Attached files

file filename
EX-31.1 - EXHIBIT 31.1 - China Shengda Packaging Group Inc.exhibit31-1.htm
EX-32.1 - EXHIBIT 32.1 - China Shengda Packaging Group Inc.exhibit32-1.htm
EX-31.2 - EXHIBIT 31.2 - China Shengda Packaging Group Inc.exhibit31-2.htm
EX-32.2 - EXHIBIT 32.2 - China Shengda Packaging Group Inc.exhibit32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 1)

(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, 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 No. 001-34997

CHINA SHENGDA PACKAGING GROUP INC.
-------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Nevada 26-1559574
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)  

No. 2 Beitang Road
Xiaoshan Economic and Technological Development Zone
Hangzhou, Zhejiang Province 311215
People’s Republic of China

-------------------------------------------------------------------------------------------------------
(Address of principal executive offices)

(86) 571-8283-8805
-------------------------------------------------------------------------------------------------------
(Registrant’s telephone number, including area code)

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

Title of each class Name of each exchange on which registered
Common Stock, par value $0.001 per share NASDAQ Global Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]

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 [_] No [X]

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 [_] No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 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. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [_] Accelerated Filer [_]
Non-Accelerated Filer [X] (Do not check if a smaller reporting company) Smaller reporting company [_]

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [_] No [X]

The aggregate market value of the ordinary shares, $0.001 par value per share (“Shares”), of the registrant held by non-affiliates on June 30, 2010 was $0, as there were no Shares held by non-affiliates on such date, and the registrant’s Shares were not then publicly traded.

There were a total of 39,456,311 shares of the registrant’s common stock outstanding as of March 23, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

None.


EXPLANATORY NOTE

We are filing this Amendment No. 1 (this “Amendment”) solely to correct typographical errors in the table appearing on page 8 under the heading “Production Capacity and Utilization” in Item 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “Original Filing”).

Except as described above, no other changes have been made to the Original Filing, and this Amendment does not reflect events occurring after such Original Filing or modify or update the disclosures contained therein, including the exhibits thereto, affected by subsequent events. Therefore, this Amendment should be read in conjunction with the Original Filing and our other reports filed with the Commission subsequent to the filing of the Original Filing, including any amendments to those filings.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, currently dated certifications by our principal executive officer and principal financial officer are filed as exhibits to this amendment under Item 15 of Part IV hereof.


PART I

ITEM 1. BUSINESS.

Business Overview

We are a leading paper packaging company in China. Through our wholly-owned subsidiaries, Great Shengda, Shengda Color, Hangzhou Shengming and Suzhou AA, we are principally engaged in the design, manufacturing and sale of flexo-printed and color-printed corrugated paper cartons in a variety of sizes and strengths. We also manufacture corrugated paperboards, which are used for the production of our flexo-printed and color-printed cartons. A recently acquired wholly-owned subsidiary, Suzhou AA, is engaged in manufacturing and sale of paper products. Based on 2009 sales revenues of corrugated paper packaging, we are one of the largest domestic paper packaging manufacturers in China and the largest in the YRD, which includes Shanghai, Zhejiang Province and Jiangsu Province, according to S&P Consulting. Based on a comprehensive set of criteria, including sales revenue, product quality, R&D and operational records, we were ranked first among the ten large-sized domestic paper packaging companies in China by the China Packaging Federation in 2009.

We provide paper packaging solutions to a wide variety of industries, including food, beverage, cigarette, household appliance, consumer electronics, pharmaceuticals, chemicals, machinery and other consumer or industrial sectors. Our major products are single-layer paper cartons for food, drinks and medicine, double-layer paper cartons for garments, chemicals, furniture, refrigerators and air-conditioners, and triple-layer paper cartons for electrical machinery, motorcycles, and other heavy-duty products. Our maximum annual production capacity of corrugated paperboards as of December 31, 2010 was approximately 498 million square meters, and our sales volume in 2009 reached 307 million square meters with an annual production capacity of 408 million square meters in 2009.

Our production facilities are strategically located in the YRD, a manufacturing center in China, thus putting us in close proximity to a large number of paper carton customers. Due to the weight and bulk of paper products and the consequent high shipping costs, paper packaging companies are generally limited to servicing a geographic radius from their production site, usually between 300 and 500 kilometers, within which they can compete economically. The paper carton market, therefore, is highly influenced by regional supply and demand dynamics. Based from our three manufacturing facilities in Hangzhou, Zhejiang Province, we have established a sales network with five customer service centers that can service customers all over the YRD, which accounted for the majority of our revenues. As the leading paper packaging manufacturer in the YRD, we are well positioned to capitalize on the fast-growing demand for paper cartons driven by the concentration and success of the manufacturing companies in the region.

We serve a broad base of reputable customers, including some of the Fortune 500 companies and Top 500 Chinese enterprises. Our major customers include Hangzhou Wahaha Group Co., Ltd., Nongfu Spring Co., Ltd., Hangzhou Cigarette Company, Samsung's Chinese subsidiary Suzhou Samsung Electrical Co., Ltd. and Panasonic's Chinese subsidiary Hangzhou Panasonic Home Electrical Appliance Company. We have developed long-term relationships with and loyalty from our customers, many of which have been with us for over five years. We have also entered into strategic alliance agreements with ten customers as their preferred supplier. At the same time, we continue to attract new customers to generate higher demand for our products and increase market penetration. The number of our customers has increased substantially since 2004.

Our four operating subsidiaries, Great Shengda, Shengda Color, Hangzhou Shengming and Suzhou AA, boast state-of-the-art manufacturing facilities, which have a total gross production area of over 200,000 square meters. To meet the changing needs and quality demand of our customers, we continually invest in our production capabilities and furnish our facilities with advanced equipment. We have also implemented a stringent quality control system designed to meet our customers' high standards. We have received ISO9001:2000/GB/T 19001-2000 and ISO14001:2004 certifications.

