UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Amendment No. 1)

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

For the quarterly period ended March 31, 2010

¨ 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 001-31937

SHENGDATECH, INC.

(Exact name of registrant as specified in its charter)

Nevada	26-2522031
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

Unit 2003, East Tower, Zhong Rong Heng Rui International Plaza,

620 Zhang Yang Road, Pudong District, Shanghai 200122

People's Republic of China

(Address of principal executive offices)

Registrant’s telephone number, including area code: 86-21-58359979

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No ¨

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

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

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

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

The number of shares of Common Stock outstanding on May 10, 2010 was 54,202,036 shares.

Explanatory Note

This Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q for the three-month period ended March 31, 2010 is filed in response to comments in the letter dated July 9, 2010 received by the Company from the U.S. Securities and Exchange Commission.

SHENGDATECH, INC. AND SUBSIDIARIES

INDEX

Part I — Financial Information
Item 1.	Financial Statements	F-1
	Unaudited Condensed Consolidated Balance Sheets – March 31, 2010 and December 31, 2009	F-1
	Unaudited Condensed Consolidated Statements of Income – Three months ended March 31, 2010 and 2009	F-2
	Unaudited Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2010 and 2009	F-3
	Notes to Unaudited Condensed Consolidated Financial Statements	F-4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	14
Part II — Other Information
Item 1A.	Risk Factors	14
Item 6.	Exhibits	15
Signatures		16

2

Item 1. Financial Statements

SHENGDATECH, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,		December 31,
	Note	2010		2009
ASSETS
Current assets:
Cash		$	117,277,879	$	115,978,763
Accounts receivable			5,076,968		4,600,722
Inventories	(3)		2,038,318		2,018,283
Prepaid expenses and other receivables			3,388,568		3,947,086
Income tax refund receivable			1,455,906		1,455,906
Current assets of discontinued operations	(14)		806,500		801,983
Assets held for sale	(14)		1,718,751		1,718,475
Total current assets			131,762,890		130,521,218
Property, plant and equipment, net	(4)		125,266,065		123,099,860
Land use rights			15,356,050		15,432,743
Intangible assets			263,600		280,329
Debt issuance costs			1,418,686		1,720,209
Deposit for land use rights	(6)		2,916,942		-
Total assets		$	276,984,233	$	271,054,359
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,829,255	$	3,998,532
Accrued expenses and other payables			5,864,951		4,737,356
Payable for acquisition	(2)		-		3,803,060
Income taxes payable			1,751,820		60,573
Due to related parties	(7)		2,020,199		1,572,427
Current liabilities of discontinued operations	(14)		42,075		42,068
Total current liabilities			13,508,300		14,214,016
Long-term convertible notes	(8)		80,908,126		79,298,539
Non-current income taxes payable	(5)		1,691,599		1,598,237
Note payable to related party	(7)		-		601,631
Deferred income tax liabilities			3,300,165		4,443,810
Non-current liabilities of discontinued operations	(14)		294,755		294,708
Total liabilities			99,702,945		100,450,941
Shareholders' equity:
Preferred Stock, par value: $0.00001, authorized: 10,000,000, outstanding, nil			-		-
Common Stock, par value: $0.00001, authorized: 100,000,000 issued and outstanding: 54,202,036			542		542
Additional paid-in capital			37,132,442		37,132,442
Statutory reserves			8,455,328		8,455,328
Retained earnings			117,842,311		111,197,045
Accumulated other comprehensive income			13,850,665		13,818,061
Total shareholders' equity			177,281,288		170,603,418
Commitments and contingencies	(6)
Total liabilities and shareholders' equity		$	276,984,233	$	271,054,359

See accompanying notes to unaudited condensed consolidated financial statements.

F-1

SHENGDATECH, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

		For the Three Months Ended March 31,
	Note	2010			2009
					As restated (Note 1)
Net sales		$	30,226,714		$	20,672,353
Cost of goods sold			17,528,919			12,185,227
Gross profit			12,697,795			8,487,126
Operating expenses:
Selling			520,053			316,808
General and administrative			1,464,693			1,257,977
Total operating expenses			1,984,746			1,574,785
Operating income			10,713,049			6,912,341
Other income (expense):
Interest income			94,477			181,129
Interest expense	(4)		(3,265,916	)		(2,448,907	)
Gain on extinguishment of long-term convertible notes			-			1,624,844
Other expense, net			(3,077	)		(2,257	)
Other expense, net			(3,174,516	)		(645,191	)
Income from continuing operations before income taxes			7,538,533			6,267,150
Income tax expense			836,272			913,348
Income from continuing operations			6,702,261			5,353,802
Discontinued operations	(14)
Loss from discontinued operations before income taxes			(56,995	)		(78,162	)
Income tax expense			-			-
Loss from discontinued operations			(56,995	)		(78,162	)
Net income		$	6,645,266		$	5,275,640
Basic earnings per share:	(11)
Income from continuing operations		$	0.12		$	0.10
Loss from discontinued operations		$	(0.00	)	$	(0.00	)
Net income per share		$	0.12		$	0.10
Diluted earnings per share:	(11)
Income from continuing operations		$	0.12		$	0.09
Loss from discontinued operations		$	(0.00	)	$	(0.00	)
Net income per share		$	0.12		$	0.09
Weighted-average shares outstanding:	(11)
Basic			54,202,036			54,202,036
Diluted			54,207,633			67,432,169

See accompanying notes to unaudited condensed consolidated financial statements.

F-2

SHENGDATECH, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended March 31,
	2010			2009
				As restated (Note 1)
Cash flows from operating activities:
Net income	$	6,645,266		$	5,275,640
Loss from discontinued operations		(56,995	)		(78,162	)
Income from continuing operations		6,702,261			5,353,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,514,300			997,290
Land use rights expense		93,758			79,530
Amortization of debt issuance costs		301,523			313,185
Amortization of debt discount		1,609,587			1,283,016
Gain on extinguishment of long-term convertible notes		-			(1,624,844	)
Deferred income tax assets		(1,143,679	)		(140,821	)
Share-based compensation expense		-			6,771
Changes in operating assets and liabilities:
Accounts receivable		(475,511	)		1,016,959
Prepaid expenses and other receivables		561,349			426,092
Inventories		(19,711	)		300,469
Accounts payable		62,180			(191,724	)
Accrued expenses and other payables		1,126,916			730,731
Income taxes payable/refund receivable		1,784,360			(1,320,495	)
Due to related parties		(154,115	)		48,286
Net cash provided by operating activities		11,963,218			7,278,247
Cash flows from investing activities:
Cash paid for acquisition of Chaodong		(3,808,240	)		-
Purchase of property, plant and equipment, including interest capitalized		(3,892,821	)		(4,560,726	)
Purchase of land use rights		(2,916,972	)		-
Net cash used in investing activities		(10,618,033	)		(4,560,726	)
Cash flows from financing activities:
Payment to extinguish long-term convertible notes		-			(2,535,745	)
Net cash used in financing activities		-			(2,535,745	)
Cash flows from discontinued operations:
Net cash used in operating activities		(61,384	)		(359,502	)
Net cash used in investing activities		-			-
Net cash used in financing activities		-			-
Effects of exchange rate changes on cash in discontinued operations		3,482			27,352
Net cash used in discontinued operations		(57,902	)		(332,150	)
Effect of exchange rate changes on cash		11,833			43,203
Net increase (decrease) in cash		1,299,116			(107,171	)
Cash at beginning of period		115,978,763			114,287,073
Cash at end of period	$	117,277,879		$	114,179,902
Non-cash investing activities:
Accounts payable for purchase of property, plant and equipment	$	(232,102	)	$	(3,138,177	)
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	193,633		$	2,675,461
Cash paid for interest, net of capitalized interest	$	-		$	72,144

See accompanying notes to unaudited condensed consolidated financial statements.

