products with lower costs and have successfully adopted this technology in our new factory in Xianyang City, Shaanxi Province. We will continue our research and development efforts in these areas. We have already strengthened our research and development capability by establishing a research and development center in Shanghai. We intend to focus significant efforts on opening new markets for our new products. New products being developed and marketed include NPCC products for the paper, paints, coatings, polypropylene and polyethylene industries. We believe these new products will contribute to our growth.

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Our Products

We are now focusing on the production of NPCC products and coal based chemicals, which can be divided into the following two categories by function:

NPCC Products	Primary Use
601	Additive for PVC building materials
602	Additive for rubber tire
102	Additive for inks
201	Additive for adhesives and rubber seals
Slurry	Additive for coatings
NPCC-100	Additive for paper
Coal Based Chemicals	Primary Use
Ammonium-Bicarbonate	Fertilizer
Liquid ammonia	Raw material for pesticides, compound fertilizers, refrigerant
Methanol	Raw material in the manufacture of organic chemicals
Melamine	Raw material in the manufacture of melamine xylenol- formaldehyde resin

We continuously focus on the production of high-quality and low-cost products, and on increasing our sales volume of our NPCC products. We may also acquire existing coal-based chemical businesses that will provide us with a strong cash flow or enter into new coal-based chemical projects that will provide strategic advantages

Our efforts to participate in the tire market and the market for PVC building material products have been relatively successful so far. We have launched new products for water-based paints and generated sales. In the future, we plan to launch new NPCC products for water based paints and enter into new markets, such as polypropylene, polyethylene and silicon adhesive. We have received positive results in the paper industry. We expect growth in high-end NPCC products for such markets will increase our profitability with a corresponding increase in enterprise value.

We take pride in our quality control. We have established quality assurance systems for our NPCC products from purchases to sales. Our NPCC products passed ISO 9001 in 2003 and won accolades such as “Shandong Top Brand” in the fourth quarter of 2006. Our new products are in the ISO 9001 certification process. We are seeking to continuously improve our production systems and processes and to meet the latest requirements of ISO 9001 (Version 2000).

Our Intellectual Property

We have a nonexclusive license from Nano Material Technology Pte. Ltd. and its rights under several patents and related technology for ultra-gravity manufacturing method, developed by Beijing University of Chemical Technology, for twenty years. In addition, we jointly own a patent developed by Tsinghua University on next generation NPCC particle producing technology based on membrane-dispersion techniques. The patent was officially issued in December, 2007.

We also own a proprietary technique for NPCC chemical modification that is applicable to different types of end products critical to adding value to downstream industry plants.

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We have obtained from our affiliate and our predecessor two registered trademarks with the Trademark office of the State Administration for Industry and Commerce of China relating to the Chinese words “Shengke” and “Taifeng”, the former for our NPCC products and the latter for our coal based chemical.

Our Research and Development Efforts

We currently have 13 staff members on our research and development team. Among them, six hold a PhD degree, five hold a masters degree. Most of our research and development staff have been working in this field for more than four years. Mr. Zhude Xu, our Director of research and development, graduated from University of Southern California with a Ph.D. in Chemistry and now serves as a professor at Zhejiang University - ranked as No. 3 among universities in China. He is leading the effort to develop and improve proprietary technology for chemical modification in NPCC products. This new technology can be used to modify the property of a specific NPCC product to fit a particular end product and in addition, improve the property of such end product, and much progress has been made in the applications in paper, PE and asphalt. With this new technology, tires, PVC building materials, paints, adhesives and paper of equal or better quality can be made at a lower cost.

Our research and development activities can be described as a three-stage process. During the first stage, we apply surface coating agents to NPCC according to different pre-designed formulas for comparative studies. The modified NPCC is tested for mass, size, oil absorbance and other traits to determine if it displays the appropriate features. During the second stage, about two kilograms of NPCC product is produced with lab equipment using a formula selected at the first stage. The NPCC product produced is applied to an end product such as tire, paint or ink. The end product is then tested for a set of properties and other parameters to see if they meet expectations. If the formula is successful at the second stage, it will be further tested. During the third stage, several tons of the NPCC product is manufactured at the NPCC facility using the formula that passed the second test and is sent to potential customers for an industrial scale test. Our research and development staff is dispatched to such customers’ sites to assist with the test.

We are focused on further developing and improving our core manufacturing technologies so that we can expand our product lines and reduce overall costs. In 2007, we completed samples testing of our NPCC products with approximately 36 companies in various industries, such as PVC, rubber, adhesive, latex and coating. We have received positive results from about 60% of these companies after testing our products and we consider most of them to be potential new customers.

We had entered into joint development agreements with Tsinghua University and Tsingdao University of Science and Technology to develop new NPCC technologies. Under the agreement with Tsingdao University of Science and Technology, we have exclusive ownership to any technology developed. Under the agreement with Tsinghua University, we jointly own any technology developed but with an exclusive right to use such technology. Our joint program with Tsinghua University has produced one patent application filed with the Patent Office of the State Intellectual Property Office of China in May, 2006 with approval pending. These agreements have recently expired and we are seeking to renew our agreement with Tsinghua University.

In addition, we have adopted advanced new technology used exclusively for our processing system in our new Xianyang, Shanxxi facility, including micro-mix reactors. These improvements not only reduce production costs, but also enable us to further diversify our product lines. We haven’t fully expensed our budget of $9 million for establishing research and development centers in Beijing, Shanghai and Tsingdao, mainly because we purchased a Research and Development building with a total investment of $2.5 million. This center is able to meet our current Research and Development demand; therefore, we terminated our research and development cooperation with Tsinghua University and Qingdao University of Technology. We believe we can better attract senior research personnel at a reasonable cost. At present, the13 Research and Development staff in the center are devoted to our research and development efforts. The center will be a base for training research and technical personnel and developing proprietary technologies. 

Our Marketing Efforts

We have established our position as the only Chinese supplier of NPCC products for the tire industry. Our NPCC products have successfully entered the PVC building material industry and we are a leading supplier. We have also succeeded in marketing our NPCC products to the paints and paper industries and generated a small amount of sales. We are actively marketing our NPCC products to the PP, PE and asphalt industries. We have successfully completed sampling and testing of our products with a number of companies in these industries and we have already got small orders from PE customers. We expect to start supplying our products to PP and asphalt manufacturers in the near future.

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Our marketing efforts have made us one of the leading suppliers of NPCC products in China. We are also a major supplier of coal based chemicals in Tai’an City. All of our products are sold in local and regional markets including Shandong province and several provinces in northern China. Presently, our main method of selling our coal-based chemical products is direct marketing supplemented with indirect marketing. Our coal-based chemical products are sold directly to manufacturers and farmers. Our NPCC products are sold and marketed by our sales and marketing staff. We are actively expanding our NPCC marketing network into other parts of China. We have established sales offices in multiple locations in China including Shanghai, Xian, and Dongying. We also intend to expand into the international market for NPCC products. We have sold a small amount of our products for latex and PE to NPCC customers in Singapore, Thailand, Korea, Malaysia and India. Additionally, our products are being tested by customers in North America.

Our sales team has approximately 42 members with six in coal-based chemical division, 15 in Shandong Haize Nanomaterials Co., Ltd. and 21 in Shaanxi Haize Nano-materials Co., Ltd. Six of our sales and marketing staff are devoted to international sales and have begun to generate sales in several countries in Asia. To expand distribution channels and increase our market share, we regularly attend industry fairs and exhibitions, and we have become a member of www.alibaba.com.cn , the largest business-to-business internet website in China.

Raw Materials

Given the importance to our business of key raw materials such as coal and limestone, materials purchasing and materials management are important activities for us. We carefully manage our purchasing efforts and have established company policies involving raw materials procurement. The cost of raw materials amounts to almost 60% of our total production cost.

Supplier Management System

Over the last two years, the price for raw materials such as coal has undergone a great deal of fluctuation in China, which has affected our profit margin. We have adopted measures to reduce risks in raw material supply, including establishing long term relationships with suppliers, diversifying suppliers and supply sources, and seeking long-term contracts with suppliers.

Purchasing Procedures Bidding with View to Quality and Stability of Supplier

Purchasing transactions are conducted in accordance with an invitation for bidding procedure. Potential suppliers are provided the quality standard for the raw material and are invited to make initial offers, which are compared objectively according to relevant quality guidelines. After validating the various suppliers’ service and capabilities for stable supply, we acquire the needed materials from the supplier offering at the lowest cost. Our financial department establishes an oversight process by appointing individuals to conduct independent market research of key price points periodically. There is a standard procedure for conducting such bidding processes and accepting the bids to insure that the all purchasing procedures are being strictly adhered to.

Major Suppliers

The table below lists our major suppliers (5%) as of December 31, 2007.

Major Suppliers for NPCC Business

	Suppliers		Amount Purchased in 2007 (RMB  1,000,000)		% of Total Purchases in 2007
Soft Coal		Shandong Taifeng Minerals Co.		10.04		8.47	%
Soft Coal		Xianyang Chuangfa Trading Co., Ltd.		37.24		31.42	%
Modification agent		Qingdao Siwei Chemical Co. Ltd.		42.95		36.24	%
Anthracite		Feicheng Longxin Supply Storage & Transport Co.		8.60		7.26	%
Total						83.39	%

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Major Suppliers for Coal Based Chemical Business

	Suppliers		Amount Purchased in 2007 (RMB  1,000,000)		% of Total Purchases in 2007
Anthracite		Gaoping Xingjie Trading Co., Ltd.		22.33		12.46	%
Anthracite		Jincheng Qinshui Road Coal Sales Co.		21.87		12.21	%
Anthracite		Jincheng Riyuejiu Trading Co., Ltd.		21.81		12.17	%
Anthracite		Feicheng Tongyun Coal Co.		20.39		11.38	%
Anthracite		Feicheng Longxin Supply Storage & Transport Co.		20.29		11.33	%
Urea		Shandong Feicheng City Fertilizer Factory		23.06		12.87	%
Urea		Shandong Feida Chemical Technology Co.		21.16		11.81	%
Total						84.23	%

Our Major Customers

We have customers in the Shandong province and other parts of northern China. Some of our NPCC customers are large-scale manufacturers of tires or PVC building materials. Our coal based chemical customers are mainly located in Shandong. We have long-term relationships with most of our customers. Our major customers, based on sales revenue over (5%) as of December 31, 2007, were as follows:

Major Customers of our NPCC Products 

Name	Industry		Amount of Sale in 2007 (RMB 1,000,000)		Percentage of Total Sales
Triangle Tire		Tire		18.44		11.00	%
Zhaoyuan Liao		Tire		16.96		10.12	%
Double Star Tire		Tire		16.10		9.60	%
Zhengjiang Suhui		Tire		11.32		6.75	%
Total						37.47	%
Dalian Jinyuan		PVC		17.09		12.58	%
Yiyuan Ruifeng		PVC		12.82		9.43	%
Quanzhou Lida		PVC		7.78		5.73	%
Total						27.74	%

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Major Customers of Our Coal Based Chemicals

Name	Product		Amount of Sale in 2007 (RMB 1,000,000)		Percentage of Total Sales
Jiulong Experiment Chemical		Liquid Ammonia		7.43		4.94	%
Taixin Chemical		Liquid Ammonia		7.23		4.80	%
Huayangdier Chemical		Liquid Ammonia		7.50		4.98	%
Linyi Zhengfa Chemical		Liquid Ammonia		7.36		4.89	%
Laiwu Jinjian Chemical		Liquid Ammonia		7.14		4.74	%
Total						24.35	%
Tongfa Formaldehyde Factory		Methanol		4.99		6.20	%
Jinan Fushihongxin		Methanol		5.41		6.71	%
Linyi Yongda Formaldehyde Factory		Methanol		4.86		6.03	%
Xinhua Construction Materials		Methanol		4.31		5.36	%
Total						24.30	%

Our Competition

We are subject to intense competition. Some of our competitors have greater financial resources, larger staff, and more established market recognition in both domestic Chinese and international markets than we have.

In our industry, we compete based upon proprietary technologies, manufacturing capacity, product quality, product cost, and ability to produce a diverse range of products.

Our competitors include NPCC product manufacturers around the world and coal based chemical manufacturers in Shandong. Below is a list of the companies we view as our competitors based on the markets in which we sell our products.

NPCC Products Competitors

Name	Production Capacity	Price ($)
Guangdong Enping Jiawei Chemical Co, Ltd.	PCC: 90,000 mt/year NPCC: 10,000 mt/year	161-198 /metric ton
Shanghai Perfection Co. Ltd.	N/A	223-297 /metric ton
Shanghai Xuemei Refined Chemical Factory		371 /metric ton
Shiraishi Calcium Kaisha, Ltd.	N/A	496-620 /metric ton

Our competitors in the paper and ink industries mainly come from Japan such as Shiraishi Calcium Kaisha which sells to Chinese auto paints makers and Japanese ink makers in China.

Competitors in Coal Based Chemicals

Name	Production capacity
Hongda Chemical	30,000 metric tons synthetic ammonia
Luye Chemical	50,000 metric tons synthetic ammonia
Shuangfeng Chemical	5,000 metric tons methanol
Feida Chemical	10,000 metric tons methanol

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Regulation

In China, waste gas and water discharges in our chemical manufacturing process are regulated and must meet certain standards under China’s environmental laws and regulations. The local branch of China’s Administration of Environmental Protection samples and tests our gas and water discharge regularly. The specifications of these discharges must be consistent with the regulations for industrial waste water and gas and relevant laws and standards, including the Water Pollution Discharge Standard for the Synthetic Ammonia Industry issued by the China Administration of Environmental Protection. Our waste water and gas discharge in the NPCC manufacturing process is not regulated at the present time.

Our business is also regulated by a number of provincial authorities which license the production of chemical products such as those we manufacture. Our coal based chemical facility has been granted a Production Safety License from Shandong Bureau of Safe Production Supervision. Our other NPCC facilities are not required to obtain a Production Safety License.

The Chinese government often adopts temporary measures to achieve its short term economic goals. For example, it issued policies that encourage farmers in China to increase their production of grains in order to boost the income of millions of Chinese farmers and enhance China’s national security. To achieve that goal, it limited the price of ammonium fertilizers while at the same time provided the fertilizer industry some relief, including capping the price of raw materials, allowing preferential price for electricity, and exempting value added tax. Such policies have enabled our chemical business to enjoy a healthy margin.

Our Employees

As of December 31, 2007, we employed 1,276full-time employees with 440 in Shandong Haize Nano-materials Co., Ltd., 315 in Shaanxi Haize Nano-materials Co., Ltd. and 521 in the chemical division. Of our total employees, 9% are management personnel and 3% are sales staff members.   We believe that we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

As required by applicable Chinese law, we have entered into employment contracts with all the employees. Key employees in our NPCC division are also required to sign a confidentiality and non-compete agreement prohibiting them from disclosing our trade secrets or using them for purposes other than benefiting the company. They are also prohibited from competing with the company for five years after termination of employment with the company.

Our employees in China participate in a state pension program organized by Chinese municipal and provincial governments.  We are required to contribute to the program at the rates ranging from 4% to 15% of the average monthly salary.  In addition, we are required by Chinese law to cover employees in China with other types of social insurance. Our total contribution may amount to as much as 30% or more of the average employees’ monthly salary. We have purchased social insurance for all of our employees. Social insurance expenses were approximately $302,864 and $393,520 for fiscal year 2006 and 2007, respectively.

Item 1A. Risk Factors

Cautionary Statement Regarding Future Results, Forward-Looking Information And Certain Important Factors

In this report we make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other of our representatives. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

In addition to other matters identified or described by us from time to time in filings with the SEC, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement. Some of these important factors, but not necessarily all important factors, include the following:

Risks Related To Our NPCC Business

We may not be able to maintain our lead in NPCC technology. At present, we are the only NPCC manufacturer that supplies the tire industry in China and also the largest NPCC manufacturer in China in terms of manufacturing capacity. Our competitive edge depends heavily on the new technology employed in our NPCC manufacturing process. If a better technology than ours can be developed for manufacturing NPCC or a new product can be developed to replace NPCC, we may lose our competitive advantage and our results may be adversely impacted.

Our NPCC products have limited application.We may not be able to increase the market for our NPCC products.Presently, our existing NPCC products are used as additives for tires, polyvinyl chloride (“PVC”) building materials, paints and inks. Our products, therefore, depend heavily on a limited number of industries. Our growth potential may be limited if we cannot expand the market for our existing NPCC products or develop new products for other industries. Although we have increased our research and development to expand the range of application of our NPCC products, there is no assurance that we will succeed in our effort.

We may not be able to continue to produce high-quality NPCC products, which may negatively impact our business.Our NPCC products are in demand because of their high quality. If we fail to continue to produce high quality NPCC products, our reputation may be harmed and our business may suffer as a result.

Our NPCC business depends significantly on the tire industry. If the composition of tires changes and we fail to develop formulas that are applicable for the new composition, our NPCC business could be harmed.Currently, our NPCC business derives a significant amount of revenues from sales to tire manufacturers. Due to our modification technology, our modified NPCC products can be used in tire production to obtain desired properties since the current tire composition allows for calcium carbonate as an additive. If the composition of tires changes in the future, our modification technology may not be compatible with the change. As a result, our NPCC business could suffer.

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Risks Related to Our Coal-Based Chemical Business

Our revenues from coal-based chemical products depend heavily on government policies. If the government changes its policies, our revenues and profit from our chemical products could decrease significantly. To boost the income of millions of Chinese farmers and enhance China’s national security, the Chinese government has instituted policies that encourage farmers in China to increase their production of grains by limiting the price of ammonium fertilizers while at the same time providing the fertilizer industry some relief, including capping the price of raw materials, providing for preferential pricing for electricity and exempting value added tax. Due to the policies, our chemical business is able to realize a profitable margin. However, the Chinese government changes its policies from time to time. If the Chinese government changes the policies currently in place that compensate our loss due to the price control, our revenues and profit from our chemical business could suffer.

Our coal-based chemical manufacturing business is highly risky and hazardous. We may face environmental and safety problems.Our chemical manufacturing process produces exhaust gas and waste water which may pollute the environment. If an accident occurs in our chemical plant, toxic gas and other pollutants could leak and cause serious pollution problems. Moreover, most of our chemical products are flammable, explosive, and dangerous, and pose a threat to the health and safety of our employees and residents around our facility, and if any accident occurs during manufacturing or in transportation, there could be dire consequences.