Our growth has also been strengthened by our strong R&D team, which develops new products and technologies to meet our customers' ever changing requirements. Our R&D team consists of 30 research professionals, many of whom are certified engineers. There are several key experts in our R&D team that have extensive knowledge about and experience in the packaging industry. In addition to conducting our R&D work, we also enter into collaborative agreements with reputable academic and research institutions for our R&D projects. For example, we have worked with Zhejiang University, China Packaging Federation and Zhejiang Province Paper Packaging Industry Technology Centre. Our current collaborative partners include Zhejiang Sci-Tech University and Zhejiang University of Technology and Science. We have


developed sixteen items of technical know-how, of which nine applications for patents have been approved by the Intellectual Property Office of China.

Our senior management has been involved in the paperboards and paper cartons business since 1999, when Zhejiang New Shengda, the company that sold to Great Shengda the assets that form the basis of our operations, was incorporated. We benefit from the industry connections and experience of our senior management, which enable us to develop a strong reputation among our customers and in our industry. Great Shengda was granted the "China Packaging Leading Enterprise Award" by the China Packaging Technology Association (the predecessor of China Packaging Federation), and was named a "Chinese Development and Production Base of Paper Packaging" by the State Economic and Trade Commission and China Packaging Federation. Our Shengda trademark was recognized as a Chinese Well-Known Trademark in 2010 as a result of the market reputation we have built over the years.

Our total revenues for the fiscal year ended December 31, 2010 were approximately $130.1 million, an increase of $35.4 million, or 37.4%, compared to total revenues of $94.7 million for the fiscal year ended December 31, 2009. Our net income attributable to China Shengda Packaging’s common stockholders for the fiscal year ended December 31, 2010 was approximately $19.3 million, an increase of $7.2 million, or 59.1%, from approximately $12.2 million for the fiscal year ended December 31, 2009.

Corporate History and Background

We were incorporated in the State of Nevada on March 16, 2007 as a web-based service provider offering an online service where health practitioners (such as chiropractors, dentists, massage therapists, occupational therapists and counselors) could purchase products and services to improve their work and home lives, including books, CDs, clothing, and accessories geared towards the needs of these practitioners. However, we did not engage in any operations and were dormant from our inception until our reverse acquisition of Evercharm on April 8, 2010.

On April 8, 2010, we completed a reverse acquisition transaction through a share exchange with Evercharm and its sole stockholder, Shengda Holdings, whereby we acquired 100% of the issued and outstanding capital stock of Evercharm in exchange for 27,600,000 shares of our common stock, which constituted 92% of our issued and outstanding shares on a fully-diluted basis immediately after the consummation of the reverse acquisition. As a result of the reverse acquisition, Evercharm became our wholly-owned subsidiary and Shengda Holdings, the former stockholder of Evercharm, became our controlling stockholder. The share exchange transaction with Evercharm was treated as a reverse acquisition, with Evercharm as the accounting acquirer and China Packaging as the acquired party.

Subsequently on May 10, 2010, Shengda Holdings distributed the shares of the Company it received in the reverse acquisition to the family of Nengbin Fang, our Chairman, and certain other individuals. As a result, members of the Fang family own approximately 51.84% of our common stock.

Through our ownership of Evercharm and its principal PRC operating subsidiaries, Great Shengda, Shengda Color, Hangzhou Shengming and Suzhou AA, we design, manufacturer and sell paper cartons and offer packaging solutions to principally consumer and industrial goods manufacturing companies in China. Prior to the formation of Great Shengda, Zhejiang New Shengda operated our paper packaging business. Since 1999, the business had been managed under the leadership of Nengbin Fang, Zhejiang New Shengda's then general manager and currently our Chairman. In 2004 when Great Shengda was incorporated, Zhejiang New Shengda transferred all of its paper packaging assets to Great Shengda and became a dormant company, and Mr. Fang became the Chairman of Great Shengda to continue to manage the business.

On April 29, 2010, we completed a private placement of shares of our common stock with a group of accredited investors, including Envision Capital Partners as lead investor. Pursuant to a securities purchase agreement with the investors, or the Securities Purchase Agreement, we issued to the investors an aggregate of 1,456,311 shares at a price per share of $3.43 for aggregate gross proceeds of approximately $5.0 million.

Our Corporate Structure

All of our business operations are conducted through our Chinese subsidiaries. The chart below presents our corporate structure as of the date of this report:



Our Industry

The Paper Packaging Market in China

China's packaging industry has grown steadily since the mid-1980s with one of the highest growth rates in the international packaging market. According to China Packaging Federation, the Chinese packaging market reached over RMB 1.0 trillion (approximately $147.5 billion) in 2009 and is expected to reach over RMB 1.2 trillion (approximately $179.5 billion) in 2010. China was the second largest packaging market in the world in 2008. China's paper packaging industry accounts for approximately 40% of the total packaging industry, making it the largest subsector. Total paper packaging production value in 2009 was approximately RMB 400.0 billion (approximately $59.0 billion). According to Development Research Centre of the State Council, total production volume of paper products grew at a CAGR of 20.3% from 2005 to 2009, reaching 39.2 million tons in 2009.

Corrugated packaging is the largest subsector of the paper packaging industry in China. According to China National Bureau of Statistics, corrugated paper cartons production in China constituted over 55% of the total production of paper products in 2009. The production volume of corrugated paper cartons in China grew to 21.8 million tons in 2009 from 10.6 million tons in 2005, representing a CAGR of 19.8% . China has produced 12.7 million tons of corrugated paper cartons in the first six months of 2010, representing a year-on-year growth of 28.8% . According to S&P Consulting, total Chinese market demand for corrugated paper cartons reached 36.7 billion square meters in 2009.

Compared to other countries, current per capita paper packaging consumption in China is very low. According to China Packaging Federation, each person in China consumes on average 55 kg of paper packaging annually, which is one-sixth that of the United States, one-fifth of Japan, a quarter of Europe and half of India. With per capita paper packaging consumption far below other large economies in the world, the Chinese paper packaging industry has considerable potential for sustainable growth. According to S&P Consulting, the production volume of corrugated paper cartons will grow to 39.2 million tons in 2013, representing a CAGR of 15.9% from 2009, and the market demand will grow to 62.6 billion square meters in 2013, representing a CAGR of 14.2% from 2009. According to China Packaging Federation, China is expected to overtake the United States as the largest corrugated paper packaging market by 2013.