F-3

NOTE 1 – Nature of Business

Principal activities

ShengdaTech, Inc. (“ShengdaTech”) and its subsidiaries (collectively, the “Company”) are engaged primarily in developing, manufacturing and marketing nano precipitated calcium carbonate (“NPCC”) products. The Company sells its products mainly through a direct sales force.  The geographic markets cover several provinces, primarily Shandong and Shaanxi of the People’s Republic of China (“PRC”).  The NPCC sold by the Company is ultra fine precipitated calcium carbonate with an average particle diameter of under 100 nano-meters for application as an additive in various products, including paper, paints, rubber and plastic industries. The Company currently supplies NPCC products primarily to the tire and polyvinyl chloride (“PVC”) building materials industries.

Prior to November 1, 2008, the Company’s chemical segment manufactured and sold chemical products used in the chemical, pharmaceutical, lighting and textile industries. On June 20, 2008 the Company received a notice from the Tai'an City Government requiring Shandong Bangsheng Chemical Co., Ltd. (“Bangsheng Chemical”), which represented the Company’s entire operations for its chemical segment, to cease production by October 31, 2008 due to the close proximity of the chemical facility to residential and non-manufacturing business properties. The Company considered alternatives in order to continue the Company’s chemical operations and on August 11, 2008, the Company entered into an agreement with Shandong Shengda Technology Co. Ltd. (“Shandong Shengda”), a related party of which the Chief Executive Officer (“CEO”) Mr. Xiang Zhi Chen (“Mr. Chen”) of the Company is the major shareholder, to acquire a state-owned company, Jinan Fertilizer Co. Ltd. (“Jinan Fertilizer”), located in Jinan, Shandong Province. Jinan Fertilizer manufactures chemical products similar to those produced by Bangsheng Chemical and therefore the Company intended to consolidate the Bangsheng Chemical operations with Jinan Fertilizer. However, in March 2009, the Board of Directors decided that the Company would no longer pursue the acquisition of Jinan Fertilizer. The Company did not incur any liability or costs as a result of not consummating the acquisition of Jinan Fertilizer.

In December 2009, the Company committed to a plan to sell substantially all of the Bangsheng Chemical operating assets, primarily plant equipment, as well as satisfied all of the other criteria in order for a long-lived asset (disposal group) to be classified as held for sale in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Section 360-10-45, Impairment or Disposal of Long-Lived Assets, or ASC 360-10-45,and the criteria for reporting discontinued operations in accordance with FASB ASC Subtopic 205-20,  Discontinued Operations, or ASC 205-20, as of December 31, 2009. As a result, the Company has presented the assets, liabilities, operating results and cash flows of Bangsheng Chemical as discontinued operations for all periods presented in the accompanying interim condensed consolidated financial statements. In addition, Bangsheng Chemical plant equipment and inventory to be disposed of are classified as assets held for sale. As of December 31, 2009, the Company had ceased all operations at Bangsheng Chemical. Additional information on discontinued operations is disclosed in Note 14.

On December 11, 2009, Faith Bloom, a wholly-owned subsidiary of ShengdaTech, acquired 100% of the equity interest of Anhui Chaodong Nanomaterials Science and Technology, Co., Ltd (“Chaodong”). See Note 2. Chaodong changed its name to Anhui Yuanzhong Nanomaterials Co., Ltd. in April 2010.

Basis of presentation

The accompanying interim condensed consolidated financial statements of the Company include the accounts of ShengdaTech and its wholly-owned subsidiaries.  The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. In the opinion of the Company’s management, the interim condensed consolidated financial information provided herein reflects all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the Company's consolidated financial position as of March 31, 2010, the results of its operations for the three months ended March 31, 2010 and 2009, and its cash flows for the three months ended March 31, 2010 and 2009. The results of operations and cash flows for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2009, which are included in the Company's  2009 Annual Report on Form 10-K.

F-4

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and costs and expenses during the reporting period. Changes in estimates are reflected in the periods during which they become known. Actual amounts may differ from these estimates and could differ materially.

Correction of errors

The Company’s interim condensed consolidated statements of income and cash flows for the three months ended March 31, 2009 have been restated from previously issued interim condensed consolidated financial statements to correct an immaterial overstatement of income tax expense of $293,068 and an understatement of basic and diluted earnings per share from continuing operations of 0.01 per share, resulting from extinguishment of long-term convertible notes in February 2009.

	For the Three Months Ended March 31, 2009
	As previously
	reported		Adjustments			Reclassifications			As restated
Income from continuing operations before income taxes	$	6,188,988	$	-		$	78,162		$	6,267,150
Income tax expense		1,206,416		(293,068	)		-			913,348
Income from continuing operations		4,982,572		293,068			78,162			5,353,802
Loss from discontinued operations		-		-			(78,162	)		(78,162	)
Net income	$	4,982,572	$	293,068		$	-		$	5,275,640
Earnings per share from continuing operations:
Basic	$	0.09	$	0.01		$	-		$	0.10
Diluted	$	0.08	$	0.01		$	-		$	0.09

	For the Three Months Ended March 31, 2009
	As previously
	reported			Adjustments		Reclassifications			As restated
Net income	$	4,982,572		$	293,068	-			$	5,275,640
Loss from discontinued operations		-			-		(78,162	)		(78,162	)
Income from continuing operations		4,982,572			293,068		78,162			5,353,802
Net cash provided by operating activities		6,918,745			-		359,502			7,278,247
Net cash used in investing activities		(4,560,726	)		-		-			(4,560,726	)
Net cash used in financing activities		(2,535,745	)		-		-			(2,535,745	)
Net cash used in discontinued operations		-			-		(359,502	)		(359,502	)
Effects of exchange rate changes on cash in discontinued operations		-			-		27,352			27,352
Effect of exchange rate changes on cash		70,555			-		(27,352	)		43,203
Net decrease in cash	$	(107,171	)		-		-		$	(107,171	)

Recently  adopted accounting pronouncements

On January 1, 2009, the Company adopted FASB ASC Topic 805, Business Combinations , or ASC 805. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. ASC 805 also requires the capitalization of research and development assets acquired in a business combination at their acquisition date fair values, separately from goodwill. In addition, ASC 805 requires that any post-acquisition adjustments to deferred tax asset valuation allowances and liabilities related to uncertain tax positions be recognized in current period income tax expense. ASC 805 was effective for the Company beginning January 1, 2009. The Company accounted for the acquisition of Chaodong in accordance with ASC 805 (See Note 2).

NOTE 2 - Acquisition

On December 11, 2009, the Company acquired 100% of the equity interest of Chaodong, a manufacturer of NPCC, including mining rights to certain limestone reserves (with a remaining period of approximately two years for the mining rights) and existing buildings and equipment for cash consideration of RMB 26,000,000 (approximately $3.8 million). The Company did not assume any liabilities as of the date of the acquisition. The operating results of Chaodong are included in the Company’s condensed consolidated financial statements from the date of the acquisition.

The purchase price of $3.8 million was paid in full on January 20, 2010. The allocation of the purchase price is subject to finalization of management’s analysis of certain local tax matters as of the acquisition date. The final allocation of the purchase price may result in additional adjustments to the recorded amounts of assets and may also result in adjustments to depreciation expense. In addition, the historical financial statements may need to be revised retrospectively pending the resolution of the remaining purchase price allocation items. The final allocation is expected to be completed in the second quarter 2010.

The following pro forma information summarizes the result of operations for the three months ended March 31, 2009, as if the Chaodong acquisition had occurred as of the beginning of the quarter presented. Adjustments for depreciation expense based on the fair value of the newly acquired property and equipment using the Company’s depreciation policy and amortization of mining rights based on the Company’s amortization policy have been applied retroactively. The pro forma result does not reflect any operating efficiencies or potential cost savings that may result from the combined operations of the Company and Chaodong. Accordingly, the pro forma result is presented for illustrative purposes and is not intended to represent or be indicative of the actual result of operations of the combined companies that would have been achieved had the acquisition occurred at the beginning of the period presented, nor is it intended to represent or be indicative of future result of operations.