Some of our coal-based chemical products experience a glut of supply. Our chemical business may suffer if the oversupply lasts for an extended period. Due to an overcapacity of production facilities and increase in foreign imports, the price for coal based chemicals, especially methanol and melamine, has decreased significantly in the last two years. Due to the low cost of our production process, this price decrease has not had a significant impact on our results. However if the oversupply lasts for an extended period, our chemical business may suffer.

China is tightening its environmental law and strengthening its enforcement, which could adversely affect our chemical business. With increased environmental awareness among Chinese citizens, the Chinese government is beginning to tighten environmental laws and regulations. Recently, the Chinese government has stepped up its enforcement efforts due to the occurrence of several significant environmental disasters. Our coal-based chemical plant is located very close to residential and business properties. At present time, we think it is very likely that the government will decide to relocate our coal based chemical business although we have not received any formal instruction. If the government decides to order us to cease operation or relocate, we could be asked to move and relocate in six months and our business could be significantly harmed. Although we are taking steps to identify alternatives for the replacement of volume at risk or to redeploy the business ahead of the government's action, there is no assurance that our effort will succeed.

Risks Related to Our Operations

Our business, financial condition and operating results depend on our customers’ future success with their products, which may fail to achieve the results we and our customers expect. Currently, we supply the tire industry, the PVC building materials industry, and the paints/coating/ink industry. The potential for growth and success of our NPCC business largely depend on our customers’ future success in their products. If our customers are not successful in developing their products, their demand for our NPCC products may decrease. Our business may be adversely impacted as a result.

We and our suppliers and customers are vulnerable to natural disasters which could severely disrupt the normal operation of our business and adversely affect our business, financial condition and operating results. We operate multiple facilities and source products from companies who operate facilities, which may be damaged or disrupted as a result of natural disasters such as earthquakes, floods, and heavy rains, technical disruptions such as electricity or infrastructure breakdowns, computer glitches and electronic viruses. Such events may lead to the disruption of information systems and telecommunication services for sustained periods. They also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our provision of products could adversely affect our reputation, our relationships with clients, or cause us to incur substantial additional expenditure to repair or replace damaged equipment or facilities. We may also be liable to our customers for disruption in service resulting from such damage or destruction. Furthermore, the operations of our suppliers could be subject to natural disasters and other business disruptions, which could cause shortages and price increases in various materials essential for the manufacturing of our products or result in shortage of our products. If we are unable to procure an adequate supply of raw materials that are required for us to manufacture our products, our revenue and operating results would be adversely affected.

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The sales cycle for our products is difficult to predict, which may make it difficult to plan our expenses and forecast our operating results and could have an adverse effect on our financial results and share price. If our sales cycle lengthens, our quarterly operating results may become less predictable and may fluctuate more widely than in the past. Due to the relatively large size of some orders, a delayed sale could have a material adverse effect on our quarterly revenue and operating results. If our projected revenue does not meet our expectations, we are likely to experience a shortfall in our operating profit relative to our expectations. As a result, we believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful and that you should not rely on them as an indication for future performance. It is also possible that our quarterly results of operations may be below the expectations of public market analysts and investors. If this happens, the price of our common stocks will likely decrease.

Risks Related to Our Material Supply and Product Distribution

The cost of our raw materials fluctuates significantly, which may adversely impact our profit margin and financial position. Both our NPCC and chemical businesses use coal as raw material. In the last few years, coal prices have fluctuated substantially. Although the price for coal dropped last year, it may increase in the future due to the rapid development of the Chinese economy and the resulting demand for energy. If the price for coal increases again, our profit margin could decrease considerably.

We are dependent on our suppliers for key materials such as coal and limestone. Coal and limestone are the key raw materials for our business. We use a large amount of coal and limestone in our manufacturing process. We have to purchase these raw materials from suppliers since we do not mine coal or limestone ourselves. As a result, any failure to secure and maintain the purchase and management of such key raw materials could materially and adversely affect our business, financial condition and operating results.

We receive a significant portion of our revenues from a small number of customers. Our business will be harmed if our customers reduce their orders from us. Our NPCC products are sold to only a small number of major customers mainly located in Shandong Province and northern China with large orders each year. Our major chemical product liquid ammonia is sold only to a small number of major customers with large orders located within a short distance of our facilities due to the fact that shipping any product long-distance will make it non-competitive in price. Although no customer individually accounted for more than 10% of our total revenues for the fiscal year ended December 31, 2006 in our aggregate business, our four largest customers in the tire and PVC segments accounted for 42.5% and 59.48%, respectively, of our revenues from these segments in fiscal 2006. Dependence on a few customers could make it difficult to negotiate attractive prices for our products and could expose us to the risk of substantial losses if a single dominant customer ceases purchasing. If we lose any customers and are unable to replace them with other customers that would purchase a similar amount of our products, our revenues and net income would decline considerably.

We extend relatively long payment terms for accounts receivable. If any of our customers fails to pay us, our revenues may be affected as a result. As is customary in China, we extend relatively long payment terms to our customers ranging from 45 to 90 days. As a result of the size of many of our orders, these extended terms adversely affect our cash flow and our ability to fund our operations from our operating cash flow. The failure of our customers to pay us timely would negatively affect our working capital, which could in turn adversely affect our cash flow.

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Our customers often place large orders for products, requiring fast delivery, which impacts our working capital. If our customers do not incorporate our products into their products and sell them in a timely fashion, for example, due to excess inventories, sales slowdowns or other issues, they may not pay us in a timely fashion, even on our extended terms. This failure to pay timely may defer or delay further product orders from us, which may adversely affect our cash flows, sales or income in subsequent periods.

Risks Related to Our Management and Personnel

Expansion of our business may put added pressure on our management and operational infrastructure impeding our ability to meet any increased demand for our NPCC products and possibly hurting our operating results. Our business plan is to significantly grow our operations to meet anticipated growth in demand for existing NPCC products. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. The evolution of our business also presents numerous risks and challenges, including:

· the continued acceptance of our NPCC products by the tire industry;

· our ability to successfully and rapidly expand sales to potential customers in response to potentially increasing demand;

· the costs associated with such growth, which are difficult to quantify, but could be significant;

· rapid technological change; and

· the highly competitive nature of the fine calcium carbonate industry.

If we are successful in obtaining rapid market growth of our NPCC products, we will be required to deliver large volumes of quality products to customers on a timely basis at a reasonable cost to those customers. Meeting any such increased demands will require us to expand our manufacturing facilities, to increase our ability to purchase raw materials, to increase the size of our work force, to expand our quality control capabilities and to increase the scale upon which we produce products. Such demands would require more capital and working capital than we currently have available.

We depend on key personnel for our business operations. Our future success depends substantially on the continued services of our executive officers, especially Xiangzhi Chen, our chief executive officer and chairman of our board of directors, Xukui Chen, head of chemical business, and Zhaowei Ma, head of our NPCC business. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers.

We have difficulties attracting highly-trained personnel. Our business may be harmed as a result.Our business is located in a small city where there are few institutions of higher learning. Our business, however, requires well-trained technical and engineering personnel. Experienced personnel typically tend to be concentrated in major metropolitan areas and may be unwilling to relocate to a small city. If we are not able to recruit the necessary experienced personnel, we could have a shortage of skilled workers and may not be able to cope with the rapid expansion of our business.

Risks Related to Our Technology

Our business depends on our ability to protect our intellectual property effectively. If any of our patents are not protected or any of our trade secrets are divulged, we may lose our competitive edge. The success of our business depends in substantial measure on the legal protection of the patents which we are licensed to use or we may co-own as a result of our joint development program with Tsinghua University in China and other proprietary rights in technology we hold. We hold licensed patents in China and have a patent application pending in China regarding technologies important to our business. Monitoring infringement of intellectual property rights is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our intellectual property in China where it may be difficult to enforce the law to protect our proprietary rights as compared to the laws of the United States. The validity and breadth of claims in patents and trade secrets involve complex legal and factual questions and, therefore, the extent of their enforceability and protection is highly uncertain. Issued patents or patents based on pending patent applications or any future patent applications or trade secrets may not exclude competitors or may not provide a competitive advantage to us. In addition, patents that are licensed to us or that may be issued to us may not be held valid if subsequently challenged and others may claim rights in or ownership of such patents. Furthermore, we cannot assure you that our competitors have not developed, or will not develop similar products, will not duplicate our products, or will not design around any patents issued to or licensed by us.

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We claim proprietary rights in various unpatented technologies, know-how, trade secrets and trademarks relating to products and manufacturing processes. We protect our proprietary rights in our products and operations through contractual obligations, including nondisclosure agreements. If these contractual measures fail to protect our proprietary rights, any advantage those proprietary rights provide to us would be negated. Our NPCC products are differently formulated for different applications. The formulas are maintained as trade secrets and are revealed only to a small number of technical and management personnel. The trade secrets provide us a competitive edge in the tire industry and no other NPCC manufacturers have successfully entered the tire industry. If any of the trade secrets are divulged, we could lose our competitive edge in the tire industry and others.

We may have difficulties in enforcing our intellectual property rights through litigation. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. We cannot assure you that the outcome of such potential litigation will be in our favor. Such litigation may be costly and may divert management attention as well as our other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations and financial considerations.

We may not be able to secure patent for our membrane dispersion technology for manufacturing NPCC, which may have an adverse impact on our business. Our new NPCC facility in Shaanxi employs the membrane dispersion technology which was developed jointly by us and Tsinghua University. The technology enables us to manufacture NPCC with better quality and lower costs. We have applied to China’s State Patent Office for a patent on the technology. Although our application was published for public comments in May last year, there is no assurance that we will eventually obtain the patent. If the Chinese state Patent Office denies our application because our technology is not patentable or someone challenges our application, our business may be adversely impacted.

Risks Related To Our Industry

China’s commitments to the World Trade Organization may intensify competition.In connection with its accession to the World Trade Organization, China made many commitments including opening its markets to foreign products, allowing foreign companies to conduct distribution business and reducing customs duties. As a result, foreign manufacturers may ship their NPCC products or establish manufacturing facilities in China. Competition from foreign companies may reduce profit margins and hence our business results would suffer.

Our failure to comply with ongoing governmental regulations could hurt our operations and reduce our market share.In China, the chemical industry is undergoing increasing regulations as environmental awareness increases in China. The trend is that the Chinese government toughens its regulations and penalties for violations of environmental regulations. New regulatory actions are constantly changing our industry. Although we believe we have complied with applicable government regulations, there is no assurance that we will be able to do so in the future.

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If we cannot compete successfully for market share against other NPCC product companies, we may not achieve sufficient product revenues, and our business could suffer.The market for our products is characterized by intense competition and rapid technological advances. Our products compete with a multitude of products developed, manufactured and marketed by others and we expect competition from new market entrants in the future. Existing or future competing products may provide better quality, greater utility, lower cost or other benefits from their intended uses than our products, or may offer comparable performance at lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues, and our business would suffer.

Risks Related To Doing Business In China

Changes in China’s political or economic situation could harm us and our operational results.Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some changes that could have this effect are:

· Level of government involvement in the economy;

· Control of foreign exchange;

· Methods of allocating resources;

· Balance of payments position;

· International trade restrictions; and

· International conflict.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. The economic reforms in China have been conducted under a tight control of the Chinese government. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.

Our business is largely subject to the uncertain legal environment in China and your legal protection could be limited.The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which precedents set in earlier legal cases are not generally used. The overall effect of legislation enacted over the past 20 years has been to enhance the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively recent and are evolving rapidly and their interpretation and enforcement involves uncertainties. These uncertainties could limit the legal protections available to foreign investors, such as the right of foreign invested enterprises to hold licenses and permits such as requisite business licenses. In addition, all of our executive officers and our directors are residents of China, and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.China only recently has permitted provincial and local economic autonomy and private economic activities. Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy, or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we hold in Chinese properties.

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Future inflation in China may inhibit our activity to conduct business in China.In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. During the past ten years, the rate of inflation in China has been as high as 20.7% and as low as -2.2%. These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has been more moderate since 1995, high inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.The majority of our revenues will be settled in Renminbi and U.S. Dollars, and any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi.

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

We may not be able to distribute our assets upon liquidation. Our assets are predominately located inside China. Under the laws governing foreign investment enterprises in China, dividend distribution and liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation. Any liquidation is subject to both the relevant government agency’s approval and supervision as well the foreign exchange control. This may generate additional risk for our investors in case of liquidation.

We may be treated as a resident enterprise for PRC tax purposes after the Enterprise Income Tax Law becomes effective on January 1, 2008, which may subject us to PRC income tax for any dividends we receive from our subsidiaries and PRC income tax withholding for any dividends we pay to our non-PRC shareholders. The Enterprise Income Tax Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and will generally be subject to the uniform 25.0% enterprise income tax rate as to their global income, including income we receive from our subsidiaries. The term “de facto management bodies” is not defined under the Enterprise Income Tax Law and it is currently unclear in which situations a non-PRC enterprise’s “de facto management body” is located in China. All of our management is currently based in China, and if a majority of the members of our management team continue to be located in China after the effective date of the Enterprise Income Tax Law, we may be considered a PRC resident enterprise and therefore subject to PRC enterprise income tax at the rate of 25% on our worldwide income, which will include any dividend income we receive from our subsidiaries. If we are required under the Enterprise Income Tax Law to pay income tax for any dividends we receive from our subsidiaries, our revenues could decrease significantly.

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Our subsidiaries in China are subject to restrictions on dividend payments and making other payments to us or any other affiliated company. We are primarily a holding company and do not conduct any business operations other than our holding of the equity interests in China. As a result, we rely on dividends, consulting and other fees paid to us by our subsidiaries in China. Our ability to pay dividend and meet our obligations is partially dependent upon receiving such payments from our subsidiaries in China. PRC regulations permit payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside at least 10% of their after-tax profits, if any, each year according to Chinese accounting standards and regulations to fund certain reserve funds, unless such reserve funds have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends. Furthermore, our subsidiaries are required to allocate portions of their respective after-tax profits to their enterprise expansion funds and staff welfare and bonus funds at the discretion of their boards of directors.

We have limited business insurance coverage in China, which could harm our business. We are exposed to many risks, including equipment failures, natural disasters, industrial accidents, power outages, and other business interruptions. Furthermore, if any of our products are faulty, then we may become subject to product liability claims or we may have to engage in a product recall. We do not carry business interruption insurance and as a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

Any future outbreak of severe acute respiratory syndrome or avian influenza in China, or similar adverse public health developments, may severely disrupt our business and operations. A renewed outbreak of severe acute respiratory syndrome, the Avian Flu or another widespread public health problem in China, where all of our manufacturing facilities are located and where all of our revenues are derived from, could have a negative effect on our operations. In addition, there have been confirmed human cases of avian influenza in PRC, Vietnam, Iraq, Thailand, Indonesia, Turkey, Cambodia and other countries which have proven fatal in some instances. If such an outbreak or any other similar epidemic were to spread in China, where our operations are located, it may adversely affect our business and operating results.

Such an outbreak could have an impact on our operations as a result of:

· quarantines or closures of our manufacturing facilities or the retail outlets, which would severely disrupt our operations,

· the sickness or death of our key officers and employees, and

· a general slowdown in the Chinese economy.

Risks Related To The Market For Our Stock

The trading prices of many companies that have business operations only in China have been volatile, which may result in large fluctuations in the price of our common stock and losses for investors.The stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many companies that have business operations exclusively in China. These fluctuations have often been unrelated or disproportionate to the operating performance of many of these companies. Any negative change in the public’s perception of these companies could decrease our stock price regardless of our operating results. The market price of our common stock has been and may continue to be volatile. We expect our stock price to be subject to fluctuations as a result of a variety of factors, including factors beyond our control. These factors include:

· actual or anticipated variations in our quarterly operating results;

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· announcements of technological innovations or new products or services by us or our competitors;

· announcements relating to strategic relationships or acquisitions;

· additions or terminations of coverage of our common stock by securities analysts;

· statements by securities analysts regarding us or our industry;

· conditions or trends in the our industry; and

· changes in the economic performance and/or market valuations of other NPCC and chemical companies.

The prices at which our common stock trades will affect our ability to raise capital, which may have an adverse affect on our ability to fund our operations.

Our common stock may be considered to be a “penny stock” and, as such, the market for our common stock may be further limited by certain SEC rules applicable to penny stocks. To the extent the price of our common stock remains below $5.00 per share or we have net tangible assets of $2,000,000 or less, our common shares will be subject to certain “penny stock” rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices, disclosure of the compensation to the brokerage firm, and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common shares and limit the liquidity of our securities.

We do not intend to pay cash dividends.We have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain in your investment for the foreseeable future.

We will incur increased costs as a result of changes in laws and regulations relating to corporate governance matters. As a public reporting company, we will need to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations adopted by the SEC and by The NASDAQ Capital Market, including expanded disclosures, accelerated reporting requirements and more complex accounting rules. Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and other requirements will increase our costs and require additional management resources. Additionally, these laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to respond to their requirements.

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We may not be able to achieve and maintain an effective system of internal control over financial reporting, a failure which may prevent us from accurately reporting our financial results or detecting and preventing fraud.We are subject to reporting obligations under the U.S. securities law. Beginning with our annual report on Form 10-K for the fiscal year ending December 31, 2007, we are required to prepare a management report on our internal control over financial reporting containing our management’s assessment of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over our financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective our independent registered public accounting firm may still decline to attest to the effectiveness or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems for the foreseeable future.

We may require additional capital, which may not be available on commercially reasonable terms, or at all. Capital raised through the sale of equity securities may result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. Financing may be unavailable in amounts or on terms acceptable to us, or at all. Failure to obtain such additional capital could have an adverse impact on our business strategies and growth prospects.

If our executive officers, directors and principal stockholders choose to act together, they will be able to exert significant influence over us and our significant corporate decisions and may act in a manner that advances their best interests and not necessarily those of other stockholders. Our executive officers, directors, and beneficial owners of 5% or more of our outstanding common stock and their affiliates will beneficially own approximately 44.4% of our outstanding common stock. As a result, these persons, acting together, will have the ability to influence significantly the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including investors, by, among other things:

· delaying, deferring or preventing a change in control of us;

· entrenching our management and/or our board of directors;

· impeding a merger, consolidation, takeover or other business combination involving us;

· discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us; or

· causing us to enter into transactions or agreements that are not in the best interests of all stockholders.