Demand for Our Products

The main customers of the paper packaging industry are consumer and industrial goods manufacturers that use corrugated paper cartons for packaging and shipping of their products, including food and beverage, home appliances, IT and electronics, daily necessities, pharmaceuticals, chemicals and machinery. Catalyzed by the high growth in per capita disposable income and a series of favorable government policies, retail sales of consumer goods in China have grown rapidly and reached RMB 12.5 trillion (approximately $1.9 trillion) in 2009, representing a CAGR of over 16.1% from 2004, according to China National Bureau of Statistics. The continued robust growth in the retail sales of consumer goods has significant positive impacts on the demand for corrugated packaging products.

The Chinese corrugated carton market benefits from the country being a manufacturing hub and a powerful exporter to the world, as corrugated paper cartons are usually used as containers to package export goods. Exports from China were negatively impacted by the global financial crisis in 2008 but have shown positive year-on-year growth since the last quarter of 2009, based on the data published by General Administration of Customs of China. Exports grew at a year-on-year rate of 0.1% in the last quarter of 2009, compared to a 20.2% contraction in the third quarter of 2009, while the year-on-year growth of exports climbed to 28.8% in the first quarter of 2010. The recovery of the export sector is expected to help drive the demand for corrugated cartons in China.

Other trends in our industry expected to impact our growth include customer migration toward paper as a more environmentally-responsible packaging material than glass, metal, or wood; government policies designed to encourage domestic consumption of consumer goods; increasing competition for high-quality, low-cost packaging; and greater consolidation among paper packaging suppliers.

Paper Packaging Market in East China

Our subsidiaries in Xiaoshan (which is part of the Greater Hangzhou Area) are located in the YRD of East China, which is the most affluent region amongst six major regions in China with the highest per capita GDP. The YRD consists of three areas, namely Shanghai, Jiangsu Province and Zhejiang Province, all ranked among top five in China in terms of per capita GDP. The high per capita GDP has led to strong purchasing power for various products, which in turn has generated high demand for corrugated cartons within the region.

According to China National Bureau of Statistics, East China is the largest corrugated carton-producing region of China, representing 46.9% of the total corrugated carton production in 2009. East China produced 10.2 million tons of corrugated paper cartons in 2009, representing a CAGR of 19.0% from 2005. The YRD produced 6.2 million tons, accounting for 28.6% of China's total corrugated carton production, with a CAGR of 16.6% from 2005. Zhejiang Province and Jiangsu Province were the second and third largest provinces for corrugated carton production, only behind Guangdong Province. According to China Packaging Federation, currently there are approximately 400 corrugated production lines in each of Zhejiang Province and Jiangsu Province, and approximately 130 corrugated production lines in Shanghai.

Our Products

The corrugated paper cartons that we design, manufacture and sell are flexo-printed or color-printed paper boxes. Our corrugated paper cartons are used for a wide variety of products, such as food, beverage, cigarette, household appliance, consumer electronics, pharmaceuticals, chemicals, furniture, garments, machinery and other consumer and industrial goods. Our paper cartons are available in a wide range of sizes and strengths depending on the type, weight and size of the products and the manner in which these paper cartons are used. The following charts illustrate the sales revenue breakdown by paper carton type and end market for the first half of 2010:


Revenue Breakdown by Carton Type
Twelve Months Ended December 31, 2010

Revenue Breakdown by End Market
Twelve Months Ended December 31, 2010

The following table provides the percentage revenue breakdown by carton type for the periods indicated:

  2008 2009 2010
  Revenue Percentage Revenue Percentage Revenue Percentage
Flexo 76,663,531 83.1% 70,179,053 74.1% 95,561,944 73.5%
Color 15,625,875 16.9% 24,485,424 25.9% 34,527,346 26.5%
Total 92,289,406 100% 94,664,477 100% 130,089,290 100%


Our paper cartons are made of corrugated paperboards machine-cut to the designed dimensions and then folded into paper cartons. We use single-layer, double-layer and triple-layer corrugated paperboards sandwiched between Kraft paper sheets (Kraft paper is a type of paper, which is strong and relatively coarse, produced from the chemical pulp of softwood under the Kraft process). The thickness of the paperboards and the type of corrugated paper sheets used are key determinants of the strength of the paper cartons manufactured.

Our paperboards and paper cartons are summarized below:

Type of paperboards   Type of paper cartons   Recommended applications
         
  Single-layer paper cartons   Packaging for food, drinks and medicine
Single-layer paperboards comprising a single sheet of corrugated paper sandwiched between two sheets of Kraft paper.    
         
  Double-layer paper cartons   Packaging for garments, furniture, refrigerators and air-conditioners
Double-layer paperboards comprising two sheets of corrugated paper sandwiched between three sheets of Kraft paper.    
         
         
  Triple-layer paper cartons   Packaging for electrical machinery, motorcycles, and other heavy-duty products
Triple-layer corrugated paperboards comprising three sheets of corrugated paper sandwiched between four sheets of Kraft paper.    

Our corrugated paper cartons deliver marketing and performance benefits at a competitive cost. We supply corrugated paper cartons designed to protect and contain products while providing:

  • Convenience through ease of carrying, storage, delivery and removal of the products by the end consumers;
  • A smooth surface printed with various resolutions of flexo- or multi-color graphic images that help improve brand awareness and visibility of products; and
  • Durability, stiffness and wet and dry tear strength; leak, abrasion and heat resistance; barrier protection.

Manufacturing

Manufacturing Facilities

Our production is carried out at Great Shengda, Shengda Color and Hangzhou Shengming, all of which are strategically located within the YRD, the PRC manufacturing belt. Great Shengda, Shengda Color and Hangzhou Shengming do not own any manufacturing facilities. They lease all of their manufacturing facilities which also contain administrative offices. They own all of their equipment and machines.

Great Shengda. Great Shengda's production facilities are located on a land parcel of approximately 112,437 square meters. We had 975 employees at Great Shengda as of December 31, 2010. Great Shengda manufactures paperboards and both flexo-printed and color-printed paper cartons.