F-5

	Pro Forma
	For the Three Months
	Ended March 31,2009
Net sales	$	20,672,353
Operating income		6,747,032
Income from continuing operations		5,189,991
Loss from discontinued operations		(78,162	)
Net income	$	5,111,829

NOTE 3 – Inventories

Inventories consist of the following:

	March 31,		December 31,
	2010		2009
Raw materials	$	1,071,403	$	1,003,929
Work-in-process		408,598		383,960
Finished goods		558,317		630,394
Total inventories	$	2,038,318	$	2,018,283

Raw materials consist primarily of anthracite and limestone supplies used in the Company’s production of NPCC products.

NOTE 4 – Property, plant and equipment

Property, plant and equipment consist of the following:

	March 31,			December 31,
	2010			2009
Buildings	$	30,242,528		$	30,224,605
Plant, machinery and equipment		104,956,452			104,836,652
Motor vehicles		150,867			150,843
Office equipment		577,884			592,456
Construction in progress		3,697,543			138,163
Total property, plant and equipment		139,625,274			135,942,719
Less: accumulated depreciation		(14,359,209	)		(12,842,859	)
Total property, plant and equipment, net	$	125,266,065		$	123,099,860

Depreciation expense were $1,514,300 and $997,290 for the three months ended March 31, 2010 and 2009, respectively.

F-6

A reconciliation of total interest cost incurred to interest expense as reported in the condensed consolidated statements of income for the three months ended March 31, 2010 and 2009 is as follows:

	For the Three Months Ended March 31,
	2010		2009
Total interest cost incurred	$	3,265,916	$	2,995,931
Interest cost capitalized		-		(547,024	)
Interest expense	$	3,265,916	$	2,448,907

NOTE 5 – Income taxes

The Company’s effective income tax rates are 11.1% and 14.6% for each of the three months ended March 31, 2010 and 2009, respectively.  Income tax expense includes federal and foreign income tax at statutory rates, the effects of permanent differences, and foreign income tax holidays.

Management periodically evaluates the likelihood of the realization of deferred income tax assets, and reduces the carrying amount of those deferred income tax assets, by a valuation allowance to the extent it believes that such portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of its deferred income tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carryforward periods available to it for tax reporting purposes and other relevant factors. Significant judgment is required in making this assessment.

The Company is also subject to audits by foreign taxing authorities, primarily tax authorities of the PRC, where the Company conducts a majority of its business.

Management evaluates the Company’s tax positions quarterly and the associated interest and penalties, if applicable. As of March 31, 2010 the Company’s unrecognized tax benefit, included in non-current income taxes payable on the Company’s unaudited condensed consolidated balance sheet, amounted to $1,691,599.

NOTE 6 – Commitments and contingencies

Project Investment Contract – On August 28, 2009, Faith Bloom entered into a Project Investment Contract (the “Investment Agreement”) with the local government of Hanshan County, Anhui Province, PRC (the “local government”).  Pursuant to the Investment Agreement, the Company will invest RMB 1,200,000,000 (approximately $175.7 million) in several phases by 2013, which includes an investment in a new NPCC project with capacity to manufacture 200,000 tons of NPCC per year and the purchase of approximately 341,335 square meters (approximately 84.35 acres) of land use rights. The local government has also agreed to grant the Company mining rights to certain limestone reserves. In addition, land use rights and mining rights grants are also subject to further local government administrative processes.

The Company made a prepayment for land use rights of approximately RMB19,940,508 (approximately $2.9 million) to the local government during the three months ended March 31, 2010, which has been reflected in deposit for land use rights on the accompanying unaudited condensed consolidated balance sheet as of March 31, 2010. On April 16, 2010, the Company was notified by the Bureau of Land and Resources of Hanshan County that the land use rights of 335,889 square meters (approximately 83.00 acres) for the expansion of Chaodong plant facilities had been granted to the Company after completion of the local government administrative approval processes. As a result, the Company would pay an additional RMB70,749,522 (approximately $10.4 million) for the purchase of the land use rights.  On April 30, 2010, the Company made a payment of RMB 20,000,000 (approximately $2.9 million) for the purchase. The remaining balance will be paid in second quarter 2010.

In addition, on August 28, 2009, the Company entered into an agreement with the local government to purchase the land use rights for approximately 66,767 square meters (16.50 acres) of land (the “Land Use Right Agreement”) for use in the operations of Chaodong.  The Land Use Right Agreement is subject to local government approval after the completion of certain local administrative processes.

F-7

Leases – The Company leases land and buildings from Shandong Shengda, a related party. The lease was entered into by the Company’s subsidiary, Shandong Haize Nano for a 20-year term up to 2024. These leases are classified as operating leases.

Total rent expense under these leases for the three months ended March 31, 2010 and 2009 was $47,703 and $47,630, respectively.

Future minimum lease payments under the Company's lease agreement as of March 31, 2010 are as follows:

	Lease
	Payments
2010	$	143,109
2011		190,813
2012		190,813
2013		190,813
2014		190,813
Thereafter		1,899,405
	$	2,805,764

Capital commitments – The Company has contractual obligations related to the purchase of property and equipment amounting to $8,339,194 as of March 31, 2010.

NOTE 7 – Related party transactions

Due to related parties – As of March 31, 2010 and December 31, 2009, the Company owed Shandong Shengda $53,555 and $212,034, respectively, comprised primarily of rent expense for land and buildings. In addition, the Company has a 3% unsecured note payable to Shandong Shengda.  Total principal and accrued interest outstanding was $606,032 and $601,631 as of March 31, 2010 and December 31, 2009, respectively. The note payable plus accrued interest is expected to be paid before December 31, 2010 and is included in the due to related parties on accompanying unaudited condensed consolidated balance sheet as of March 31, 2010.

In 2008 the Company purchased $17,662,846 of equipment from Shandong Haiqing Chemical Co., Ltd. (“Shandong Haiqing”). Mr. Chen, the President and CEO of the Company, was also the CEO of Shandong Haiqing during 2008.  Mr. Chen’s contract with Shandong Haiqing expired as of January 1, 2009.  Shandong Haiqing has appointed a new CEO and as a result effective January 1, 2009, Shandong Haiqing is no longer considered a related party of the Company. Amounts due to Shandong Haiqing related to these purchases for contracts entered into prior to January 1, 2009 amounted to $1,360,612 and $1,360,393 as of March 31, 2010 and December 31, 2009, respectively. The amount, which was related to equipment quality retention withheld for one year from the time of the Zibo facility starting its operations, is expected to be paid to Shandong Haiqing in August 2010 based on the term of the original purchase agreement.

NOTE 8 – Long-term convertible notes

On May 28, 2008 the Company issued $100,000,000 of 6% long-term convertible notes due June 1, 2018 (the “Notes”) in a private placement. On June 25, 2008, the Company issued an additional $15,000,000 of the Notes to cover over allotments.  Proceeds from the issuance of the Notes were $115,000,000. The Notes bear interest at 6% per annum, payable semiannually on June 1 and December 1, and have a maturity date of June 1, 2018. At maturity, subject to certain exceptions, the Company will be required to repay the principal amount of the Notes. 

F-8

The Notes are convertible at the option of the holders, at any time prior to maturity, into common shares at an initial conversion rate of 100.6036 shares per $1,000 principal amount of the Notes (at approximately $9.94 per common share) subject to adjustment.  Holders who convert their Notes at any time prior to June 1, 2011 are entitled to additional interest in cash or, at the Company’s option, in common shares of the Company. The additional interest shall be equal to the interest due and payable from the date of issuance until and including June 1, 2011, less any interest actually paid or provided for prior to the date of such conversion (such additional interest is referred to as the “make-whole interest payment”). Upon conversion of a convertible note, if the Company chooses to pay the make-whole interest payment in shares, the aggregate make-whole interest to such noteholder shall not exceed $68.21 per each $1,000 original principal amount of Notes.

The Company adopted ASC 470-20 as of January 1, 2009. Under the new method of accounting, the debt and equity components of the 6% long-term convertible notes were bifurcated and accounted for separately and interest expense is computed using an effective interest rate of 13.5% as the convertible notes are accreted to the face value.