It may be difficult for you to enforce any judgment in the United States against our company, which may limit the remedies otherwise available to our shareholders. All of our executive officers and our directors are residents of China, and substantially all the assets of these persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons.

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Item 1B. Unresolved Staff Comments

There are no unresolved comments from the SEC.

ITEM 2. Properties

All land in China is owned by the State. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of 50 years. This period may be renewed at the expiration of the initial and any subsequent terms. Granted land use rights are transferable and may be used as security for borrowings and other obligations. We currently lease from our affiliate Shandong Shengda Technology, which has land use rights to approximately 123,936 square meters of land consisting of manufacturing facilities, employee quarters, warehouses and office buildings in Taian City, China. We also own approximately 251,285 square meters land in Xianyang, Shanxxi, consisting of manufacturing facilities, employee quarters, warehouses, kitchen and office buildings. These constitute the basis of our operations as a manufacturer of NPCC products and coal based chemicals.

In August 2006, Shandong Shengda Technology completed the construction of a new NPCC manufacturing facility with approximately 251,285 square meters in Xianyang City, Shaanxi Province, China. The designed capacity for this facility is 60,000 metric tons of NPCC in the first phase. In July 2007, we completed an additional 40,000 tons of capacity in the second phase. We are currently adding an additional 60,000 tons of capacity and expect to complete it in the second quarter of 2008.

The main equipment and machinery of our NPCC business includes ultra gravity reactors, membrane dispersion micro-mix reactors, carbonators, limestone kilns, slaking equipment, and packaging machines. The main equipment and machinery of our coal based chemical business include boilers, carbonation towers, desulphurization towers and methanol recycling towers.

We believe that all our properties and equipment have been adequately maintained, are generally in good condition, and are suitable and adequate for our business. Nevertheless, we plan to replace some of the old chemical equipment with new equipment that consumes less energy and produces less pollution. We believe the retrofitting will provide us with better efficiency. In addition, we believe that the newly completed facility and the expected additional land use rights will be sufficient for our expansion efforts.

Item 3. Legal Proceedings

There are no known pending legal proceedings to which we or our properties are subject.

Item 4. Submission Of Matters To A Vote Of Shareholders

No matters were submitted to a vote of shareholders in the last quarter.

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PART II

Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters, And Issuer Purchases Of Equity Securities

MARKET PRICE INFORMATION

Our common stock has been quoted on The NASDAQ Global Select Market under the symbol “SDTH” since January 31, 2008. This was after our common stock had been quoted on the NASDAQ Capital Market under the symbol “SDTH” since May 24, 2007. There was no public trading activity in our shares during the two fiscal years through March 31, 2006. From March 31, 2006 to May 24, 2007 there was some minimal trading activity in our shares. The following table provides the high and low sales prices for our common stock as reported for the periods indicated.

Year ending December 31, 2008	High		Low
First Quarter (as of March 14)	$	15.57	$	8.50

Year ending December 31, 2007	High		Low
First Quarter	$	6.35	$	4.00
Second Quarter	$	6.25	$	3.60
Third Quarter	$	6.95	$	3.95
Fourth Quarter	$	15.35	$	6.00

	High		Low
Year ending December 31, 2006
Second Quarter	$	6.50	$	5.00
Third Quarter	$	8.10	$	6.00
Fourth Quarter	$	7.20	$	6.00

On March 13, 2008, the last reported sale price of our common stock on The NASDAQ Global Select Market was $9.65 per share.

Shareholders

As of March 14, 2007, we had 54,202,036 outstanding shares of common stock held by approximately 8,931shareholders of record.

Dividend Policy

To date, we have neither declared nor paid any cash dividends on shares of our common stock. We presently intend to retain earnings to finance the operation and expansion of our business and do not anticipate declaring cash dividends in the foreseeable future.

Repurchases of Equity Securities

No repurchases of our common stock were made in a month within the fourth quarter of the fiscal year covered by this report.

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Item 6.   Selected Financial Data

You should read the following selected consolidated financial data in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations,” the financial statements and related notes, and the other financial information included in this report.

	Year Ended December 31,
	2005		2006			2007
Consolidated Statement of Operations Data:
Sale of products
Chemical	$	43,985,596	$	50,592,217		$	53,933,120
NPCC		14,613,733		22,007,814			46,721,673
Total sale of products		58,599,329		72,600,031			100,654,793
Cost of products sold
Chemical		31,752,100		37,924,593			39,282,251
NPCC		9,264,339		13,297,976			26,812,587
Total cost of products sold		41,016,439		51,222,569			66,094,838
Gross profit		17,582,890		21,377,462			34,559,955
Operating expenses
Selling expense		865,338		1,260,647			1,771,168
General & administrative expense		967,357		2,641,474			3,232,911
Total operating expenses		1,832,695		3,902,121			5,004,079
Income from operations		15,750,195		17,475,341			29,555,876
Non-operating (expenses) income		129,665		(89,068	)		(12,094	)
Interest income		82,611		140,375			274,203
Income before provision for income taxes		15,962,471		17,526,648			29,817,985
Provision for income taxes		—		—			2,787,640
Net Income	$	15,962,471	$	17,526,648		$	27,030,345
Basic and diluted earnings per share	$	0.25	$	0.34		$	.50
Basic weighted-average shares outstanding		64,455,210		51,900,641			54,107,408
Diluted weighted-average shares outstanding		64,455,210		52,022,801			54,188,410

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	As of December 31,
	2005		2006		2007
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	10,749,300	$	34,684,142	$	26,366,568
Trade accounts receivable		3,929,082		5,588,675		7,889,001
Advances to suppliers		262,591		872,289		19,436,544
Inventory		1,478,510		2,151,613		1,955,384
Receivable from related parties		943,308		1,601		1,712
Total current assets		21,337,652		43,455,672		55,663,171
Property and equipment, net		8,579,676		23,479,725		45,156,739
Total assets		29,957,328		67,029,351		100,943,938
Total current liabilities		5,184,740		9,900,088		11,940,753
Total shareholder's equity		24,772,588		57,129,264		89,003,185

Item 7. management’s discussion and analysis of financial condition and results of operation

 Overview

We are a leading and fast growing Chinese manufacturer of specialty additives and coal-based chemical products. Our NPCC products are used as functional additives in various products due to their special chemical and physical attributes. We use advanced processing technology to convert limestone into high quality NPCC products, which are sold to our customers in the tire, polyvinyl chloride (PVC) building materials, ink, paint, latex, adhesive, paper and polyethylene (PE) industries. We also manufacture, market and sell coal-based chemical products, namely, ammonium bicarbonate, liquid ammonia, methanol and melamine. We market and sell coal-based chemical products mainly as chemical fertilizers and raw materials for the production of organic and inorganic chemical products, including formaldehyde and pesticides.

Reorganization

We were organized as a Nevada corporation on May 11, 2001 under the name Zeolite Exploration Company for the purpose of acquiring, exploring and developing mineral properties. We conducted no material operations from the date of our organization until March 2006. On March 31, 2006, we consummated a share exchange pursuant to a Securities Purchase Agreement and Plan of Reorganization with Faith Bloom Limited, a British Virgin Islands company, and its stockholders. As a result of the share exchange, we acquired all of the issued and outstanding capital stock of Faith Bloom in exchange for a total of 50,957,603 shares of our common stock. The share exchange is accounted for as a recapitalization of Zeolite and resulted in a change in our fiscal year end from July 31 to December 31. Faith Bloom Limited is deemed to be the accounting acquiring entity in the share exchange and, accordingly, the financial information included in this prospectus reflects the operations of Faith Bloom, as if Faith Bloom had acquired us.

Faith Bloom was organized on November 15, 2005 for the purpose of acquiring from Eastern Nanomaterials Pte. Ltd., a Singapore corporation, all of the capital shares of Shandong Haize Nanomaterials Co., Ltd and Shandong Bangsheng Chemical Co., Ltd., which are Chinese corporations engaged in the manufacture, marketing and sales of a variety of NPCC products and coal -based chemicals for use in various applications. On December 31, 2005, Faith Bloom acquired all of the capital shares of Shandong Haize Nanomaterials Co., Ltd and Shandong Bangsheng Chemical Co., Ltd.

As a result of the transactions described above, Shandong Haize Nanomaterials Co., Ltd and Shandong Bangsheng Chemical Co., Ltd. are wholly-owned subsidiaries of Faith Bloom, and Faith Bloom is a wholly-owned subsidiary of Zeolite. On April 4, 2006, Faith Bloom formed a wholly-owned subsidiary in Shaanxi, China to run the new NPCC facility in Shaanxi. Effective January 3, 2007, Zeolite changed its name to ShengdaTech, Inc. Our corporate structure is depicted in the following chart:  

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Sale of Products

We derive our sale of products from two segments: NPCC and coal-based chemicals. The most significant factors that directly or indirectly affect our sale of products are as follows:

manufacturing capacity of NPCC;

breakthroughs of Research and Development and applications of NPCC;

pricing of our NPCC products;

industry demand; and

exchange rate

Manufacturing Capacity of NPCC. We increased our annual manufacturing capacity of NPCC from 30,000 metric tons as of December 31, 2003 to 90,000 metric tons as of December 31, 2006, and to 130,000 metric tons as of September 30, 2007 and to current 190,000 metric tons. Sufficient capacity secures a stable supply of NPCC for our customers.

Breakthroughs of Research and Development and applications of NPCC. In conjunction with Tsinghua University, we successfully completed the development of the membrane-dispersion technology for NPCC production, which was officially granted a patent in November 2007. With the membrane-dispersion patent and the continuing efforts of our Research and Development department in developing new NPCC products for applications in different industries, we believe that we maintain a leading position in technology for the NPCC market in China.

Pricing of our NPCC products. The pricing of our NPCC products is generally determined by manufacturing costs, overall market demand, competition and, increasingly, costs associated with technology. In addition, the pricing of some of our NPCC products depends on the amount of cost saving that a particular industry or customer can achieve. For example, with respect to tire and PVC building materials, the pricing of NPCC products is principally affected by the cost saving benefit our customers realize by replacing some of the relatively expensive carbon black and silicon dioxide with less expensive NPCC. With respect to paper, the pricing of NPCC is principally affected by comparable imports. In the next few years, we may reduce the selling price in order to compete with relatively small competitors.

Industry demand. Our business and revenue growth depend on the industry demand of NPCC. The downstream industries we supply are the tire, PVC and PE building materials, paper, rubber, paints and oil ink industries. Given the diverse application of our NPCC products and the development of our Research and Development pipeline to cater to new end markets, we believe that our business has potential for continued growth.

Exchange rate. Our revenue has been affected by the foreign exchange rate between USD and RMB because the functional currency of our operating subsidiaries in the PRC is RMB while our financial statements have been expressed in USD. The accompanying consolidated statements of income and comprehensive income have been translated using the average exchange rates prevailing during the periods of each statement.

Revenues from our coal-based chemical business are derived from sale of ammonia-based chemicals, namely, ammonium bicarbonate, liquid ammonia, methanol and melamine, to local farmers and chemical plants located in Shandong and other surrounding provinces. Our coal-based chemical business has remained relatively stable for the past few years. Our chemical factory is located in a residential district and at the present time, we understand that the future zoning of this area will be for residential purpose. We believe that it is very likely that the government will decide to relocate our coal-based chemical business, although we have not received any formal notice from the government or other regulatory authorities requiring us to relocate. If the government decides to order us to relocate, we could be required to move and relocate within several months of receiving a notice. We are taking steps to identify alternatives to redeploy the business ahead of the government’s action which include either (i) an acquisition of a chemical plant or (ii) a strategic location in one of the industrial parks near our current coal-based chemical plant. We would expect that either of these options will accommodate the existing coal-based chemical production capacity although the move to a new facility will require approximately two months which will impact our coal based chemical business. We also believe that the local government of the Tai'an City, where our coal-based chemical plant is currently located, will offer us some financial assistance or compensation if and when they require us to relocate the plant.

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Our ammonia-based chemicals supply local farmers and chemical plants located in Shandong and other surrounding provinces. We have a good relationship with our customers and our products have a good reputation in their markets. We believe the demand for our coal-based chemicals will remain stable in the next few years, but our chemical factory is located in the residential district. With the increase of Chinese citizens’ environmental awareness, the Chinese government has strengthened its laws and regulations on environment-protection. In addition, recently a series of significant environment disasters have called for better enforcement of such laws and regulations. As our chemical factory is located in a residential and commercial area, we believe, under such political climate, it is likely that the government will ask us to relocate our chemical business, although we have not received any formal notice. The Company is taking active steps to mitigate the risk by either redeploying its business before the government’s action or identifying replacements for acquisitions.

Our coal-based chemical business generally experiences a seasonal peak between March and November of each year, when our ammonium bicarbonate is in high demand due to the farming season in northern China. For example, our revenue from coal-based chemical segment during this period of time during 2007 accounted for 78% of the total coal-based chemical production revenue for the year ended December 31, 2007. December to February is typically the low season for our coal-based chemicals business, during which the price of our ammonium bicarbonate may drop approximately 6 to 8%.

Cost of Products Sold

Cost of products sold for both NPCC and coal-based chemicals consists primarily of (a) consumption of raw materials and auxiliary raw materials (b) use of water and electricity (c) machinery’s depreciation and (d) workers’ salaries.

The most significant factors that directly or indirectly affect our cost of revenues are as follows:

processing technologies for NPCC;

supply and price of limestone;

availability and price of coal;

supply and price of electricity; and foreign exchange rates

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Process technologies for NPCC. The advancement of NPCC processing technologies is crucial in order to deliver value to our clients. In conjunction with Tsinghua University, we successfully completed the development of a more advanced membrane-dispersion technology, which was officially granted a patent in November 2007. We and Tsinghua University each have a 50% ownership share of the technology; we have the exclusive (100%) right to use the technology. The new membrane-dispersion technology will enable us to produce NPCC in a more efficient and cost effective way.

Supply and price of limestone. Limestone is an important raw material for NPCC. Our Shaanxi facility is in proximity to a high quality limestone quarry, which enables us to minimize transportation cost of limestone. We maintain a strong relationship with our mining contractor which conducts extracting activities for us.

Availability and price of coal. Coal is the key raw material used to produce our coal-based chemicals and is also used in the production of our NPCC products as a key fuel for the calcination of limestone. We have long-term relationships with our coal suppliers. We have also developed a network of alternative suppliers for backup purposes. Coal prices have fluctuated in the past few years. The average price of coal was approximately $70 per metric ton in 2004 and increased to approximately $80 per metric ton in 2005 and $90 in 2006. In 2007, it was approximately $98 per metric ton.

Supply and price of electricity. Electricity from the grid is the primary power source for the production of NPCC and coal-based chemicals, and, it is currently supplied by the local government. In the past few years, as the government supports supplies to the farming industry, for our coal-based chemicals, we have enjoyed a price discount on electricity of up to a 50% of the price of electricity for industrial users. From the second half of 2006, as demand for coal-based chemical products increased, the Chinese government increased the price of electricity for the coal-based chemical industry from $0.044/kwh to $0.486/kwh, while the price of electricity for the NPCC industry remained unchanged.

Exchange rate. Our cost of revenue has been affected by the foreign exchange rate between USD and RMB because the functional currency of our operating subsidiaries in the PRC is RMB while our financial statements have been expressed in USD. The accompanying consolidated statements of income and comprehensive income have been translated using the average exchange rates prevailing during the periods of each statement.

Gross Profit

Our gross profit has been, and will be, affected by many factors, including (a) the demand for our products, (b) the average selling price of our products, which in turn depends in part on the mix of products sold, (c) new product introductions, and (d) the volume and costs of manufacturing of our products.

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Operating Expenses

Operating expenses consist of sales and marketing and general and administrative expenses. Sales and marketing expense consists primarily of (a) salaries of sales personnel, (b) sales commissions, (c) travel, lodging and other out-of-pocket expenses, and (d) other related overhead. We expect our sales and marketing expenses to increase in the future as we further increase our sales. In the second quarter of 2007, we lowered the commissions to sales staff from 5% to 3%, as the volume of sales of our NPCC business increased. As a result, we plan to employ more sales staff and pay more commission based on growing sales.

General and administrative expense consists primarily of (a) salaries of administrative and R& D personnel, (b) labor union fees, (c) insurance fees, (d) lease payments for housing and property, (e) expenses related to being a public company and (f) other related overhead. We expect general and administrative expense to continue to increase. Being a publicly traded company, we will incur additional expenses related to costs of compliance with securities and other regulations, including increased audit and legal fees and investor relations expenses.

Critical Accounting Policies and Estimates

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in detail in Note 2 to our condensed consolidated financial statements included elsewhere in this offering memorandum. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements

Basis of Presentation and Translating Financial Statements - The consolidated financial statements included elsewhere in this offering memorandum have been prepared in accordance with accounting principles generally accepted in the United States of America. The functional currency of the operating subsidiaries in the PRC is the Chinese Yuan Renminbi (RMB); however, the accompanying financial statements have been expressed in United States Dollars (USD). The accompanying consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The accompanying consolidated statements of income and comprehensive income have been translated using the average exchange rates prevailing during the periods of each statement.

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

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Revenue Recognition - We recognize revenues from the sale of products when they are realized and earned. We consider revenue realized or realizable and earned when (1) it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the sales price is fixed or determinable, and (4) collectibility is reasonably assured. Revenues are not recognized until products have been shipped to the client, risk of loss has transferred to the client and client acceptance has been obtained, client acceptance provisions have lapsed, or we have objective evidence that the criteria specified in client acceptance provisions have been satisfied. We sell all products to end-users and recognize revenues when the products are shipped. We have no post-delivery obligations on our products sold.

Fair Values of Financial Instruments - The carrying amounts reported in the consolidated balance sheets for trade accounts receivable, other non-trade receivables, advances to suppliers, receivables from related parties, trade accounts payable, other payables and accrued expenses, advances from customers, and payable to related parties approximate fair value because of the immediate or short-term maturity of these financial instruments.

Valuation of Long-lived Assets - The carrying values of our long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that they may not be recoverable. When such an event occurs, we project the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset. If projections were to indicate that the carrying value of the long-lived asset will not be recovered, the carrying value of the long-lived asset is reduced by the estimated excess of the carrying value over the projected discounted cash flows.

Advances to Suppliers - As is the common practice in the PRC, we will often pay advance payments to suppliers for materials. Advances to suppliers were $2,249,867 and $872,289 as of December 31, 2007 and 2006, respectively. Advances to suppliers as of December 31, 2007 was restated by $17,186,677 and reclassified as property and equipment. As a result of the Company historically having no write-offs and all advances to suppliers being current, there was no bad debt allowance recorded against these advances as of December 31, 2007 and 2006, respectively.