Great Shengda is equipped with (1) one BHS2800 paperboard production line from BHS, a German manufacturer; (2) one Taiwan made XieXu 1800 paperboard production line; (3) nine flexo printing slotters; (4) two automatic gluing machines; (5) one computer-to-plate (CTP) system; (6) three multi-color off-set printers; and (7) four fully-automated machines for flexo printing and mould-cutting. The BHS2800 paperboard production line is among the world's most advanced paperboard production equipment.

Shengda Color. The gross production area of Shengda Color's facility is approximately 30,661 square meters. We had 168 employees at Shengda Color as of December 31, 2010. Shengda Color is equipped with (1) one Taiwan made XieXu 2500 paperboard production line; (2) one 7-color pre-printing production line; (3) one automatic die-cutting machine; and (4) two flexo printing slotters.

Hangzhou Shengming. Hangzhou Shengming's production facilities are located on a land parcel of approximately 47,942 square meters. We had 328 employees at Hangzhou Shengming as of December 31, 2010. Hangzhou Shengming is equipped with (1) one BHS2500 paperboard production line; (2) five Taiwan made multi-color printing slotters; (3) one 4-color printing slotter; (4) one Taiwan made multi-function automatic gluing machine; (5) one Taiwan made multi-function automatic packaging machine; and (6) one Taiwan made automatic paperboard transmission system.

Suzhou AA. Suzhou AA's production facilities are located on a land parcel of approximately 11,938 square meters. We had 76 employees at Suzhou AA as of December 31, 2010. Suzhou AA is equipped with (1) one Taiwan made 4-color printing slotter; (2) one 4-color printing slotter; (3) two Taiwan made 3-color printing slotters.

Utilities

Electricity is the principal source of energy for our manufacturing operations. If a power shortage or stoppage were to occur, we have back-up power supply in the form of our two-way power supply and our own power generators at each of our manufacturing facilities, which we believe are able to provide sufficient back-up power to ensure that our manufacturing operations will not be disrupted. To date, we have not experienced any prolonged power shortages or stoppages.

Maintenance

Our own staff carries out maintenance and servicing of our production equipment on a regular basis. As a result of our regular maintenance, we have not experienced any major shutdown or disruption to our manufacturing operations.

Production Capacity and Utilization

Our production capacity is limited by our production floor area, production equipment and manpower.

The following table illustrates the maximum production capacity and the actual production volume for our production lines for the manufacture of paperboards, flexo-printed paper cartons and color-printed cartons as of December 31, 2010 and for 2009:

      Flexo-Printed   Color-Printed
Unit: Million Square Meters Paperboards   Paper Cartons   Paper Cartons
As of December 31, 2010          
Annual Production Capacity(1) 498   333   165
Actual Production Volume 345   263   82
As of December 31, 2009          
Annual Production Capacity(1) 408   307   101
Actual Production Volume 307   243   64

(1) Our annual production capacity in respect of paperboards, flexo-printed paper cartons and color-printed paper cartons is, in each case, calculated as follows:


Annual production capacity = (The approximate daily maximum production for paperboards, flexo-printed paper cartons or color-printed paper cartons) x 365 days

Manufacturing Process

The production process for our paperboards and paper cartons is illustrated below:



Product Design

After receiving orders from customers, we meet with our customers to understand their products and target consumer market, and then assist them in designing packaging that is suitable for their purposes and that appeals to their consumers.

While our customers typically provide us with their own packaging design and specifications, our production development team and design team have also designed paper cartons for many of our customers. Our team works closely with our customers to meet their requirements with regard to the structure and function as well as the graphic design.

Our production team then produces a sample product based on the designs. Tests will be conducted on this sample product at our in-house testing center to ensure that it meets the design specifications. Mass production begins once the sample is approved by the customer.

Corrugated Paperboard Production

Pre-heating and drying. The key raw materials used in the manufacture of our paperboards are Kraft paper and corrugating medium.

Corrugating medium is fed into corrugator production machines (such as our BHS2800 corrugated paperboard production line), and pre-heated to reduce the moisture level in the corrugating process.

Corrugating, compression and gluing. The pre-heated paper is transformed into corrugated paper with different flute-depth through a corrugating process. Kraft paper is then glued to this corrugated paper to form a semi-completed paperboard.

Combination of layers of corrugated paperboards. Glue adhesive is applied to combine semi-completed paperboards with Kraft paper or other semi-completed paperboards to form single-layer, double-layer or triple-layer paperboards.

Heating and drying. The corrugated boards then pass through a heating process to dry the glue adhesive to improve the bonding strength between the layers of the corrugated boards before warehouse storage or the manufacture of paper cartons.

Paper Carton Production

Flexo-printing

Flexography (often abbreviated to flexo) is a printing process that utilizes a flexible relief plate and water based ink. It can be used for printing on almost any type of substrate including plastic, metallic films, cellophane, and paper. It is widely used for printing on the non-porous substrates required for various types of food packaging (it is also well suited for printing large areas of solid color).

Our customer's approved artwork is transferred to a flexible plate with a plate making machine. Then the flexible plate is installed into a water-based ink printing machine, and the artwork is directly transferred onto the surface of the corrugated boards from the printing machine.

Color-printing

Offset color printing utilizes oil-based ink to print. The visual effect of color-printed artwork is superior to ink-printed artwork.

Artwork pre-approved by customers are either captured on film and transferred onto printing plates, or transferred directly onto printing plates from the computer using the computer-to-plate, or CTP, method.

CTP involves the transfer of digital images of artwork from computers directly onto printing plates without the use of film. CTP produces images that are closer to the customers' original artwork and produces cleaner and sharper results and saves time by eliminating the use of film.


Offset printing

Offset printing involves the transfer of ink on paper via a printing plate. The image areas of the printing plates are rendered ink receptive and water repellent, while the non-image areas of the printing plates are rendered water receptive and ink repellent. The printing plates will be mounted onto a cylindrical drum on the printing machine. The printing plates are dampened, first by water rollers then by ink rollers. The image area of the printing plates picks up the ink and water keeps ink out of non-image areas of the printing plates. Each plate transfers its image onto a rubber blanket cylinder, which then transfers the image onto paper.