The long-term convertible notes as of March 31, 2010 and December 31, 2009 are summarized in the following table:

	March 31,			December 31,
	2010			2009
Principal amount of long-term convertible notes	$	90,027,000		$	90,027,000
Conversion option subject to cash settlement		(9,118,874	)		(10,728,461	)
Net carrying amount	$	80,908,126		$	79,298,539
Carrying amount of additional paid in capital	$	15,214,953		$	15,214,953

Conversion option subject to cash settlement or debt discount is amortized as interest expense through June 1, 2011, the earliest date the holders of the long-term convertible notes can demand payment.  In addition, prior to such date, holders of the Notes can convert their Notes and receive an additional interest in cash or, at the Company’s option, in common shares of the Company.  Debt issuance costs of $4,621,967 as of May 28, 2008, have been capitalized and are being amortized on a straight-line basis, which approximate the effective interest rate method from the date the convertible notes were issued to June 1, 2011.

Interest relating to the convertible notes was recognized as follows:

	For the Three Months Ended March 31,
	2010		2009
Contractual coupon interest on convertible notes	$	1,350,405	$	1,396,434
Amortization of debt discount		1,609,587		1,283,016
Amortization of debt issuance costs		301,523		313,185
Interest cost capitalized		-		(547,989	)
Interest expense	$	3,261,515	$	2,444,646

The Company cannot redeem the Notes prior to June 1, 2011. Beginning on or after June 1, 2011 and up to May 31, 2013, the Company may redeem the Notes for cash, in whole or part, at a price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest to, but excluding, the redemption date, if the last trading price of the Company’s shares of common stock, subject to certain qualifications, is at least 150% of the conversion price then in effect on the trading date. On or after June 1, 2013, the Company may redeem the Notes for cash in whole or in part, at a price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

F-9

On June 1, 2011 and June 1, 2013, holders of the Notes may require the Company to purchase all or a portion of the Notes at a purchase price in cash equal to 100% of the principal amount of the Notes being repurchased plus accrued and unpaid interest to, but excluding, the repurchase date, subject to certain conditions.

The Company evaluated the accounting for embedded call and put and determined that such call and put options are clearly and closely related to the Notes because the amount paid upon settlement is fixed at a price equal to the principal amount plus accrued and unpaid interest, and as such would not be accounted for separately.

The Notes require the Company not incur any secured indebtedness and it will not permit any of its subsidiaries to directly or indirectly incur any indebtedness. The Company will be permitted to incur additional indebtedness which ranks equal in right of payment to the Notes in an amount not to exceed $15,000,000; provided that such indebtedness does not require any repayment prior to the next purchase date as set forth in the Notes. The Company will be permitted to issue equity securities, including common stock and preferred stock (in the case of preferred stock, which shall not be redeemable or otherwise repayable prior to the stated maturity date of the Notes so long as 25% or more of the initial aggregate principal amount of Notes issued, including any Notes issued pursuant to the over-allotment option, is outstanding), and any securities which rank junior in right of payment to the Notes.

According to the terms of the Notes, the Company can repurchase the Notes in the open market any time. During February 2009, the Company repurchased, in privately negotiated transactions, part of the Noteswith a principal amount of $5,223,000 from certain investors for cash of $2,535,745 plus accrued interest of $72,144. In conjunction with the repurchases, the Company recognized a pre-tax gain of $1,624,844, net of unamortized debt issuance costs and discount of $158,109 and $904,302, respectively, for the three months ended March 31, 2009. 

No portion of the consideration paid by the Company was deemed to represent reacquisition of the equity component at the time of the settlement based on the Company’s fair value considerations of the liability component of the convertible notes immediately prior to the extinguishment.

NOTE 9 – Share-based compensation

Options –There were no option granted for the three months ended March 31, 2010. On January 1, 2009, the Company issued an option to a director to purchase 5,000 shares of common stock at an exercise price of $3.52 per share with a contractual term of three years and vesting immediately. The fair value of the option grant was estimated at $1.35.

The related share-based payment was recognized as compensation expense on the date of the grant and included in general and administrative expenses in an amount of $6,771 for the three months ended March 31, 2009. The Company estimated the fair value of options granted using a Black-Scholes option-pricing model with the following assumptions:

	2009
Expected life	1.50 years
Expected volatility		80.81%
Risk free interest rate		1.14%
Dividend yield		0%

The risk-free interest rate is based on the U.S. Treasury zero-coupon rate. Expected volatility of stock option awards is estimated based on the Company’s historical stock price using the expected life of the grant. Expected life is based upon the short-cut method.

F-10

Stock option transactions for the three months ended March 31, 2010 are as follows:

	Number		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2010		30,000	$	5.97		1.87	$	40,100
Granted		-		-
Exercised		-		-
Outstanding at March 31, 2010		30,000	$	5.97		1.63	$	62,950
Vested at March 31, 2010		30,000	$	5.97		1.63	$	62,950

NOTE 10 – Comprehensive income

The following table presents the components of total comprehensive income for the three months ended March 31, 2010 and 2009:

	For the Three Months Ended March 31,
	2010		2009
Net income	$	6,645,266	$	5,275,640
Other comprehensive:
Foreign currency translation adjustments		32,604		215,823
Comprehensive income	$	6,677,870	$	5,491,463

NOTE 11 - Earnings per share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average shares of common stock outstanding during the period. Diluted EPS is calculated by dividing net income as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of convertible notes, using the if-converted method, and common stock issuable upon the exercise of outstanding share options and warrants (using the treasury stock method). Potential dilutive securities are not included in the calculation of diluted earnings per share if the effect is anti-dilutive.

F-11

The following table sets forth the computation of basic and diluted earnings per share:

	For the Three Months Ended March 31,
	2010			2009
Income from continuing operations	$	6,702,261		$	5,353,802
Interest expense on convertible notes, net of tax of $831,180		-			1,613,466
Gain on extinguishment of long-term convertible notes, net of tax of $552,447		-			(1,072,397	)
Adjusted income from continuing operations	$	6,702,261		$	5,894,871
Loss from discontinued operations	$	(56,995	)	$	(78,162	)
Adjusted net income	$	6,645,266		$	5,816,709
Weighted average shares:
Basic		54,202,036			54,202,036
Effect of dilutive securities:
Long-term convertible notes		-			13,230,133
Options		5,597			-
Diluted		54,207,633			67,432,169
Basic earnings per share:
Income from continuing operations	$	0.12		$	0.10
Loss from discontinued operations	$	(0.00	)	$	(0.00	)
Net income per share	$	0.12		$	0.10
Diluted earnings per share:
Income from continuing operations	$	0.12		$	0.09
Loss from discontinued operations	$	(0.00	)	$	(0.00	)
Net income per share	$	0.12		$	0.09

The potential common shares of 10,465,643 related to the convertible notes were anti-dilutive and were excluded from the diluted earnings per share computation for the three months ended March 31, 2010.

The total number of potential common shares excluded from the diluted earnings per share computation because the exercise price of the stock options exceeded the average price of the Company’s common stock were 15,000 and 20,000 for the three months ended March 31, 2010 and 2009, respectively.

NOTE 12 – Significant Concentrations, Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk primarily consist of cash and accounts receivable included in the consolidated balance sheets. The Company deposits its cash in banks primarily in the PRC. Historically, deposits in the PRC banks have been secure due to the state policy on protecting depositors’ interests.

The Company sells its products primarily in the PRC.  The Company continuously monitors the creditworthiness of its customers and has internal policies regarding customer credit limits. The Company has no customer that individually comprised of 10% or more of the Company’s consolidated sales or accounts receivable.

The Company is dependent on certain suppliers for major materials used in manufacturing of its products. If the supply of certain materials were interrupted, the Company’s own manufacturing process could be delayed and could cause a possible loss of sales, which would adversely affect operating results. Purchases (net of VAT) made from two (2) local suppliers for soft coal, limestone, and modification agents for the three months ended March 31, 2010 and 2009 were $3,156,279 and $3,221,424, respectively.