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Credit Risk - Financial instruments that potentially subject us to significant concentrations of credit risk primarily consist of cash and cash equivalents, trade accounts receivable and other non-trade receivables included in the consolidated balance sheets.

We have cash in bank deposits and money market funds primarily in the PRC. Historically, deposits in Chinese banks have been secure due to the state policy on protecting depositors’ interests. China promulgated a new Bankruptcy Law in August 2006, which came into effect on June 1, 2007, which contains provisions for the implementation of measures for the bankruptcy of Chinese banks. In the event that bankruptcy laws are enacted for banks in the PRC, our deposits may be at a higher risk of loss.

The carrying amounts of trade accounts receivable and other non-trade receivables included in the consolidated balance sheets represent our exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. We perform ongoing credit evaluations of each customer’s financial condition.

Recently Enacted Accounting Standards - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS No. 157 to have a material impact on our consolidated financial statements.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 159 to have a material impact on our consolidated financial statements.

In June 2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities”, (“EITF 07-3”) which is effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires that nonrefundable advance payments for future research and development activities be deferred and capitalized. Such amounts will be recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is not expected to have a material impact on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company has not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS No. 141(R) or SFAS No. 160. SFAS No. 141(R) and SFAS No. 160 are not expected to have a material impact on our results of operations or financial position.

Results of Operations

Comparison for the Years ended December 31, 2006 and 2007

Sale of Products

	For the Year Ended December 31,
	2006				2007				Period to Period Change
	Amount ($)		% of Total Revenue		Amount ($)		% of Total Revenue		Amount ($)		%
Sale of products
Chemical		50,592,217		69.69		53,933,120		53.58		3,340,903		6.60
NPCC		22,007,814		30.31		46,721,673		46.42		24,713,859		112.30
Total sale of products		72,600,031		100.00		100,654,793		100.00		28,054,762		38.64

The sale of products of our coal-based chemical business increased by $3,340,903 or 6.60% for the year ended December 31, 2007 compared to the prior year. The increase was mainly due to (i) additional $5,204,542 from an increase in sales of liquid ammonia and melamine by 12,802 tons and 625 tons, respectively, and an increase in average sales price per ton of $12.77 and $49.51, respectively, which was offset by $1,772,508 from the decrease in sales of ammonium carbonate by 49,625 tons; (ii) a decrease of $74,558 from the sale of surplus heat from our production process to the heat supply department of the local government. The increase of sales for some coal-based chemical products and the decrease of sales for other coal-based chemical products were caused by the adjustment of our product mix due to market conditions. For example, from December to February, the demand for our ammonium bicarbonate may be weaker than during other periods while the demand for methanol might be stronger than during other periods.

The increase of total revenue from our NPCC business (nano material) was $24,713,859 or 112.30% for the year ended December 31, 2007 compared to the prior year. The increase was mainly due to (i) $22,579,161 additional revenue from an increase in sales of 65,845 tons as a result of our capacity expansion (ii) additional $2,134,698 due to the change in the exchange rate between RMB and USD as the appreciation of RMB to USD increased the translated revenue in USD.

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Cost of Products Sold and Gross Profit 

	For the Year Ended December 31,
	2006				2007				Period to Period Change
	Amount ($)		% of Segment Revenue		Amount ($)		% of Segment Revenue		Amount ($)		(%)
Cost of products sold
Chemical		37,924,593		74.96		39,282,251		72.84		1,357,658		3.58
NPCC		13,297,976		60.42		26,812,587		57.39		13,514,611		101.63
Total Cost of Revenue		51,222,569		70.55		66,094,838		65.66		14,872,269		29.03
Gross Profit
Chemical		12,667,624		25.04		14,650,869		27.16		1,983,245		15.66
NPCC		8,709,838		39.58		19,909,086		42.61		11,199,248		128.58
Total Gross Profit		21,377,462		29.45		34, 559,955		34.34		13,182,493		61.67

The cost of products sold for our coal-based chemical business increased by $1,357,658 or 3.58% for the year ended December 31, 2007 compared to the prior year. The increase was mainly due to reduction of $1,006,450 from a sales volume decrease of methanol and ammonium bicarbonate as a result of products mix adjustments; and an increase of $2,568,195 due from a sales volume increase of liquid ammonia of 12,802 tons.

The cost of products sold of our NPCC business increased by $13,514,611 or 101.63% for the year ended December 31, 2007 compared to the prior year. This was mainly due to additional $13,985,596 because of increased production volume as a result of NPCC capacity expansion in Shaanxi.

Our gross margin of NPCC increased from 39.58% to 42.61%. This was mainly due to the gross profit margin increase of $11,199,248 or 128.58% because of the introduction of new technology and the expansion of capacity with lower cost of raw materials at our new factory in Shaanxi.

Operating Expenses

	For the Year Ended December 31,
	2006				2007				Period to Period Change
	Amount ($)		% of Total Revenue		Amount ($)		% of Total Revenue		Amount ($)		(%)
Operating Expenses
Selling Expense		1,260,647		1.74		1,771,168		1.76		510,521		40.50
General and Administration Expense		2,641,474		3.64		3,232,911		3.21		591,437		22.39
Total Operating Expenses		3,902,121		5.38		5,004,079		4.97		1,101,958		28.24

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Selling expenses increased by $510,521or 40.50% for the year ended December 31, 2007 compared to the prior year. The main reasons were sales commission increased $451,950 as a result of the increase of sales; and increased salary and insurance expense of $57.841.

The general and administrative expenses increased by $591,437 or 22.39% for the year ended December 31, 2007 compared to the prior year. The main reasons were: (i) an increase of $630,939 in expenses related to consulting fees for compliance with Sarbanes-Oxley Regulations (SOX 404) and other consulting fees; (ii) an increase of $138,201 in Research and Development Center depreciation; and (iii) an increase of $26,547 in salary as a result of staff increase; which were offset by a decrease of $265,535 in technology testing and Research and Development fee as well as office, business and entertainment fee. The decrease of technology testing and Research and Development fee was due primarily to that our Shaanxi NPCC facility employs the membrane-dispersion technology co-owned by us the Tsinghua University and ceased to pay ultra gravity technology license fees to the licensor.

Income from Operations and Other Income 

	For the Year Ended December 31,
	2006						2007						Period to Period Change
	Amount ($)			% of Total Revenue			Amount ($)			% of Total Revenue			Amount ($)		(%)
Income from Operations		17,475,341			24.07			29,555,876			29.36			12,080,535		69.13
Interest Income		140,375			0.19			274,203			0.27			133,828		95.34
Non-operating Expense		(89,068	)		(0.12	)		(12,094	)		(0.01	)		76,974		(86.42	)
Income Before Income Taxes		17,526,648			24.14			29,817,985			29.62			12,291,337		70.13

Operating income increased by $12,080,535 or 69.13% for the year ended December 31, 2007 compared to the prior year. This was mainly due to the increased revenues of $28,054,762 which was offset by an increase of cost of revenue of $14,872,269 and an increase in operating expenses of $1,101,958.

Interest income for the year ended December 31, 2007 increased by $133,828 or 95.34%. This increase resulted from more cash being on deposit at our banks.

Non-operating expenses for the year ended December 31, 2007 decreased by $76,974, mainly because of less finance fees paid to banks and no loss from disposition of damaged and outdated equipment being incurred in 2007.

Comparison for the Years ended December 31, 2005 and 2006

Sale of Products 

	For the Year Ended December 31,
	2005				2006				Period to Period Change
	Amount ($)		% of Total Revenue		Amount ($)		% of Total Revenue		Amount ($)		%
Sale of products
Chemical		43,985,596		75.06		50,592,217		69.69		6,606,621		15.02
Nano		14,613,733		24.94		22,007,814		30.31		7,394,081		50.60
Total Sale of products		58,599,329		100.00		72,600,031		100.00		14,000,702		23.89

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Total Sale of products

The total sale of products of our coal-based chemical business increased by $6,606,621 or 15.02% in 2006 compared to the prior year. The increase was mainly due to : (i) additional revenue of $1,283,214 from increased sales of methanol of 2,782 tons and the increased sale price of $13.56 per ton; (ii) $3,586,746 from increased sales of liquid ammonia of 14,233 tons and the increase sale price of $4.08 per ton; and (iii) $4,074,239 from the increased sales of melamine by 4,169 tons and the increased sale price of $24.36 per ton, respectively, which is offset by the decreased sales of ammonium bicarbonate of 10,242 tons and the decreased price of $5.36 per ton resulting in decreased revenue of $2,196,576. The difference in sales was caused by the adjustment of our product mix due to market conditions.

The increase of total sale of products from our NPCC business was $7,394,081 or 50.60% in 2006 compared to the prior year. The increase was mainly due to additional revenue of $7,398,551 from increased sales of 18,626 tons of NPCC, which was primarily a result of our capacity expansion in Shaanxi, which was offset by the decreased average price of $0.24 per ton which resulted in a decrease of $4,470. The decreased price of these products resulted from the company’s decision to partially pass thru to customers’ savings in manufacturing costs from the combination of the introduction of new technology and lower cost of raw material in our new factory.

Cost of Products Sold and Gross Profit 

	For the Year Ended December 31,
	2005				2006				Period to Period Change
	Amount($)		% of Segment Revenue		Amount($)		% of Segment Revenue		Amount ($)		%
Cost of Products Sold
Chemical		31,752,100		72.19		37,924,593		74.96		6,172,493		19.44
NPCC		9,264,339		63.39		13,297,976		60.42		4,033,637		43.54
Total Cost of Products Sold		41,016,439		69.99		51,222,569		70.55		10,206,130		24.88
Gross Profit
Chemical		12,233,496		27.81		12,667,624		25.04		434,128		3.55
NPCC		5,349,394		36.61		8,709,838		39.58		3,360,444		62.82
Total Gross Profit		17,582,890		30.01		21,377,462		29.45		3,794,572		21.58

The cost of products sold of our chemical business increased by $6,172,493 or 19.44% in 2006 compared to the prior year. The increase was mainly due to: the adjustment of product mix resulting in an increase in cost of revenue of $3,062,669 and an increase in sales of melamine of 4,169 tons which resulted in an increase of $3,111,177. Included in these increases are an increase in the unit cost of coal, by $1.90 per ton, which resulted in an increase in the amount of $1,176,057, and the increase in electricity cost of $0.004 per kwh, which resulted in an increase in the amount of $967,391.

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The gross margin of our coal-based chemical business declined from 27.81% to 25.04% and gross profit increased by $434,128 or 3.55%.

The cost of products sold of our NPCC business increased by $4,033,637 or 43.54% in 2006 compared to the prior year. This was mainly due to: (i) the cost of products sold increased by $3,929,430 from capacity expansion; (ii) the remaining increase was primarily due to the increase in the price of electricity and raw material.

Our gross margin of our NPCC business increased from 36.61% to 39.58%. This was mainly due to the unit cost of our products decreasing as a result of the introduction of new technology and the expanding of capacity and lower cost of raw materials at our new factory. As a result, the gross profit increased by $3,360,444 or 62.82% compared to the prior year.

Operating Expenses 

	For the Year Ended December 31,
	2005				2006				Period to Period Change
	Amount($)		% of Total  Revenue		Amount($)		% of Total Revenue		Amount($)		%
Operating Expenses
Selling Expense		865,338		1.48		1,260,647		1.74		395,309		45.68
General and Administrative Expense		967,357		1.65		2,641,474		3.64		1,674,117		173.06
Total Operating Expenses		1,832,695		3.13		3,902,121		5.38		2,069,426		112.92

Selling expenses in 2006 increased by $395,309 or 45.68% compared to the prior year, primarily caused by an increase in sales commissions of $402,389, which is off set by the decrease of employees’ salary and social insurance expenses of $7,080.

The general and administrative expenses increased by $1,674,117 or 173.06% in 2006 compared to the prior year. The main reasons were: (i) the $236,795 increase as Research and Development fee; (ii) salary of the employees increased by $90,304 due to the expansion of the production capacity; (iii) expenses of $1,049,982 from being a public company; and (iv) value of warrant granted as the service compensation was $153,619; (v) social insurance expenses increase of $63,778 from increase of employee numbers and other expenses increase of $79,639, such as office expenses and entertainment expenses.

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Income from Operations and Other Income 

	For the Year Ended December 31,
	2005				2006						Period to Period Change
	Amount($)		% of Total Revenue		Amount($)			% of Total Revenue			Amount($)			%
Income from Operations		15,750,195		26.88		17,475,341			24.07			1,725,146			10.95
Interest Income		82,611		0.14		140,375			0.19			57,764			69.92
Non-Operating
(Expenses) Income		129,665		0.22		(89,068	)		(0.12	)		(218,733	)		(168.69	)
Income Before Income Taxes		15,962,471		27.24		17,526,648			24.14			1,564,177			9.80

Income from operations increased by $1,725,146 or 10.95% in 2006 compared to the prior year. This was mainly due to increased revenues of $14,000,702 which was offset by an increase of cost of revenue in the amount of $10,206,130 and an increase in operating expenses in the amount of $2,069,426.

Interest income in 2006 increased by $57,764 or 69.92%. Such increase was due to the fact that more cash was on deposit at our banks.

In 2006, there was $197,635 of income from the sale of surplus heat from our production process to the heat supply department of the local government which was included in revenue in 2006 and recorded in the other income in 2005.

Non-operating expenses totaled $89,068 in 2006 and primarily consisted of exchange loss in the amount of $72,909 and an additional expenditure for the disposition of damaged and outdated equipment in the amount of $16,159.

Liquidity and Capital Resources

	As of and for the Years ended December 31,
	2006			2007
	Amount ($)
Cash and Cash Equivalents		34,684,142			26,366,568
Trade Accounts Receivable		5,588,676			7,889,001
Working Capital		33,555,584			26,535,741
Cash Provided by Operating Activities		21,663,512			30,946,867
Cash Used in Investing Activities		(15,457,918	)		(38,602,911	)
Cash Provided by (used in) Financing Activities		16,880,395			(2,623,555

We believe, based on our current cash levels as well as the operating cash flows expected in 2008, that we will have sufficient funds to finance our current operations for at least the next 12 months. However, we have also planned additional capital expenditures in the next 12 months for potential acquisitions and new projects. We anticipate that these expenditures will be funded from working capital and financing activities. Our Board of Directors is in the process of completing the 2008 capital budget and the capital expenditures are subject to change. There is no assurance that we will be able to obtain the necessary funds for such capital expenditures.

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Cash and cash equivalents.Our cash and cash equivalents were held for working capital purposes. We did not enter into investments for trading or speculative purposes.

Trade accounts receivable.Our trade accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. The fluctuations vary depending on the timing of our shipping and billing activity and cash collections. Accounts receivables turnover in days were 24 days in 2007, 2006 and 2005. We established credit policy of 90 days in 2007 to qualified NPCC customers and, for coal-based chemicals, our customers made the payments either upon delivery or via wire transfer within 20 days. As of December 31, 2007, there was no overdue receivable.

Working capital. Our working capital balance fluctuates from period to period, which is affected by our cash flow from operating activities. Working capital increased significantly over 2005 to 2006; there was a decrease of the working capital balance over 2006 to 2007 due to the rapid expansion of our business.

Cash flows from operating activities. Cash provided by operating activities primarily consists of net income (loss) adjusted for certain non-cash items including depreciation and amortization, impairment of property and plant and the effect of changes in working capital and other activities. Cash provided by operating activities for the year ended December 31, 2007 was $30,946,847, consisting of $27,030,345 of net income, $2,128,980 of depreciation and amortization, $1,845 from disposal of fixed assets, $(2,276,183) from increase of receivables, $330,614 from decrease of inventories, and $3,371,266 from increase of payables.

Cash provided by operating activities for the year ended December 31, 2006 was $21,663,512 and consisted of $17,526,648 of net income and $1,031,387 of depreciation, $16,377 from disposal of fixed assets, $153,619 from warrants payment, $1,815,785 from decrease of receivables; $(611,842) from increase of inventories; and $1,731,538 from increase of payables.

Cash provided by operating activities for the year ended December 31, 2005 was $17,293,288 and consisted of $15,962,471 of net income, $1,009,577 of depreciation and $69,249 of amortization,$(329,974) from increase of receivables; $(179,322) from increase of inventories; and $761,287 from increase of payables.

Cash flows from investing activities. Net cash used in investing activities ended December 31, 2007 was $38,602,911 of which $120,083 was for purchasing of land use right, $19,090,018 for purchasing of new equipment, and $19,392,810 for construction in our Shaanxi Province Plant NPCC capacity expansion.

Net cash used in investing activities ended December 31, 2006 was $15,457,918, of which $15,365,898 was for the new equipment purchase and $92,020 for construction in our Shaanxi Province Plant NPCC capacity expansion.

Net cash used in investing activities ended December 31, 2005 was $2,517,152, mainly for new machinery and equipment purchased for our chemical Plant.

Cash flows from financing activities. Net cash used in financing activities ended December 31, 2007 was $2,623,555, consisting of $207,651 in payments to ex-stockholders for our restructuring (there will be no such payment in the future), and $2,415,904 in payments to related parties described in the notes to the consolidated financial statements included elsewhere in this offering memorandum.

Net cash provided by financing activities ended December 31, 2006 was $16,880,395, consisting of an increase of $13,969,714 from a private offering, an increase of $3,882,177 from a loan offered by related parties, and a decrease of $971,496 for payment to ex-stockholders for the restructure.

Net cash used in financing activities ended December 31, 2005 was $14,574,841; consisting of $7,822,477 payment to ex-shareholders for restructuring purpose, $1,570,946 loan to related parties, and $5,181,418 in payments of principal and interest for short term loan.

Contractual Obligations And Contingent Liabilities

	As of December 31, 2007		Less than one Year		1-3 Years		3-5 Years		More than 5 Years
Capital Lease for Equipments, Building and Lands Obligations	$	—	$	—	$		$	—	$	—
Trade Account Payable		5,296,530		5,296,530		—		—		—
Other Payable		3,276,473		3,276,473		—		—		—
Income and Other Taxes Payable		2,303,402		2,303,402		—		—		—
Payable to Related Parties		1,064,348		1,064,348		—		—		—
Total	$	11,940,753	$	11,940,753	$	—	$	—	$	—

Off-Balance Sheet Arrangements

We do not have into any off-balance sheet arrangements.