Lamination and varnishing

Depending on the design specifications and the customer's requirements, the prints may need a layer of lamination or liquid varnishing. This makes the printed artwork water resistant and gives it a glossy appearance.

Gluing.

The printing paper (containing the printed artwork) is then glued onto the semi-completed paperboard.

Post-Printing

Die-Cutting, slitting, slotting and scoring. Flexo-printed and offset-printed paperboards undergo die-cutting and slitting to produce a pre-folded paper carton in accordance with the paper carton design, and also undergo slotting and scoring to create the fold-lines for folding.

Folding, and stapling or gluing

The pre-folded paper carton is then stapled or glued by the automated stapling and gluing machines to produce semi-folded paper cartons. These finished products are then prepared for delivery.

Raw Materials and Suppliers

Raw Materials

The key raw materials used in the manufacture of our paperboards are Kraft paper and corrugating medium. Raw materials are purchased only from pre-selected suppliers after evaluation by our purchasing, production and quality assurance departments based on stringent selection criteria such as pricing, the quality of raw materials and services, track record, financial condition and market reputation. Our major suppliers are all well-known PRC companies in the paper manufacturing industry with large capacities to satisfy our requirements. In 2009, only a minimal amount of our raw materials was imported.

Suppliers and Supplier Arrangements

Our major suppliers who accounted for 5% or more of our purchases for the years ended December 31, 2008, 2009 and 2010 are as follows:

Supplier 2008 2009 2010
Zhejiang Jingxing Paper Group Papermaking Co., Ltd. 12.2% 8.7% 7.3%
Wuxi Rongcheng Paper Co., Ltd. 5.3% 6.7% 6.8%
Zhejiang Ji An Paper Co., Ltd. 12.0% 9.4% <5%
Jiangsu Chang Feng Paper Factory 7.5% 7.1% 7.3%
Jiangsu Lee & Man Paper Manufacturing Co., Ltd. 11.9% 8.8% 8.1 %
Jiaxing Dahua Paper Industry Co., Ltd. 5.9% <5% <5%
Ningbo Dongteng Paper Industry Co. Ltd. <5% 5.2% <5%
Zhejiang Rongcheng Paper Co. Ltd. <5% 6.1% 13.3%


The typical term of a supply contract is less than six months. The purchase prices are generally negotiated every month or every two to three months. In some cases, the prices for raw materials per tonne may be fixed in the contract. Our suppliers generally allow us 45 to 60 days credit.

Our Customers

We have a diversified customer base in a broad range of end markets. In 2010, we had more than 800 customers. Our three largest customers are Hangzhou Wahaha Group Co., Ltd., Nongfu Spring Co., Ltd. and Hangzhou Cigarette Company, all of whom are Top 500 Chinese Enterprises. We also have Fortune 500 company clients such as Hangzhou Panasonic Home Electrical Appliance Co., Ltd., Suzhou Samsung Electrical Co., Ltd., Zhejiang Shell Chemical Engineering Petroleum Co., Ltd. and Hangzhou Zhongcui Foods Co., Ltd., a major sales agent of The Coca Cola Company.

We strive to continually increase and diversify our customer base. The following are our revenue breakdown by our end markets.

For the periods indicated, our major customers who accounted for 5% or more of our total revenue are as follows:

Customer 2008 2009 2010
Hangzhou Wahaha Group Co., Ltd. 6.7% 7.5% <5%
Nongfu Spring Co., Ltd. 5.9% <5% <5%
Hangzhou Cigarette Company 6.4% 5.7% <5%
Suzhou Samsung Electrical Co., Ltd 7.3% <5% 5.2%
Hangzhou Panasonic Home Electrical Appliance <5% 6.0% 6.6%
Chuangcheng Package Design Co. Ltd 7.1% <5% <5%

We generally provide customized products to our customers, so we negotiate individual contracts with our customers based on their particular requirements. We usually start with a base product price for the specific product category and quantity, then consider process requirements, technical difficulties, level of competition in the market and specific process required for the particular product to arrive at the final price for a product. We are responsible for delivery, and the transportation cost will be included in the price. We generally allow our customers 60 to 90 days credit. The normal payment collection cycle is approximately 45 days, with a longer cycle in 2009 when we allowed our customers more credit accommodation. See also the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

We have also entered into strategic alliance agreements with 10 customers, including our three major customers, namely, Hangzhou Wahaha Group Co., Ltd., Nongfu Spring Co., Ltd., and Hangzhou Cigarette Company. Pursuant to the terms of these agreements, we give these customers priority in fulfilling their orders. In exchange, these customers give us priority as a supplier when they place their orders. We also cooperate with these customers in the development of new packaging for their products. We believe that these strategic alliances will strengthen the reliability of our services and help us maintain our key customers.


We are not aware of any information or arrangements that would lead to a cessation or termination of our current relationship with any of our major customers.

Backlog

We do not believe backlog is material to an understanding of our business as our backlog generally does not have a material impact on our revenues. Most customer orders are processed with a lead time of two weeks or less. Orders for existing customers are generally processed in one week and orders for new customer are generally processed within 15 days. Therefore, the amount of our backlog is generally very small. We generally enter into framework sales contracts with most major customers every year. Pursuant to these contracts, the customers contract us as a priority supplier when they place regular orders, and, in exchange, we provide priority fulfillment of their orders.

Sales and Marketing

Our sales and marketing department has 43 sales personnel and marketing executives as of December 31, 2010. Our sales and marketing department is responsible for setting sales and marketing strategies and promoting our products.

Our sales and marketing strategies include (1) direct sales and marketing activities, (2) advertisements and publications, and (3) participation in trade fairs and exhibitions.

Direct sales and marketing activities

Our sales team regularly meets with our existing customers to better understand their requirements and promote our new products. The team also reaches out to prospective customers to promote our products.

Advertisements and publications

We advertise through a variety of channels including billboards, industry publications, such as the China Packaging Industry and the Packaging World, our corporate website, www.cnpti.com, and industry websites, such as the China Packaging website, www.pack.cn. Because we principally rely on our long-term relationship and our reputation as an efficient producer of high-quality paper cartons in the YRD, we place less emphasis on advertising and have not spent significant sums on advertising.