F-12

NOTE 13 – Fair Value Measurements

Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, or ASC 820, with the exception for nonrecurring, nonfinancial assets and liabilities where adoption has been deferred and is effective on the first day of fiscal year 2010. The adoption of ASC 820 did not impact the Company’s financial position, results of operations or cash flows. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

As of March 31, 2010, the estimated fair value of the outstanding convertible notes was $93,177,945 based on the level 3 valuation which compared to a carrying value of $80,908,126. As of December 31, 2009, the estimated fair value of the outstanding convertible notes was approximately $86,425,920 based on the level 3 valuation which compared to a carrying value of $79,298,539. Due to the fact that there is no active market for this instrument, the fair value of the convertible notes was estimated using a discounted cash flow analysis based on current borrowing rates for instruments with similar terms. In addition, the Company utilized other sources of information for the relevant market parameters in order to develop its fair value.

The Company’s other financial instruments including cash, accounts receivable, accounts payable, accrued expenses and other receivable/payable have net carrying values that approximate their fair values due to the short-term nature of these instruments.

NOTE 14 – Discontinued Operations

The Bangsheng Chemical had ceased all operations since October 31, 2008. In December 2009, the Company committed to a plan to sell the Bangsheng Chemical’s assets, excluding certain tax receivables, accrued expenses, and non-current income taxes payable. As such the Bangsheng Chemical plant equipment and inventory were classified as assets held for sale. The remaining assets and liabilities associated with the Bangsheng Chemical segment have been classified as assets and liabilities of discontinued operations as of March 31, 2010 and December 31, 2009.

Assets and liabilities of the Bangsheng Chemical are comprised of the following:

	March 31,		December 31,
	2010		2009
Prepaid expenses	$	4,389	$	-
Income taxes receivable		802,111		801,983
Current assets of discontinued operations	$	806,500	$	801,983
Assets held for sale	$	1,718,751	$	1,718,475
Accrued expenses	$	42,075	$	42,068
Non-current income taxes payable	$	294,755	$	294,708

F-13

The operating results of the Bangsheng Chemical are as follows:

	For the Three Months Ended March 31,
	2010			2009
Operating expenses:
General and administrative	$	56,995		$	97,547
Total operating expenses		56,995			97,547
Operating loss		(56,995	)		(97,547	)
Other income:
Interest income		-			19,385
Other income, net		-			19,385
Loss from discontinued operations before income taxes		(56,995	)		(78,162	)
Income tax expense		-			-
Loss from discontinued operations	$	(56,995	)	$	(78,162	)

NOTE 15 – Geographic information

The following summarizes the Company’s revenue, based on the geographic location of the customers:

	For the Three Months Ended March 31,
	2010					2009
	Amount		% of sales			Amount		% of sales
PRC	$	29,728,918		98	%	$	17,655,520		85	%
Others		497,796		2	%		3,016,833		15	%
Total net sales	$	30,226,714		100	%	$	20,672,353		100	%

F-14

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative explanation from the perspective of our management on our business, financial condition, results of operations, and cash flows.

Overview

We are a leading and fast growing Chinese manufacturer of specialty additives. Our nano-precipitated calcium carbonate (“NPCC”) products are used as functional additives and fillers in a broad array of products due to their low cost and the overall improved chemical and physical attributes they provide to end products. As a market leader of high-grade NPCC products, we deploy advanced processing technology to convert limestone into high quality NPCC products, which are sold to our customers in the tire, PVC building materials, PP building materials, ink, paint, latex, adhesive, paper and PE industries.

Factors Affecting our Results of Operations

Our operating results are primarily affected by the following factors:

· NPCC Industry Growth.We believe the market for NPCC in China for the long term will be growing rapidly, driven by China’s economic growth and increasing penetration of NPCC applications into different industries.

· Research and Development. We believe our research and development capabilities have become an increasingly important driver of our growth. Our research and development team has developed a technology 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. We believe this process is essential to the development and introduction of our new NPCC products.

· Production Capacity and Production Volume.We believe the rapid growth of the NPCC market in China and our ability to continuously penetrate new areas of NPCC applications provide sufficient room for us to further enhance our capacity. Since 2008, we have been able to substantially utilize our existing capacity, taking into account of ramp-up periods required for new facilities. We believe that the ability to increase our production capacity will allow us to significantly increase revenues and profit.

· Price of NPCC Products. We believe the quality of our products and our technical service capabilities will allow us to maintain a stable price structure.  We believe most of our customers in China use NPCC as an additive to enhance functionalities of their end products and to save costs, which are directly affected by the quality of NPCC used. Accordingly, we believe our reputation for quality and reliable technical support allows us to command relatively higher average selling prices and generate higher gross margins than our competitors who do not possess the same reputation. 

· Economies of Scale.  We believe our larger size of operations in comparison with most of our competitors in China allows us to derive better efficiencies which favorably impact our operational results.

· Raw Material Supply and Prices.  The per unit costs of producing our products are subject to the supply and price volatility of coal and other raw materials. We expect that they will continue to be affected by factors such as fluctuations of world energy prices and general economic conditions such as inflation and transportation.

· Competition.  While China’s NPCC market is expected to grow, we are subject to intense competition.  We face significant competition from NPCC manufacturers within China and well-established chemical companies from other countries.  We compete based upon proprietary technologies, manufacturing capacity, product quality, production costs and the ability to produce a diverse range of NPCC products.  By leveraging our research and development capabilities, our quality and economies of scale, we believe that we have been able to offer customers quality products at higher gross margins than our competitors.

3

Organization

ShengdaTech is incorporated in Nevada in the United States of America.  ShengdaTech’s wholly-owned subsidiaries, Chaodong, Shandong Haize Nanomaterials Co., Ltd. (“Shandong Haize Nano”), Bangsheng Chemical, Shaanxi Haize Nanomaterials Co., Ltd. (“Shaanxi Haize Nano”), and Zibo Jiaze Nanomaterials Ltd. (“Zibo Nano”) and collectively the “PRC operating subsidiaries” are established under the laws of the PRC.

On December 11, 2009, Faith Bloom, a wholly-owned subsidiary of ShengdaTech, acquired 100% of the equity interest of Chaodong.  Chaodong was an inactive manufacturer of NPCC products. The name of Chaodong was changed to Anhui Yuanzhong Nanomaterials Co., Ltd. in April 2010.

Our corporate structure is depicted in the following chart:

Net Sales

We derive our net sales from the sale of our NPCC products. 

The most significant factors that directly or indirectly affect our sales are as follows:

· Manufacturing capacity of NPCC;

· Breakthroughs of R&D and applications of NPCC;

· Pricing of our NPCC products;

· Competitive landscape;

· Industry demand; and

· Exchange rate

Manufacturing capacity of NPCC. We increased our annual manufacturing capacity of NPCC from 90,000 metric tons as of December 31, 2006 to 190,000 metric tons as of December 31, 2008 and further to 250,000 metric tons as of December 31, 2009. Our Phase I NPCC facility in Zibo started production in late August 2009. The facility reached 90% capacity utilization at the end of 2009 and 100% capacity in January 2010. Our Anhui facility started production in May 2010 after we completed certain repair and maintenance of the facility and equipment and performed certain technological upgrades consistent with our Tai’an Shandong facility. Increasing capacity allows us to provide a stable supply of NPCC to our existing customers and attract new customers.

4

Breakthroughs of research and development and applications of NPCC. We jointly developed with Tsinghua University the membrane-dispersion technology for NPCC production, which was officially granted a patent in November 2007. With the membrane-dispersion patent, we intend to maintain our leading position in technology for the NPCC market in China through continuing efforts in developing new NPCC products for applications in different industries.

Pricing of our NPCC products. The pricing of our NPCC products generally is determined by manufacturing costs, overall market demand, competition, and, increasingly, costs associated with developing the 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 imported products.

Competitive landscape. The competition in the Chinese NPCC market is stratified. In low-end applications, where several options are available, including precipitated calcium carbonate (PCC) and other fillers, suppliers are experiencing price pressure from their counterparts and from end users. However, in more complex applications, where NPCC use has proven to lower manufacturing costs and improve quality, end users will accept higher-priced and technologically advanced products, especially producers of tires, adhesives, high-end oil and inks, and auto coating industries. We target potential end users of high-end NPCC products. Our exclusive, patent-protected membrane-dispersion technology differentiates us from other competitive offerings and enables us to penetrate the market.