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Recently Issued Accounting Standards

Recently Enacted Accounting Standards - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS No. 157 to have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 159 to have a material impact on our consolidated financial statements.

In June 2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities”, (“EITF 07-3”) which is effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires that nonrefundable advance payments for future research and development activities be deferred and capitalized. Such amounts will be recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is not expected to have a material impact on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company has not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS No. 141(R) or SFAS No. 160. SFAS No. 141(R) and SFAS No. 160 are not expected to have a material impact on our results of operations or financial position.

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Item 7A. Quantitative And Qualitative Disclosures About Market Risk

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. Our cash and cash equivalents are held for working capital purposes and consist primarily of bank deposits. We do not enter into investments for trading or speculative purposes.

Interest Rate Risk

We currently do not have any long-term debt. Our exposure to interest rate risk primarily relates to the interest income generated by excess cash invested in demand deposits. We have not used derivative financial instruments in our investment portfolio in order to reduce interest rate risk. Interest earning instruments carry a degree of interest rate risk and our future interest income may change, depending on market interest rate movement.

Foreign Currency Risk

Our business is operated in the PRC, and its value is effectively denominated in Renminbi. The fluctuation of foreign exchange rate between U.S. dollars and Renminbi could affect the value of our common stock. Our revenues and expenses are primarily denominated in Renminbi, and so our exposure to foreign exchange risks should generally be limited. We do not have material monetary assets and liabilities denominated in U.S. dollars, although to the extent that we do in the future, the fluctuation of foreign exchange rate would affect the value of these monetary assets and liabilities denominated in U.S. dollars. Generally, appreciation of Renminbi against U.S. dollars will devaluate the assets and liabilities denominated in U.S. dollar, while devaluation of Renminbi again U.S. dollars will appreciate the assets and liabilities denominated in U.S. dollar. In China, very limited hedging transactions are available to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure at all.

Item 8. Financial Statements And Supplementary Data

Our consolidated financial statements and related notes are contained on pages F-1 to F-24 of this report.

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Item 9.  Changes In and Disagreements With Accountants On Accounting and Financial Disclosure 

Not applicable.

Item 9a. Controls And Procedures 

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

(a)Management’s annual report on internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

· Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company,

· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors of the Company, and

· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

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

Management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2007. The objective of this assessment was to determine whether the Company's internal control over financial reporting was effective as of December 31, 2007. Based on that assessment the Company believes that, at December 31, 2007, its internal control over financial reporting was effective.

(b)Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred in the fourth quarter of 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(c)Hansen Barnett Maxwell, P.C., the registered public accounting firm that audited the financial statements included in our annual report on this Form 10-K containing the disclosure required by Item 308 of Regulation S-K has issued an attestation report on management’s assessment of the registrant’s internal control over financial reporting which is included in the “Exhibits and Financial Statements” of this Form 10-K.

Item 9b. Other Information

None.

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FART III

Item 10. Directors, Executive Officers and Corporate Governance

We have provided below certain information about our executive officers and directors. Our directors serve for a term of one year or until their successors are duly elected and qualify. Our executive officers serve at the pleasure of our board of directors and have no fixed term of office.

Name	Age	Position
Xiangzhi Chen	46	President, Chief Executive Officer and Director
Anhui Guo	38	Director and Chief Financial Officer
Dongquan Zhang	67	Director
A.Carl Mudd	64	Director
Sheldon Saidman	65	Director
Xueyi Zhang	36	Vice President
Xukui Chen	35	President of Shandong Bangsheng Chemical Co., Ltd.
Zhaowei Ma	43	President of Shandong Haize Nano-Materials Co., Ltd
Yong Zhao	35	President of Shaanxi Haize Nano-Materials Co., Ltd.
Xiqing Xu	49	Vice President, Technology

Mr. Xiangzhi Chen has served as our chief executive officer, president and director since March 31, 2006. Mr. Chen is the founder of Faith Bloom and its subsidiaries and has served as their chairman and chief executive officer since the subsidiaries’ formation in 2001. He has served as president of Shandong Shengda Technology Co., Ltd since January 2003. He was president of Shandong Shengda Construction Co., Ltd from January 1997 to January 2003.

Ms. Anhui Guo has served as our chief financial officer, vice president and treasurer since March 31, 2006 and as director since February 23, 2007. Ms. Guo has served as chief financial officer of Faith Bloom and its subsidiaries since 2001. Ms Guo was manager of finance of Shandong Shengda Construction Co., Ltd. from January 2001 to January 2003. She has served as manager of finance of Shandong Shengda Technology Co., Ltd. since January 2003. Ms. Guo was licensed as an accountant in 1996.

Mr. Dongquan Zhang has served as our director since February 23, 2007. Mr. Zhang has extensive experience in the chemical industry especially in research and development and regulatory areas. Currently he is a member of the board of directors of All China Association of Petro-Chemical Industry, vice president of Shandong Chemistry and Chemical Engineering Association, and vice president of Shandong Environmental Industry Association, and president of Shandong Chemical Industrial Pollution Prevention Association. From February 1994 to December 2000, he served as director general and senior engineer of the Petro-Chemical Industry of Shandong Province.

Mr. A. Carl Mudd has served as our director since February 23, 2007. Mr. Mudd has extensive management experience especially in the financial area. He has spent the past 14 years consulting with and mentoring CEOs and Boards of Directors of major companies on global strategy, business processes and international operations and 27 years as CFO, COO and President of international companies. From 2003 to 2006, he was an advisory director at CIMIC Holdings, Ltd. From 1993 to 1996, he served as director and chairman of the Audit Committee at AM International, Inc. Mr. Mudd also serves as an independent director and chairman of the Audit Committee for Sutor Technologies Group, LTD (SUTR) a NASDAQ listed company. He is a Certified Public Accountant and holds a business degree from St. Edward's University.

-44-

Mr. Sheldon Saidman has served as our director since February 23, 2007. Mr. Saidman has extensive senior executive experience, especially in marketing and general management. He has held positions as President or Chief Operating Officer in several companies, both pubic and private. From May 2001 to October 2005, he served as President of Liberty Wire & Cable, Inc. He currently has his own business management consulting business and serves on two other boards of directors. He holds a bachelor’s degree in journalism and public relations from The University of Maryland.

Mr. Xueyi Zhang has served as vice president since March 31, 2006. Mr. Zhang has served as vice president of Shandong Shengda Technology since January 2003. He also served as vice president of Shandong Shengda Construction Co., Ltd from January 2001 to January 2003.

Mr. Xukui Chen has served as president Shandong Bangsheng Chemical Co., Ltd. since October 2006. Mr. Chen is responsible for the management of our chemical business. From October 2005 to October 2006, he served as director of research and development of Shandong Shengda Chemicals Co., Ltd. He was president of Shandong Haize Nano-Materials Co. from October 2004 to October 2004. From October 2003 to September 2004, he was president of the alcohol division of Shengda Group Co., Ltd. He served as vice president of the alcohol division of Shengda Group Co., Ltd. from September 2000 to September 2003.

Mr. Zhaowei Ma has been our president of Shandong Haize Nano-Materials Co., Ltd. since August 2005. Mr. Ma is responsible for the overall management of our nano-materials business. From January 2001 to August 2005, he served as director of sales of Shandong Shengda Nanomaterials Co., Ltd.

Mr. Yong Zhao has been our president of Shaanxi Haize Nano-Materials Co., Ltd since October 2006 and responsible for the overall management of our nano-materials business in Shannxi. From August 2002 to October 2006, he was the vice general manager of Shandong Haize Nano-Materials Co., Ltd.

Mr. Xiqing Xu has been Vice President, Technology since March 2007. Mr. Xu is responsible for the management of the Research and Development Center. From 2004 to October 2006, he was the general manager of Shandong Bangsheng Chemical Co. Ltd. From 2002 to June 2004, he was the general manager of Shandong Haize Nano-Materials Co. Ltd.

Board Composition and Committees

Our Board has five (5) members, of which three (3) are independent directors. We have an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The Audit Committee has been established as a separately-designated standing committee in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit Committee has at least one member, Mr. Carl Mudd, who meets the definition of an “audit committee financial expert” under SEC rules and whom the Board has determined to be “independent”.

Audit Committee. The Audit Committee is currently comprised of Carl Mudd, Dongquan Zhang and Sheldon Saidman, with Carl Mudd as the chairman, each of whom are “independent” as that term is defined by SEC rules and under the NASDAQ listing standards. The Audit Committee is directly responsible for the appointment, retention, compensation and oversight of the work of any registered public accounting firm employed by the Company (including resolution of disagreements between management and the accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work or performing other audit, review or other services. Any such registered public accounting firm must report directly to the Audit Committee. The Audit Committee has the ultimate authority and responsibility to evaluate and, where appropriate, replace the registered public accounting firm.

Compensation Committee. The Compensation Committee is responsible for the administration of all salary, bonus and incentive compensation plans for our officers and key employees. The members of the Compensation Committee are Dongquan Zhang, Carl Mudd and Sheldon Saidman as the chairman, all of whom are “independent” directors.

-45-

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for preparing a list of candidates to fill the expiring terms of directors on our Board of Directors. The committee submits the list of candidates to the Board of Directors who determines which candidates will be nominated to serve on the Board of Directors. The nominees are then submitted for election at the annual meeting of stockholders. The committee also submits to the entire Board of Directors, a list of candidates to fill any interim vacancies on the Board of Directors resulting from the departure of a member of the Board of Directors for any reason prior to the expiration of his term. In recommending candidates for the Board of Directors, the committee keeps in mind the functions of this body.

The committee considers various criteria, including the ability of the individual to meet SEC and NASDAQ “independence” requirements, general business experience, general financial experience, knowledge of the company’s industry (including past industry experience), education, and demonstrated character and judgment. The committee will consider director candidates recommended by a stockholder if the stockholder mails timely notice to the secretary of the Company at its principal offices, which notice includes (i) the name, age and business address of such nominee, (ii) the principal occupation of such nominee, (iii) a brief statement as to such nominee’s qualifications, (iv) a statement that such nominee consents to his or her nomination and will serve as a director if elected, (v) whether such nominee meets the definition of an “independent” director under the SEC rules and under NASDAQ listing standards and (vi) the name, address, class and number of shares of company stock held by the nominating stockholder.

Any person nominated by a stockholder for election to the Board of Directors will be evaluated based on the same criteria as all other nominees. The committee also oversees our adherence to our corporate governance standards. The members of the committee are Sheldon Saidman, Carl Mudd, and Dongquan Zhang, with Dongquan Zhang as the chairman.  

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and beneficial owners of more than ten percent (10%) to report their beneficial ownership of equity interests in the company to the SEC. Their initial reports are required to be filed using the SEC's Form 3, and they are required to report subsequent purchases, sales, and other changes using the SEC's Form 4, which must be filed within two business days of most transactions. Officers, directors, and persons owning more than 10% of our capital shares are required by SEC regulations to furnish us with copies of all of reports they file pursuant to Section 16(a).

We have complied with all the filing requirements under Section 16(a) for the year 2007.

Code of Ethics

We have adopted a Code of Ethics (as defined in Item 406 of Regulation S-K) that applies to our principal executive, financial and accounting officers. ShengdaTech, Inc. will provide a copy of its code of ethics, without charge, to any person that requests it. Requests should be addressed in writing to Ms. Anhui Guo, CFO, ShengdaTech, Inc., Youth Pioneer Park, Tai'an Economic and Technological Development Zone, Tai'an City, Shandong Province 271000, People's Republic of China.

Item 11. Executive Compensation

Compensation Discussion and Analysis

The Company’s executive compensation program is designed to pay key management personnel competitive remuneration based on the authority, responsibility and accountability of the position held by the individual. In addition, the Company considers the competitive environment relative to compensation paid to senior management with comparable job scope in companies in related industries and of approximate size. The plan consists of several components, base salary, bonus, “subsidy,” a non-taxable income provided to offset housing and transportation expenses, and a supplemental amount referred to as “proceeds.” The determination of subsidy and proceeds is a calculation made on total compensation and amounts to a combined 35%, with 14% allocated to subsidy and 21% to proceeds. The Company believes that such an approach to their executive compensation packages is both equitable and competitive, while providing a positive motivational element to the overall performance of the senior management of the Company.

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Bonuses earned range from 10% to 20%, and are based on accomplishments in executing job tasks, and the general performance of the Company, measured against the financial plan for the bonus year. The bonus amount is determined by the CEO. Mr. Chen’s bonus is determined by the Board of Directors on recommendation of the Compensation Committee. This bonus will be based on meeting all financial objectives set in the budget year, including revenue, net income and return on capital employed. The Company’s bonus plan promotes individual performance as well as contributions to the overall operation. Bonus dollars earned will be paid following audited results of Company financial statements reported in the year following the bonus year. The receiving executive must be employed by the Company at the time of bonus payments.

Compensation Table

Name & Principal Position	Year		Salary		Bonus		Non-Equity Incentive Plan Compensation		All other Compensation		Total
(a)	(b)		(c)		(d)		(g)		(i)		(j)
Xiangzhi Chen, CEO		2007	$	195,000		—	$	105,000		—	$	300,000
Anhui Guo, CFO		2007	$	65,000		—	$	35,000		—	$	100,000
Zhaowei Ma, COO Shandong Haize		2007		65,000				35,000				100,000
Yong Zhao COO Shaan’xi Haize		2007		65,000				35,000				100,000
Xukui Chen COO Shandong Bangsheng		2007		52,000				28,000				80,000

The Compensation Committee reviewed and approved the compensation paid to the top five executives of the corporation as listed in the Compensation Table above. Recommendations for annual increases in compensation to named executives are to be presented to the Compensation Committee and are subject to their approval. Pay increases for non-named employees will be at the discretion of the employee’s supervisor, subject to senior management approval.

The regulations regarding employee pension and retirement plans governed by the Peoples Republic of China is the only program administered by the Company. No other supplemental plan exists.

The Company has never had an employee stock option (ESO) plan. Since the proven benefits of such a program are well recognized by management, Mr. Chen has directed the Compensation Committee to develop an ESO plan as part of the Company’s 2008 compensation program.

Grants of Plan-Based Awards

The Company currently does not have any award plans. No options were granted to any officer in 2007.

Outstanding Equity Awards at Fiscal Year End

The Company currently does not have an equity compensation plan. No options or shares of stock were granted to any officer in 2007.

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Option Exercises and Stock Vested

No options were exercised and no shares of stock were vested in 2007.

Pension Benefits

The Company does not have any pension plans for its officers.

Nonqualified Deferred Compensation

There was no nonqualified deferred compensation for the officers in 2007.

Potential Payment Upon Termination or Change in Control

The Company currently does not have payment arrangements for its officers upon termination or change in control.

Director Compensation

Non-employee directors will receive compensation for their service on the board and board committees consisting of (i) an annual retainer of $35,000 (ii) $1,000 for each telephone conference call meeting and (iii) $5,000 for each in-person meeting. The chairperson of the audit committee will receive an additional $10,000 annually. We will also reimburse directors for travel and other out-of-pocket expenses incurred in connection with their board service.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Analysis and Discussion with the management of the Company. Based on the review and the discussions, the Compensation Committee recommended to Board of Directors that the Compensation Analysis and Discussions be included in the Company’s annual report on Form 10-K. The members of the Compensation Committee are Dongquan Zhang, Carl Mudd and Sheldon Saidman, chairman.

Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Shareholders Matters

The following table sets forth information as of December 31, 2007, regarding the beneficial ownership of our common stock by each person known by us to own 5% or more of the outstanding shares of common stock, each of our directors, each of our named executive officers, and our directors and executive officers as a group. The percentage of beneficial ownership is calculated based on 54,202,036 shares of common stock outstanding as of December 31, 2007.

Name and Address	Number of Shares		Percentage Owned
Xiangzhi Chen		22,902,912		42.25	%
Anhui Guo		—		—
Xueyi Zhang		—		—
Dongquan Zhang		—		—
Carl Mudd		5,000		—
Sheldon Saidman		—		—
Xiqing Xu		1,154,584		2.13	%
Zhaowei Ma		—		—
Directors and executive officers as a group (8 persons)		24,062,496		44.38	%

The address for all these officers and internal directors is Youth Pioneer Park, Tai'an Economic and Technological Development Zone, Tai'an City, Shandong Province 271000, People's Republic of China.

Item 13. Certain Relationships And Related Transactions and Director Independence

In December 2007, the Company entered three-year lease agreements with Shandong Shengda Technology Co. Ltd. for land, land use rights, buildings and certain equipment for the total amount of $1,918,500. Mr. Xiangzhi Chen, Chairman and CEO of the Company, is the controlling shareholder and an executive officer of Shandong Shengda Technology Co., Ltd.

On November 20, 2007 the Company purchased a research and development center from Shandong Shengda Technology Co. Ltd. for the purchase price of $1,637,199. Mr. Xiangzhi Chen, Chairman and CEO of the Company, is the controlling shareholder and an executive officer of Shandong Shengda Technology Co., Ltd.

On June 30, 2007 the Company purchased certain buildings and land use rights from Shandong Shengda Technology Co. Ltd. for the purchase price of $5,972,912. Mr. Xiangzhi Chen, Chairman and CEO of the Company, is the controlling shareholder and an executive officer of Shandong Shengda Technology Co., Ltd.

On December 31, 2006, for the price of $3,349,814, the Company purchased property and equipment from Shandong Shengda Technology Co. Ltd. and Shandong Shengda Chemical Machinery Co. Ltd. Mr. Xiangzhi Chen, Chairman and CEO of the Company, is the controlling shareholder and an executive officer of Shandong Shengda Chemical Machinery Co. Ltd.

Item 14. Principal Accounting Fees And Services

Hansen, Barnett & Maxwell, P.C., has audited our financial statements since the 2005 fiscal year. All of the services described below were approved by our board prior to performance. Our board has determined that the payments made to its independent accountant for these services are compatible with maintaining such auditor's independence.

Audit Fees. The aggregate fees billed by Hansen, Barnett & Maxwell, P.C., for professional services rendered for the audit of the Company’s financial statements for the fiscal year ended December 31, 2006 are $164,750 and the fees billed for the fiscal year ended December 31, 2007 are $295,375.

Audit-Related Fees. There were no fees for assurance and related services by Hansen, Barnett & Maxwell, P.C., for the fiscal years ended December 31, 2006 and December 31, 2007.