Participation in trade fairs and exhibitions

We participate regularly in trade fairs and exhibitions in the PRC such as the PRC Corrugated Paper Cartons and Machinery Exhibition and the PRC International Corrugated Exhibition. Those trade fairs and exhibitions provide us with a platform to showcase our new products, establish contact with potential customers and gather information on the latest products.

Customer Service

Our customer service department was comprised of 30 customer service personnel as of December 31, 2010. The department provides pre-sales services such as sample designs; sales services such as production monitoring to ensure timely delivery of products; and after-sales customer service such as feedback and guidance on product usage. Our after-sales customer service is available to our customers 24 hours a day throughout the year.

Our customer service department oversees our five customer service centers in Hangzhou, Suzhou, Taizhou, Ningbo and Shanghai, where many Fortune 500 companies and Top 500 Chinese enterprises are located. These customer services centers have enabled us to provide timely service to our existing customers and have increased our presence and facilitated our sales and marketing activities in these regions.

Research and Development

R&D is one of the key factors that has helped us maintain our competitive strengths and leading position in the industry. As of December 31, 2010, our R&D team consisted of 30 experienced professionals, many of whom are certified engineers.


Our R&D team includes several key experts who have extensive knowledge about and experience in our industry. In addition to conducting our own research, our R&D department enters collaborative agreements with reputable academic and research institutions, principally in the YRD, from time to time to carry out specific R&D projects. We have worked with Zhejiang University, China Packaging Federation and Zhejiang Province Paper Packaging Industry Technology Centre. Our current collaborative partners include Zhejiang Sci-Tech University and Zhejiang University of Technology and Science. Under such R&D collaborative partnerships, these institutions provide technical expertise to complement our existing R&D capabilities, while we provide the necessary funding for the R&D projects. We have ownership of the results of the research and the proprietary rights of the products and technology developed through these collaborative projects.

We believe that we will continue to improve our research and development capabilities by leveraging our strong R&D platform and expertise of these institutions. With our in-house R&D capabilities and collaborative programs, we have developed ten items of technical know-how, of which nine applications for patents have been approved by the Intellectual Property Office of China.

We have expended more effort and resources on R&D activities in recent years. R&D costs amounted to $3,735, $6,453, $414,128 and $2,645,641 for the years ended December 31, 2007, 2008, 2009 and 2010, respectively. In order to maintain our competitiveness, we will continue to strengthen our R&D capabilities through staff training, equipment upgrade and collaborations with academic and research institutions. We will focus our efforts on the expansion of our product portfolio to meet the changing needs of our customers and the growing demand for packaging products. Moreover, we intend to develop technologies that would help us improve production efficiency and product quality, while lowering production costs. For example, our ongoing research and development projects include waterproof paper cartons with low-temperature endurance and high-strength corrugated paper agglutination technique.

Competition

The packaging market in China is highly fragmented and competitive. There are approximately 20,000 paperboard manufacturers in China, most of which are relatively small in size. The top ten manufacturers only have an aggregate of less than 10% of the Chinese market. The total sales volume of paper cartons in China was 36.7 billion square meters in 2009, and Great Shengda's production volume in 2009 was approximately 307 million square meters, accounting for approximately 0.8% of the PRC market. According to S&P Consulting, based on revenues of corrugated paper carton in 2009, we are one of the largest domestic corrugated paper carton companies in China and the largest in the YRD region.

Due to the geographic radius limitation, we currently only compete with domestic and international corrugated paper packaging companies located within the YRD region. Our major competitors include: Ningbo Asia Paper Tube Paper Carton Co., Ltd., Salfo Package Group Co., Ltd., Zhejiang Dahua Packaging Group Co., Ltd., Zhejiang Zhongbao Pactiv Packaging Co., Ltd., Yuen Foong Yu Paper Enterprise (Kunshan) Co., Ltd. and International Paper (Shanghai) Co., Ltd. We also face competition from upstream paper mills when they expand their business into paper carton manufacturing, and such companies include Zhejiang Jingxing Paper Co., Ltd, Anhui Shanying Paper Industry Co., Ltd, and others.

The primary barriers to enter the market include obtaining a printing license and significant capital investment in large-scale production facilities. We believe our competitive advantages over domestic players are better cost-efficiencies due to economies of scale and significant order volumes, early mover with long standing relationships with customers, advanced technologies and equipment deployed in our manufacturing process, high product quality with competitive cost structure and well-known brand name. Our competitive advantages over international players include significant production capacity, large amount of existing customer base, the flexibility to customize our products, better local knowledge and connections, lower price resulting from lower cost structure and competitive product quality. We believe we have better economies of scale, more experience and better market knowledge than most of the paper mill new market entrants.


Intellectual Property

Trademark

Great Shengda owns the following trademark:

  Place of   Trademark Expiration  
Trademark Registration Class Number Date Registrant
           
           
PRC 16 Applicable to paper goods and printed matter 1275491 May 20, 2019 (extendable) Great Shengda

We believe that our trademark has significant value and is important for marketing and building brand recognition. We are not aware of any third party currently using a trademark similar to our Shengda trademark in the PRC for the same types of products.

Patents and Patent Applications

We have been granted the following patents, each of which will expire on April 12, 2019:

Patent   Type   Application Date   Issue Date
Foldable water containing paper   Utility model   April 13, 2009   March 31, 2010
Corrugated paper boxes with preservation device   Utility model   April 13, 2009   March 31, 2010
Interior structure for circular packing   Utility model   April 13, 2009   March 31, 2010
Spraying device for hot board of corrugated machine   Utility model   April 13, 2009   March 31, 2010
Paper packing box for textiles   Utility model   April 13, 2009   March 31, 2010
Movable supermarket display shelf   Utility model   April 13, 2009   March 31, 2010
Structure of hand handler on packing box   Utility model   April 13, 2009   March 31, 2010
Paper display shelf   Utility model   April 13, 2009   March 31, 2010
Air abstractor box for corrugated machine   Utility model   April 13, 2009   March 31, 2010

We have applied for the following patent:

Patent   Type   Application Date
Securing key to use on dedusting board   Utility model   April 13, 2009
Double-layer corrugated paper board with high flat crush strength   Utility model   Nov. 25, 2010
Triple-layer corrugated paper board with high flat crush strength   Utility model   Nov. 25, 2010
Corrugated paper board with synclastic corrugation   Utility model   Nov. 25, 2010
Strengthened paper board for tray   Utility model   Nov. 25, 2010
Double-layer paper board with inclined corrugation for tray   Utility model   Nov. 25, 2010
Packaging buffer   Utility model   Nov. 25, 2010

 


Environmental Matters

Our manufacturing facilities are subject to various pollution control regulations with respect to air, water, solid and noise pollution and the disposal of waste and hazardous materials. We also are subject to periodic inspections by local environmental protection authorities. Our operating subsidiaries have received certifications issued on February 22, 2010 by Hangzhou Xiaoshan Environmental Protection Bureau indicating that, as of the date of these certifications, their business operations are in material compliance with the relevant PRC environmental laws and regulations. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

Each of Great Shengda, Shengda Color and Hangzhou Shengming holds a pollutant discharge permit issued by the local environmental protection bureau. The pollutants discharged by Great Shengda, Shengda Color and Hangzhou Shengming include solid waste, such as used printing ink containers, paper scraps and garbage, waste water, which contain chemicals such as resin, waste print ink and isopropyl alcohol, and waste chemicals, including waste print ink. Also, we produce noise during manufacturing. Some of the chemicals we use for printing may be classified as potential health hazards. However, our employees generally have minimal contact with these chemicals, and the chemicals are packaged in containers that we believe meet government safety standards and are dispensed directly from the containers in the printing process (much like the ink from ink-jet printing cartridges). Also, with respect to any noise pollution produced, we have made appropriate filings with the local bureaus of health. We believe our pollutant and waste discharge processes meet government standards.

Regulation

Because our operating subsidiaries are located in the PRC, we are subject to national and local laws of the PRC.

Paper Packaging Industrial Laws and Regulations

We are subject to governmental regulations related to paper printing and packaging industry. The Regulations on the Administration of Printing Industry requires us to obtain a printing license before production. Great Shengda, Hangzhou Shengming and Suzhou AA each possesses a printing license for package decoration printing and Shengda Color has a printing license for package decoration printing and printing of other printed matters. The printing licenses held by Great Shengda, Shengda Color and Hangzhou Shengming are valid until December 31, 2012, and the printing license held by Suzhou AA is valid until November 17, 2013, each of which is renewable at expiration by application to the relevant authorities.

Other rules and regulations for the printing industry that impact the packaging industry include:

  • Administrative Regulations on Fulfilling Printing Orders, which were issued by the General Administration of Press and Publication together with the Ministry of Public Security. Under these regulations, companies engaged in the printing business are required to verify clients' legal documents, such as business licenses and trademark registration certificates, and to file the printing records kept by the companies with competent authorities. We believe we are in material compliance with such requirement;
  • Interim Provisions on the Establishment of Foreign-invested Printing Enterprises jointly issued by the General Administration of Press and Publication and the former Ministry of Foreign Trade and Economic Cooperation. Under these provisions, approvals by the press and publication administration are required for the establishment of foreign invested enterprises engaging in the printing business. In addition, foreign-invested printing enterprises are not allowed to set up branches; and
  • Interim Measures on the Qualifications of Printing Operators issued by the General Administration of Press and Publication. These measures specify the qualifications required for enterprises engaged in printing operations. Printing operators must satisfy such qualification requirements in order to obtain approval for their establishment and printing licenses from the press and publication administration. The legal representative or major responsible person must obtain a Training Certificate in Printing Regulations issued by the municipal press and publication administration. The legal representative of Great Shengda, Shengda Color and Shengming, Wuxiao Fang, has obtained the Training Certificate in Printing Regulations (No.0820064) granted by Hangzhou Xiaoshan Culture, Radio, TV, Film, Press and Publication Bureau.

China also has a series of national standards regarding paper packaging production. Such national standards include, but are not limited to, National Standards on Single and Double Corrugated Paper Cartons for Transportation of Packages. These standards relate to the structure, material, size and quality requirement for classification of cartons for transporting different kinds of merchandise. These standards are not compulsory but are followed by many manufacturers.


As a paper packaging production company, we need to reproduce trademarks owned by our customers. As a consequence, the Trademark Printing Administration Measures are applicable to us, which require us to examine the trademark registration certificates and other relevant documents of our customers to verify the trademark ownership. We believe we are in material compliance with such requirement.

Environmental Regulations

Our production processes mainly generate noise, wastewater and solid wastes. The major PRC environmental regulations applicable to us include the Environmental Protection Law of the PRC, the Environmental Impact Appraisal Law of the PRC, the Law of the PRC on the Prevention and Control of Water Pollution, the Law of the PRC on Prevention and Control of Environmental Pollution Caused by Solid Waste, the Law of the PRC on Prevention and Control of Air Pollution and the Law of the PRC on Prevention and Control of Environmental Noise Pollution.

The Environmental Protection Law of the PRC sets out the legal framework for environmental protection in the PRC. The Ministry of Environmental Protection of the PRC, or the MEP, is primarily responsible for the supervision and administration of environmental protection work nationwide and formulating national waste discharge limits and standards. Local environmental protection authorities at the county level and above are responsible for environmental protection in their jurisdictions.

Companies that discharge contaminants must report and register with the MEP or the relevant local environmental protection authorities. Companies discharging contaminants in excess of the discharge limits prescribed by the central or local authorities must pay discharge fees for the excess in accordance with applicable regulations and are also responsible for the treatment of the excessive discharge. Companies that directly or indirectly discharge industrial waste water into the water or are required by law to obtain the pollutant discharge permit before discharging waste water or sewage shall also obtain the pollutant discharge permit.

In addition, the Circular Economy Promotion Law and Law of Promoting Clean Production also apply to our business, which requires paper packaging production companies to mitigate environmental pollution by utilizing environmentally friendly raw materials and designs. Where feasible we use recycled paper as raw material. In addition, all of our cartons are recyclable.