Industry demand. Our business and sales of product growth depends on industry demand for NPCC. The downstream industries we supply are the tire, polyvinyl chloride (PVC) building materials, ink, paint, latex, adhesive, paper and polyethylene (PE) industries. Given the diverse application of our NPCC products and the development of our R&D pipeline for new end markets, we believe that our business is well positioned for continued growth.

Section 421 of the Trade Act of 1974. China’s accession to the World Trade Organization (“WTO”) included transitional remedies to address import surges into other countries leading to market disruption. In the United States, the relevant safeguard provision was enacted as Section 421 of the Trade Act of 1974.  Section 421 permits U.S. domestic industries and workers injured by rapidly increasing imports from China to seek relief. Similar to other safeguard provisions, a Section 421 investigation is initiated by the filing of a petition with the United States International Trade Commission (“ITC”). On the basis of information developed in such investigation, the ITC determined, pursuant to Section 421(b)(1) of the Trade Act of 1974, that certain passenger vehicle and light truck tires from the PRC are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. On September 11, 2009, the United States government announced the decision to grant relief in the form of increasing the tariffs on such passenger vehicle and light truck tires for a three-year period by 35% in year one, 30% in year two, and 25% in year three. The increase in tariffs may harm the export business of our NPCC customers in the tire industry, which would decrease demand for our NPCC products, cause our revenue to decline and materially and adversely affect our business.

Exchange rate. Our sales of products have been affected by the foreign exchange rate between USD and RMB because the functional currency of our operating subsidiaries in the PRC is Renminbi while our financial statements have been expressed in USD, the functional currency of ShengdaTech, Inc. The accompanying consolidated statements of income have been translated using the average exchange rates prevailing during each of the periods presented.

5

Cost of Goods Sold

Cost of goods sold consists primarily of  raw materials, packaging, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs, and inspection costs.

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

· Processing technologies for NPCC;

· Transporting, supply, and price of limestone;

· Supply and price of limestone;

· Availability and price of anthracite and soft coal;

· Supply and price of electricity; and

· Exchange rate.

Processing 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 right to use the technology under a license agreement with Tsinghua University for the life of the patent. The membrane-dispersion technology enables us to produce NPCC in a more efficient and cost effective manner.

Transporting, supply, and price of limestone. Limestone is an important raw material for NPCC. Our Shaanxi Facility is close 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. In addition, on June 19, 2008, we entered into an investment agreement with the Management Committee of Zibo High-Tech Industrial Development Zone (the “Management Committee”). The Management Committee has agreed to continue to sell to us sources of good quality limestone. As of March 31, 2010, the transfer of mining rights to our Company is still under review of the Management Committee. In addition, the acquisition of Anhui Yuanzhong on December 11, 2009 included approximately two years of limestone mining rights. We are applying for the extension of mining rights with the PRC government. If the application is approved, another thirty years of mining rights will be granted. In addition, we have entered into a Project Investment Agreement with the government of Hanshan County, Anhui Province, which also includes the exclusive mining rights of good quality limestone. We believe that our access to these limestone sources will be sufficient to satisfy our limestone requirements and expansion needs for the foreseeable future.

Availability and price of anthracite and soft coal. Anthracite and soft coal areused in the production of our NPCC products as key raw material and fuel, respectively. Anthracite and soft coal were approximately 37.6% of our total cost of goods sold in 2009.  We have long-term relationships with our coal suppliers. We have also developed a network of alternative suppliers for backup purposes. Average anthracite prices has fluctuated in recent periods, increasing from approximately $135 per metric ton for the first quarter of 2009 to approximately $161 per metric ton for the first quarter 2010.

Supply and price of electricity. Electricity from the grid is the primary power source for the production of NPCC, and it is currently supplied by the local government. The price of electricity for the NPCC industry remained fairly consistent at $0.07/kwh for the first quarter of 2009 and that of 2010.

Exchange rate. Our cost of products sold has been affected by the foreign exchange rate between USD and RMB because the functional currency of our operating subsidiaries in the PRC is the RMB while our financial statements are expressed in USD, which is the functional currency of ShengdaTech, Inc. The accompanying consolidated statements of income have been translated using the average exchange rates prevailing during each of the periods presented.

6

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, (d) the volume and costs of manufacturing of our products, (e) competitive activities, (f) expanded international operations and (g) entry into new industry applications.

Operating Expenses

Operating expenses consist of selling and general and administrative expenses.  Selling expenses consists primarily of (a) salaries of sales personnel, (b) sales commissions, (c) travel, lodging and other out-of-pocket expenses, and (d) other related miscellaneous expenses.

General and administrative expensesconsist primarily of administrative personnel costs, including salaries and bonuses and employee benefits, office facility and equipment costs, amortization of land use rights,  research and development costs, and other support costs including utilities, insurance, and professional fees.

Critical Accounting Policies and Estimates

The selection of critical accounting policies, 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 significant accounting policies are set forth in detail in Note 2 to our consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2009. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements

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) there is 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 (except for our exported products, for which title transfers at the customer’s port), 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, net of sales rebates and taxes, when the products are shipped. We have no post-delivery obligations on our products sold.

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 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 estimated fair value. Assets held for sale for discontinued operation are recognized at the lesser of carrying value or fair value less costs to sell.

7

Long-term convertible notes - On January 1, 2009, as required by US GAAP, we changed how we account for our long-term convertible notes (the “Notes”) The change significantly impacts the accounting for our convertible notes by requiring us to account separately for the liability and equity components of the Notes because upon conversion at any time before June 1, 2011 the make-whole interest payment may be settled in cash. The liability component is measured so the effective interest expense associated with the convertible notes reflects our borrowing rate at the date of issuance for similar debt instruments without the conversion feature. The difference between the cash proceeds associated with the convertible notes and this estimated fair value is recorded as a debt discount and amortized to interest expense through June 1, 2011, the earliest date the holders of the Notes can demand payment. Determining the fair value of the liability component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the liability component and, in effect, the associated interest expense. According to the guidance, the carrying amount of the liability component is determined by measuring the fair value of a similar liability that does not have an associated equity component. If no similar liabilities exist, estimates of fair value are primarily determined using assumptions that market participants would use in pricing the liability component, including market interest rates, credit standing, yield curves, and volatilities.

Business combination - The application of purchase accounting requires certain estimates and assumptions especially concerning determination of the fair values of the acquired intangible assets and property, plant and equipment as well as liabilities assumed at the date of the acquisition. Moreover, the useful lives of the acquired intangible assets, property, plant, and equipment have to be determined. Measurement of fair value and useful lives are based, to a large extent, on anticipated cash flows. If actual cash flows vary from those used in calculating fair values, this may significantly affect the Company’s future results of operations. Among the factors that may affect the assumptions regarding future cash flows are long-term sales forecasts, anticipation of selling price erosion due to excessive capacities, and competitor’s actions. For significant acquisitions, the purchase price allocation is carried out with assistance from independent third-party valuation specialists. The valuations are based on information available at the acquisition date.

Results of operations

Continuing Operation —Comparison For the Three months ended March 31, 2009 and 2010

Sales of Products

	For the Three Months Ended March 31,
	2009				2010				Change
	Amount ($)		% of Total Revenue		Amount ($)		% of Total Revenue		Amount ($)		%
Net sales-NPCC		20,672,353		100.0		30,226,714		100.0		9,554,361		46.2

For the three months ended March 31, 2010, sales increased by $9,554,361 or 46.2% compared to the three months ended March 31, 2009. The increase was mainly due to an increase in sales volume of 19,344 metric tons that resulted from the additional production capacity of the Zibo, Shandong facility, resulted in a $9,382,879 increase in sales. In addition, the average selling price for the three months ended March 31, 2010 was $485 per metric ton, an increase of $4 per metric ton from an average selling price of $481 per metric ton for the three months ended March 31, 2009, which resulted in a $171,482 increase in sales. The increase in our average selling price was due primarily to changes in our pricing strategy and in our product mix based on market demands. For the three months ended March 31, 2010, sales of PE and latex applications increased by 18,365 and 5,296 metric tons respectively, compared to the three months ended March 31, 2009, due to the increase of industrial applications by existing customers as well as newly added customers subsequent to the first quarter of 2009. Sales for tires, PVC, paper, and ink applications, for the three months ended March 31, 2010, decreased by 820, 2,014, 338, and 1,389 metric tons respectively, due primarily to specific customers’ needs and demand and timing of their purchases. Sales of paint and auto underbody coating applications remained stable compared to the three months ended March 31, 2009.