Tax Fees. We engage Hansen, Barnett & Maxwell, P.C. to provide service for the income tax returns in US for the fiscal years ended December 31, 2006 and December 31, 2007, which are estimated to be $1,000 each for the two fiscal years.

All Other Fees. The other fees for either audit-related or non-audit services billed by Hansen, Barnett & Maxwell, P.C., for the fiscal years ended December 31, 2006 and December 31, 2007 are $0 and $2,911 respectively. The fees for fiscal year 2007 were billed for budget planning for the year.

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PART IV

Item 15. Exhibits And Financial Statement Schedules

(a) (1) Financial Statements

The following financial statements are included in this Annual Report on Form 10-K commencing on the page numbers specified below:

	Page
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006	F-4
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005	F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2006, and 2007	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005	F-7
Notes to Consolidated Financial Statements	F-8

(2) Financial Statement Schedules

None

(3) Exhibits

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.

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SHENGDATECH, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SHENGDATECH, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006	F-4
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005	F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2006, and 2007	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005	F-7
Notes to Consolidated Financial Statements	F-8

HANSEN, BARNETT & MAXWELL, P.C.
A Professional Corporation CERTIFIED PUBLIC ACCOUNTANTS 5 Triad Center, Suite 750 Salt Lake City, UT 84180-1128 Phone: (801) 532-2200 Fax: (801) 532-7944 www.hbmcpas.com	Registered with the Public Company Accounting Oversight Board

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the

Shareholders of Shengdatech, Inc.

We have audited the accompanying consolidated balance sheets of Shengdatech Inc. and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. We also have audited the Company’s internal control over financial reporting as of December 31, 2007 based on criteria established in InternalControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, included in “Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

F-2

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shengdatech Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Shengdatech Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As discussed in Note 1, the accompanying consolidated financial statements have been restated for the effects of correcting the classification of property and equipment acquisition costs as of December 31, 2007.

HANSEN, BARNETT & MAXWELL, P.C.                 

Salt Lake City, Utah

March 14, 2008, except for Note 1 regarding the restatement of financial statements,

as to which the date is April 11, 2008

F-3

SHENGDATECH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2007		2006
	(Restated)
ASSETS
Current Assets
Cash and cash equivalents	$	26,366,568	$	34,684,142
Trade accounts receivable, less allowance for doubtful accounts of $0		7,889,001		5,588,676
Other receivables		13,962		157,352
Advances to suppliers		2,249,867		872,289
Inventory		1,955,384		2,151,612
Receivable from related parties		1,712		1,601
Total Current Assets		38,476,494		43,455,672
Property and Equipment, net of accumulated depreciation of $6,126,393 and 3,674,605, respectively		62,343,416		23,573,680
Land use rights, net of accumulated amortization of $1,031 and $0, respectively		124,028		-
TOTAL ASSETS	$	100,943,938	$	67,029,352
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable	$	5,296,530	$	2,957,413
Other payables and accrued expenses		3,276,473		2,235,758
Income and other taxes payable		2,303,402		1,237,180
Advances from customers		-		119,923
Payable to related parties		1,064,348		3,349,814
Total Current Liabilities		11,940,753		9,900,088
Shareholders' Equity
Preferred stock - $0.00001 par value; 10,000,000 shares authorized; no shares outstanding		-		-
Common stock - $0.00001 par value; 100,000,000 shares authorized; 54,202,036 and 54,095,103 shares outstanding, respectively		541		540
Additional paid-in capital		21,616,469		21,824,121
Statutory reserves		5,642,419		3,301,379
Retained earnings		54,877,045		30,187,740
Accumulated other comprehensive income		6,866,711		1,815,484
Total Shareholders' Equity		89,003,185		57,129,264
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	100,943,938	$	67,029,352

See the Accompanying Notes to the Consolidated Financial Statements

F-4

SHENGDATECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

	For the Years Ended
	December 31,
	2007			2006			2005
Sale of Products	$	100,654,793		$	72,600,031		$	58,599,329
Cost of Products Sold		66,094,838			51,222,569			41,016,439
Gross Profit		34,559,955			21,377,462			17,582,890
Operating Expenses:
Selling expense		1,771,168			1,260,647			865,338
General and administrative expense		3,232,911			2,641,474			967,357
Total Operating Expenses		5,004,079			3,902,121			1,832,695
Income from Operations		29,555,876			17,475,341			15,750,195
Other Income (Expense):
Interest income		274,203			140,375			82,611
Non-operating (expense) income		(12,094	)		(89,068	)		129,665
Net Other Income		262,109			51,307			212,276
Income Before Income Taxes		29,817,985			17,526,648			15,962,471
Provision for income taxes		2,787,640			-			-
Net Income	$	27,030,345		$	17,526,648		$	15,962,471
Other comprehensive income: foreign currency translation adjustments		5,051,227			1,614,682			200,271
Comprehensive income	$	32,081,572		$	19,141,330		$	16,162,742
Earnings Per Share:
Basic	$	0.50		$	0.34		$	0.25
Diluted	$	0.50		$	0.34		$	0.25
Weighted Average Shares Outstanding:
Basic		54,107,408			51,900,641			64,455,210
Diluted		54,188,410			52,022,801			64,455,210

See the Accompanying Notes to the Consolidated Financial Statements 

F-5

SHENGDATECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

																		Accumulated
							Additional			Receivable								Other		Total
	Common Stock						Paid-in			From			Statutory		Retained			Comprehensive		Shareholders'
	Shares			Amount			Capital			Shareholder			Reserves		Earnings			Income		Equity
Balance, December 31, 2004		87,305,912		$	873		$	16,657,514		$	-		$	1,191,078	$	10,399,007		$	531	$	28,249,003
Noncash capital contribution		45,124,979			451			8,609,395			(3,444,924	)		-		-			-		5,164,922
Distribution to shareholders		(87,310,891	)		(873	)		(16,658,045	)		-			-		(11,590,085	)		-		(28,249,003	)
Collection of receivable from shareholder		-			-			-			3,444,924			-		-			-		3,444,924
Net income for the year		-			-			-			-			1,203,293		14,759,178			-		15,962,471
Foreign currency translation adjustment		-			-			-			-			-		-			200,271		200,271
Balance, December 31, 2005		45,120,000			451			8,608,864			-			2,394,371		13,568,100			200,802		24,772,588
Shares issued for cash, $2.39 per share		5,837,603			58			13,969,656			-			-		-			-		13,969,714
Shares issued to acquire Shengdatech, Inc. recorded as a purchase		3,137,500			31			63,478			-			-		-			-		63,509
Distribution of cash in purchase of equipment from select shareholders		-			-			(971,496	)		-			-		-			-		(971,496	)
Warrants issued for consulting services		-			-			153,619			-			-		-			-		153,619
Net income for the year		-			-			-			-			907,008		16,619,640			-		17,526,648
Foreign currency translation adjustment		-			-			-			-			-		-			1,614,682		1,614,682
Balance, December 31, 2006		54,095,103			540			21,824,121			-			3,301,379		30,187,740			1,815,484		57,129,264
Warrants exercised using cashless exercise provision		106,933			1			(1	)		-			-		-			-		-
Distribution of cash in purchase of equipment from select shareholders		-			-			(207,651	)		-			-		-			-		(207,651	)
Net income for the year		-			-			-			-			2,341,040		24,689,305			-		27,030,345
Foreign currency translation adjustment		-			-			-			-			-		-			5,051,227		5,051,227
Balance, December 31, 2007		54,202,036		$	541		$	21,616,469		$	-		$	5,642,419	$	54,877,045		$	6,866,711	$	89,003,185

See the Accompanying Notes to the Consolidated Financial Statements 

F-6

SHENGDATECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2007			2006			2005
Cash Flows from Operating Activities:
Net income	$	27,030,345		$	17,526,648		$	15,962,471
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,128,980			1,031,387			1,078,826
Loss on disposal of property, plant and equipment		1,845			16,377			-
Compensation paid with warrants		-			153,619			-
Changes in assets and liabilities:
Accounts receivable		(1,839,452	)		(1,635,713	)		(71,541	)
Other receivables		144,500			4,040,220			-
Advances to suppliers		(581,231	)		(588,722	)		(258,433	)
Inventory		330,614			(611,842	)		(179,322	)
Trade accounts payable		2,306,124			1,468,602			(662,437	)
Other payables and accrued expenses		606,185			230,538			238,137
Income and other taxes payable		942,034			(85,055	)		1,261,756
Advances from customers		(123,077	)		117,453			(76,169	)
Net Cash provided by Operating Activities		30,946,867			21,663,512			17,293,288
Cash Flows from Investing Activities:
Purchase of property and equipment		(19,090,018	)		(15,365,898	)		(2,517,152	)
Construction in progress		(19,392,810	)		(92,020	)		-
Purchase of land use rights		(120,083	)		-			-
Net Cash used in Investing Activities		(38,602,911	)		(15,457,918	)		(2,517,152	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock		-			13,969,714			-
Changes in related party receivable / payable		(2,415,904	)		3,882,177			(1,570,946	)
Distribution to shareholder		(207,651	)		(971,496	)		(7,822,477	)
Other non-trade receivables		-			-			(5,181,418	)
Net Cash (used in) provided by Financing Activities		(2,623,555	)		16,880,395			(14,574,841	)
Effect of Exchange Rate Changes in Cash		1,962,025			848,853			138,154
Net Change in Cash		(8,317,574	)		23,934,842			339,409
Cash and Cash Equivalents at Beginning of Period		34,684,142			10,749,300			10,409,891
Cash and Cash Equivalents at End of Period	$	26,366,568		$	34,684,142		$	10,749,300
Supplemental Cash Flow Disclosures:
Cash paid for income taxes	$	2,108,043		$	872,156		$	3,485,546
Schedule of Non-cash Investing and Financing Activities:
Distribution paid by owner directly to investors	$	-		$	-		$	5,164,922
Non-cash capital investment into Eastern Nano by the investors		-			-			8,609,846
Shares issued for net assets of Shengdatech, Inc.		-			63,509			-
Non-cash Distribution to Shareholders:
Other non-trade receivables	$	-		$	-		$	(301,111	)
Land and building		-			-			(5,821,565	)
Intangible assets		-			-			(7,795,486	)
Liability incurred		-			-			(1,343,442	)
	$	-		$	-		$	(15,261,604	)

See the Accompanying Notes to the Consolidated Financial Statements

F-7

NOTE 1 – Organization and Nature of Operations

Organization and nature of operations - On March 2, 1998, a group of 19 investors (referred to herein as the Investors), of which Mr. Chen Xiangzhi (Mr. Chen) holds a controlling interest, formed Shandong Shengda Nano Co., Ltd. (Shengda Nano) under the laws of the People’s Republic of China (PRC). Shengda Nano has developed, and manufactures and markets nano-sized precipitated calcium carbonate (NPCC) in the PRC primarily for use in the production of automobile tires and polyvinyl chloride (PVC).

On November 13, 2001, the Investors formed Shandong Shengda Chemical Co., Ltd. (Shengda Chemical) under the laws of the PRC. Shengda Chemical manufactures and sells ammonium bicarbonate, liquid ammonia and methanol in the PRC for use as chemical fertilizer and in the production of other organic and inorganic chemical products including formaldehyde and pesticides.

During September 2004, the Investors formed Dongfang Nano-Materials Pte. Limited, a Singapore private limited company, subsequently renamed Eastern Nano-Materials Holdings Pte. Ltd. (Eastern Nano), and formed Shandong Haize Nano Co. Ltd. (Haize Nano) and Shandong Bangsheng Chemical Co. Ltd. (Bangsheng Chemical) as subsidiaries of Eastern Nano in the PRC (the Eastern Nano Subsidiaries). On November 24, 2004, the Investors agreed to transfer all of the operations and all of the assets and liabilities of Shengda Nano and Shengda Chemical, except for $7,822,477 of cash, $301,111 of other non-trade receivables, their land, land use rights and buildings, (the transferred assets and liabilities are referred to herein as the Acquired Assets) to the Eastern Nano Subsidiaries and to cause the Eastern Nano Subsidiaries to assume $1,343,442 of additional liabilities from the Investors. In June 2005, the Eastern Nano Subsidiaries consummated the acquisition of the Acquired Assets for $5,164,922. The purchase was financed and paid by Mr. Chen personally borrowing $5,250,000 from a third-party lender and paying $5,164,922 thereof to the Investors. The payments were made to the Investors in order to accomplish the transfer in accordance with the laws of the PRC and in accordance with the terms of the purchase agreement. Immediately thereafter, the Investors each repaid their proportionate share of $5,164,922 of Mr. Chen’s note payable to the third-party. The land, land use rights and buildings that Shengda Nano and Shengda Chemical retained were thereafter leased to the Eastern Nano Subsidiaries.

The transfer of the Acquired Assets to the Eastern Nano Subsidiaries was recognized in June 2005 as a reorganization of Shengda Nano and Shengda Chemical into the Eastern Nano Subsidiaries. The assets and liabilities of Shengda Nano and Shengda Chemical, including the assets retained by Shengda Nano and Shengda Chemical, were recorded at their historical carrying value of $28,249,003. The net assets that were retained by Shengda Nano and Shengda Chemical and the liabilities assumed from the Investors were recognized as distributions to the Investors at their fair values and consisted of the following:

F-8

Distribution to shareholders:
Cash	$	7,822,477
Other non-trade receivables		301,111
Land and buildings		5,821,565
Intangible assets - land use rights		7,795,486
Liabilities assumed		1,343,442
	$	23,084,081

Those net assets and the $5,164,922 paid to the Investors by Mr. Chen were recognized as capital distributions to the Investors totaling $28,249,003. The repayment by the Investors of $5,164,922 of Mr. Chen’s note payable to the third-party lender was recognized as an $8,609,846 non-cash capital investment into Eastern Nano by the Investors, which included a $3,444,924 receivable from a shareholder. The accompanying consolidated financial statements include the operations of Shengda Nano and Shengda Chemical for the periods prior to the reorganization and the operations of Eastern Nano and its subsidiaries for the periods after the reorganization.

On November 15, 2005, the Investors formed Faith Bloom Limited (Faith Bloom) under the laws of the British Virgin Islands. On December 31, 2005, Eastern Nano transferred the Eastern Nano Subsidiaries to Faith Bloom in exchange for the issuance of 10,000,000 shares of Faith Bloom common stock to the Investors. The transfer of the Eastern Nano Subsidiaries to Faith Bloom was recognized as a reorganization of Eastern Nano and the Eastern Nano Subsidiaries into Faith Bloom with the assets and liabilities remaining at their historical cost.

On March 31, 2006, Faith Bloom issued 1,293,795 shares of common stock to certain unrelated institutional and accredited investors in exchange for $15,000,000 less $1,030,286 of costs associated therewith. Upon consummation of this transaction and on the same date, Faith Bloom entered into an agreement with Zeolite Exploration Company, a Nevada corporation (”Zeolite”), to exchange all of Faith Bloom’s 11,293,785 outstanding common shares for 50,957,603 shares of Zeolite’s common stock. Subsequent to this transaction, the Faith Bloom shareholders owned 94.2% of Zeolite. Before the transaction, Zeolite had no operations. The transaction with Zeolite was recognized as a 4.5-for-1 stock split of the Faith Bloom common stock and the reverse acquisition of Zeolite’s net monetary assets totaling $63,509 in exchange for the 3,137,500 shares of common stock that remained outstanding. Faith Bloom’s assets and liabilities remained at their historical cost.

On April 4, 2006, Faith Bloom formed Shaanxi Haize Nano-Material Co., Ltd (Shaanxi Haize) a wholly-owned subsidiary in Shaanxi, China to run a NPCC facility. The relative importance of the NPCC and Chemical businesses are described in Note 11.

During January 2007, the shareholders of Zeolite changed its name to Shengdatech, Inc.

F-9

The accompanying consolidated financial statements have been restated on a retroactive basis to present the reorganizations of the Eastern Nano Subsidiaries into Faith Bloom and Faith Bloom into Zeolite as though the reorganizations had been in place for all periods presented. The operations of Shengdatech, Inc. have been included in the accompanying financial statements from March 31, 2006.

Restatement of Financial Statements  – During March 2008, the Company realized that the December 31, 2007 consolidated financial statements needed to be revised to correct an overstatement of advances paid to suppliers and an understatement of property and equipment in the amount of $17,186,677. The Company concluded that advances made for production equipment should be treated as construction in progress within property and equipment. The correction of these balances had no effect on the previously reported net income. The effects of the restatements were as follows:

	As Previously Reported			Effect of Restatement			As Restated
Consolidated Balance Sheet As of December 31, 2007
Advances to suppliers	$	19,436,544		$	(17,186,677	)	$	2,249,867
Total Current Assets		55,663,171			(17,186,677	)		38,476,494
Property and Equipment		45,156,739			17,186,677			62,343,416
TOTAL ASSETS		100,943,938			-			100,943,938
Consolidated Statement of Cash Flows
For the year ended December 31, 2007
Advances to suppliers	$	(17,767,908	)	$	17,186,677		$	(581,231	)
Net Cash provided by Operating Activities		13,760,190			17,186,677			30,946,867
Construction in progress		(2,206,133	)		(17,186,677	)		(19,392,810	)
Net Cash used in Investing Activities		(21,416,234	)		(17,186,677	)		(38,602,911	)
Net Change in Cash		(8,317,574	)		-			(8,317,574	)

NOTE 2 – Significant Accounting Policies

Basis of Presentation and Translating Financial Statements - The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The functional currency of the operating subsidiaries in the PRC is the Chinese Yuan Renminbi (CNY); however, the accompanying financial statements have been expressed in United States Dollars (“USD”). The accompanying consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The accompanying consolidated statements of income have been translated using the average exchange rates prevailing during the periods of each statement. See Note 8.

F-10

Consolidation - The accompanying consolidated financial statements include the accounts and transactions of Shengda Nano and Shengda Chemical through June 2005, the accounts of Eastern Nano from September 2004 through November 15, 2005, the accounts and transactions of Faith Bloom and its wholly owned subsidiaries from November 15, 2005 through March 31, 2006 and the accounts of Shengdatech, Inc. and its wholly owned subsidiaries from March 31, 2006. These combined entities are referred to herein as “the Company.” In connection with the lease agreements relating to the land, land use rights, buildings, and certain equipment, as described in Note 8, the Company has determined that it is not the primary beneficiary due to the significant other operations and substantial equity of the Lessors and therefore those entities are not consolidated in the Company’s financial statements.