Regulation on Labor Protection

The Labor Contract Law of the PRC, effective on January 1, 2008, governs the establishment of employment relationships between employers and employees, and the conclusion, performance, termination of, and the amendment to employment contracts. To establish an employment relationship, a written employment contract must be signed. In the event that no written employment contract was signed at the time of establishment of an employment relationship, a written employment contract must be signed within one month after the date on which the employer starts engaging the employee.

Foreign Currency Regulations

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations promulgated by the State Council, as amended on August 5, 2008, or the Foreign Exchange Regulations. Under the Foreign Exchange Regulations, the RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange, or the SAFE, is obtained and prior registration with the SAFE is made.

On October 21, 2005, the SAFE issued Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or Circular 75, which became effective as of November 1, 2005. Please refer to Risk Factors for a discussion of Circular 75.

On August 29, 2008, the SAFE promulgated the Notice on Perfecting Practices Concerning Foreign Exchange Settlement Regarding the Capital Contribution by Foreign-invested Enterprises, or Circular 142, regulating the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used. Please refer to Risk Factors for a discussion of Circular 142.


On December 25, 2006, the People's Bank of China issued the Administration Measures on Individual Foreign Exchange Control and its Implementation Rules were issued by SAFE on January 5, 2007, both of which became effective on February 1, 2007. Under these regulations, all foreign exchange matters involved in the employee stock ownership plan, stock option plan and other similar plans, participated by onshore individuals shall be transacted upon approval from SAFE or its authorized branch. On March 28, 2007, SAFE promulgated the Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Option Plan or Stock Option Plan of An Overseas Listed Company, or Circular 78. Under Circular 78, PRC citizens who participate in stock incentive plans or equity compensation plans by an overseas publicly listed company are required, through a PRC agent or PRC subsidiaries of such overseas publicly-listed company, to complete certain foreign exchange registration procedures with respect to the plans upon the examination by, and approval of, SAFE.

Dividend Distribution

Under current PRC laws and regulations, foreign invested enterprises, or FIEs, and domestic companies may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of their registered capital.

These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of the FIE's after-tax profits to reserve funds, bonus and welfare funds for staff and workers, and venture expansion funds as provided in the articles of association of FIE, which may not be distributed to equity owners except in the event of liquidation.

Our Employees

As of December 31, 2010, we had a total of 1,547 full-time employees. The following table sets forth the number of employees by function:

Department   Number of Employees
Senior Management   8
Sales and Marketing   43
Development Strategies Department   23
Engineering Department   41
Quality Control   82
Human Resources & Administration   8
Accounting   18
Manufacturing Staff   1,324
TOTAL   1,547

As required by applicable PRC law, we have entered into employment contracts with most of our officers, managers and employees. We are working towards entering employment contracts with those employees who do not currently have employment contracts with us. We believe that we maintain a satisfactory working relationship with our employees, and we have not experienced any significant disputes or any difficulty in recruiting staff for our operations. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the after-tax profit. In addition, we are required by the PRC law to cover employees in China with various types of social insurance. We believe that we are in material compliance with the relevant PRC laws.

Our employees in China participate in a state pension scheme organized by PRC municipal and provincial governments. We are currently required to contribute to the scheme in accordance with government requirements.

In addition, companies operating in China must comply with a variety of labor laws, including certain social insurance, housing fund and other staff welfare-oriented payment obligations. While there exist uncertainties as to the interpretation, implementation and enforcement of such obligations, we believe that we are in material compliance with the relevant PRC laws.


We do not currently pay housing fund for our employees as required under the PRC law. The local Xiaoshan housing fund authority issued a certification to us on July 6, 2010, which certifies that the housing fund system is not fully implemented in Xiaoshan district, that the local Xiaoshan housing fund authority will extend the housing fund system to us in the near future and that the local Xiaoshan housing fund authority will not require retrospect performance of our past obligations in relation to the housing fund. See "Risk Factors—Risks Related to Doing Business in China—Our failure to fully comply with PRC labor laws exposes us to potential liability."

Insurance

We have purchased the following insurance policies:

  • Property all-risks insurance in respect of our existing fixed assets and properties under construction, and inventories; and
  • Insurance against damage of selected key equipment such as the BHS2800 paperboard production line and EMBA multi-purpose paper carton flexo-printing production lines.

All the policies are effective and the premiums have been paid. These insurance policies are reviewed annually to ensure that the coverage is adequate.

Our management believes that the coverage from these insurance policies is adequate for our present operations. However, significant damage to our operations or any of our properties, whether as a result of fire or other causes, may still have a material adverse impact on our results of operations or financial condition.

According to industry practice, we have not purchased any product liability insurance and business interruption insurance.

We have purchased D&O insurance to cover certain litigation risk exposure for our directors and officers.

Litigation

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. We are currently not a party to any legal proceeding and are not aware of any legal claims that we believe will have a material adverse affect on our business, financial condition or operating results.


SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Amendment No. 1 to its Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereto duly authorized individual.

Date: April 4, 2011  
                                                                                                                                                  CHINA SHENGDA PACKAGING GROUP INC.
   
                                                                                                                                                  By: /s/ Daliang Teng               
         Daliang Teng
         Chief Executive Officer
   
                                                                                                                                                  By: /s/ Thomas Jiayao Wu      
         Thomas Jiayao Wu
         Chief Financial Officer

In accordance with 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/ Daliang Teng             Chief Executive Officer April 4, 2011
Daliang Teng (Principal Executive Officer)  
     
/s/ Thomas Jiayao Wu    Chief Financial Officer April 4, 2011
Thomas Jiayao Wu (Principal Financial and Accounting Officer)  
     
/s/ Nengbin Fang*          Chairman April 4, 2011
Nengbin Fang    
     
/s/ Congyi Fang*             Director April 4, 2011
Congyi Fang    
     
/s/ Zhihai Mao*                Director April 4, 2011
Zhihai Mao    
     
/s/ Michael Zhang*         Director April 4, 2011
Michael Zhang    
     
/s/ Yaoquan Zhang*        Director April 4, 2011
Yaoquan Zhang    

* By Thomas Jiayao Wu, attorney-in-fact


EXHIBIT INDEX

31.1* Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed herewith.