We expect our average selling price to fluctuate narrowly within a small range. We believe the quality of our products and our strong technical service capability will allow us to maintain a stable price structure in the foreseeable future.  

On December 11, 2009, we acquired 100% of the equity interest of Chaodong. Our Chaodong facility is expected to start its production in Q2 2010. There were no sales generated from the newly acquired entity for the three months ended March 31, 2010.

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Cost of Goods Sold and Gross Profit

	For the Three Months Ended March 31,
	2009				2010				Change
	Amount ($)		% of Total Revenue		Amount ($)		% of Total Revenue		Amount ($)		(%)
Cost of Goods Sold-NPCC		12,185,227		58.9		17,528,919		58.0		5,343,692		43.9
Gross Profit-NPCC		8,487,126		41.1		12,697,795		42.0		4,210,669		49.6

Cost of goods sold increased by $5,343,692 or 43.9% for the three months ended March 31, 2010 compared to the three months ended March 31, 2009, mainly due to the increase in sales volume. The increase in cost of goods sold comprised an increase in raw material cost of $2,434,994, an increase in power and utilities cost of $2,415,948 and an increase in other production expenses of $492,750, which was consistent with the increase in sales.

Gross margin increased by 0.9%, from 41.1% for the three months ended March 31, 2009 to 42.0% for the three months ended March 31, 2010, mainly due to increased sales volume of products with high gross margins resulting from our pricing strategy and the change in our product mix.

Operating Expenses

	For the Three Months Ended March 31,
	2009				2010				Change
	Amount ($)		% of Total Revenue		Amount ($)		% of Total Revenue		Amount ($)		(%)
Operating Expenses
Selling expenses		316,808		1.5		520,053		1.7		203,245		64.2
General and administrative expenses		1,257,977		6.1		1,464,693		4.8		206,716		16.4
Total Operating expenses		1,574,785		7.6		1,984,746		6.5		409,961		26.0

Selling expenses increased by $203,245, or 64.2%, for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. This increase was mainly due to increased business volume during the three months ended March 31, 2010 compared to the three months ended March 31, 2009 and the increased sales commissions earned of $89,406. Although the commission rate decreased to 1% from 1.6% for the prior year due to the implementation of the new sales commission policy, which became effective in January 1, 2010, sales commission expense increased due to increased sales volume and revenue. In addition, for the three months ended March 31, 2010, office expenses, salary, and welfare expenses related to sales, increased by $113,839 compared to the three months ended March 31, 2009.

General and administrative expenses increased by $206,716 or 16.4 % for the three months ended March 31, 2010 compared to the three months ended March 31, 2009 but, as a percentage of net sales, decreased by 21.3%. The increase in terms of absolute amount was due mainly to an increase in our depreciation expenses of $148,784 in connection with the newly acquired Chaodong facility in December 2009, which is under repair and maintenance and is expected to be in production in second quarter 2010 and an increase in land use and property taxes for Zibo facility, of which commenced its operations in August 2009.

Operating income and earnings before Income Taxes

	For the Three Months ended March 31
	2009						2010						Change
	Amount($)			% of Total Revenue			Amount($)			% of  Total Revenue			Amount($)			%
Operating Income		6,912,341			33.4			10,713,049			35.4			3,800,708			55.0
Interest income		181,129			0.9			94,477			0.3			(86,652	)		(47.8	)
Interest expense		(2,448,907	)		(11.9	)		(3,265,916	)		(10.8	)		(817,009	)		33.4
Gain on extinguishment  of long-term convertible notes		1,624,844			7.9			-			-			(1,624,844	)		(100	)
Other expenses, net		(2,257	)		(0.0	)		(3,077	)		(0.0	)		(820	)		36.3
Earnings from continuing operations before income taxes		6,267,150			30.3			7,538,533			24.9			1,271,383			20.3
Income tax expense		913,348			4.4			836,272			2.8			(77,076	)		(8.4	)

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Operating income increased by $3,800,708 or 55.0% for the three-month period ended March 31, 2010, compared to the three-month periods ended March 31, 2009, mainly due to increased sales and gross profit. However, the increase in gross profit was partly offset by the noted increases in selling and general and administrative expenses. 

Interest income decreased by $86,652 or 47.8% for the three months ended March 31, 2010, compared to the three months ended March 31, 2009, mainly due to decreased investment income from cash invested with China Merchant Bank’s savings program linked to variable interest rate. Return of investment within a period is dependent upon changes in LIBOR rate and the company’s fund usage manner during the period.

Interest expense, related primarily to our convertible notes, was $3,261,515 for the three months ended March 31, 2010, an overall increase of $817,009, compared to the same period in 2009.  Total interest expense included $1,350,405 contractual coupon interest on the convertible notes, $301,523 amortization of debt issuance costs, and $1,609,587 amortization of debt discount. The $817,009 increase for the three months ended March 31, 2010 was mainly comprised of $326,571 increase in the amortization of debt discount, calculated in accordance with the relevant accounting principle, as compared to the same period of last year while capitalized interest for the three months ended March 31, 2010 decreased by $547,989, compared to the same period in 2009. The capitalized interest for the three months ended March 31, 2010 was immaterial as the Company started the construction of Zibo plant phase II project in March 2010.

During the first quarter of 2009, we recorded a gain on extinguishment of debt of $1,624,844 from the repurchase of our convertible notes with an aggregate principal amount of $5,223,000 from certain investors through privately negotiated transactions for cash of $2,535,745 plus accrued interest of $72,144. The difference of $1,062,411 was allocated to debt issuance cost and the discount on the Notes in an amount of $158,109 and $904,302, respectively. The Company did not repurchase additional Notes in Q1 2010.

Our effective income tax rate decreased from 14.6% for the three-month period ended March 31, 2009 to 11.1% for the three-month period ended March 31, 2010. The decrease in our effective tax rate was due primarily to a higher tax rate differential attributable to losses in the US operations for the three months ended March 31, 2010 when compared to the same period ended in 2009. The three months ended March 31, 2009 included the tax effect of the gain on extinguishment of debt discussed above for which no comparable current period amount exists. The decrease is partially offset by an increase in our Shandong Haize facility income tax rate to 25% in 2010 from 12.5% in 2009.

Discontinued Operations—Comparison for the three months ended March 31, 2009 and 2010

In December 2009, the Company decided to discontinue operations at our Bangsheng Chemical Facility and to sell all of its fixed assets and inventory. The facility ceased production at the end of October 2008. Our Bangsheng Chemical Facility operation was a component of our consolidated entity, and as such requires discontinued operations reporting treatment.

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A summary of the operating results of discontinued operations for the three months ended March 31, 2010 and 2009 is as follows:

	For the Three Months Ended March 31,
	2009				2010				Change
	Amount ($)			% of Total Revenue	Amount ($)			% of Total Revenue	Amount ($)		(%)
Net Sales	-			-	-			-	-		-
Gross profit	-			-	-			-	-		-
Loss from discontinued operations		(78,162	)	-		(56,995	)	-		21,167		(27.1	)
Income tax expense		-		-		-		-		-		-

There were no sales for the three months ended March 31, 2009 and 2010 by our Bangsheng Chemical Facility.

We did not have income tax expense for the discontinued operations for the three months ended March 31, 2009 and 2010 due to our loss position during both periods.