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

Fair Values of Financial Instruments - The carrying amounts reported in the consolidated balance sheets for trade accounts receivable, other non-trade receivables, advances to suppliers, receivable from related parties, trade accounts payable, other payables and accrued expenses, advances from customers, and payable to related parties approximate fair value because of the immediate or short-term maturity of these financial instruments.

Cash and Cash Equivalents - Cash and cash equivalents include interest bearing and non-interest bearing bank deposits, money market accounts, and short-term certificates of deposit with original maturities of three months or less.

Trade Receivables and Allowance for Doubtful Accounts - Trade receivables are carried at original invoiced amounts. As a result of the Company historically having no write-offs and all accounts receivables being current, there were no doubtful accounts recorded as of December 31, 2007 and 2006.

Inventory - Inventories are stated at the lower of cost or net realizable value, with cost determined on an average cost basis.

Valuation of Long-lived Assets - The carrying values of the Company's long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that they may not be recoverable. When such an event occurs, the Company projects the undiscounted cash flows to be generated from the use of the asset and its eventual disposition over the remaining life of the asset. If projections were to indicate that the carrying value of the long-lived asset will not be recovered, the carrying value of the long-lived asset is reduced by the estimated excess of the carrying value over the projected discounted cash flows.

Property and Equipment - Property and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred and major improvements are capitalized. Gains or losses on sales, trade-ins, or retirements are included in the statements of operations in the period of disposition, determined by reference to their carrying amounts.

F-11

Intangible Assets - Acquisition costs of land use rights are capitalized and amortized using the straight-line method over their estimated useful lives.

Advances to Suppliers and Advances from Customers - The Company, as is the common practice in the PRC, will often pay advance payments to suppliers for materials, property, and equipment, or receive advance payments from customers. Advances to suppliers were $2,249,867 and $872,289 as of December 31, 2007 and 2006, respectively. Advances from customers were $0 and $119,923 as of December 31, 2007 and 2006, respectively. As a result of the Company historically having no write-offs and all advances to suppliers being current, there was no bad debt allowance recorded against these advances as of December 31, 2007 and 2006.

Leases - The Company has lease committments that are accounted for as operating leases under which payments are expensed on a straight-line basis over the periods of the respective leases.

Revenue Recognition - The Company recognizes revenues from the sale of products when they are realized and earned. The Company considers revenue realized or realizable and earned when (1) it has persuasive evidence of an arrangement, (2) delivery has occurred, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured. Revenues are not recognized until products have been shipped to the client, risk of loss has transferred to the client and client acceptance has been obtained, client acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in client acceptance provisions have been satisfied. The Company sells all products to end-users and recognizes revenues when the products are shipped. The Company has no post-delivery obligations on its products sold.

Cost of Products Sold - Cost of products sold include wages, materials, handling charges, and other expenses associated with the manufacture and delivery of product.

Shipping and Handling Costs - Shipping and handling billed to customers are recorded as revenue. Shipping and handling costs are included in cost of products sold.

Research and product development expenses- Research and product development expenses are included in general and administrative expenses in the statements of income and include researching, developing, and testing of the Company’s products. For the years ended December 31, 2007, 2006 and 2005, such expenses were $153,057, $340,771 and $103,617, respectively.

Retirement Benefit Plans - The Company contributes to various employee retirement benefit plans organized by provincial governments under which it is required to make monthly contributions at rates prescribed by the related provincial governments. The provincial governments undertake to assume the retirement benefit obligations of all existing and future retired employees of the Company. Contributions to these plans are charged to expense as incurred.

F-12

Basic and Diluted Earnings per Share - The computation of basic and diluted earning per share is based on the weighted-average number of shares outstanding during the periods presented. The following table is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share and the weighted-average common shares outstanding, respectively:

	For the Years Ended December 31,
	2007		2006		2005
Net income	$	27,030,345	$	17,526,648	$	15,962,471
Basic weighted-average common shares outstanding		54,107,408		51,900,641		64,455,210
Effect of dilutive securities:
Warrants		81,002		122,160		-
Diluted weighted-average common shares outstanding		54,188,410		52,022,801		64,455,210
Basic earnings per share	$	0.50	$	0.34	$	0.25
Diluted earnings per share	$	0.50	$	0.34	$	0.25

Other Comprehensive Income - Other comprehensive income presented in the accompanying consolidated financial statements consists of foreign currency translation adjustments.

Credit Risk -Financial instruments that potentially subject the Company to significant concentrations of credit risk primarily consist of cash and cash equivalents, trade accounts receivable and other non-trade receivables included in the consolidated balance sheets.

The Company has its cash in bank deposits and money market funds primarily in the PRC. Historically, deposits in Chinese banks have been secure due to the state policy on protecting depositors’ interests. China promulgated a new Bankruptcy Law in August 2006, which came into effect on June 1, 2007, which contains provisions for the implementation of measures for the bankruptcy of Chinese banks. In the event that bankruptcy laws are enacted for banks in the PRC, the Company’s deposits may be at a higher risk of loss.

The carrying amounts of trade accounts receivable and other non-trade receivables included in the consolidated balance sheets represent the Company’s exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. The Company performs ongoing credit evaluations of each customer’s financial condition.

Recently Enacted Accounting Standards - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS No. 157 to have a material impact on our consolidated financial statements.

F-13

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 159 to have a material impact on our consolidated financial statements.

In June 2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities”, (“EITF 07-3”) which is effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires that nonrefundable advance payments for future research and development activities be deferred and capitalized. Such amounts will be recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is not expected to have a material impact on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company has not yet determined the effect on our consolidated financial statements, if any, upon adoption of SFAS No. 141(R) or SFAS No. 160. SFAS No. 141(R) and SFAS No. 160 are not expected to have a material impact on our results of operations or financial position.

NOTE 3 – Inventory

Inventory consisted of the following:

	December 31,
	2007		2006
Raw materials	$	1,357,510	$	1,679,938
Work-in-process		104,872		219,885
Finished goods		493,002		251,789
Total Inventory	$	1,955,384	$	2,151,612

F-14

NOTE 4 – Property and Equipment

Property and equipment consisted of the following:

	December 31,
	2007			2006
Building	$	10,908,890		$	1,854,717
Plant, machinery and equipment		37,771,726			25,106,521
Motor vehicle		125,157			108,851
Office equipment		79,381			84,241
Construction in progress		19,584,655			93,955
Total property and equipment		68,469,809			27,248,285
Less: accumulated depreciation		(6,126,393	)		(3,674,605	)
Total property and equipment, net	$	62,343,416		$	23,573,680

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which were as follows:

Asset	Life
Building		15 - 25
Plant, machinery and equipment		10 - 17
Motor vehicle		5 - 10
Office equipment		3 -5

Depreciation expense for the years ended December 31, 2007, 2006 and 2005 was $2,127,990, $1,031,387 and $1,009,577, respectively.

The increase in property and equipment for 2007 was primarily due to the purchase of equipment for $10,142,990 to increase the NPCC production capacity of the Shaanxi plant by an additional 40,000 tons, the construction of the NPCC factory expansion in Shaanxi for $11,813,649, the construction in progress related to the further increase of the NPCC production capacity of the Shaanxi plant by an additional 60,000 tons for $17,186,677 and the purchase of the research and development center for $1,580,321 from a related party which is further described in Note 9.

During April 2006, the Company purchased approximately $1.1 million of equipment to replace old equipment, of which approximately $815,000 was purchased from a related party. In addition, the Company constructed and put into operations a new plant in Shaanxi, China at a cost of approximately $14 million.

NOTE 5 – Land Use Rights

In August 2007, the company purchased intangible assets of $125,059 consisting of land use rights, which are amortized at the rate of $2,402 per year using the straight line method over their contractual life of 50 years. Amortization expense for the years ended December 31, 2007, 2006 and 2005 was $990, $0 and $69,249.

NOTE 6 – Other Payables and Accrued Expenses

Other payables and accrued expenses consisted of the following:

F-15

	December 31,
	2007		2006
Utility payment	$	1,473,374	$	1,228,884
Accrued payroll		416,826		423,280
Other payables		1,386,273		583,594
Total Other Payables and Accrued Expenses	$	3,276,473	$	2,235,758

NOTE 7 – Income Taxes

Upon completion of the reorganization referred to in Note 1, the Company changed its fiscal year to December to conform to the fiscal year of its operating subsidiaries. To date, the Company has not paid any income taxes in the United States or the British Virgin Islands. The Company’s pre-tax income is comprised primarily from operations in the PRC. Amounts included in pre-tax income in the United States for the years ended December 31, 2007, 2006 and 2005 include general and administrative expenses of $399,267, $518,716, and $0, respectively. Enterprises with foreign investment and foreign enterprises doing business in the PRC are generally subject to federal (state) enterprise income tax at a rate of 30% and a local income tax at a rate of 3%. Effective at the beginning of 2005, the Company’s Bangsheng Chemical and Haize Nano subsidiaries were granted a “tax holiday” that allows the Company to be exempt from both the federal and local income taxes for the first two profitable years. The “tax holiday” allows the Company to be exempt from 50% of both the federal and local income taxes during the third through the fifth years. The reduced federal and local rates for 2007 through 2009 are 15% and 1.5%, respectively. Effective at the beginning of 2006, the Company’s Shaanxi Nano subsidiary was granted the same tax holiday and in 2006 and 2007 is exempt from both federal and local income taxes. Shaanxi Nano’s tax rates for 2008 through 2010 are 15% and 1.5% for federal and local taxes, respectively.

Undistributed earnings of the Company’s foreign subsidiaries since acquisition amounted to approximately $30.9 million at December 31, 2007. Those earnings, as well as the investment in the subsidiaries of approximately $58.3 million are considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the PRC. Determination of the amount of unrecognized deferred U.S. income tax liability is not practical because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits may be available to reduce a portion of the U.S. tax liability.

On March 16, 2007, the National People’s Congress of China passed the new Enterprise Income Tax Law, (“EIT Law”), and on December 6, 2007, the State Council of China issued the Implementation Regulations for the EIT Law which took effect on January 1, 2008. The EIT Law and Implementation Regulations Rules impose a unified EIT of 25.0% on all domestic-invested enterprises and Foreign Invested Entities, or FIEs, unless they qualify under certain limited exceptions. The Company does not qualify for any of these limited exceptions, and as a result the Company will be subject to a 25% tax rate beginning January 1, 2010 for the Bangsheng Chemical and Haize Nano subsidiaries and January 1, 2011 for the Shaanxi Nano subsidiary.

F-16

Income and other taxes payable consisted of:

	December 31,
	2007		2006
Value added tax	$	891,915	$	710,981
Income tax		728,255		-
Surtax, insurance, other		683,232		526,199
Total Taxes	$	2,303,402	$	1,237,180

The provision for income taxes was $2,787,640, $0, and $0 for December 31, 2007, 2006, and 2005, respectively.

Following is a reconciliation of income taxes calculated at the federal and local statutory rates to actual income tax expense:

	For the Years Ended December 31,
	2007			2006			2005
Income tax calculated at statutory federal and local rates is 30% and 3%, respectively	$	9,839,935		$	5,783,794		$	5,267,615
Benefit of tax holiday		(7,052,295	)		(5,783,794	)		(5,267,615	)
Provision for income taxes	$	2,787,640		$	-		$	-

If the Company had not received the benefit of a tax holiday for the years ended December 31, 2007, 2006 and 2005, the provision for income taxes would have been $9,839,935, $5,783,794 and $5,267,615, respectively, net income after income tax would have been $19,978,050, $11,742,854 and $10,694,856, respectively, and basic and diluted earnings per share would have been $0.37, $0.23 and $0.17.

Deferred taxes with respect to temporary timing differences between carrying amounts of assets and liabilities for financial reporting and amounts used for tax reporting purposes were immaterial.

Shengdatech, Inc. has net operating losses in the United States of approximately $1,485,000 which if are not utilized will begin to expire in 2026. The net operating losses use may be limited due to change in ownership of the Company’s common stock.

NOTE 8 – Commitments and Contingencies

Economic environment - The Company is subject to special considerations and significant risks not typically associated with companies operating in the United States of America. These risks include, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results of operations may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

F-17

Foreign currency remittance - The majority of the Company’s revenue is earned in the PRC and is denominated in the PRC’s currency of CNY, which must be converted into other currencies before remittance out of the PRC. Both the conversion of CNY into foreign currencies and the remittance of foreign currencies abroad require approval of the PRC government.

Leases - In December 2007 Haize Nano and Bangsheng Chemical entered into three year lease agreements for land, land use rights, buildings and certain equipment from the Lessors. Remaining future minimum lease payments under these agreements total $1,918,500, of which $1,280,785 was for land and buildings and $637,715 was for equipment. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. The Company incurred rental expense of $843,665, $720,490 and $593,811 during the years ended December 31, 2007, 2006 and 2005, respectively.

Future minimum lease payments under the Company’s lease agreements are as follows:

	For the Years Ended December 31,
	2008		2009		2010		Total
Total minimum lease payments	$	639,500	$	639,500	$	639,500	$	1,918,500

NOTE 9 – Related Parties

Receivable from related parties – At December 31, 2007 and 2006, the Company had a receivable of $1,712 and $1,601 from Shengda Nanomaterials Company, respectively, which was used primarily for the purchase of equipment and machinery and was recorded at the cost of the assets purchased.

Payable to related parties – At December 31, 2007, the Company owed related parties $1,064,348 of which $869,179 is for the accrual of rent expense, as explained in Note 8, and $142,739 is due to Shandong Shengda Technology Co. Ltd. for the purchase of property and equipment. As of December 31, 2007, Shandong Shendgda Chemical Machinery Co. Ltd is no longer a related party due to its sale to an unrelated third party.

At December 31, 2006, the Company owed related parties $3,349,814, of which $1,616,892 was due to Shandong Shengda Technology Co. Ltd. for the purchase of property and equipment, and $398,457 was due to Shandong Shengda Chemical Machinery Co., Ltd. Those funds were considered retained funds for the installation of property and equipment for performance. In addition, $717,199 was due to Shandong Shengda Technology Co., Ltd for the accrual of rent expense, $156,625 for the accrual of professional fees, and $460,641 for research and development.

F-18

On June 30, 2007 the Company purchased certain buildings and land use rights from Shandong ShengdaTechnology Co. Ltd. The purchase price of $5,972,912 exceeded the cost of the assets paid by Shandong Shengda Technology Co. Ltd by $150,725 and, accordingly, this amount was treated as a distribution to Shandong Shengda Technology Co. Ltd. The cost of the building was recorded at $5,727,607 and the land use rights were recorded at $95,428, which represents the historical carrying value to the seller.

On November 20, 2007 the Company purchased a research and development center from Shandong ShengdaTechnology Co. Ltd. The purchase price of $1,637,199 exceeded the cost of the assets paid by Shandong Shengda Technology Co., Ltd by $56,926 and, accordingly, this amount was treated as a distribution to Shandong Shengda Technology Co. Ltd. The cost of the research and development center was recorded at $1,580,321, which represents the historical carrying value to the seller

NOTE 10 - Shareholders’ Equity

Common and preferred shares- In January 2007, the shareholders of the Company amended and restated the Company’s articles of incorporation and thereby: 1) changed the name of the Company from Zeolite Exploration Company to Shengdatech, Inc.; 2) increased the authorized number of shares of common stock to 100,000,000, $0.00001 par value; and 3) authorized the issuance of 10,000,000 shares of preferred stock, $0.00001 par value. The shares of preferred stock may be issued in one or more series and may be granted voting rights, at the discretion of the Company’s board of directors. The accompanying financial statements have been restated for all periods presented for the effects of changes to the articles of incorporation.

Statutory Reserves - According to the Articles of Association, the Company is required to transfer a certain portion of its net profits, as determined under PRC accounting regulations, from net income to both the surplus reserve fund and the public welfare fund.

Distribution – During 2007 and 2006, the Company purchased equipment from select shareholders. The Company recorded the equipment at the cost to the related parties and recorded the excess as a distribution to select shareholders of $207,651 and $971,496, respectively.

Warrants – On April 1, 2006, the Company issued a warrant to purchase 162,285 shares of common stock to a vendor for services provided. The warrant was exercisable at $2.57 per share through March 31, 2008. The value of the services of $153,619 was recognized as an expense on the date the warrant was issued and was based upon the fair value of the warrant using the Black-Scholes option pricing model. Under the terms of the warrant, the vendor was permitted to pay the exercise price by the Company indirectly repurchasing shares from the vendor at the 30-day average closing price of the Company’s common stock ending three days prior to the exercise date. The vendor exercised the warrant on November 19, 2007 when the 30-day average closing price was $7.54 per share which resulted in the issuance of 106,933 shares of common stock to the vendor. No tax benefit was realized from the exercise of the warrant.

F-19

The Company recorded a liability for services provided by a vendor during the year ended December 31, 2007 that will be settled by issuance of a three year warrant to be issued in the first quarter of 2008 . The services were valued based on the warrant’s estimated fair value in the amount of $84,700. The exercise price of the warrant will be $6.80 per share. Under the agreement with the service provider, the Company is committed to issue warrants to purchase 10,000 shares of common stock for services for each of the first three quarters of 2008. The agreement will then continue on a month to month basis until terminated. The agreement can be terminated at any time by either party.

The fair value of the warrants were calculated using the Black-Scholes option pricing model with the following assumptions:

	2007	2006
Expected Life	3 years	2 years
Expected volatility	72.93%	66.97%
Risk Free interest rate	2.55%	4.82%
Dividend yield	0%	0%

NOTE 11 – Segment Information

The Company operates in the following segments:

NPCC - The Company is engaged in the development, manufacture, and marketing of nano-sized ultra fine Precipitated Calcium Carbonated (NPCC).   Limestone is converted into NPCC by a proprietary production method. The unique chemical and physical attributes make NPCC a valuable functional ingredient in tire products. The Nano-Materials segment includes the operations of the Haize Nano and Shaanxi Haize subsidiaries.

Chemical - The Company is also engaged in the manufacture and sale of ammonia-based products, namely ammonium bicarbonate, liquid ammonia, and methanol. The ammonia-based products are mainly used as chemical fertilizers and raw materials for the production of other chemical products (both organic and inorganic,) including formaldehyde and pesticides.

Certain condensed segment information for the three years ended December 31, 2007, 2006 and 2005 follows:

As of and For the Year Ended December 31, 2007	Chemical		NPCC		Inter-Segment and Reconciling Items			Total
Sale of products	$	53,933,120	$	46,721,673	$	-		$	100,654,793
Cost of products sold		39,282,251		26,812,587		-			66,094,838
Selling expenses		90,908		1,680,260		-			1,771,168
General and administrative expenses		1,289,240		1,544,291		399,380			3,232,911
Depreciation and amortization		352,300		1,776,680		-			2,128,980
Segment income		11,828,122		15,601,489		(399,266	)		27,030,345
Segment assets		22,248,211		78,692,626		3,101			100,943,938
Expenditures for segment assets		420,102		20,996,132		-			21,416,234

F-20

As of and For the Year Ended December 31, 2006	Chemical		NPCC		Inter-Segment and Reconciling Items		Total
Sale of products	$	50,592,217	$	22,007,814	$	-	$	72,600,031
Cost of products sold		37,924,593		13,297,976		-		51,222,569
Selling expense		79,306		1,181,341		-		1,260,647
General and administrative expense		1,051,119		1,590,355		-		2,641,474
Depreciation and amortization		335,074		696,313		-		1,031,387
Segment income		11,865,994		5,660,654		-		17,526,648
Segment assets		32,420,452		34,608,900		-		67,029,352
Expenditures for segment assets		1,114,735		14,343,183		-		15,457,918

As of and For the Year Ended December 31, 2005	Chemical		NPCC		Inter-Segment and Reconciling Items		Total
Sale of products	$	43,985,596	$	14,613,733	$	-	$	58,599,329
Cost of products sold		31,752,100		9,264,339		-		41,016,439
Selling expense		69,264		796,074		-		865,338
General and administrative expense		541,018		426,339		-		967,357
Depreciation and amortization		528,151		550,675		-		1,078,826
Segment income		11,827,016		4,135,455		-		15,962,471
Segment assets		18,691,092		11,266,236		-		29,957,328
Expenditures for segment assets		2,517,152		-		-		2,517,152

NOTE 12 - Quarterly Financial Data (Unaudited)

Quarterly financial information is presented in the following summary:

	2007
	Three Months Ended
	March 31		June 30		September 30		December 31
Sale of products	$	22,180,271	$	22,680,529	$	27,170,790	$	28,623,203
Gross Profit		6,974,585		7,664,907		9,660,956		10,259,507
Net Income		5,406,628		6,032,887		7,811,260		7,779,570
Basic earnings per share		0.10		0.11		0.14		0.15
Diluted earnings per share		0.10		0.11		0.14		0.15

	2006
	Three Months Ended
	March 31		June 30		September 30		December 31
Sale of products	$	16,308,211	$	14,291,787	$	18,818,131	$	23,181,902
Gross Profit		4,117,939		4,001,939		5,580,788		7,676,796
Net Income		3,492,859		3,157,860		4,727,588		6,148,341
Basic earnings per share		0.08		0.06		0.09		0.11
Diluted earnings per share		0.08		0.06		0.09		0.11

	2005
	Three Months Ended
	March 31		June 30		September 30		December 31
Sale of products	$	13,290,138	$	12,889,931	$	17,159,831	$	12,259,429
Gross Profit		4,145,533		3,957,707		5,309,213		4,170,437
Net Income		3,671,996		3,304,508		4,857,724		4,128,243
Basic earnings per share		0.08		0.04		0.06		0.07
Diluted earnings per share		0.08		0.04		0.06		0.07

F-21

NOTE 13 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Basis of presentation

For the purpose of presenting parent company only condensed financial information, the basis used in this presentation assumes the reorganization and the change of the reporting entity had taken place for all periods presented. The investment in the consolidated subsidiaries, which occurred on March 31, 2006, is recorded under the equity method of accounting as prescribed in APB opinion No. 18, “ The Equity Method of Accounting for Investments in Common Stock”. Under PRC laws and regulations, there are restrictions on the Company’s ability to transfer substantially all of its assets out of the PRC, regardless of the form of such transfer (dividends, loans, advances).

SHENGADATECH, INC

CONDENSED BALANCE SHEETS

	December 31,		December 31,
	2007		2006
ASSETS
Current Assets:
Cash and cash equivalents	$	3,102	$	10,580
Other receivables		-		136,257
Total Current Assets		3,102		146,837
Investment in unconsolidated subsidiaries		89,255,615		56,982,427
TOTAL ASSETS	$	89,258,717	$	57,129,264
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued expenses	$	255,532	$	-
Shareholders' Equity
Preferred stock - $0.00001 par value; 10,000,000 shares authorized, no shares outstanding		-		-
Common stock - $0.00001 par value; 100,000,000 shares authorized, 54,202,036 shares and 54,095,103 shares outstanding, respectively		541		540
Additional paid-in capital		21,616,469		21,824,121
Statutory reserves		5,642,419		3,301,379
Retained earnings		54,877,045		30,187,740
Accumulated other comprehensive income		6,866,711		1,815,484
Total Shareholders' Equity		89,003,185		57,129,264
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	89,258,717	$	57,129,264

F-22

SHENGDATECH, INC.

CONDENSED STATEMENTS OF INCOME

	For the Years Ended December 31,
	2007		2006		2005
Equity in earnings of unconsolidated subsidiaries	$	27,429,612	$	18,045,364	$	15,962,471
Operating Expenses		399,267		518,716		-
Net Income	$	27,030,345	$	17,526,648	$	15,962,471
Basic and Diluted Earnings Per Share	$	0.50	$	0.34	$	0.25

F-23

SHENGDATECH, INC.

CONDENSED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2007			2006			2005
Cash Flows from Operating Activities:
Net income	$	27,030,345		$	17,526,648		$	15,962,471
Adjustments to reconcile net income to cash used in operating activities:
Compensation paid with warrants		-			153,619			-
Equity in earnings of unconsolidated subsidiaries		(27,429,612	)		(18,045,364	)		(15,962,471	)
Changes in assets and liabilities:
Accrued expenses		255,532			-			-
Net Cash used in Operating Activities		(143,735	)		(365,097	)		-
Cash Flows from Investing Activities:
Other receivables		136,257			(136,257	)		-
Investment in subsidiaries		-			(13,457,780	)		-
Net Cash provided by (used in) Investing Activities		136,257			(13,594,037	)		-
Cash Flows from Financing Activities:
Proceeds from issuance of common stock		-			13,969,714			-
Net Cash provided by Financing Activities		-			13,969,714			-
Net Change in Cash		(7,478	)		10,580			-
Cash and Cash Equivalents at Beginning of Period		10,580			-			-
Cash and Cash Equivalents at End of Period	$	3,102		$	10,580		$	-
Supplemental Cash Flow Disclosures:
Cash paid for income taxes	$	-		$	-		$	-

F-24

EXHIBIT INDEX

3.1 Articles of Incorporation of the Registrant filed with the Nevada Secretary of State on May 11, 2001, as amended by Certificate of Amendment to Articles of Incorporation filed with the Nevada Secretary of State on February 13, 2006. (incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1 (SEC File No. 333-132906) filed on December 18, 2006

3.2 Certificate of Amendment and Restatement of Articles of Incorporation filed with the Nevada Secretary of State on January 3, 2007 (incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 3 to the Registration Statement on Form S-1 (SEC File No. 333-132906) filed on January 9, 2007.

3.3 Amended and Restated Bylaws of the Registrant incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on March 1, 2007.

5.1 Opinion of Preston Gates Ellis, LLP (incorporated by reference to Exhibit 5.1 to Registrant’s  Registration Statement on Form SB-2 filed on March 31, 2006).

10.1 Financial Advisory Agreement between Eastern Nanomaterials Pte Co., Ltd. and HFG International Co., Ltd., dated as of September 26, 2005, as amended and supplemented on March 29, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.2 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 10, 2002 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.3 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 12, 2002 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.4 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 15, 2002 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.5 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 16, 2002 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.6 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 20, 2002 (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.7 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 20, 2002 (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.8 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of December 26, 2002 (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.9 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co. Ltd. and Shandong Shengda Chemicals Co. Ltd., dated as of December 26, 2002 (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

F-25

10.10 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co. Ltd. and Shandong Shengda Chemicals Co. Ltd., dated as of December 26, 2002 (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.11 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of January 10, 2003 (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.12 Industrial Product Sales Agreement between Shandong Shengda Chemical Machinery Co., Ltd. and Shandong Shengda Chemicals Co., Ltd., dated as of January 12, 2003 (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.13 Industrial Product Sales Contract between Feicheng Longxin Material Storage & Transportation Co., Ltd. and Shandong Shengda Chemical Co., Ltd. dated as of January 15, 2003 (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.14 Industrial Product Sales Contract between Xintai Quangou Coal Mine and Shandong Shengda Chemical Co., Ltd. dated as of January 15, 2003 (incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.15 Industrial Product Sales Contract between Xintai Zhaizhen Coal Mine and Shandong Shengda Chemicals Co., Ltd. dated as of January 19, 2003 (incorporated by reference to Exhibit 10.15 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.16 Industrial Product Sales Contract between Shandong Shengda Chemical Machinery Co., Ltd and Shandong Shengda Chemicals Co., Ltd. dated as of July 5, 2004 (incorporated by reference to Exhibit 10.16 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.17 Joint Research and Development Agreement between Shandong Shengda Technology Co., Ltd and Qingdao University of Science and Technology dated as of September 28, 2004 (incorporated by reference to Exhibit 10.17 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.18 Asset Purchase Agreement between Shandong Shengda Chemical Co., Ltd. and Dongfang Nanomaterials Pte., Ltd. dated as of November 24 2004, as amended and supplemented on February 20, 2005 (incorporated by reference to Exhibit 10.18 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.19 Asset Purchase Agreement between Shandong Shengda Nanomaterials Co., Ltd. and Dongfang Nanomaterials Pte., Ltd. dated as of November 24 2004, as amended and supplemented on February 20, 2005 (incorporated by reference to Exhibit 10.19 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.20 Joint Technology Development Contract between Shandong Haize Nanomaterials Co., Ltd. and Tsinghua University dated as of January 12, 2005, as supplemented on May 10, 2005 (incorporated by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

F-26

10.21 Contract on the Joint Development & Application of NPCC by and among Shandong Shengda Technology Co., Ltd, Polymer Modification Research Lab of Qingdao University of Science and Technology and Tsingdao Siwei Chemicals Co., Ltd. dated as of March 4, 2003, as amended on January 31, 2005 to designate Shandong Haize Nanomaterials Co., Ltd as the assignee of Shandong Shengda Technology Co., Ltd. (incorporated by reference to Exhibit 10.21 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.22 Nano Technology License & Transfer Agreement between Shandong Shengda Technology Co., Ltd. and Shandong Haize Nanomaterials Co., Ltd. dated as of January 6, 2005 (incorporated by reference to Exhibit 10.22 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.23 Equipment Leasing Agreement between Shandong Shengda Technology Co., Ltd and Shandong Bangsheng Chemicals Co., Ltd. dated as of February 20, 2005 (incorporated by reference to Exhibit 10.23 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.24 Trademark Transfer Agreement between Shandong Shengda Technology Co., Ltd and Shandong Haize Nanomaterials Co., Ltd. dated as of February 22, 2005 (incorporated by reference to Exhibit 10.24 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.25 Trademark Transfer Agreement between Shandong Shengda Chemicals Co., Ltd. and Shandong Bangsheng Chemical Co., Ltd. dated as of February 22, 2005 (incorporated by reference to Exhibit 10.25 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.26 Land-use Right and Building Leasing Agreement between Shandong Haize Nanomaterials Co., Ltd. and Shandong Shengda Technology Co., Ltd, Ltd. dated as of February 22, 2005, as amended and supplemented on March 21, 2006 (incorporated by reference to Exhibit 10.26 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.27 Land-use Right and Building Leasing Agreement between Shandong Bangsheng Chemical Co., Ltd. and Shandong Shengda Technology Co., Ltd. dated as of February 22, 2005, as amended and supplemented on March 21, 2006 (incorporated by reference to Exhibit 10.27 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.28 Industrial Product Sales Contract between Shandong Shengda Chemical Machinery Co., Ltd and Shandong Bangsheng Chemicals Co., Ltd. dated as of March 2, 2005 (incorporated by reference to Exhibit 10.28 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.29 Industrial Product Sales Contract between Shandong Taifeng Mining Co., Ltd. and Shandong Bangsheng Chemicals Co., Ltd. dated as of March 5, 2005 (incorporated by reference to Exhibit 10.29 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.30 Anthracite Supply Contract between Shandong Bangsheng Chemicals Co., Ltd. and Jincheng Yapeng Trading Co., Ltd. dated as of March 6, 2005 (incorporated by reference to Exhibit 10.30 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.31 Construction Contract between Shandong Bangsheng Chemicals Co., Ltd. and Chen Houzhi dated as of March 1, 2005 (incorporated by reference to Exhibit 10.31 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

F-27

10.32 Construction Contract between Shandong Bangsheng Chemicals Co., Ltd. and Chen Houzhi dated as of April 1, 2005 (incorporated by reference to Exhibit 10.32 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.33 Urea Supply Contract between Shandong Feida Chemical Technology Co., Ltd. and Shandong Bangsheng Chemical Co., Ltd. dated as of May 26, 2005 (incorporated by reference to Exhibit 10.33 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.34 Anthracite Supply Contract between Shandong Haize Nanomaterials Co., Ltd. and Feicheng Longxin Material Storage & Transportation Co., Ltd. dated as of June 1, 2005 (incorporated by reference to Exhibit 10.34 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.35 Industrial Product Sales Contract between Shandong Taifeng Mining Co., Ltd. and Shandong Haize Nanomaterials Co., Ltd. dated as of June 13, 2005 (incorporated by reference to Exhibit 10.35 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.36 Industrial Product Sales Contract between Shandong Haize Nanomaterials Co., Ltd. and Dalian Jinyuan Construction Plastics Co. dated as of June 19, 2005 (incorporated by reference to Exhibit 10.36 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.37 Industrial Product Sales Contract between Shandong Haize Nanomaterials Co., Ltd. and Zhaoyuan LiAo Rubber Products Co. dated as of August 8, 2005 (incorporated by reference to Exhibit 10.37 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.38 Industrial Product Sales Contract between Shandong Haize Nanomaterials Co., Ltd. and Triangle Tire Co., Ltd dated as of August 10, 2005 (incorporated by reference to Exhibit 10.38 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.39 Share Transfer Agreement between Singapore Dongfang Nanomaterials Pte., Ltd. and Faith Bloom Limited dated as of December 31, 2005 (incorporated by reference to Exhibit 10.39 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.40 Share Transfer Agreement between Singapore Dongfang Nanomaterials Pte., Ltd. and Faith Bloom Limited dated as of December 31, 2005 (incorporated by reference to Exhibit 10.40 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.41 Lime Stone Supply Contract between Shandong Haize Nanomaterials Co., Ltd. and Laiwu Yujie Stone Materials Factory dated as of March 27, 2005 (incorporated by reference to Exhibit 10.41 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.42 Employment Contract between Shandong Haize Nanomaterials Co., Ltd. and Zhaowei Ma dated as of January 1, 2005 (incorporated by reference to Exhibit 10.42 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.43 Employment Contract between Shandong Bangsheng Chemicals Co., Ltd. and Xiqing Xu dated as of January 1, 2005 (incorporated by reference to Exhibit 10.43 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.44 Loan Agreement among Eastern Nano-Materials Holdings Pte. Ltd., Value Monetization Ltd. and International Factors (Singapore) Ltd. dated as of May 6, 2005, as terminated by two letters from Value Monetization and International Factors (Singapore) Ltd, dated December 30, 2005 and December 29, 2005, respectively (incorporated by reference to Exhibit 10.44 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

F-28

10.45 Employment Contract between Shandong Haize Nanomaterials Co., Ltd. and Xukui Chen dated as of January 1, 2005 (incorporated by reference to Exhibit 10.45 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.46 Financing Agreement between HFG International and Eastern Nanomaterials Pte. Co., Ltd., dated as of September 26, 2005, as amended and supplemented on March 29, 2006 to designate Faith Bloom as the assignee for Eastern Nanomaterials Pte. Co., Ltd. (incorporated by reference to Exhibit 10.46 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.47 Short Term Loan Agreement between Shandong Shengda Chemicals Co., Ltd. and Bank of China Taian Branch, dated as of February 1, 2003 (incorporated by reference to Exhibit 10.47 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.48 Short Term Loan Agreement between Shandong Shengda Nanomaterials Co., Ltd. and Bank of China, Taian Branch, dated as of January 9, 2003 (incorporated by reference to Exhibit 10.48 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.49 Memorandum of Understanding between Faith Bloom Limited and Shandong Shengda Technology Co., Ltd. dated as of March 21, 2006 (incorporated by reference to Exhibit 10.49 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

10.50 Engagement Letter of Sterne Agee & Leach, Inc., as managing placement agent, and Global Hunter Securities, as co-placement agent, of up to $15,000,000 of common stock of Faith Bloom Limited, dated as of March 16, 2006 (incorporated by reference to Exhibit 10.50 to the Registrant’s Current Report on Form 8-K filed on April 6, 2006).

16.1 Letter from John Geib, Chartered Accountant (incorporated by reference to Exhibit 16.1 to the Registrant’s Current Report on Form 8-K filed on March 18, 2005)

16.2 Letter from Swartz Levitsky Feldman LLP, Chartered Accountants (incorporated by reference to Exhibit 16.2 to the Registrant’s Current Report on Form 8-K filed on March 18, 2005)

16.3 Letter from Rotenberg & Co., LLP (incorporated by reference to Exhibit 16.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2006)

21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Registrant’s Registration Statement on Form SB-2 filed on March 31, 2006).

31.1* Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.

31.2* Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.

32.1** Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*.

32.2** Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*.

*	Filed herewith.
**	Furnished herewith

F-29

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHENGDATECH, INC.
Date: May 14, 2008	By:	/s/ XIANGZHI CHEN
		Name: Xiangzhi Chen
		Title: Chairman, Director and Chief Executive Officer

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

Signature	Title	Date
/s/ Xiangzhi Chen	Chairman, Director and Chief Executive Officer	May 14, 2008
(Xiangzhi Chen)	(Principal Executive Officer)
/s/ Anhui Guo	Director and Chief Financial Officer	May 14, 2008
(Anhui Guo)
/s/ Carl Mudd	Director	May 14, 2008
(Carl Mudd)
/s/ Sheldon Saidman	Director	Mary 14, 2008
(Sheldon Saidman)