Liquidity and Capital Resources

Continuing Operations

We believe, based on our current cash level, as well as the forecast operating cash flows of 2010, that we have sufficient funds to finance our current operations and planned capital expenditures for at least the next 12 months. However, we have also planned additional capital expenditures over the coming years to further expand our business. We anticipate that these expenditures will be funded from working capital. We believe that the capital expenditures will subject to our investment commitment with local government and may also be influenced by changes in market conditions. There is no assurance that we will be able to obtain the necessary funds for such capital expenditures.

Cash, accounts receivable and working capital for continuing operations as of December 31, 2009 and March 31, 2010 were as follows, respectively:

	December 31, 2009		March 31, 2010
Cash		115,978,763		117,277,879
Accounts receivable, net		4,600,722		5,076,968
Working capital		113,828,812		115,771,414

Cash.Our cash was held for capital expenditures, strategic investment, and working capital purposes. As of March 31, 2010, our cash balance was $117,277,879 as compared to $115,978,763 as of December 31, 2009.  The increase was primarily due to positive cash flow from operations partly offset by investments in property, plant, and equipment for capacity expansion. We did not enter into investments for trading or speculative purposes.

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Accounts receivable.Our 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. We have a credit policy extending a 30- to 90-day credit term to customers who meet our credit evaluation criteria. We exclude cash sales in our calculation of accounts receivable turnover in days. Accounts receivable turnover in days were 61 days in the three months ended March 31, 2010 and 60 days in three months ended December 31, 2009. As of March 31, 2010, there was no overdue accounts receivable.

Working capital. Our working capital includes total current assets excluding current assets of discontinued operations and assets held for sale, net of total current liabilities excluding current liabilities of discontinued operations. The balance fluctuates from period to period, which is affected by our cash flow from operating activities. Working capital increased from $113,828,812  as of December 31, 2009 to $115,771,414  as of March 31, 2010 due to the increased cash flow from operating activities.

Cash flows from continuing operating, investing and financing activities were as follows:

	For the Three Months ended March 31
	2009			2010
Cash provided by operating activities		7,278,247			11,963,218
Cash used in investing activities		(4,560,726	)		(10,618,033	)
Cash used in financing activities		(2,535,745	)		-

Cash flows from operating activities.Cash provided by operating activities primarily consists of our cash receipts from product sales and the effect of changes in working capital and other operating activities. A primary factor affecting our operating cash flow is the timing of the cash receipts of the proceeds from the sales of NPCC and payments to purchase raw materials. Cash provided by operating activities for the three months ended March 31, 2010 increased to $11,963,218 from $7,278,247 for the three months ended March 31, 2009 primarily because of our increased sales revenue.

Cash flows from investing activities. Cash used in investing activities for the three months ended March 31, 2010 increased to $10,618,033 from $4,560,726 for the three months ended March 31, 2009. The changes in cash flows used in investing activities were primarily due to our capacity buildup activities during the periods.

Cash flows from financing activities. There was no cash provided by or used for financing activities for the three months ended March 31, 2010. Cash used by financing activities for the three months ended March 31, 2009 was mainly attributable to $2,535,745 of cash used for the repurchase of convertible notes.

Discontinued operations.

There were minimum cash activities in the discontinued operations of our Bangsheng Chemical Facility during the three months ended March 31, 2009 and 2010. 

Contractual Obligations

As of March 31, 2010

	Less than one year		1-3 years		3-5 years		More than 5 years		Total
Convertible notes-principal	$	-	$	-	$	-	$	90,027,000	$	90,027,000
Long-term convertible notes interest		5,401,620		10,803,240		10,803,240		17,105,130		44,113,230
Operating leases		190,812		381,625		381,625		1,851,702		2,805,764
Capital commitment		8,339,194		-		-		-		8,339,194
Total		13,931,626		11,184,865		11,184,865		108,983,832		145,285,188

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On June 1, 2011 and June 1, 2013, holders of the notes may require the Company to purchase all or a portion of the notes subject to certain conditions.

On April 16, 2010, the Company was notified by the Bureau of Land and Resources of Hanshan Country that the land use rights for a total area of 335,889 square meters (approximately 83.00 acres) which we planned to be used for the expansion of Chaodong facility, had been granted to the Company after the local government completed the administrative approval process in connection with the Project Investment Agreement. As a result, the Company would pay RMB 70,749,522 (approximately $10.4 million) in addition to the prepayment of RMB 19,940,508 (approximately $2.9 million) made during the first quarter of 2010 for the purchase of the land use rights. On April 30, 2010, the Company made a payment of RMB 20,000,000 (approximately $2.9 million) for the purchase. The remaining balance will be paid in second quarter 2010.

ITEM 3—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 and for strategic investments and acquisition purposes and consist primarily of bank deposits. We do not enter into investments for trading or speculative purposes.

Foreign Exchange Risk. Although the conversion of the Chinese Yuan (“RMB”) is highly regulated in the PRC, the value of the RMB against the value of the U.S. dollar (“USD”) (or any other currency) nonetheless may fluctuate and be affected by, among other things, changes in the political and economic conditions in the PRC. Under the currency policy in effect in the PRC today, the RMB is permitted to fluctuate in value within a narrow band against a basket of certain foreign currencies. The PRC is currently under significant international pressures to liberalize this government currency policy, and if such liberalization were to occur, the value of the RMB could depreciate against the USD.

The functional currency of our operating subsidiaries in the PRC is RMB.  However, the accompanying financial statements have been expressed in USD, which is our functional currency. The accompanying unaudited condensed consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date. The accompanying unaudited condensed consolidated statements of income have been translated using the average exchange rates prevailing during the periods of each statement.

Fluctuations in exchange rates may affect our financial results reported in USD terms without giving effect to any underlying change in our business or results of operations.

Fluctuations in exchange rates may also affect our balance sheet. For example, to the extent that we need to convert U.S. dollars received from the proceeds of a financing into the RMB for our operations, appreciation of the RMB against the USD would have an adverse effect on the RMB amount that we receive from the conversion. Conversely, if we decide to convert our RMB into USD for the purpose of making payments for dividends on our shares or for other business purposes, appreciation of the USD against the RMB would have a negative effect on the U.S. dollar amount available to us. Based on the amount of our cash as of March 31, 2010, a 1.0% appreciation of the RMB against the U.S. dollar will result in an estimated increase of approximately $875,706, in our total amount of cash, and a 1.0% appreciation of the USD against the RMB will result in a decrease of approximately $858,365 in our total amount of cash.

We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk and do not currently intend to do so.

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Interest rate risk. As of March 31, 2010, we had no short-term borrowings. Our interest rate risk mainly related to the 6% convertible senior notes issued with a maturity date of June 1, 2018. However, if we borrow money in future periods, we may be exposed to interest rate risk. We do not have any derivative financial instruments and believe our exposure to interest rate risk and other relevant market risks is not material.

Inflation. In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. During 2008 and 2009, the rates of inflation in China were 5.9% and negative 0.7%, respectively. However, the rate of inflation in China has been increasing. In January and February of 2010, the rates of inflation in China were 1.5% and 2.7%, respectively.

ITEM 4—CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures.

Disclosure controls and procedures (as defined in Rules 13a – 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act”)) are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. This information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2010.

(b)  Changes in internal control over financial reporting.

There was no change in our internal control over financial reporting that occurred in the first quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

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.

The risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 have not materially changed. In addition to 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:

The market price for our shares may be volatile. The market price of our shares experienced, and may continue to experience significant volatility. For the period from March 31, 2009 to March 31, 2010, the trading price of our shares on the NASDAQ Global Select Market and previously, on the Nasdaq Capital Market has ranged from a low of US$3.05 per share to a high of US$7.66 per share. Numerous factors, including many over which we have no control, may have a significant impact on the market price of our shares.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

	SHENGDATECH, INC.
Date: July 29, 2010	By:	/s/ XIANGZHI CHEN
		Xiangzhi Chen Chief Executive Officer (Principal Executive Officer)
	SHENGDATECH, INC.
Date: July 29, 2010	By:	/s/ ANDREW WEIWEN CHEN
		Andrew Weiwen Chen Chief Financial Officer (Principal Financial and Accounting Officer)

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